Increased food sales drive M&B profit growth

Total revenue climbed 2% to £991m while adjusted operating profit rose 5% to £145m. Revenue growth was driven principally by food sales which comprise 51% of total sales and were up 4.5% in the period, whilst drink sales were marginally higher than last year.

Like-for-like sales were driven by a 1.4% rise in food sales, but offset by a 1.2% decline in drink sales. Like-for-like sales were aided by strong trading across special occasions such as Christmas, Valentine's Day and Easter but weaker trading in January and March as a result of extended periods of cold and snowy weather. In both drink and food, the company said that volumes have been lower year-on-year with positive movements in spend and price.

Overall, operating margins were 40 basis points higher than H1 2012 at 14.6% with the benefits from the restructuring, menu management and lower new site opening costs offsetting the impact of alcohol duty increases from 2012 and higher costs from increases to the national minimum wage, food inflation and higher business rates.

It said that like-for-like sales had increased 1% in the five weeks since the half year end.

The company said: “For some time to come, we expect consumer confidence and discretionary income growth to remain subdued. Consumers in lower income deciles are likely to continue to be more stretched than more affluent groups and London and the South East are likely to remain the main geographic drivers of economic growth. We are confident in our ability to grow further in the future as a result of our broad brand portfolio, high quality assets and the transformation of our operations and culture, as set out today.”

It also announced the appointment of a third independent non-executive in a matter of weeks, with the news that Stewart Gilliland former CEO of Muller Dairy (UK) has joined its board.

The group said it had completed a significant piece of consumer research, with the objective of updating its understanding of current and future consumer trends, opportunities, and brand growth potential.

As part of this research, it interviewed 8,000 consumers about 14,000 leisure occasions they had recently experienced, met industry commentators to discuss future trends in eating and drinking out, examined its own brand positioning and that of its competition and conducted a review of macro-economic indicators and forecasts.

From the research it believes that there are areas of substantial opportunity to grow through increasing share in its highly fragmented market, worth £75bn in the UK.

Market spaces​
The company has identified five 'market spaces' in which to focus, covering around half of the total market size:

Upmarket social:​ value £8bn. This space is focused on relaxed but refined environments in urban and suburban locations. It is about friends and colleagues socialising and enjoying a drink. Its brands and formats in this space are All Bar One, Castle, Nicholson's and Alex.

Special:​ value £22bn. This large space covers special occasion dining, from established and trusted brands offering reliably special and high quality food, to destination brands offering a premium experience to adventurous and knowledgeable guests. Its brands and formats in this space are Miller & Carter, Vintage Inns, Village Pub & Kitchen, Premium Country Dining Group and Browns.

Family:​ value £5bn. This space is focused on family dining, from brands which appeal to younger children where a stress-free and value-for-money experience is essential, to relaxed and familiar environments with broad appeal to bring the whole family together. Its brands and formats in this space are Harvester and Toby Carvery.
Everyday social:​ value £2bn. This space encompasses brands which play a community role and provide casual, comfortable environments that bring people together. Its brands and formats in this space are Ember Inns and O'Neill's.

Heartland:​ value £4bn. This space describes an area of the value market where guests enjoy regular and familiar experiences - for a drink with friends, a quick meal or to take their families as a social activity. Its brands and formats in this space are Sizzling Pubs, Crown Carveries and Oak Tree Pubs.

Of these sectors, the company said that Upmarket Social, Special and Family currently benefit from the most attractive consumer trends and it will invest in these areas and expand its brands where possible.

In the Everyday Social space, it said it will optimise and invest in its brands to grow like-for-like sales and profits. In the Heartland space, it will protect highly cash generative formats by competing on the basis of giving the “greatest value to consumers that have been most exposed to the economic downturn”.

The company said: “We will maintain our high degree of focus on capital returns rather than targeting specific numbers of new openings each year. However, after a lower level of expansionary capex this year of around £30m, we expect to return to a spend of between £50m and £80m pa in the medium term, largely in the Upmarket Social, Special and Family spaces.”

Alistair Darby, chief executive, said: “These results demonstrate the progress we are making through our business change programme. We are growing sales and profit in a tough market by building on the firm foundations of our excellent estate, strong brands, dedicated people and substantial scale.

“Having now delivered our restructuring cost savings in full, we have identified specific market segments where we can grow successfully and we have outlined clear operational priorities. By focusing on these areas, I believe that we will provide great experiences for our guests and sustainable returns for our shareholders.”