Tim Martin's radical plan to drive sales at JDW takes courage, says The PMA Team
JD Wetherspoon (JDW) founder Tim Martin is renowned for going out on a limb. With sales down due to the smoking ban, he's taken the counterintuitive step of spending more on service. Fed up with customers complaining about uncleared tables and dirty pubs, he's spending £4m a year on extra staff. It works out at 712,000 extra hours on the roster per annum — or 20 hours per pub per week.
Last November, Mitchells & Butlers revealed it was planning a 2% margin sacrifice to improve the quality of food at brands like Vintage. A sum of £4m is around 7% of annual profits before tax at JDW. Martin will be hoping improved service standards will lead to increased sales. Sometimes Martin's initiatives work, sometimes they don't. But there's no doubting this is a ballsy move.
A more traditional way of driving sales at JDW is to improve the offers. The company launched an afternoon £2.99 cod 'n' chips offer across the estate. Guess what? It's become the best-selling dish within a week.
Heading in the Reit direction
A few weeks ago, broker Morgan Stanley rated the chance of Enterprise Inns getting approval for conversion to a tax-efficient Real Estate Investment Trust (Reit) at 50/50.
Last week, in a surprisingly detailed account of its progress, Enterprise Inns reported that its tax and legal advisors thought a re-structuring of the company would allow it to go the Reit route if it wants to.
Analyst Geof Collyer, of Deutsche Bank, thought that the "probability of this happening has now shifted above 50%". The news, which is very positive indeed for Enterprise's Reit conversion chances, prompted a healthy 37.75p gain to 401.75p in the Enterprise share price by 3pm last Friday.
In the autumn of 2006, tenanted pub company share prices were shooting through the roof as investors tingled at the benefits of Reit status. Enterprise's update suggests that a Reit conversion is a more distinct possibility. In more normal times, it should have provided a massive fillip across the sector. Collyer has a price target of 860p for Enterprise Inns.
A clear view of Globe
Globe was subject to a securitisation in 2006, which means it has to produce a quarterly report for bond holders. This means that its performance is the most transparent in the sector — and it's a mixed bag. A core of around 337 pubs is either on three, five, six or 21-year agreements — 225 of them are on 21-year agreements. Even here, there's been slippage of 25 pubs on longer agreements since the securitisation offering in May 2006.
Beer volume decline year-on-year stands at 8% in the most recent quarter, down from -6% in the year-to-date. Around 7% of the estate is paying no rent and a further 10 pubs have rent concessions. It's a worrying performance among Globe's bottom quartile. Around 17 pubs are to be replaced with, presumably, better quality pubs. It has launched a website to drive recruitment, with a 7% growth in applications since September. It's also boosting tenants' marketing support. The post-ban performance of Globe's managed pubs converted to lease should have been more resilient.
TGI Saturday
Are Friday nights the new Thursday night? Reading Pubwatch secretary Bill Donne thinks so.
Speaking in the wake of Laurel's decision to close the town's Abbey pub, he notes: "We have seen trade really polarise around Saturday nights with sales declining on Fridays. Takings on Fridays used to be 10% down on Saturdays, but some venues are telling me that they are down nearly 50%.
"And now there is added competition from the supermarkets offering highly-discounted booze, so many just stay at home."
Property focus
In these tough times, companies are looking very hard at how they can squeeze extra value from their property estates. Why own too many pubs in an area when they're worth more than their book value as development sites and can reduce capacity for the benefit of your existing pubs?
Noteworthy, then, that two Mitchells & Butlers (M&B) pubs in Gerrards Cross have shut within two days of each other. The French Horn said it would call its final last orders on 1 April. And the Packhorse, in West Common, closed the following day. The pubs will be sold to developers.
"Locally we already have excellent facilities at the Apple Tree on Oxford Road, the Toby Carvery in Denham and the Village Hall in the Chalfonts," says an M&B spokesman.