No weak link in the JDW chain

Presenting his company's annual results recently JD Wetherspoon chief executive John Hutson didn't bear the look of a man whose business had just smashed its sales and profits record.

Turnover for the year to July 26, 2009, rose 5.2 per cent to £955.1m, with like-for-like sales up 1.2 per cent. Pre-tax profits before exceptionals grew 13.6 per cent to £66.2m. Operating margins were up 0.2 percentage points at 10.2 per cent.

Current trading's not been bad either. In the six weeks to September 6, 2009, like-for-like sales had risen 1.2 per cent and total sales by 5.8 per cent, a similar pattern to the same period last year.

An impressive performance in a troubled market, and perhaps worthy of a bit of jumping up and down. But Hutson, one of the pub game's more measured bosses, doesn't go in for fanfares and razzmatazz. While some of his company's marketing literature can be on the loud side, Hutson is anything but.

Smoking surprise

One aspect of Wetherspoons' business that has surprised many has been its response to the legislation banning smoking in enclosed public spaces, but even bucking the smoking ban bronco doesn't faze Hutson.

"We were prepared for it," he says, noting the group had begun rolling out smoke-free pubs well before the ban came into effect in England two years ago. "We always said it would take a few years to get back to pre-ban bar sales and we'll see this happen now in one to two years."

For a business many predicted would be decimated by it - all those drinkers from the more economically-challenged social groups, some observers warned, rather sniffily - the chain has in fact coped better than most.

Bar sales have returned to growth after a year in decline, up 2.5 per cent. Bar revenue was up 3.3 per cent in the year before the ban's introduction, and then fell more than four per cent after it was rolled out in England, where the majority of the group's 731 pubs are located.

True, some of 2009's performance was due to keen pricing in standard drinks and the controversial Greene King IPA 99p-a-pint promotion boosted sales, although it irritated some - not least the Suffolk brewer itself.

But the group has garnered a reputation for being a strong advocate of cask ale. More than 600 of its outlets are Cask Marque accredited. It sees this as one of its key selling points, along with breakfasts, coffee and a swathe of new products due for roll-out in the coming weeks.

Food sales dipped 0.4 per cent, thanks in part to tough comparables - a voucher scheme last year boosted numbers by nearly eight per cent.

Holding margins

Keeping a grip on costs has been a major challenge for Wetherspoons. Gross margins were held despite higher food costs through "better buying", while wage costs were lower thanks to employing more part-time staff and better scheduling arrangements. Operating costs were being suppressed through energy-saving strategies and reduced head office costs.

Even the financial side of the group has met with City approval. Talks are set to start with its bankers over its remaining debt facilities, its US placement due this month is to be paid out of existing funds and most analysts doubt that the group will edge towards raising money through a rights issue.

All good stuff, and the chief executive was no doubt satisfied, though his demeanour remained unruffled. But Hutson properly comes to life when discussing more detailed aspects of Wetherspoons' retail operations.

Wetherspoons, he said, is the world's number one seller of Pimm's. It is also the global number one seller of Swedish cider Kopparberg, even outstripping sales of the product in its home market, and the chain was similarly the world's largest retailer of Lavazza's 'Tierra' coffee brand.

The group, Hutson claimed with a twinkle in his eye, is even the world's number one seller of ham, egg and chips.

While he admitted to this last claim being less than corroborable, Hutson clearly takes delight in Wetherspoon being able to buck the biggest economic tidal wave to hit the industry in living memory in innovative ways.

Opening up opportunities

One aspect of Wetherspoons' year that surprised some has been the group's opening programme. Nearly 40 pubs were unveiled in the financial year, compared with 23 in 2008 and 18 in 2007.

The state of the property market - and in particular the pub property market - has had much to do with this. Taking advantage of distressed sales means Wetherspoon has been able to snap up 29 sites that were already pubs - including some former Laurel Pub Company premises - and spend an average 43 per cent less per site turning them into Wetherspoon pubs than if they had been unlicensed retail shells.

The group plans to open a further 40 pubs in the current financial year, with Hutson claiming there are "hundreds of towns up and down the country that are ripe for a Wetherspoons pub".

With its keen pricing and mass-market appeal, there will be plenty of operators who will be hoping it won't be their town in which the company decides to set up shop.