It's survival of the fittest

Mark Stretton Editor, M&C Report

"This looks like the toughest year since the early 1980s," was how one senior industry executive recently put it.

A non-executive sitting on several boards within the eating and drinking-out market, he spoke of the "perfect storm" the industry was now witnessing. The ingredients, which include the credit crunch, the smoking bans, a very cautious consumer, and myriad rising costs, were all having an impact on sales and profits.

The prominent executive reckoned that because of the operating margin squeezes, chiefly from rising raw materials, food and fuel, most companies needed to grow like-for-like sales by 3-4% in order just to standstill against last year's profits.

As we all know from the spate of public companies from the sector that have just updated the stock market, this is clearly not happening. Any company within touching distance of producing flat like-for-likes is looking mightily respectable. Anything featuring the g-word (growth) is, frankly, heroic. And in reality the heroes were few and far between. With the best will in the world, it is very tough out there - definitely tin-hats-on time. Bob Ivell of Regent Inns has described it as the worst trading for 30 years.

So is it time to turn off the lights and go home? Well, don't reach for the razor just yet. There are some bright spots, especially in casual dining, which is looking increasingly robust. Unlike drink volumes, food is holding up "" and for every wet-led pub man with a long face, there is a casual dining operator with his fingers crossed. This trend suggests that in the psyche of the UK consumer, eating out is far less discretionary these days, than drinking out.

"Trade is definitely holding up," says Graham Turner, CEO of Tragus Holdings and former head of Unique Pub Company. "We are just trying to execute really well and make sure our restaurants are spotless. "There is a danger that we talk ourselves into something much worse than the reality of the current situation."

While casual dining groups are not immune from this tougher trading period - witness Clapham House's recent profits warning - eating out is just something that we "do" now, and the consumer does not appear ready to ditch the convenience of it, in favour of spending more time in the kitchen. Current sector trading is reiterating two long-term themes - falling booze volumes and rising food sales.

The tougher market is throwing up opportunities, most notably the chance to acquire assets at more realistic prices. After last year's dizzy multiples, vendors appear more realistic in their value expectations. Many executives are talking about a greater availability of sites and we at M&C Report are already seeing a few sales documents flying around.

Life's tougher and it seems certain that the gap between the good and the also-rans, will become clearer. This process has already started.