How Profitable is The Irish Pub?
Ballance Hospitality Solutions 2009
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
2
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.
3
Research Objective
Using fact-based qualitative and quantitative data, the objective is
clarify and support a hypothesis that the Irish Pub Concept is a highlyprofitable 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.
4
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 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
5
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
6
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.
7
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
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
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
Statistics for Food & Beverage Ratios – 2008*
(Full Service Restaurants – Average Check Per Person $15.00 to $24.99)
All Restaurants
Ratio to Total Sales
Sales
Food
Beverage
Total Sales
Lower Quartile
Median
Upper Quartile
65.7%
34.3%
76.1%
23.9%
84.9%
15.1%
100.0%
100.0%
100.0%
*National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008
11
Beverage to Food Ratios in Irish Pubs
Food 70%/30% Beverage
0.0%
Food 60%/40% Beverage
26.1%
Food 50%/50% Beverage
56.5%
Food 40%/60% Beverage
Food 30%/70% Beverage
“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
0.0%
13.0%
4.3%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
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%
12
Beverage to Food Ratio Summary
60.00%
56.50%
50%
50.00%
40.00%
“Keeping my alcohol sales
comparable to my food
sales will always give me a
profitability edge.”
CDR
30.00%
26.10%
25%
e
r ag
25%
20.00%
13%
10.00%
4.30%
Irish Pub Operator -Florida
0.00%
3 0%
od
Fo
%
/7 0
ve
Be
r ag
e
3 5%
od
Fo
%
/6 5
ve
Be
r ag
e
4 0%
od
Fo
%
/6 0
ve
Be
r ag
e
5 0%
od
Fo
%
/5 0
ve
Be
r ag
e
6 0%
od
Fo
%
/4 0
ve
Be
r ag
6 5%
od
Fo
%
/3 5
ve
Be
e
7 0%
od
Fo
%
/3 0
ve
Be
r ag
e
7 5%
od
Fo
%
/2 5
ve
Be
r ag
e
8 0%
od
Fo
%
/2 0
ve
Be
r ag
e
Irish Pubs have a significantly higher beverage to food ratio
than CDR while retaining strong food sales
13
Irish Pub
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
Statistics for Food & Beverage Cost of Sales – 2008*
(Full Service Restaurants – Average Check Per Person $15.00 to $24.99)
All Restaurants
Ratio to Category Sales
Cost of Sales
Food
Beverage
Total Cost of Sales
Lower Quartile
30.6%
24.7%
Median
34.5%
29.3%
Upper Quartile
40.5%
34.3%
30.0%
33.1%
38.6%
*National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008
15
Cost of Sales in Irish Pubs
80.0%
80.0%
70.0%
70.0%
60.0%
% of Operators
% of Operators
60.0%
50.0%
40.0%
30.0%
50.0%
40.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
20%-24%
25%-27%
20%-22%
28%-30%
Food Cost of Sales %
“I have a lower cost of
sales on beverage and I
don’t need a kitchen-full of
expensive staff to serve it!”
23%-25%
26%-28%
Beverage Cost of Sales %
Pubs are achieving
combined food and
beverage cost of
sales of between
27.5% and 28.5%
Irish Pub Operator - Pennsylvania
Food & Beverage costs in Irish Pubs are better than industry averages
16
Cost of Sales Comparison
Irish Pubs
Average Weekly Revenues
CDR
$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
26.4%
26.8%
27.2%
27.6%
28.0%
28.4%
28.8%
29.2%
29.6%
30.0%
30.4%
Total Food & Beverage Cost of Sales
26.0%
Aided by excellent beverage ratios, Irish Pubs outperform CDR on
Cost of Sales
17
Summary of Cost of Sales Comparison
Food Cost of Sales
“….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
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
34.5%
Beverage Cost of Sales
35.0%
30.6%
27.0%
CDR
Irish Pub
Best Performance
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Worst Performance
29.3%
24.7%
28.0%
23.0%
CDR
Irish Pub
Best Performance
Worst Performance
T otal Food & Beverage Cost of Sales
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
30.0%
33.1%
28.0%
29.2%
CDR
Irish Pub
Best Performance
Worst Performance
Irish Pubs deliver between 0.8% and 5.1% lower cost of sales than CDR
18
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
Statistics for Salaries & Wages Cost – 2008*
(Full Service Restaurants – Average Check Per Person $15.00 to $24.99)
All Restaurants
Ratio to Total Sales
Lower Quartile
Median
Upper Quartile
Labor Cost
Salaries & Wages (including Employee Benefits)
29.0%
33.5%
39.4%
Total Labor Cost
30.0%
33.1%
38.6%
*National Restaurant Association and Deloitte & Touche LLP – Restaurant Industry Operations Report 2008
20
Total Labor Cost – Salaries & Wages
61.1% of Irish Pubs achieve a
labor cost of less tha 25%
15%-17%
18%-20%
20%-22%
23%-25%
26%-28%
28% +
“My high beverage sales,
particularly at quieter
times, really help to keep
my labor cost down”
Irish Pub Operator - California
22.2% of Irish Pubs achieve a
labor cost of less tha 22%
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%.
21
Summary of Labor Cost Comparison
40.0%
33.5%
35.0%
29.0%
30.0%
“A busy employee is a
happy employee. If that
busy employee is a server
or bartender, they’re also
very highly rewarded in
tips.”
25.0%
25.0%
22.0%
Irish Pub
20.0%
CDR
15.0%
10.0%
5.0%
Irish Pub Operator -Colorado
0.0%
Best Performance
Worst Performance
Labor costs in Irish Pubs may be as much as 4% lower than CDR
22
Summary of Prime Costs
Casual Dining Restaurant
Food @ 75%
$1,500,000
Beverage @ 25%
$500,000
Irish Pub
Food @ 60%
$1,200,000
Beverage @ 40%
$800,000
Labor @ 29%
$580,000
Labor @ 25%
$500,000
COS @ 30%
$450,000
COS @ 28%
$336,000
Total Prime Cost
$1,030,000
Total Prime Cost
$836,000
Contribution to Overhead
$970,000
Contribution to Overhead
$1,164,000
49%
58%
Assuming an equivalent overhead for both categories, Irish Pubs could
deliver an incremental 9% or $180,000 in before tax profit.
23
Average Check Spend
?
Question:
Is Average Check Spend comparable in Irish Pubs and Casual Dining Restaurants?
24
Average Check Spend in Irish Pubs - Beverages
Average Beverage Check
“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.”
50.0%
47.4%
45.0%
40.0%
35.0%
31.6%
30.0%
25.0%
20.0%
15.0%
10.5%
10.5%
$16-$20
$21-$25
10.0%
5.0%
0.0%
$6-$10
$11-$15
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.
25
Average Check Spend in Irish Pubs – Food & Beverage
47.4%
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
21.1%
20.0%
15.8%
15.0%
10.0%
10.5%
5.3%
5.0%
0.0%
$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
26
Beverage Consumption
?
Question:
Is beverage consumption in Irish Pubs comparable to Casual Dining Restaurants?
27
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.”
Non-Driving Guest just Having Drinks
Non-Driving Guest Having a Meal with Drinks
60.0%
56.5%
50.0%
39.1%
40.0%
30.0%
26.1%
21.7%
21.7%
20.0%
10.0%
“An Irish Pub’s strength
has always been taking
care of people - giving
them an escape from the
real world .”
8.7%
8.7%
8.7%
4.3%
4.3%
0.0%
1
2
3
4
5
5+
Number of Drinks Consumed
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
28
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
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. .”
For a meal and drinks
Just for drinks
60%
53%
50%
40%
33%
28%
30%
24%
20%
18%
17%
11%
10%
11%
6%
0%
0%
Once a week
Once or twice a
week
More than twice
per week
Once a month
Several times a
month
Irish Pubs inspire strong loyalty in consumers and motivate a
high level of repeat business
Irish Pub Operator - Pennsylvania
30
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
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.”
100.00%
90.00%
80.00%
88%
82%
76%
82%
76%
76%
70.00%
65%
60.00%
50.00%
43%
40.00%
30.00%
20.00%
10.00%
0.00%
Dinner with Dinner with
friends
the family
Business
Lunch
Dinner with
spouse
Late Night
Drinking
Drinks after
work
Mother’s
Day lunch
Irish Pubs are perceived as multiple-occasion venues
Irish Pub Operator - Pennsylvania
32
Celebration