how profitable is the irish pub? ballance hospitality solutions 2009

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How Profitable is The Irish Pub? Ballance Hospitality Solutions 2009 Slide 2 22 Contents Introduction3 Research Objectives4 Defining Casual-Dining Restaurants and Irish Pubs5 Terminology6 Data Collection & Respondents7 Executive Summary8 Highlights9 Food & Beverage Ratios10 Food & Beverage Cost of Sales14 Salaries & Wages Cost19 Summary of Prime Costs and F&B Ratios23 Average Check Spends24 Beverage Consumption27 Frequency of Visit by Consumers29 Occasion of Visit by Consumers31 Slide 3 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. Slide 4 4 Research 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. Slide 5 5 Defining 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 Chilis, TGI Fridays, Cheesecake Factory, Red Lobster, Maggianos 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 Slide 6 6 Terminology Food Sales This category includes revenue derived from the sale of food in the restaurant. Food sales also include the sale of coffee, tea, milk, soft drinks and fruit juices, which usually are served as part of a meal. Beverage Sales This category includes revenue from the sale of wine, spirits, liqueurs, beer, and ale. These sales do not include coffee, tea, milk, or fruit juices, which normally are served with meals and, therefore, are considered food. Labor Cost This 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 Slide 7 7 Data-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. Slide 8 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. Slide 9 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. Slide 10 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? Slide 11 11 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 Slide 12 12 Beverage to Food Ratios in Irish Pubs Getting the mix of food and drink right is critical. I dont know how restaurants with high food sales and low alcohol sales survive. Irish Pub Operator - Kansas Industry Fact In the year to June 25 th 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% Slide 13 13 Beverage to Food Ratio Summary 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 Slide 14 14 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? Slide 15 15 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 Slide 16 16 Cost of Sales in Irish Pubs Food & Beverage costs in Irish Pubs are better than industry averages 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 dont need a kitchen-full of expensive staff to serve it! Irish Pub Operator - Pennsylvania Slide 17 17 Cost of Sales Comparison 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: Darden30.4% Brinker28.6% OIS Partners34.7% Irish PubsCDR Slide 18 18 Summary 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 Slide 19 19 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? Slide 20 20 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 Slide 21 21 Industry Fact Labor cost for the Quarter ending March, 2009: Darden31.4% PF Changs32.5% OIS Partners27.3% 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 & Wages My high beverage sales, particularly at quieter times, really help to keep my labor cost down Irish Pub Operator - California Slide 22 22 Summary of Labor Cost Comparison Labor costs in Irish Pubs may be as much as 4% lower than CDR A busy employee is a happy employee. If that busy employee is a server or bartender, theyre also very highly rewarded in tips. Irish Pub Operator -Colorado Slide 23 23 Summary of Prime Costs Assuming an equivalent overhead for both categories, Irish Pubs could deliver an incremental 9% or $180,000 in before tax profit. Slide 24 24 Average Check Spend Question: Is Average Check Spend comparable in Irish Pubs and Casual Dining Restaurants? Slide 25 25 Average Check Spend in Irish Pubs - Beverages 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