Midland pubs group Marston’s (MARS) sent out a blunt warning to the industry saying that costs relating to food, energy and brewing materials were set to increase by around £12 million in the coming year.
The Wolverhampton-based firm highlighted the cost pressure as it reported a two per cent rise in turnover for the financial year to October 4.
The company’s managed pubs division saw a like-for-like sales drop of 0.6 per cent, but Marston’s estimated it would need growth of three per cent in the current financial year to achieve a similar level of operating profit in the division.
Shares closed down more than four per cent at 112p. The announcement dragged down Midland rivals Mitchells & Butlers by more than six per cent, while Enterprise Inns slumped by 10.5 per cent and Punch Taverns fell almost four per cent.
Marston’s now plans to offset a “significant proportion” of the increases through better sourcing, in addition to a recent head office reorganisation.
As well as general costs, Marston’s said it faced a higher duty burden.
It said: “Pubs are subject to comprehensive regulation and are supervised by trained staff committed to the responsible retailing of alcohol.
“However, recently introduced legislation and increases in taxation have increased the commercial pressures on pub operators and their tenants and have contributed to an increasing alcohol price differential between pubs and the off-trade.”
The Pitcher & Piano and Two for One owner described current trading conditions as testing and said the amount of support offered to tenants and lessees in its Marston’s Pub Company division increased to around £2 million. Measures available include rent alleviations, discounts and assistance in reducing costs.
Like-for-like profits for the division were 1.7 per cent below last year, which Marston’s said reflected poor summer weather and weaker consumer confidence.
Marston’s is also the UK’s largest brewer of premium cask ales, including Marston’s Pedigree and Jennings Cumberland Ale. It operates four breweries - Banks’s Brewery in Wolverhampton, Marston’s Brewery at Burton on Trent, Jennings Brewery at Cockermouth in the Lake District and Ringwood brewery in Hampshire.
Volumes of own brewed beers increased by five per cent in the last financial year, helped by the recent acquisitions of the Ringwood and Wychwood breweries.
Chief executive Ralph Findlay said: “Although we remain cautious about the immediate trading outlook we believe we are relatively well positioned for the current environment, with a focus on value for money.”
Mark Brumby, an analyst at Blue Oar Securities, described the trading update as reassuring.
He said: “The group’s numbers go a long way to prove that its business model is resilient and that the company is well-placed to trade profitably through the current difficult market.”