How Profitable is The Irish Pub?How Profitable is The Irish Pub?
Ballance Hospitality Solutions 2009
22
Contents
Introduction 3
Research Objectives 4
Defining Casual-Dining Restaurants and Irish Pubs 5
Terminology 6
Data Collection & Respondents 7
Executive Summary 8
Highlights 9
Food & Beverage Ratios 10
Food & Beverage Cost of Sales 14
Salaries & Wages Cost 19
Summary of Prime Costs and F&B Ratios 23
Average Check Spends 24
Beverage Consumption 27
Frequency of Visit by Consumers 29
Occasion of Visit by Consumers 31
33
Introduction
As the restaurant industry in the United States struggles with a severe economic downturn, rising
costs, aggressive competition and dollar-conscious consumers , operators at every level including
individual operators, franchisees and corporate operators are seeking to identify not just ways of
reducing cost but also looking to identify opportunities for growth.
The Irish Pub, in its contemporary premium design and operational format, has seen significant
growth over the past ten years paired with phenomenal individual success. In an industry where it is
common to see high failure rates, particularly within independently-owned restaurants, the Irish Pub
possibly has a negligible to zero record of failure.
We see the Irish Pub as an ideal vehicle for restaurant growth and for sustainable, robust profitability.
4
Research ObjectiveResearch Objective
Using fact-based qualitative and quantitative data, the objective is clarify
and support a hypothesis that the Irish Pub Concept is a highly-
profitable operation which matches or exceeds the profitability of its
competitive set in the Casual Dining Restaurant (CDR) category.
The hypothesis is based on anecdotal evidence that beverage to food
ratios are generally higher in Irish Pubs than in Casual Dining
Restaurants. A higher ratio of beverage sales is significant in positively
influencing Cost of Sales and Labor Cost.
5
Defining Casual-Dining Restaurants and Irish PubsDefining Casual-Dining Restaurants and Irish Pubs
Casual Dining Restaurants (CDR)
The casual-dining restaurant category (CDR) has been defined for the purpose of this research as a style of operation represented by full-service restaurants such as Chili’s, TGI Friday’s, Cheesecake Factory, Red Lobster, Maggiano’s and Outback amongst many other regional and national brands in that category. Within the terms of the National Restaurant Association/Deloitte Restaurant Industry Analysis, the category is defined as a Full-Service Restaurant with an average spend per person of between $15.00 and $24.99*.
Irish Pub
The Irish Pub has been defined for the purpose of this research as a style of operation authentically replicating the premium Victorian-era pubs seen Ireland and throughout the UK and Europe. This category of pub also meets the criteria of The Irish Pub Concept, the Diageo-inspired benchmark for authentic, premium Irish Pubs*.
*National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008
*www.irishpubconcept.com
6
TerminologyTerminology
Food SalesThis category includes revenue derived from the sale of food in therestaurant. Food sales also include the sale of coffee, tea, milk, soft drinks andfruit juices, which usually are served as part of a meal.
Beverage SalesThis category includes revenue from the sale of wine, spirits, liqueurs,beer, and ale. These sales do not include coffee, tea, milk, or fruitjuices, which normally are served with meals and, therefore, areconsidered food.
Labor CostThis cost category includes all salaries and wages, including benefits, paid to all categories of employees.
Prime Cost:The combined cost of the above three categories
7
Data-Collection & RespondentsData-Collection & Respondents
The research was carried out by telephone interviews, face-to-face discussions and online surveys with owners and managers of Irish Pubs throughout the United States during 2009.
The respondents to the survey were based out of Irish Pub operations in the following states: Florida, Pennsylvania, New York, California, Arizona, Michigan, Kansas, Colorado, Texas, Ohio, Georgia and Indiana. The respondents were predominantly American-born (68%) and the remaining 32% were expatriate Irish or British individuals with American citizenship.
8
Executive Summary
The findings of the survey and analysis strongly support the hypothesis that a majority of Irish Pubs
deliver exceptional profitability when compared to Casual Dining Restaurants.
This positive comparison derives from three major influences on profitability in the restaurant industry,
Cost of Sales, Labor Cost, and Beverage to Food Revenues.
The findings also point to significant differences in consumer spending behaviour in the area of Average
Check Spend and also to positive differences in consumer traffic patterns.
9
Highlights
In Comparing Irish Pubs to Casual Dining Restaurants
•82.6% of Irish Pubs have a significantly higher ratio of beverage to food
•Cost of Sales is lower in Irish Pubs by between 0.8% and 5.1%
•Labor Cost is lower in Irish Pubs by a minimum of 4.0%
•47.4% of Irish Pubs have an Average Check Spend of more than $21 while 42.1% of Irish Pubs have an average beverage check spend of more than $11. Both of these numbers out-perform industry averages
•If comparing the financial performance of an Irish Pub and a Casual Dining Restaurant, both posting annual revenues of $2M, the implications of the findings would strongly indicate that an Irish Pub would deliver an incremental before tax profit of between $100K and $200K.
10
Food & Beverage Ratios
?Question:
Do beverage to food ratios significantly differ between Irish Pubs and Casual
Dining restaurants and, if so, how does that difference potentially impact
margin or profits?
11
SalesFood 65.7% 76.1% 84.9%Beverage 34.3% 23.9% 15.1%
Total Sales 100.0% 100.0% 100.0%
Lower Quartile Median Upper Quartile
All RestaurantsRatio to Total Sales
Statistics for Food & Beverage Ratios – 2008*(Full Service Restaurants – Average Check Per Person $15.00 to $24.99)
*National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008
12
Beverage to Food Ratios in Irish PubsBeverage to Food Ratios in Irish Pubs
“Getting the mix of food and drink right is critical. I
don’t know how restaurants with high food sales and low alcohol sales
survive.”
Irish Pub Operator - Kansas
Industry Fact
In the year to June
25th 2008, Brinker
International
averaged an 81.5%
to 18.5% ratio of
food to beverage
across their
concepts.
56.5% of Irish Pubs have a ratio of 50%,50% beverage to food.82.6% of Irish Pubs have a ratio of 40%/60%, beverage to food, or better.
The best ratio achieved by CDR is 35%/65%.Most CDR only achieve 20%/80%
4.3%
13.0%
56.5%
26.1%
0.0%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Food 30%/70% Beverage
Food 40%/60% Beverage
Food 50%/50% Beverage
Food 60%/40% Beverage
Food 70%/30% Beverage
13
Beverage to Food Ratio SummaryBeverage to Food Ratio Summary
25%
50%
25%
4.30%
13%
56.50%
26.10%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Food 30%/70% Beverage
Food 35%/65% Beverage
Food 40%/60% Beverage
Food 50%/50% Beverage
Food 60%/40% Beverage
Food 65%/35% Beverage
Food 70%/30% Beverage
Food 75%/25% Beverage
Food 80%/20% Beverage
CDR
Irish Pub
Irish Pubs have a significantly higher beverage to food ratio than CDR while retaining strong food sales
“Keeping my alcohol sales comparable to my food
sales will always give me a profitability edge.”
Irish Pub Operator -Florida
1414
Food & Beverage Cost of Sales
?Question:
Is there a significant difference between Cost of Sales in Irish Pubs and Cost of
Sales in Casual-Dining Restaurants, if so, how does that difference potentially
impact margin or profits?
15
Cost of SalesFood 30.6% 34.5% 40.5%Beverage 24.7% 29.3% 34.3%
Total Cost of Sales 30.0% 33.1% 38.6%
Lower Quartile Median Upper Quartile
All RestaurantsRatio to Category Sales
Statistics for Food & Beverage Cost of Sales – 2008*(Full Service Restaurants – Average Check Per Person $15.00 to $24.99)
*National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008
16
Cost of Sales in Irish PubsCost of Sales in Irish Pubs
Food & Beverage costs in Irish Pubs are better than industry averages
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
20%-24% 25%-27% 28%-30%
Food Cost of Sales %
% o
f O
pera
tors
Pubs are achieving combined food and
beverage cost of sales of between
27.5% and 28.5%
Industry Fact
The average Cost of
Sales across the US
full-service restaurant
industry in this
category during 2008
was between 30.0%
and 33.1%
“I have a lower cost of sales on beverage and I
don’t need a kitchen-full of expensive staff to serve it!”
Irish Pub Operator - Pennsylvania
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
20%-22% 23%-25% 26%-28%
Beverage Cost of Sales %
% o
f O
pera
tors
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
20%-24% 25%-27% 28%-30%
Food Cost of Sales %
% o
f O
pera
tors
17
Cost of Sales ComparisonCost of Sales Comparison
Average Weekly Revenues $50,000
Food Ratio 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80%
Alcoholic Beverage Ratio 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20%
Food Revenues $12,500 $15,000 $17,500 $20,000 $22,500 $25,000 $27,500 $30,000 $32,500 $35,000 $37,500 $40,000
Beverage Revenues $37,500 $35,000 $32,500 $30,000 $27,500 $25,000 $22,500 $20,000 $17,500 $15,000 $12,500 $10,000
Food COS @ 32% $4,000 $4,800 $5,600 $6,400 $7,200 $8,000 $8,800 $9,600 $10,400 $11,200 $12,000 $12,800
Alcoholic Beverage COS @ 24% $9,000 $8,400 $7,800 $7,200 $6,600 $6,000 $5,400 $4,800 $4,200 $3,600 $3,000 $2,400
Total $13,000 $13,200 $13,400 $13,600 $13,800 $14,000 $14,200 $14,400 $14,600 $14,800 $15,000 $15,200
Total Food & Beverage Cost of Sales 26.0% 26.4% 26.8% 27.2% 27.6% 28.0% 28.4% 28.8% 29.2% 29.6% 30.0% 30.4%
Aided by excellent beverage ratios, Irish Pubs outperform CDR on Cost of Sales
Industry Fact
Food & Beverage Cost of
Sales as reported by
national chains during
2008/2009:
Darden
30.4%
Brinker
28.6%
OIS Partners34.7%
Irish Pubs CDR
18
Summary of Cost of Sales ComparisonSummary of Cost of Sales Comparison
Irish Pubs deliver between 0.8% and 5.1% lower cost of sales than CDR
“….in this economy, we can afford to go easy on our meal prices because
they are partially subsidized by high
beverage volume and low beverage cost.”
Irish Pub Operator - Texas
Food Cost of Sales
30.6%34.5%
27.0%
35.0%
0.0%5.0%
10.0%15.0%20.0%25.0%30.0%35.0%40.0%
Best Performance Worst Performance
CDR
Irish Pub
Beverage Cost of Sales
24.7%29.3%
23.0%28.0%
0.0%5.0%
10.0%15.0%20.0%25.0%30.0%35.0%40.0%
Best Performance Worst Performance
CDR
Irish Pub
Total Food & Beverage Cost of Sales
30.0%33.1%
28.0% 29.2%
0.0%5.0%
10.0%15.0%20.0%25.0%30.0%35.0%40.0%
Best Performance Worst Performance
CDR
Irish Pub
1919
Salaries & Wages Cost
?Question:
Do Salaries & Wages Costs differ significantly between Irish Pubs and Casual
Dining restaurants and, if so, how does that difference potentially impact
margin?
20
Labor CostSalaries & Wages (including Employee Benefits) 29.0% 33.5% 39.4%
Total Labor Cost 30.0% 33.1% 38.6%
Lower Quartile Median Upper Quartile
All RestaurantsRatio to Total Sales
Statistics for Salaries & Wages Cost – 2008*(Full Service Restaurants – Average Check Per Person $15.00 to $24.99)
*National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008
21
Industry Fact
Labor cost for the
Quarter ending March,
2009:
Darden
31.4%
PF Chang’s32.5%
OIS Partners
27.3%
61.1% of operators achieve a total salaries and wages cost of less than 25%.22.2 % of operators achieve a labor cost of less than 22%.
Total Labor Cost – Salaries & WagesTotal Labor Cost – Salaries & Wages
“My high beverage sales, particularly at quieter
times, really help to keep my labor cost down”
Irish Pub Operator - California
15%-17%
18%-20%
20%-22%
23%-25%
26%-28%
28% +
61.1% of Irish Pubs achieve a labor cost of less tha 25%
22.2% of Irish Pubs achieve a labor cost of less tha 22%
22
Summary of Labor Cost ComparisonSummary of Labor Cost Comparison
Labor costs in Irish Pubs may be as much as 4% lower than CDR
22.0%
25.0%
29.0%
33.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Best Performance Worst Performance
Irish Pub
CDR
“A busy employee is a happy employee. If that
busy employee is a server or bartender, they’re also very highly rewarded in
tips.”
Irish Pub Operator -Colorado
2323
Summary of Prime Costs
Food @ 75% Beverage @ 25% Food @ 60% Beverage @ 40%$1,500,000 $500,000 $1,200,000 $800,000
49% 58%
Total Prime Cost Total Prime Cost$1,030,000 $836,000
Contribution to Overhead Contribution to Overhead$970,000 $1,164,000
COS @ 30%$450,000
COS @ 28%$336,000
Casual Dining Restaurant Irish Pub
Labor @ 29%$580,000
Labor @ 25%$500,000
Assuming an equivalent overhead for both categories, Irish Pubs could deliver an incremental 9% or $180,000 in before tax profit.
2424
Average Check Spend
?Question:
Is Average Check Spend comparable in Irish Pubs and Casual Dining Restaurants?
25
Average Check Spend in Irish Pubs - BeveragesAverage Check Spend in Irish Pubs - Beverages
Average Beverage Check
47.4%
31.6%
10.5% 10.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
$6-$10 $11-$15 $16-$20 $21-$25
47.4% of Irish Pubs have an average beverage check spend of $6-$10. 42.1% of Irish Pubs have an average beverage check spend of more than $11.
“As I see it, many restaurants do not provide
an ambiance that encourages a more relaxed response from the guest to alcohol. Two drinks rather
than one is not irresponsible service or
consumption but it makes the guest happy and it
increases my guest check by at least 10%. Win, win.”
Irish Pub Operator – Colorado
26
Average Check Spend in Irish Pubs – Food & BeverageAverage Check Spend in Irish Pubs – Food & Beverage
Industry Fact
Average Guest Checks
Outback Steakhouse
$20.50
Cheesecake Factory
$18.50
5.3%
47.4%
21.1%
15.8%
10.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
$10-$15 $16-$20 $21-$25 $26-$30 $31-$35
47.4% of Irish Pubs have an average check spend of between $21-$35 26.3% of Irish Pubs have an average check spend of more than $26
2727
Beverage Consumption
?Question:
Is beverage consumption in Irish Pubs comparable to Casual Dining Restaurants?
28
Beverage Consumption in Irish PubsBeverage Consumption in Irish Pubs
4.3%
26.1%
39.1%
21.7%
8.7%8.7%
56.5%
21.7%
8.7%4.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
1 2 3 4 5 5+
Number of Drinks Consumed
Non-Driving Guest just Having Drinks
Non-Driving Guest Having a Meal with Drinks
“Irish pubs still live up to their “Publican” roots. It gives people a place to meet, socialize and converse. It’s a place of friendliness and comfort. Sometimes that is what people need when times get tough.”
“An Irish Pub’s strength has always been taking care of people - giving them an escape from the real world .” 37.4% of non-driving guests having a meal consume three drinks or more
95.6% of non-driving guests just having drinks consume three drinks or more
2929
Frequency of Visits by Consumers
?Question:
In the context of how frequently consumers use casual dining restaurants, how frequently do
they use Irish Pubs?
30
Traffic Frequency – Consumer VisitsTraffic Frequency – Consumer Visits
17%
33%
11% 11%
28%
6%
24%
53%
0%
18%
0%
10%
20%
30%
40%
50%
60%
Once a week Once or twice aweek
More than twiceper week
Once a month Several times amonth
For a meal and drinks Just for drinks“Here at our pub we have a wide range of demographics. As a restaurant we experience everything from families with children, teenagers, couples of all ages, groups of friends of all ages, and elderly. As a bar we also see wide demographics early 20s to seniors; roughly between the ages of 25 to 40 on average. However, it tends to get younger as the night moves on towards morning. Our customer base is mostly of professional type occupational classifications but we do have our share of blue collar also. Our customers often comment that everyone feels welcomed here and like the mix. Other bars are known to be either a young bar or an older bar, college bar, etc. .”
Irish Pub Operator - Pennsylvania
Irish Pubs inspire strong loyalty in consumers and motivate a high level of repeat business
3131
Occasion of Visit by Consumers
?Question:
In the context of the occasions on which consumers choose to use casual dining restaurants,
on what occasions do consumers choose to use Irish Pubs?
32
Probable Occasions of UseProbable Occasions of Use
88%
76% 76%
82%
65%
76%
43%
82%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Dinner withfriends
Dinner withthe family
BusinessLunch
Dinner withspouse
Late NightDrinking
Drinks afterwork
Mother’sDay lunch
Celebration
Irish Pubs are perceived as multiple-occasion venues
“People will travel for an Irish Pub. We have people who drive distances more than an hour away to visit our pub. First there is the Irish history and culture that is intriguing and fun; with the music, the ambiance, Irish fare, pub grub, and imported spirits highlighted by Guinness creates an eating and drinking establishment into a place of entertainment and comfort. An Irish pub done right gives people a place to escape their normal daily routine and stresses.”
Irish Pub Operator - Pennsylvania
