Half year results from premium managed pub operator Young and Co show a continuation of recent strong trends. The most important of which is the LFL trading number of +5.5% for H1. This is slightly tempered from the recent periods seeing over 6% LFL but is the 4th year in a row of over 5%. Compare this to other managed pub operators like M&B or Greene King which are struggling to do over 2%, at a time when the Asda Income Tracker shows that household disposable incomes are up over10% year on year in September and reaching the highest level since 2008. So Youngs is well positioned both geographically being in London and the South East and also with its strong premium formats with their commitment to great food, beer and innovation. The 22 pub / hotels have also traded well with REVPAR (revenue per available room) up over 5% in the half.

The reason that a strong positive LFL number is so important in my view is that the National Living Wage is being introduced in April 2016. Many will point out that Youngs pays above the minimum / living wage, but I am concerned that all wages at the lower, non managerial end, are priced off the minimum / living wage. Employees will expect some differential to be maintained as the living wage rises, forcing up all wages at the lower end, not just those who are Paid least. Look at JD wetherspoons profit warning last week, they are putting up wages prior to the contractual start date of the Living Wage and LFLs in their managed pubs business of around 2% just won't cover the cost increases from higher wages. Hence 2016 profit expectations have been lowered.

Many companies will be hit by this increase in wages I would imagine. Some will be able to increase productivity or innovate to compensate, whilst others will just cut ancillary benefits like paid staff breaks. Companies unable to pass on the extra costs, like the supermarkets at the moment due to an on going price "investment" ("war" in my mind,) to improve their price differential versus the discounters like Aldi and Lidl, will see profits rebased lower. Obviously some companies will see increased consumer spending compensate for the increased wage bill, but I would hazard that we will see a number of high profile…

Unlock the rest of this article with a 14 day trial

Already have an account?
Login here