How do pubs make profit?

There are few industries that have suffered more in the last 18 months than food and dining. More specifically, the pub industry was more or less shut down over much of 2020 and 2021, leading to the closure of a large number of businesses that simply couldn’t stay afloat without regular custom.

The pub industry has always been a challenging one – highly competitive, heavily populated and carrying plenty of overheads. Still, as we approach 2022, there will be plenty of pub owners feeling hopeful about their prospects. The question is: in a saturated market that’s fallen on tougher times recently, how do pubs make their profit?

The typical running costs

To understand where pubs make profit, it’s perhaps best to start with where their key overheads lie. When running a pub business, you have a number of fundamental running costs to think about on a daily, weekly and monthly basis, all of which need to be taken into account on the balance sheet.

Some of the key running costs for pubs include:

• Staffing
• Bank charges – if the pub has taken out a loan
• Insurance – insurance for pubs is a must for pubs looking to protect their investments
• Inventory – pubs have huge food and drink stock overheads that need to be replenished on a regular basis
• Equipment – including pumps, glassware, bar accessories and furniture
• Entertainment – including TVs, licensing, games machines and games equipment
• Energy bills

For would-be pub entrepreneurs who are thinking of getting into the industry, it’s essential to calculate entry-level costs before starting, which all of the running costs mentioned above will be included within.

Where are the margins?

The good news for pub and bar owners is that average gross profit margin for a pub or bar is respectable. This is a far superior rate to many industries like retail and automotive and is largely driven through alcohol sales. Food should not be discounted though, with a typical margin of 3-9% available for pubs who serve a food menu alongside drinks.

There are also a few areas of upselling that pubs can take advantage of. When a pub puts an event on, for example, that will drive additional custom and numbers to the bar, as do permanent fixtures like games equipment including dart boards, pool tables and, more recently, the likes of beer pong.

The priority for pub owners is simply to get punters to the bar. From there, the generous margins on food and alcohol will be sufficient for the business to be successful. All the fanfare that comes with your typical pub, such as events and happy hour promotions, is tailored towards that success, and that’s how pubs make their profit.

And after a punishing 2020 and 2021, pub owners across the UK will be hoping for better in 2022.