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Scottish Hospitality: Operator Costs Are Rising But So Too Are The Rewards

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Scottish Hospitality: Operator Costs Are Rising But So Too Are The Rewards

Scottish Hospitality: Operator Costs Are Rising But So Too Are The Rewards
November 07
11:24 2018

Undertaking hundreds of valuations each year for hotels and leisure transactions – including bank lending – across Scotland, the surveying team at Graham & Sibbald has witnessed the increasing costs that licensed businesses have had to deal with in recent years. Among other market pressures, staffing costs are continuing to have an effect on the profitability of businesses. With minimum wages and pensions now beginning to impact in the annual cost of wages, very few operators are able to maintain and sustain wages at historically sensible percentages of turnover.  In short, there is a pronounced lack of appetite for restaurants, where wages are generally higher, chefs are difficult to source and retain and drops in consumer spending are starting to bite.

Pete Seymour reflects on the state of the Scottish hospitality and leisure property markets over the last 12 months, and peers into the future to see what’s round the corner in 2019…

In terms of other pressures, it is still reasonable to expect a hotel to achieve a gross profit of more than 70-80%, with restaurants achieving in excess of 65-70%. Public houses (if free of tie) can expect GPs of around 60-65%, but they are becoming rarer. Inflation is starting to bite and the cost of sales is increasing. Room rates and average spends are not keeping in line with this inflation and therefore businesses are being squeezed. If an operator is not efficient in their annual expenses, their profits will evaporate very quickly, which could in turn create a downward spiral as a lack of cash becomes available for the inward investment required to improve sales.

Out of the frying pan: Bars and restaurants remain under constant pressure from increasing costs for staff and raw materials but for those who get the formula right, the rewards can be well worth it

However, in spite of this, the market remains active. We are still seeing investors looking at leisure opportunities with their typically high yields as a good investment opportunity. In addition, other recently commenced campaigns are beginning to bear fruit, despite the impending Brexit deadline. Therefore, there is an element of the market that recognises the fact that these opportunities are worth grabbing now, regardless of any hurdles that may be presented after March 2019.

With that in mind we will be keeping a close eye on costs which are putting margins at risk for the future, but do not see a real impact in terms of purchasers looking to acquire opportunities in Scotland at the moment. And while we are still seeing individual and owner-operated-units that continue to be profitable, there is no doubt that there will be more failures in the restaurant sector over the next 12 months.

Pete Seymour is Head of Licensed Trade and Leisure Agency at Graham & Sibbald. Their team of specialist chartered surveyors are on hand to assist with the sale, purchase or lease of any commercial property or business. Keep an eye out here at CateringScotland.com and @CateringScot for new listings.

www.g-s.co.uk

 

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Catering Scotland

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