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How Profitable is The Irish Pub?

How Profitable is The Irish Pub?. Ballance Hospitality Solutions 2009. 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

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How Profitable is The Irish Pub?

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  1. How Profitable is The Irish Pub? Ballance Hospitality Solutions 2009

  2. 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 Contents 2

  3. 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. Introduction 3

  4. 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. Research Objective

  5. 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*. Defining Casual-Dining Restaurants and Irish Pubs *National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008 *www.irishpubconcept.com

  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

  7. 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. Data-Collection & Respondents • 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. 8

  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. 9

  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? 10

  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 11

  12. Beverage to Food Ratios in Irish Pubs 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. “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 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%

  13. Beverage to Food Ratio Summary “Keeping my alcohol sales comparable to my food sales will always give me a profitability edge.” Irish Pub Operator -Florida Irish Pubs have a significantly higher beverage to food ratio than CDR while retaining strong food sales

  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? 14

  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 15

  16. Cost of Sales in Irish Pubs 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% Pubs are achieving combined food and beverage cost of sales of between 27.5% and 28.5% “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 Food & Beverage costs in Irish Pubs are better than industry averages

  17. Cost of Sales Comparison Industry Fact Food & Beverage Cost of Sales as reported by national chains during 2008/2009: Darden 30.4% Brinker 28.6% OIS Partners 34.7% Irish Pubs CDR Aided by excellent beverage ratios, Irish Pubs outperform CDR on Cost of Sales

  18. Summary of Cost of Sales Comparison “….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 Irish Pubs deliver between 0.8% and 5.1% lower cost of sales than CDR

  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? 19

  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 20

  21. Total Labor Cost – Salaries & Wages Industry Fact Labor cost for the Quarter ending March, 2009: Darden 31.4% PF Chang’s 32.5% OIS Partners 27.3% “My high beverage sales, particularly at quieter times, really help to keep my labor cost down” Irish Pub Operator - California 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%.

  22. Summary of Labor Cost Comparison “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 Labor costs in Irish Pubs may be as much as 4% lower than CDR

  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. 23

  24. Average Check Spend Question: Is Average Check Spend comparable in Irish Pubs and Casual Dining Restaurants? 24

  25. Average Check Spend in Irish Pubs - Beverages “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 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.

  26. Average Check Spend in Irish Pubs – Food & Beverage Industry Fact Average Guest Checks Outback Steakhouse $20.50 Cheesecake Factory $18.50 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

  27. Beverage Consumption Question: Is beverage consumption in Irish Pubs comparable to Casual Dining Restaurants? 27

  28. Beverage Consumption in Irish Pubs “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

  29. Frequency of Visits by Consumers Question: In the context of how frequently consumers use casual dining restaurants, how frequently do they use Irish Pubs? 29

  30. Traffic Frequency – Consumer Visits “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

  31. 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? 31

  32. Probable Occasions of Use “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 Irish Pubs are perceived as multiple-occasion venues

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