What's happening... at JD Wetherspoon

by The PMA Team

Lloyd's holds its own

Fears that Lloyds No 1, the 100-strong offshoot that plays music, would be hit harder by the smoke ban than mainstream JD Wetherspoon (JDW), have been allayed by chief executive John Hutson. He revealed the sub-brand has been trading in line with the rest of the estate. He said that the company, fearing the smoke ban, had worked hard to develop day-time sales. Food sales are now in line with the rest of the estate, just over £8,500 a week, although lower in percentage terms because Lloyds sites have higher average weekly sales.

Pulling no property punches

JDW is playing hardball with vendors of property. The company is returning to ask for sharper terms and lower prices in the wake of the slowdown in the commercial property market. Backing out of deals where terms could not be agreed had cost £513,000 in the first half. There are, nevertheless, 214 properties in the pipeline. Hutson: "We're just about the most active pub company - we drive the market. There's an opportunity to renegotiate quite a few deals - and we've walked away from a few deals." The company is still confident of operating between 1,200 and 1,500 sites eventually.

Certainty in licensing

Local authority control of licensing new sites is providing the company with more certainty than occurred during the days when magistrates were in control. The reason is that the company has to liaise with all relevant authorities in advance of an application and gets a good steer on the likelihood of approval. "It was all or nothing" in the days of magistrate control, said Hutson. The last Wetherspoon application to get turned down was in Holmfirth, when residents mobilised to object to the conversion of the cinema.

Keeping things simple

The high-street operator is very unlikely to take the Carluccio's route and add a deli-style takeaway offering. The fit-out costs of the average Wetherspoon would make it a very expensive take-away, said Hutson. "We want people to stay in the pub," he added.

Crucial niche trade areas

Mojito madness has gripped JDW. The company is now selling 20,000 a week as part of a drive to sell more cocktails. The focus is on developing expertise in niche areas such as coffee, breakfast and cask ale. Its first ever wine festival has seen a million glasses of wine sold. The introduction of Coors Light across the estate was founded on the belief that there is a big demand for 4.5% abv drinks - Magners cider is also 4.5% abv. "There are not many of them in the UK," said Hutson. Adopting Rainforest Alliance coffee is part of a "much more virtuous approach". Coffee and tea sales had risen by 12% to 514,000 a week.

Food sales on the rise

The burger boys are getting a bashing. As part of driving the food offer, Hutson claimed that the Wetherspoon burger, offered as part of the beer and burger deal, is "as good as" the up-market offering in Gourmet Burger Kitchen after upgrades in quality. Food sales have risen by 9.7% in the first half year - and now account for 29% of total sales compared to 26% a year ago. The smoke ban has produced the first ever reduction in year-on-year sales per pub. They stand at £29,500 per pub including in the first half compared to £30,600 last year with wet sales and machine income down 6%. Hutson reminded journalists that comparatives are strong, with like-for-likes up 7.4% in the first half last year.

Time to beef up marketing

Marketing muscle is about to be flexed. Spending on marketing will be ramped up in the company's second half to get more customers though the door. Point-of-sale materials will have "more emphasis" and the company is likely to repeat the sending out of discount vouchers through the Royal Mail. "The print cost is not insignificant," said Hutson. The aim is to achieve "higher sales to depress like-for-like declines".

Reading the smoke signals

The smoke ban has produced "mixed messages" in terms of sales performance. In Scotland, sales "came back" after seven to nine months, were then strongly positive, but have since gone "slightly negative" although still up on two years ago. In England, pubs without smoking solutions are not performing any worse than those with one. Those pubs in England that went no-smoking early on a voluntary basis are "still strongly positive". Hutson added: "We strongly believe that, in the medium to long term, the smoking ban is a good thing."

Laurel's moves make no impact

Closure of 22 Laurel high-street pubs has provided no discernable effect on sales at nearby Wetherspoon pubs. "The sales (at the Laurel pubs) were already quite low - there's not been an immediate upturn," said Hutson.

Making sure the price is right

The price differential between JDW and the competition stands at around £7 a round of drinks, according to finance director Keith Down. He claimed this was a 25% to 30% discount on average prices charged by rivals. According to analyst Douglas Jack, of Panmure Gordon, quoting CGA statistics, the company increased its "standard list drinks prices by 6.8% (of which beer was up 5.7%) in the year to December 2007". Hutson said the company was "keeping its powder dry" on raising prices. "If cost pressures continue, we will have to pass that on," he added.

JDW opposes Tory duty plans

JDW would be opposed to Conservative Party plans to increase duty on alcopops and strong drinks. The company liked "as little interference as possible," said Hutson. When the Government last increased duty on alcopops "sales tumbled dramatically" the next week, he added.

Freehold costs double

The average cost of buying a freehold building to develop into a JDW pub has doubled in eight years. In 2000, the company was paying an average of £465,000 to buy a freehold. In the first half of this year, the cost has risen to £1.094m. The company has 42% of its pubs held as freeholds. Its last 28 openings have seen the freehold percentage rise to 60%. Development costs have risen by under 30% in the past eight years. In 2000, the average fit-out cost was £1.049m, a figure which rose to £1.341m for the 10 pubs opened in the first half of the current financial year.

Keeping an eye on resources

Careful management of resources is the order of the day. The first half has seen JDW spend just £52m in capital expenditure, share buybacks and dividends compared to £75m in the comparable half year. "It's just a careful approach," said Hutson. "We want to husband resources carefully."

Martin in the public eye

Tim Martin, founder of JDW, made his first appearance at the company's result presentation at the Crosse Keys pub in the City of London for a number of years - kind of. While his chief executive was presenting results to analysts, Martin suddenly appeared on the giant screen talking to a Sky News journalist.