It is fair to say that when a UK-wide ban on smoking in pubs was first mooted three years ago many observers expected JD Wetherspoon would be hit by the new restrictions more than most.
Industry-watchers looked at its then predominantly smoking customer base and perhaps more 'economically challenged' demographic (or 'the flat cap brigade', as one wit roughly observed) and reckoned the managed pub group founded by Tim Martin in 1979 could come unstuck once the ban had made its presence felt.
But the doomsayers appear to have been stymied, at least for the time being. Following the publication of Wetherspoon's first results since the ban's implementation in England last July - covering the six months to January 27, 2008 - the general consensus is that although sales have been hit and caution remains the watchword, things could have been worse. A lot worse.
The smoking ban has clearly created a volatile trading environment, acknowledged chief executive John Hutson. But, he added: "It is impossible to predict how sales will pan out. In Scotland we saw sales come back after seven or eight months, then they were strong, and now they are slightly off again."
In England those pubs that had voluntarily banned smoking before the law came into force had seen "strong like-for-likes", he added.
The group told analysts it was looking at sales running at minus 3.2 per cent for the rest of the year, but it expects things to get better as the warmer weather - and more kindly comparables - kick in.
Developing the sales mix
"We feel we're doing well, in general," said Hutson. "We'll see food up, a drop in bar sales, largely driven by the smoking ban, and there'll be pressures in the cost department, like food raw materials and costs of marketing our pubs to get customers back in. But we're working on developing the sales mix, getting in new lagers, pushing cocktails and promoting real ale and coffee."
Hutson said JD Wetherspoon sells between 350,000 and 400,000 breakfasts a week and half as much again in numbers of teas and coffees served. Its burgers, apparently, are the talk of the town. There was more. "We also sell 20,000 mojitos a week, and we're the biggest retailer of Pimm's," Hutson revealed. Wetherspoon's? The UK's leading purveyor of Pimm's? Wonders will never cease.
Joking aside, such a cultural and product offering volte-face illustrates what JD Wetherspoon is trying to achieve across the business.
A wider range of products, including new lower-alcohol draught lagers, as well as real ale festivals, more emphasis on food and improved service levels form the backbone of Wetherspoon's strategy going into the second half-year under the smoking ban, according to Hutson.
Back down to earth, the half-year numbers, while not disastrous, knocked Wetherspoon's shares 17 per cent on the day.
Some pointed out that this represented a buying opportunity, not least for the company itself, which scaled back an aggressive share buyback programme in the past 18 months to just £1m in the first half of the current financial year.
This decision was justified by recently appointed finance director Keith Down as "balancing the business's needs", which also included maintaining a reasonable dividend policy.
Positive City reaction
Overall, while the stock market did not treat listed pubcos kindly on the day of the Wetherspoon figures - such is its barometer status - analysts were generally unflustered by the group's sales dip.
"Predictable," said one, "and the numbers should get better once the anniversary of the smoking ban is out of the way and the weather improves." Another, Blue Oar Securities' Mark Brumby, noted there was "little unexpected" in the results announcement.
Wetherspoon's "preparation for the smoking ban and its price-conscious offer position it relatively well for current trading", he said. If the group is seeing "sluggish sales and worse margins… then most other companies will be faring significantly less well", he said.
And despite downgrading his own full-year profit forecast for the group by seven per cent, or £4.1m, Douglas Jack of Panmure Gordon maintained his 'buy' recommendation, noting among other things that stable input costs supported margins and while average drinks prices were 18 per cent below its peers "there is further headroom for price rises, if necessary".
On the issue of pricing Down said the group would try to stay competitive "when rivals are raising their prices". Highlighting the fact that an average round of drinks in a Wetherspoon's pub costs £7 less than in a competitor site, Hutson said it was "counterintuitive" to raise prices when sales and volumes were falling.One price JD Wetherspoon was not prepared to budge on was the cost of new sites. Hutson said the group took a tough stance on property prices in order to get costs down.
"We'll walk away from deals if we feel it is right to do so, even if it means a fees write-off," he said, adding that the group would open 30 new pubs in the current financial year.
Hutson added that he was "confident" Wetherspoon would achieve its ultimate goal of an estate of between 1,200 and 1,500 pubs. The only thing he didn't reveal was a timeframe.