Managed and tenanted polarisation
The like-for-like performances highlight a marked difference in performance between managed and tenanted operators from around last summer.
There appear to be distinct winners and losers, with managed companies out-performing tenanted performers almost without exception.
Mitchells & Butlers (M&B), for example, reported a 1.2% rise in beer sales while Punch Taverns has suffered a mighty 12% drop in beer volumes. Not surprisingly, Tim Clarke, chief executive of Mitchells & Butlers, has claimed that a tipping point has been passed in terms of the value gap between managed and tenanted pubs, with customers now sliding across in large numbers.
There are two caveats to bear in mind when studying KBC Peel Hunt's table. The managed sales figures reflect gains that have been achieved through a degree of margin sacrifice. Wetherspoon's 99p-a-pint IPA and other offers has spiked its like-for-like line to above 6% in the early weeks of January, although the precise margin cost of this is unclear.
Similarly, Spirit moves into positive like-for-like territory over Christmas and New Year thanks to increased value-offer focus, but it has taken an enormous 5% hit to its margin compared to a year earlier.
Greene King's managed division achieved a trend-reversing 2.4% increase in sales in the eight weeks to 25 January by walking a line between offering greater value, but protecting margin.
Christmas and January reprieve
It's clear that the pub sector received a Christmas fillip with trade a good deal better than might have been expected.
M&B, for example, reports that there was a very slow start to December, but the two weeks spanning Christmas and New Year caught up in spades. Like-for-like sales were up by between 5% and 8% over the fortnight.
Similarly, Bay Restaurants and Town & City Pubs, Robert Tchenguiz's two managed companies, traded ahead of forecasts — Bay Restaurants, which includes Slug & Lettuce and La Tasca, saw double-digit sales growth. (Privately-owned Barracuda's performance at -4.5% looks particularly poor in this context.)
So far in January, managed divisions have reported resilient trading. Even tenanted operators seem to have had a reasonable Christmas and early January.
Tenant support at Enterprise Inns has stabilised. Ted Tuppen told analysts a fortnight ago: "We have good weeks and bad weeks depending on the weather, but it's been relatively stable through the period."
Tenant fragility
Running tenanted estates must feel like walking on eggshells at the moment. Or tip-toeing across a minefield with a blindfold on. There can be no doubt that the tenanted operators must fear wholesale throwing in of keys, with several tougher months of trading ahead.
A 12% drop in beer volumes at Punch, for example, came before the passing on of the latest round of wholesale beer price increases.
The pressure on the tenanted estates from managed offers has intensified enormously since Christmas. Not surprisingly, major tenanted companies are bending over backwards to avoid putting further pressure on their tenants.
Marston's is absorbing a series of price rises until 20 April. Robinsons has opted to give tenants a year off on price rises for its own ales. Enterprise Inns has promised to give licensees enough help on wholesale price rises to "put a smile on their faces". Punch Taverns will surely be compelled to follow suit and give up the part of the wholesale price rise it normally pockets. Enterprise's Tuppen says: "It's sensible to remain cautious. We have to take every month as it comes."
Middle-market softness
The first signs of softness in the pub sector eating-out market is evident in the mid-market. Value offers and menu items in the sub-£5 category are still doing extremely well.
Premium offers, such as M&B's premium country-dining offer, are performing well as customers trade down from pricier restaurants. The mid-market is marshy. M&B's Tim Clarke reports that the "family mid-market is where the deflationary pressures are the strongest".
Harvester, for example, has seen a better sales performance after the extension of its Early Bird offer. "It's improved, but it's not at the top of the league," Clarke says. Of Greene King's managed division evolution, KBC Peel Hunt analyst Paul Hickman says the polarisation into premium or value categories recognises "that the mid-market is dead". An overstatement containing a few grains of truth.
Worst is to come
The consensus among industry leaders is that the worst is yet to come. It would be fair to say Greene King boss Rooney Anand saw the current economic circumstances coming earlier than most. He got a fair bit of flak after turning bearish at the end of 2007.
He thinks we're facing a full 18 months of negative gross domestic product. "I'm still bearish about the economy and cautious about what we're sailing into."
On the upside, he also thinks that the downturn affected the pub trade earlier than most, but allowed it to "adapt more quickly" than other sectors. Interestingly, he told one City analyst this week that the industry is going through "four or five years' change in 18 months".
M&B boss Tim Clarke thinks there will be a 3% decline in consumer spending this year, with the eating-out market bound to be affected. He does, however, believe that large, well-invested pubs serving a value-food offer can benefit from customers trading down.