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The Market

The eating out industry continues to face challenges, including rising costs and supply which has, over recent years, outstripped demand. The result of these factors has been a number of CVAs and business closures amongst our competitors, and, in the twelve months to June, the number of restaurants in operation fell by 3.4%. This reduction in sites was evenly spread across the UK.

However, the industry as a whole remains in revenue growth; forecast to be 1.3% in the year to September 2019. This suggests that, despite reported fragile consumer confidence, people ultimately still want to go out and treat themselves to social occasions.

There are a number of key trends impacting the industry. Consumers are increasingly seeking higher quality food when eating out, with a focus on superior ingredients and sourcing. These factors have resulted in the continuing trend of increased spend per visit and a number of brands have premiumised their food offers and amenity in response to this changing consumer behaviour. Premiumisation is also supported by consumers' increasing desire for healthy options, with 43% of the population stating a desire to eat and drink more healthily than they were five years ago. To consumers of this mindset; high quality ingredients, healthy cooking methods and nutritionally beneficial meals command a higher price point and, therefore, there has been a growing proportion of offers targeting this trend.

Busy lifestyles have led to consumer demand across all day parts as people increasingly fit in social occasions during different parts of the day, with breakfast growth outstripping any other day part. As a result, a number of brands have evolved with the intention of creating an offer which is competitive across the whole day. The impact of this is increased capacity from existing restaurants without an increase in the number of sites, compounding the long-term increase in supply in the market. Brands must consider their position in the market for each timeslot they are open to trade and must remain competitive across their trading hours in order to maximise the profitability of their offer.

Delivery and take-away remain areas of growth in the industry facilitated by delivery aggregators which allow consumers the convenience of a range of cuisines delivered to their homes. The delivery sector has seen rapid growth over recent years, a trend which looks set to continue. Until now, delivery has largely been an addition to the traditional restaurant model. However, as the opportunity in this market grows there has been increasing introduction of delivery-only brands and the use of "dark kitchens". Strategic participation in this area of the market is likely to be a key differentiator in performance over the coming years.

The UK political and economic environment remains uncertain. The impact of Brexit remains unclear, and, aside from macro-economic consequences, the specific areas of material impact for our business are likely to be increases in costs and the reduction of availability of goods, and implications of restrictions on the free movement of labour. On the UK's exit from the EU, the cost of goods might be impacted by changes in terms of trade and therefore tariffs, additional border controls and fluctuations in the value of sterling. From an employment perspective, at a time when unemployment levels are at a 40-year low, any restriction on the free movement of labour would be expected to have a material impact on both the cost of labour and access to talent. Currently, across our business, 13% of staff are non-British EU nationals, with the proportion fluctuating by geographic region. We remain close to these issues and have contingency plans in place whilst we await further details.

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Tim Jones Chief Financial Officer Carlie Wakefield PA to Chief Financial Officer +44 (0) 121 498 6112
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Denise Burton Deputy Company Secretary +44 (0) 121 498 6514
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Amy De Marsac Head of Investor Relations +44 (0) 121 498 6514