Business Opinion
Mood buoyant on JDW results day
If you were looking for a single word to describe the mood of JD Wetherspoon (JDW) management on results day last Friday I'd choose "buoyant". In the six years I've been attending Wetherspoon results I've never seen the company's executives more content with the current position - and confident about the future.
For casual observers, the mood may have seemed a little odd given sales growth slowed to just 1.1% in August. But it was clear that this was a result way beyond the company's expectations of a few years ago. The sales curve in Wetherspoon pubs in Scotland has shown that anything better than a flat position in the first quarter after the first post-smoking ban honeymoon month is a great result. The months that follow in England are likely to see strong sales growth return.
The aura of confidence was built on a number of other key trends: margins and sales have improved for two years now (not a combination the company has been able to achieve in the past); costs coming into the business are likely to be neutral next year thanks to a £5m saving on utility costs after renegotiation; broadening of wine, spirits and beer ranges were driving volume growth (cask -ale sales, for example, are up a robust 10% compared to an overall market decline); and food sales had grown to £8,200 per week per pub and now account for 30% of all sales.
This results meeting had more of a focus on where JD Wetherspoon was heading as well. Its food volumes (and sales ancillary to food) have risen dramatically in the past year. One analyst pointed out that JD Wetherspoon is a 60% bigger player than the Restaurant Group in the eating-out market with food-related sales of £600m.
Finance director Jim Clarke said the company was now the UK's second biggest restaurant chain after McDonald's. "We don't know anything about running restaurants but we do know about running pubs and taking £8,000 a week in food," he said. The company would continue to stick to its knitting. "We're not going to do something silly like buy a restaurant group," he added.
Chief executive John Hutson emphasised that JDW would add value for shareholders by a patient, organic, if less cautious, approach to expansion. He pointed to his home town, Sheffield, as an example of where expansion opportunities lie. The city has four JDW pubs in the centre and three in the suburbs - but there are still another 15-20 suburbs big enough to support a venue. Large buildings such as banks, post offices and cinemas that are on the market have "very little alternative use other than as a pub," he said.
Hutson also revealed that Wetherspoon had made a success of a site in Crediton, Devon, which has a population below 10,000. Takings had been a disastrous £4,000 a week on opening but had climbed steadily towards the company average per pub of £30,600 per week (including VAT). Running a single, coherent brand was an enormous benefit. "We have one menu for every pub - we operate one trading format with one menu," said Hutson.
The company has managed to pass on price rises on liquor of around 3.5% in the past year after a few years of finding it hard to do so because of the wider trading environment - yet still operated at a 20% price discount to its rivals.
It was also made abundantly clear that Wetherspoon was unlikely in the extreme to follow the lead of Mitchells & Butlers in selling its freeholds - 42% of all its pubs are owned freehold - to a joint venture or other exotic property vehicle. Clarke referred to selling freeholds as "giving away your crown jewels", a move unlikely to be in shareholders' long-term interests. "We don't jump on the leader's bandwagon," he said before adding that any such move would need to be "pretty compelling".
The history of JD Wetherspoon has been about retailing success allowing expansion on a site-by-site basis. It was clear at results that belief in its retailing skills has been renewed by adept negotiation of the smoking ban.
