A note of caution

JD Wetherspoon's results reveal the pub company's growth has slowed, leaving the target of 1,500 pubs still a long way off. By Mark Stretton.

It's target of operating 1,500 pubs looked a long way off last week as JD Wetherspoon reported full year profits.

Given the uncertainty surrounding imminent changes to liquor licensing and the general economy, the managed house group has drastically chopped back pub openings.

Last year the company opened 45 pubs compared with 87 the year before. "That has fundamentally changed," said executive chairman Tim Martin. "We still believe that we could open 1,500 pubs - that is one for every 40,000 people in the UK - but we have reduced openings.

"With the political handover of control of licensing we are cautious about how we expose ourselves."

Opening pubs is a costly business for Wetherspoon. Last year it spent an average of £1.317m developing each pub, a total of £59.27m for 45 pubs. Of those 45 pubs, 25 were freeholds at an average price of £511,000, which adds up to £12.78m.

Mr Martin confirmed that the company was not paying much attention to the sale of Scottish & Newcastle Retail, the 1,450-strong managed pub group worth between £2.3bn and £2.5bn. Mr Martin said: "We are not interested in taking part in consolidation. We are growing our own type of pub, organically."

In light of the changes to licensing laws and the popularity of Wetherspoon's 10am openings Mr Martin said he was considering taking a bigger chunk of the breakfast market.

"Opening at 8am is a consideration but we haven't thought it through yet," he said.

Breakfasts are becoming a key part of the sales mix since the company brought opening times forward by an hour across the 630-strong estate.

Wetherspoons now sells 40,000 breakfasts and approximately 200,000 cups of coffee each week.

"We started opening at 10am a year ago," said Mr Martin. "It was a slow start and there were some additional costs but now it's going very well."

Earlier opening is one of the potential pluses of licensing reform but the Wetherspoon executive chairman said: "We are not sure if the benefits outweigh the costs. If you invest, you want certainty."

Television sets are now creeping into the Wetherspoon offer. The company has 10 pubs showing sport and music. "We have had them in the airports now for 10 years," said Mr Martin. "We have 10 in the main estate but somehow I don't see us having a TV in every pub."

Average weekly sales at Wetherspoon outlets are now £26,400 per pub. When the company floated on the stock market in 1992, the average was £11,000 per pub.

Average food sales are £6,000 per pub and like-for-like food sales were up 11.4 per cent.

Lloyds No.1, the company's second pub brand, has now been rolled out to 50 units and average sales per Lloyds have hit £40,000.

"Lloyds pubs continue to expand," said the executive chairman, adding that it now has approximately the same turnover as the Walkabout chain owned by Regent Inns. The company added nine Lloyds last year.

The company backtracked on a decision to open its first Wetherspoon pub in the Republic of Ireland. It had secured a site in Dublin but had second thoughts.

"We have eight pubs in Northern Ireland which we find quite expensive to run," said Mr Martin. "Property in the Republic is still quite expensive and it was going to stretch us too much geographically."

Operating profits close to £75m on sales of £730m means that operating margins in the business are down to 10.3 per cent.

"Pubs pay approximately 40 per cent of their turnover in taxes," said Mr Martin. "The chancellor recently put an extra 1p on a pint, which doesn't sound a lot but for JD Wetherspoon, it's £2m a year in extra duty."

Wetherspoon results 2003: chapter and verse​

• Sales up 22 per cent to £730.9m
• Profits before tax up five per cent to £56.1m
• Like-for-like sales up 4.1 per cent
• Like-for-like profits down one per cent
• Operating margins down to 10.3 per cent
• Opened 45 pubs, sold 17 to Laurel
• Average food sales per pub of £6,000 per week
• Average JDW pub sees £60,000 of investment per year
• Wetherspoon pubs average gross sales of £26,400 per week
• Lloyds pubs average sales of £40,000 per week

Tim Martin on...​

• Current trading:​ "We think we are doing better than average in the pub business. One pub company has just reported a decline in like-for-like sales of nine per cent over the summer, and another, with beer gardens, has reported flat like-for-likes."

Licensing reform:​ "Something that was meant to reduce bureaucracy will actually increase bureaucracy."

Handover of control to local authorities:​ "We have reduced openings and are cautious about the political handover of control. We are not sure if the benefits will outweigh the legislative costs. If you invest, long-term, you want stability."

Breakfast:​ "We sell around 40,000 breakfasts a week and 200,000 cups of coffee. Opening at 8am is a consideration but we haven't thought it through yet."

Swearing in pubs:​ "In Glasgow, a customer came back to the bar and said 'that was a f**king good pint' so I told him to watch his language."

Related articles:​

JDW blames red tape for cut back on new openings (9 September 2003)

Wetherspoon profits up despite cutback in openings (5 September 2003)