Restaurant Group sales fall, UK cost warning hits shares

(Adds details, context, share price fall)

Jan 25 (Reuters) - Restaurant Group (Other OTC: RSTGF - news) 's sales fell last year and the owner of the Frankie & Benny's chain warned on Wednesday that a hike in Britain's minimum wage will drive costs higher in 2017.

Shares (Berlin: DI6.BE - news) in Restaurant Group, which operates more than 500 restaurants and pubs in the UK, were down 9.8 percent at 314.1 pence at 0827 GMT, making the stock the worst performer on the FTSE Midcap Index.

Britain's finance minister in November raised the minimum wage to 7.50 pounds from 7.20 pounds, taking the edge off a benefits squeeze for low earners.

Restaurant Group, said it sees costs rising due to initiatives such as an apprenticeship levy, proposed increases in business rates and higher energy taxes.

The company also pointed to a rise in buying costs due to a weak pound and commodity inflation.

Restaurant Group, which ousted its chief executive last year, warned that trading in the first half of 2017 would remain difficult.

Greene King Plc (Frankfurt: A0F66P - news) , a pub operator, in November forecast a challenging consumer environment, partly due to increasing levels of consumer uncertainty and further cost pressures from a hike in British minimum wages.

Market research company Coffer Peach Business, said while Britain's exit from the European Union remains the biggest worry for restaurant, pub, bar and cafe group executives, confidence has also been hit by concerns about business rates increases, particularly among restaurant chains that are more dependent on leased sites in urban areas.

Recent trading continues to be "challenging", Restaurant Group said, adding that like-for-like sales fell 5.9 percent in the final quarter, with a subdued performance across its leisure brands.

Restaurant Group's market value more than halved last year as it battled increased competition from food-led pubs and branded restaurant chains and a drop in visitors to retail shopping parks, where many of its outlets are located. It warned on 2016 profit in April.

The company also said in August that it had identified 33 underperforming sites for sale or closure. (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Louise Heavens and Alexander Smith)