“The on-trade’s in permanent change”

“Generation X is on the way back as on-trade customers thanks to operations such as Weatherspoons” – David L’Estrange at this year’s VFI Conference in Athlone. “Generation X is on the way back as on-trade customers thanks to operations such as Weatherspoons” – David L’Estrange at this year’s VFI Conference in Athlone.

A licensed trade accountant, with over 40 years’ experience, who remains “astounded” by the dramatic change in pub customers and what they expect from the vintner today, gave a presentation to this year’s VFI Conference. Drinks Industry Ireland magazine reports.

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25 May 2017 | 0

David, a licensed trade accountant with over 40 years’ experience, who remains “astounded” by the dramatic change in pub customers and what they expect from the vintner today, gave a presentation to this year’s VFI Conference.

He pointed out that where the on-trade had dominated total alcohol sales with a 70% share 15 years ago, it now held just 40% and this was likely to fall to 30% in the future.

“We’ve seen more changes in the licensed trade in the last few years than we’ve seen in the previous 50 and we’re either going to embrace these changes or get left behind,” he warned.

However he also pointed to a number of positive factors affecting the licensed trade going forward.

 

Pub visits

A recent Sunday Independent/Kantar Opinion poll which compared consumer intentions in the licensed trade in 2012 with those of 2017 found that those intending going to the pub more often had increased from 1% to 7% while those who intended reducing their pub visits had fallen from 55% to 24%.

Those who’d not be changing their present pub-going habits had risen from 39% to 63% and ‘don’t knows’ had risen from 5% to 6%, he said.

Food, for example, attracts new customers to a pub which thereby increases wet sales.

 

Funding & tourism

“The cost of funds or loans has dropped from 15% to 4% and tourism is up,” he pointed out, “In 2016 we enjoyed 9.4 million tourists countrywide, the highest ever in the history of the state. In 2010 this figure was 5.9 million.

“Dublin enjoyed some 4 million tourists with the countryside receiving 5.4 million of them thanks to projects such as the Wild Atlantic Way.”

 

Range of offerings

David also pointed to the vast improvement in product range offered by the pub with a choice of beers from mainstream brewers and the advent of craft brewing giving publicans the option of supporting a local brewery.

Where craft beer currently holds 3.6% of the total beer market here, in the US this figure is nearer to 12%, he said. With some 68 breweries now producing beer here, the beer market is permanently evolving.

“There’s also been an explosion in wine sales as well as premium spirit sales with premium mixers,” he added.

“There’s a better presentation of products being served but consistency is important – that’s having chilled beers in both bottled and draught format, for example.”

Pubs are now more food-friendly and the growth of the coffee bar represents an opportunity for publicans to use this as a bolt-on product.

“Late bars are now an option for licensees to maximise trade at peak periods on either a Friday and/or a Saturday night – but at a cost (€410 plus €30).”

There’s also been a vast improvement in décor over the past 25 years.

 

Gross profit prospects up

Alongside the foregoing, bar wages have fallen from €24 per hour in Dublin to €12 to €14 per hour over the last 10 years and all this has produced a trade with no waste and almost no obsolescence and no bad debts,  “… and even an accountant has bad debts!” he said.

Alongside this vast opportunity for food sales, free advertising via social media had become an effective form of communication with customers and potential customers.

Gross profit margins have been rising since the recession, possibly due in part to the absence of the now-banned ‘special offers’ in the on-trade, he added.

“Generation X is on the way back as on-trade customers thanks to operations such as Wetherspoons.

“And cheaper rents/lower repayments on lower capital values for properties will also lead to higher profit levels. However legacy debt remains an issue,” he warned.

Capital values are rising now thanks to the availability of finance, investor funding and an increase in footfall and profits.

Lower bank deposit rates of 0.25% have encouraged investors to get on board with the licensed trade where they can get returns of 5% to 6%.

Corporation tax which had been 50% 20 years ago now stands at 12.5% which means that achieving a profit of €114,000 is necessary now to discharge a €100,000 loan as against €200,000 profits formerly.

The news on taxes is mostly good, he pointed out, with VAT at 23% down a couple of points, VAT on food now running at 9%, down from 25% and a ‘light touch’ approach to excise duty over the past 20 years.

There’s also been a reduction in the number of licensed premises, particularly in rural areas, which only increases the opportunity for surviving outlets.

And while regulation is seen as being negative and costly, it can also be regarded as a positive due to the higher quality product, premises and staff it produces.

 

Irish Pub brand

“The Irish pub is a worldwide brand as is Guinness, Coca-Cola, Mercedes etc and we’re lucky enough to be the owners of the brand in its different guises,” he told delegates.

Local branding via festivals such as the Galway Races, oyster festivals, art festivals, music bars, Round the World Yacht Race etc are needed to market one’s local area. But this should be a joint effort together with our neighbours/competitors for the common good, he emphasised.

Sport too had had a positive effect on the licensed trade with success in Munster rugby, Leinster rugby – Irish rugby in general and Irish soccer. The number of GAA matches has also increased due to back door introductions, he said.

“If there’s one certainty about a recession it’s that it will end and this one has ended,” he declared in conclusion, “There are a lot of positives in the trade but we will have to work a little bit harder. ‘Anything that’s worth having’ – as my Dad said – ‘never came easy’.”

 

 

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