Young's Boss Urges Reeves for Clarity and Growth Plan
Cautious Approach to Price Hikes Amid Rising Food Costs
The UK hospitality sector is facing significant cost pressures, with food prices rising sharply and prompting a cautious approach from pub group Young's regarding potential future price hikes. The group has reported a 7.5% increase in food price inflation over the six months ending 29 September, which has further impacted its profitability. This comes after a £11 million rise in labor costs due to last year’s Budget changes, including increases in employer national insurance contributions and the minimum wage.
Simon Dodd, the boss of Young's, emphasized that while food costs are rising, particularly for meat and dairy products, the group is not planning to pass on dramatic increases to customers. He told This is Money that the company is focusing on menu engineering to mitigate these costs. "We haven't passed any dramatic cost to the business onto customers," he said, adding, "We are being cautious on price."
Industry peers such as Wetherspoon's chairman Tim Martin and Fuller's boss Simon Emeny have also criticized government policies since last year’s Budget. Young's has informed investors that the impact of the upcoming Budget on consumer sentiment and other fiscal matters remains unclear.
Dodd expressed a clear message to the government: "We need certainty and we need a growth plan." He suggested meaningful business rate reform and a serious look at VAT reduction as key areas for improvement. "Stick to that duty freeze, because that can help the sector dramatically," he added. "I'm not here to bash the government. All I'm here to ask for is certainty. If we have certainty, we can plan and we can stimulate growth in the sector. And we know hospitality can help grow the UK economy."
Strong Financial Performance Despite Challenges
Despite the challenges, Young's reported strong financial results for the first half of the year. Like-for-like sales grew by 5.7%, with drinks, food, and hotel room sales increasing by 6.5%, 3.8%, and 4%, respectively. Total revenues reached £263.6 million, with profits surging 20.9% to £30.6 million.
The group benefited from favorable weather conditions during the summer, which helped offset a tough comparison with Euro 2024 the previous year. Key dates and major sporting events play a crucial role in Young's trade, with the group experiencing its busiest Wimbledon fortnight this year. Dodd noted double-digit growth on days featuring Autumn Internationals rugby union fixtures, and Christmas Day bookings are up 25% year-on-year.
"Key dates are becoming ever more important to the sector, and I think the consumer still wants to come out. They still want to celebrate in a great British pub. Our job is to give them a reason to come into the pub," he said.
Strategic Investments and Debt Management
Young's has also managed to offset cost pressures through the integration of City Pub Group, which it acquired last year in a £162 million deal, adding 51 wet-led pubs to its portfolio. Despite higher costs, the group plans to invest £40 million in its pub estate by the end of the year while working to reduce debt.
Dodd stated, "If you invest in the pub, customers will come out and they will come to the pub. Our job is to continue to do that."
In addition to its investment plans, Young's announced a 6% interim dividend hike to 12.22p per share and a £10 million share buyback programme. The group's shares were up 0.9% at 793p in early trading, having lost 14% over the last 12 months.
Analysts at Stifel highlighted that despite recent concerns about the UK consumer and the sector, Young's has demonstrated resilience by overcoming cost headwinds to produce growing profits and strong cashflows from its high-quality estate. They believe the shares are significantly undervalued, citing the combination of strong like-for-like sales, robust margins, lower debt, and a buyback as factors that should start to reverse the current weakness.
