Mood brightens as JDW sales momentum grows - Comment
Last Friday's JD Wetherspoon press conference was the most bullish results briefing held by the company in a number of years.
I remember a particularly downbeat results day a couple of years ago, when sales growth had ground to a halt, costs needed to be trimmed and there seemed to be a distinct lack of new operational ideas. Virtually the only card left up management's sleeve was to drop prices to propel sales. It was a move that turned out to be a complete waste of time and margin - and was reversed within months.
On Friday, the mood was much brighter. Overall, there is considerable sales momentum - even though its smoke-ban pubs are bleeding sales and profits. That momentum has been building through 2006, with the latest quarter showing gains of above 5%. Tight cost management means sales gains are dropping cash to the bottom line: like-for-like profits are up 5.9%.
It seems clear that Wetherspoon has been winning new customers and extra spend this year. The trick, as in the past, has been to improve the range of product and amenity whilst maintaining its value credentials. There's been a sharp focus on developing products that will attract new types of customer to Wetherspoon pubs. Beer range, for example, has been taken to a new level with the introduction of guest draught lagers and more exotic bottled beers from around the world. It has expanded its wine range substantially - chief executive John Hutson described wine as a "big opportunity". Coffee and breakfast customers have been identified as big untapped markets. Wetherspoon has now invested in the same type of coffee-making machines used by Starbucks and claims to have grabbed 6% of branded coffee sales in the UK - 400,000 cups a week. It has taken the opportunity provided by the new licensing regime to open at 9am for breakfast. There's a national price point of £1.99 for a traditional breakfast: the company's telling customers that it only serves free-range eggs and now it's serving 200,000 breakfasts a week. Wetherspoon can only be making a few pennies on each breakfast. But it's determined to create another customer occasion to broaden its clientele base for the longer term.
Anyone who has visited bars in Spain will know there is no reason why customers won't visit from breakfast until last knockings if the offer is right - it's just a question of changing expectations. The prevailing mood of optimism about Wetherspoon's results was underpinned by another key operational innovation: it's spending around £23,000 at each of its pubs - £15m in total - installing a glycol chill system to enable its draught lager to be served between 1°C and 3°C.
The Crosse Keys pub in the City of London, the venue for the results presentation, had digital displays throughout showing customers the temperature of the last pint of lager served.The company believes it has stolen a march, because its system has been developed in-house - a team of five at Wetherspoon has been focusing exclusively on developing a glycol cooling system that is cellar-based and guarantees ultra-low temperatures. This process includes the extra advantage of removing a lot of dispense clutter from behind the bar, an area that has faced equipment overload in recent years.
Interestingly, Wetherspoon management is sniffy about a similar system being used by Mitchells & Butlers (M&B) that they believe is inferior. A temperature test by a Wetherspoon area manager found two M&B venues in Cardiff serving Foster's at 6.6°C (an O'Neill's establishment) and 8.2°C (owned by Edwards) compared to 2.4°C at its own Prince of Wales pub. Punters like their lager super-chilled and, if the Wetherspoon survey is credible, every branded pub in Cardiff is serving lager far too warm. Laurel's Ha! Ha! Bar & Canteen in Cardiff laid claim to be serving the warmest Foster's in town at 12°C. Wetherspoon management believes its super-chilled technology will win big sales gains in the next 12 months.
