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Go for the premium end of the pubs industry for hearty returns
Premium-end pub companies say they are managing to grow sales in a difficult market as a result of ongoing investment in their estate and benefits such as being able to respond quickly to changes in food costs.
Young’s (YNGA:AIM) and Fuller, Smith & Turner (FSTA) have both reported strong results over the past few weeks, citing the aforementioned reasons for their success.
High-quality interiors, good customer service and the appeal of freshly-made food are also cited as key contributors to rising profit.
Young’s adjusted pre-tax profit grew by 11.2% to £24.9m in the six months to 2 October. Fuller’s adjusted pre-tax profit grew by 4% to £23.8m in the six months to 30 September. The latter attributes its success to investment in the business resulting in higher volume of sales and the ability to push up prices without damaging demand.
Food menus for both Young’s and Fuller’s are printed by each of their pubs rather than a standard menu for all their estate. ‘If something has suddenly gone up in price like venison, we can say to pub managers “when you run out of venison, take it off the menu and replace it with something else”,’ says Young’s chief executive Patrick Dardis. ‘That gives us the flexibility to adapt to price changes.’
Fuller’s has extended trading areas and invested in staff training which has helped to boost sales, says its chief executive Simon Emeny. The company is also in the middle of a multi-million pound IT-upgrade for its brewery; and investment in accommodation will see 100 bedrooms added to its existing portfolio of 724 bedrooms over the next two years.
Investors should note the recent addition of another premium pub group to the stock market. City Pub (CPC:AIM) joined AIM on 23 November and operates 34 premium pubs across southern England.
The £102m company features the same team who built up former AIM-quoted Capital Pub Company and sold it to Greene King (GNK) for £93m in 2011.
City Pub intends to double the size of its estate over the next three to four years. It likes to buy pubs which are already trading well. It benefits by switching supply contracts to the group’s centralised platform which it says helps to quickly improve operating margins.
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