Pub and restaurant customers ‘may pay the price for living wage’

Mitchells & Butlers, which employs more than 44,000 workers across nationwide chains including Toby Carvery and O’Neill’s, said it would look at ways to increase customer spend, including “tactical price opportunities” across some of its pubs and restaurants.

The group cautioned the new minimum wage would “dramatically” ramp up costs across the industry, but said it would also see customers benefit from higher wages.

Its warning came as M&B revealed ongoing sales woes amid fierce competition in the restaurant sector and following a washout end to the summer, which left comparable sales 0.7% lower in the final weeks of its financial year.

The group said sales falls had worsened since its year-end, down 1.6% in the first eight weeks.

M&B saw pre-tax profits edge higher to £126 million in the 12 months to September 26 from £123 million the previous year, but had warned over profits in September after the poor end to its financial year.

New boss Phil Urban, who replaced Alistair Darby two months ago after the profits alert, cautioned the market remains “highly competitive”, but outlined plans to respond to challenges with “energy and urgency”.

Rival JD Wetherspoon has also recently hinted at possible price rises due to the living wage when it warned over profits earlier this month due to increasing wage costs.

Chancellor George Osborne said in July he would raise the country’s hourly minimum wage from April next year to £7.20 for over 25s, from its current level of £6.50, and to at least £9 an hour by 2020.

Birmingham-headquartered M&B said it would look to raise customer spend by encouraging them to “trade up” on its menus, but it will also look to offset the living wage by increasing productivity and efficiency opportunities, such as by using technology.

The group said: “With consumers as focused as ever on value and service, we do not believe it will be possible for companies in our sector to simply ‘control’ their way out of the national living wage.

“Our approach must therefore be rounded and must consider the long-term horizon - we recognise that it is a cost headwind but also that it potentially presents some consumers with higher incomes.”

Mr Urban - who joined the company as chief operating officer in January from Grosvenor Casinos and previously ran Whitbread’s pub restaurants division - will lead a plan to focus on profits over sales.

The group will also push on with new trials, such as recent launches, Sizzling Pizza & Carvery and Sizzling Pub & Grill, in an attempt to fight back against new competition.

New restaurant chains have been launching in droves, with around 1,700 in the year to June and close to 5,000 in the past three years, according to M&B.

It said it had seen more than half of its Harvester and Toby Carvery restaurants impacted by rivals opening nearby.