M&B: impossible to gauge impact of VAT hike

This morning, Mitchells & Butlers announced that strong food sales and a bumper Christmas helped increase like-for-like sales 3.1%​ on last year for the 17 weeks to 22 January.

At an analysts conference call, it shed more light on its results and strategy.

Cost pressures:​ "There are two big cost pressures we face — one is energy and one is food," said chief executive Adam Fowle. It said energy contracts were in place for the year and that food prices could rise by 3% during the yea but that those food costs "nudged up" a bit every time they were reviewed. Fowle said it was "way too early" to tell where prices would go in 2011 because "those commodity prices do bounce around at fairly short notice".

Conversions:​ It has begun conversions of 40 sites from the 70 planned for the year and hopes to have them open by late May.

Retail Parks:​ It reported in finding no problems at all in finding sites at retail parks. It has opened two Harvesters on retail parks and has a further 15 lined up. It said it had not seen an increase in new build costs.

Christmas trade:​ M&B revealed that greater spend per head rather than volume increase drove the sales increase over Christmas. It sold 7% more meals on Christmas Day than last year.

Margins:​ Net margin is "very close but slightly the wrong side" of where the company was in the first few weeks of last year due to the snow. It is "challenging" itself and believes it can achieve margin improvement year-on-year.

Snow:​ The snow caused a sales drop of over 3% before Christmas and a "couple of million pounds".

Beer prices:​ Fowle said the "biggest beer cost pressure is duty". He added: "Duty is the lion's share and that is going to grow in March by inflation plus 2%. It is a bigger driver of costs than supplier increases."

Drinks trade:​ The drinks trade was harder hit by the snow as people at town centre pubs headed home when the snow came. But Fowle said there had been no general increase or decrease in the decline in the on-trade drink sales seen over the past nine months. Drinks volume is slightly down but sales have increased around 3%.

Promotional activity:​ M&B is to "significantly" increase spend by about £4-5m on mass-marketing of its key brands such as TV campaigns for Toby Carvery.

VAT impact:​ Fowle said it was "impossible" to read anything into the impact of the VAT increase because of the weather. January trade had been "strong". He said: "It is way too early to draw any conclusions on consumer reaction to price rises."

Spend per head: ​The strategy over the past 18 months has been to drive up spend per head. Over half of meals are now "social dining" occasions so are less price sensitive. Customers are being given more time at the table and are spending more as a result. People have also been "tickled" up the menu to order pricier dishes and starters and deserts. Vintage Inns is also now offering a table service for ordering. The policy is slightly different in some blue-collar areas, mostly in the north, where price is more of an issue.