JD Wetherspoon snapping up bargain pubs

JD Wetherspoon is now buying freehold pubs for a little as half the price of two years ago.

The company is acquiring sites for as little as £1m for a freehold pub including fit-out, against earlier prices in the region of £2m to £2.5m.

The company reports that cash returns on investment are now improving from the recent level of 10-11% because of the availability of cheap freehold and leasehold sites.

The company is also now able to use demographic data to predict new site performance within narrow bands. The information emerged from a meeting between Wetherspoon management and City analyst Paul Hickman of KBC Peel Hunt this week. Hickman reports that trading remains in a stable pattern with the company not having to promote or discount excessively.

The analyst said Wetherspoon still has an ambitious build-out plan. He said: "In terms of demographics, management estimates that there are up to 2,000 suitable locations in the UK. But allowing for the likely availability of suitable sites in such locations, a realistic estimate is around total potential pub numbers of 1,200 - 1,500."

He added however: "Management does not want to accelerate the rate of pub acquisitions, as few of the available pubs are suitable for its model."

Hickman reports that management prioritises maintenance and bar staffing, since customer feedback has identified that these are clear business drivers.

He added: "Invited to compare Wetherspoon with Mitchells & Butlers, management felt that Mitchells' maintenance capex reductions merely brought them back to Wetherspoon's typical refurbishment spend of £50-100,000 rather than larger amounts that have been typical in the past."

Hickman also reported that operational disciplines are strong, with stock losses and energy consumption per pub at the lowest level ever.