Counting on the value card
There's been a sea change in behaviour among consumers. The hard-pressed UK punter, confidence shaken to the core by dire daily headlines, is now much more aware of the importance of spending wisely.
The object is to find good value. Those who offer good value will be rewarded; those who don't will be punished. It's as simple as that. It's why Primark Christmas sales were up by 28%, while Marks & Spencer's were down by 7%.
A survey by market-research firm Allegra of 250 pub-sector executives found 50% citing "price-focused purchasing decisions" as the biggest consumer issue facing their businesses.
The trend emerged last year. Marston's revealed in December that reduced consumer confidence had led to an increase in main courses retailing below £5, accounting for 55% of main meals sold. It also found 90% of managed pubs were offering promotions, with 35% of its own sales occurring "on promotion".
The managed operators are using every ounce of their scale to sharpen their value offers.
January sales
The first few weeks of 2009 were always bound to be difficult in trading terms as consumers put their wallets under lock and key. The new year has seen what Punch Taverns finance director Phil Dutton called "promotional intensity". Managed operators stepped up promotional campaigns in a desperate attempt to maintain sales. The usual January offers are being extended much later into the month and beyond.
This week, Ha! Ha! Bar & Grill customers received an email offering them a two-for-one deal until 13 February. JD Wetherspoon's (JDW) eye-catching 99p for a pint of Greene King IPA offer is an indefinite one, likely to last three or four months. These offers involve margin sacrifice in the hope of creating volume.
Experts believe the JDW offer means it is selling IPA at a gross margin of just 4% compared to the normal gross margin of 60%. (Sales are rumoured to have quadrupled, although this is essentially a loss-leader, aimed at generating ancillary sales.)
Spirit, Punch's managed arm, has reported that around 1% of its thumping 5% drop in gross margin in the 20 weeks up to 10 January is down to promotional activity.
Analyst Geof Collyer, of Deutsche Bank, thinks Spirit is now operating on the lowest margin of the major managed operators in the sector — 7.5%. A lot of promotional activity is centred around food: Yates's offers bangers & mash at £1.99, while Spirit is selling fish & chips for £2.99.
These price points present a major challenge to quick-service restaurants that are charging an average of £3.22 per meal.
Differentiating the value offer
The trick now is to offer better value, quality and choice, whatever your market position. It's about value, delivered in a high-quality environment.
Mitchells & Butlers (M&B) is offering an additional choice of two hot dishes on the carvery deck at its Toby Carvery brand from Monday to Saturday, together with a free glass of wine, for the previous post-7pm price of £7.50.
Lunchtimes are a key battleground: industry insiders report that lunchtime food and drink sales remain strong, while evening drink sales, particularly early in the week, are weaker. In its mid-market and premium brands, M&B is offering what it calls "complementary value packages" alongside its main menus to win lunchtime business. Vintage Inns is offering a two-course lunch for £7.95 to attract customers who are trading down. Harvester is offering customers a package that includes a free ice-cream sundae for less than a fiver. Similarly, Spirit's 138-strong Chef & Brewer offers two courses for £10.
During the evening and weekend premium sessions, the managed operators are again targeting customers of pricier full-service restaurants. M&B is enhancing the quality of dishes to respond to the demand for "more for same".
Last year M&B anticipated the demand for value by opening a budget carvery, now rebranded Crown Carveries, every week.
This year, the company is hammering home the value proposition with national newspaper advertisements for this and its other major brands.
Capitalising on growth drink areas
The big managed players have noticed that higher-priced brands are under pressure, with a stronger performance in standard lager and ales. M&B is content to take market share in a declining lager market by holding prices.
Meanwhile, it's extending range in growth categories. Its premium imported lager volumes are up 33% after range extensions. Its soft drinks volumes are up 2% and hot drinks volumes up 8%; managed pubs offering high-quality coffee for less than £1 stand to win customers from premium-priced coffee shops.
The introduction of new cider product lines saw volumes up 12% at results in November. Cask ales, long held up as a key differentiator for pubs, are being pushed as never before; volumes are up 9% at M&B, thanks partly to wider distribution.
