Pub group Young’s will take a ‘cautious’ approach to future potential price hikes as a sharp rise in food costs exacerbates severe cost pressures facing UK hospitality.
Hospitality firms have urged Rachel Reeves to avoid another round of painful tax increases in her Budget later this month after last year’s hikes to employer national insurance contributions and the minimum wage pushed many venues to the brink.
And Young’s said on Thursday it had seen food price inflation rocket 7.5 per cent over the six months to 29 September, weighing further on profitability after a Budget-induced £11million increase in labour costs over the first half.
Boss Simon Dodd told This is Money that higher food costs, largely driven by meat and dairy, would not result in substantially pricier bills for punters with the group ‘looking at menu engineering in terms of mitigating that cost’.
‘We haven’t passed any dramatic cost to the business onto customers,’ he added. ‘We are being cautious on price,’ he said.
Industry peers such as outspoken Wetherspoon’s chairman Tim Martin and, earlier this week, Fuller’s boss Simon Emeny have been vocal in their criticism of Government policy since last year’s Budget.
Young’s boss Simon Dodd tells Labour: We need certainty and we need a growth plan.
Youngs told investors the impact of the Government’s upcoming Budget on consumer sentiment and other fiscal matters ‘remains unclear’.
Dodd said: ‘The one thing I would say to the Government is that we need certainty and we need a growth plan.
‘If I had any ask, it would be meaningful business rate reform, which helps the whole of hospitality, and a serious look at VAT reduction.
‘And stick to that duty freeze, because that can help the sector dramatically.
‘I’m not here to bash the government. All I’m here to ask for is certainty. If we have certainty, we can plan and we can stimulate growth in the sector. And we know hospitality can help grow the UK economy.’
It came as the group reported like-for-like sales growth of 5.7 per cent for the first half, with drinks, food and hotel room sales up 6.5, 3.8 and 4 per cent, respectively.
Total revenues hit £263.6million for the half, with profits soaring 20.9 per cent to £30.6million.
The group benefited from sunny and warm weather over the summer months, which helped to offset a tough comparison with Euro 2024 the previous year.
Key dates and major sporting events are an important part of Young’s trade, with the pub group benefiting from its busiest ever Wimbledon fortnight this year.
Dodd said Young’s is currently seeing double-digit growth on days featuring Autumn Internationals rugby union fixtures, while Christmas Day bookings are up 25 per cent year-on-year.
He added: ”Key dates are becoming ever more important to the sector, and I think the consumer still wants to come out.
‘They still want to celebrate in a great British pub. Our job is to give them a reason to come into the pub.’
Young’s has also offset cost pressures via the integration of City Pub Group, which it bought last year in a £162million deal to adding 51 wet-led pubs to its portfolio.
Despite higher costs, the group will invest £40million in its pub estate by the end of this year while managing to bring down slim down debts.
Dodd said: ‘If you invest in the pub, customers will come out and they will come to the pub. Our job is to continue to do that.’
Young’s on Thursday also revealed a 6 per cent interim dividend hike to 12.22p per share, and a £10million share buyback programme.
Young’s shares were up 0.9 per cent at 793p in early trading, having lost 14 per cent over the last 12 months.
Analysts at Stifel wrote in a note on Thursday: ‘The shares have been very weak over recent months on concerns on the UK consumer, and on the sector.
‘But these results again show Young’s overcoming cost headwinds to produce growing profits and strong cashflows from its high quality estate.
‘The shares look significantly undervalued to us. The combination of strong LFLs, robust margins, lower debt and a buyback should now start to reverse this weakness in our view.’
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