The parent company of popular pub chains including All Bar One, Toby Carvery, and Harvester has issued a stark warning over a £130 million increase in costs for the coming year, driven by soaring wage bills and rising food prices.
Profit Growth Amidst Mounting Pressures
Despite the challenging outlook, Mitchells & Butlers demonstrated resilience in its recent financial report. The group announced that pre-tax profits rose by a fifth to £238 million for the year ending September 27. This impressive result was achieved even while absorbing an extra £100 million in costs related to wage expenses that came into effect from April.
The firm also reported a 4.3% increase in like-for-like sales over the year, although growth moderated to 3.2% in the final quarter. This slowdown was attributed to weaker trading in and around London and within its more premium brands. In a positive start to the new financial year, sales growth has held steady at 3.8% for the first eight weeks.
The Dual Challenge: Wages and Food Inflation
The substantial £130 million cost forecast is a central concern for the business. A significant portion stems from government-mandated increases, specifically the rise in National Insurance contributions and the minimum wage that took effect in April. The pressure is set to continue, with a further above-inflation rise in the minimum wage scheduled for the coming year, confirmed by the government to be a 4.1% jump from next April.
Alongside labour costs, the hospitality group is grappling with food price inflation. The company highlighted that meat costs, in particular, have seen a sharp increase, putting additional strain on its margins.
Budget Changes and Strategic Response
Mitchells & Butlers indicated that its £130 million cost assessment includes the preliminary impact of the Chancellor's recent autumn Budget. A key change affecting the sector is the end of the 40% discount on business rates for retail, hospitality, and leisure firms in March. This support, which was capped at £110,000 per business, will be replaced by a new system. While the new rates multiplier will be 5p lower than the standard rate, expert analysis suggests most pubs will still face a sharp annual increase in their property tax bills.
In response to these persistent cost headwinds, Chief Executive Phil Urban expressed confidence in the company's strategy. "As we look to the year ahead, we anticipate increased cost pressures across the sector," he stated. "However, we remain confident in our ability to manage these challenges through our established Ignite improvement programme and disciplined capital investment strategy."
The company is already implementing measures to mitigate rising costs. These include a labour scheduling system to optimise staffing, auto-ordering technology to control stock levels and reduce waste, and various energy-saving initiatives to curb utility expenses.
