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The Market

Market supply

In recent years the eating-out market saw a significant increase in the supply of restaurants: in the year to June 2015 there had been more than 1,700 net restaurant openings – the equivalent of our own business in terms of outlet numbers. This had provided us with many new local competitors, as several of these openings were close to our own high-quality trading locations.

However, since the summer of 2015 the rate of openings has slowed considerably, to a point where it is now in decline on an MAT basis. The reason for this change is not known with certainty, but is likely to be related to the cost headwinds the sector faces, notably the introduction of the National Living Wage in July 2015.

The changing market therefore perhaps reflects the challenges we face as an industry. However, much of this new supply continues to trade and as such we are still competing against more businesses than in prior years. It therefore remains imperative that we focus on our priorities to maintain our competitive position through our range of brands and formats, our high quality locations, and the delivery of our offers to guests.

EU referendum

Much has been written about the anticipated impact of Brexit on the UK economy. We believe it is too early to predict with any certainty what the impact might be, particularly in advance of establishment of the terms of exit. However there are broadly three areas in which Brexit may impact us in the medium to long term: changes in consumer confidence and behaviour; changes to employment and immigration laws; and changes to input costs.

The first two of the three are largely unknown at present. It is too soon to have seen any clear impact of the referendum outcome on consumer behaviour through our trading performance. We have seen strong trading through the summer, which included a period of very good weather, although - market data appears to indicate a softening in early autumn. Therefore, whilst we cannot predict future changes to consumer behaviour, we must aim to execute our own strategy, so that we are best placed to continue to meet consumers' needs. Our approach and the progress we are making here is described in further detail below.

Regarding employment and immigration legislation, more than 10% of our retail employees are from the EU outside of the UK, and therefore may be impacted by future changes. Our approach is to stay close to developments whilst continuing to support all our 43,000 employees. In this regard it remains very much business as usual for our teams.

Finally, following the referendum the value of sterling has fallen significantly. We have a small number of businesses trading in Germany, but otherwise our international trade is defined by our supply chain. The net effect of a weaker sterling is therefore profit dilutive due to the food and drink which is purchased in foreign currency. This compounds cost headwinds from energy, business rates, rental costs in our leasehold businesses, and particularly further increases in labour costs.

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Contact Us

A photograph of Tim Jones
Tim Jones Finance DirectorSarah MilfordPA to Finance Director +44 (0) 121 498 6552
A photograph of Denise Burton
Denise Burton Deputy Company Secretary +44 (0) 121 498 6514
Amy De Marsac Head of Investor Relations +44 (0) 121 498 6514