JD Wetherspoon chairman Tim Martin spoke to the press following this morning H1 results announcement. He discussed his approach of sticking to the brand’s core values while innovating on a small scale, including the fledgling pizza offer. He also shared his thoughts on delivery, the casual dining market and plans for further expansion in the Republic of Ireland but why JDW won’t be going international.
JD Wetherspoon chairman Tim Martin spoke to the press following this morning H1 results announcement. He discussed his approach of sticking to the brand’s core values while innovating on a small scale, including the fledgling pizza offer. He also shared his thoughts on delivery, the casual dining market and plans for further expansion in the Republic of Ireland but why JDW won’t be going international.
Trading
JDW has seen average weekly sales rise from £40,500 in H1 2017 to £43,400 in the most recent period.
In terms of like-for-like sales (lfls) performance, food continues to outpace drink although the gap has narrowed. Whereas food lfls were up 5.1% in H117 vs 2.4% at the bar, the figures were 6.9% and 5.7% respectively in H118.
Martin said the growth in lfls was primarily down to volume rather than price rises. He refused to be drawn on the latter, other than to say “modest” increases had been introduced. He said the sugar tax, of which he has been a vocal critic, would add c10p to the cost of affected products.
He said the most recent trading period had been affected by the snow but said the fallout from the steak shortage had only had a minor impact as alternatives to Russell Hume had quickly been sourced.
He reiterated caution over lfl rises for the rest of the year, adding: “We never would have expected 6% at the beginning of the year. More realistic would be 1% over inflation. That would be a very good outcome over the next 12-18 months.”
Drivers of success
Asked what had driven such high lfls growth in a challenging market, Martin said: “It’s difficult to pin it down to one thing. There are a thousand components to a BMW and it’s the same with a pub. We have become slightly fashionable which was slightly unexpected because we are used to being unfashionable.”
On the plight of some of the most high-profile casual dining chains, he said: “The top brands – the Greggs, the McDonald’s, the Wetherspoons, the Guccis and the Chanels of this world – are doing very well. If you add up all these casual dining chains they are probably a third of the outlets of Greggs. It’s a particular problem about over-expanding and going into the prime sites with high rents.
“Too many have opened up in the same places. There’s certainly a market there and there are brands such as Franco Manca that are doing very well. Some of the others are perhaps too cloned and too lacking in individuality.”
Asked what sets JDW apart, Martin said the company had continued to invest, saying it spent 4% of sales on repairs, as opposed to an industry average of 1 to 2%.
He said: “It’s sticking to the core values at the same time as improving. We are alert to small ideas, whether that’s new glassware or cups or investing in apps. We try to make 20 or 30 changes to the menu every time we change it. It’s the combination of those small moves rather than one big change. It’s like the German style of football – lots of short passes.”
Pizza
The company has been trialling a pizza offer in around 150 pubs nationwide and Martin said the results so far had been positive. However, he said it was still too early to commit to a rollout.
He said: “It’s still a trail but when I have gone into the pubs they seem popular. We have put in pizza ovens so it’s capital intensive. It’s another station in each kitchen so there are complications but we’re pleased with performance so far.
Delivery
Martin insisted there were still no plans to diversify into delivery, adding: “It’s called the on-trade for a reason and for me, pubs will always be about bums on seats. Just as pubs have never made money off-sales of beer, I don’t think ultimately we will make money from off-trade sales of food. I think it’s all about the atmosphere.
“Delivery has certainly gone hand in hand with supermarket alcohol prices to encourage some customers to stay at home but it’s nothing new. Domino’s has been doing it for years.”
Hotels
JDW saw hotel lfls grow 3.1% in H118 compared to 14.8% in the same period last year.
Martin said: “We are feeling our way with hotels. There’s a lot of people building hotels now – a lot of them opening up. We are just seeing how it goes and trying not to make a mistake. We have a few more in the pipeline – one in Glasgow that has about 98 rooms and one in Dublin of a similar size and a few more.
“They are very expensive so it’s just about trying to make sure we don’t waste any money.”
Republic of Ireland
JDW currently operates five pubs in Ireland but Martin said there were plans to add three more over the next year.
He insisted this was as far as the company’s international ambitions took it.
He added: “There is a temptation to take pride in being a “growth company” and time and again that means people going overseas. I would imagine all of the money that has been spent by retailers trying to go abroad has been lost.”
Tax equality
Martin returned to a popular theme of gaining tax equality with supermarkets, saying: “We have had a rising market for eight or nine years, yet pubs are still closing. Individual publicans on the ground very much support tax equality but for some reason it has always had low priority in the boardroom of the biggest pubcos.
“I can’t do this alone and I strongly believe that unless the pub companies start adding a real voice to tax equality we won’t get it. They will eventually suffer for that.
“Kate Nicholls and Brigid Simmonds have done a great job but it needs to industry to speak as one.”
Analysts
On the back of the presentation to analysts, Peel Hunt declared: “The most interesting aspects of the presentation were: early H2 LFL sales would have been at c5.5% without the week of snow; JDW is winning a large share of eating out; and new digital machines are helping machine LFL sales to rise by 4.6%. This has a positive read through to drink-led operators; for JDW, machines generate 2.5% of sales, but almost a quarter of PBT, we estimate. We raised our forecasts by 3% earlier today.”
Liberum said: “We expect the next round of trading updates to play out as the last, with premium and wet-led brands outperforming their more value-food focused peers. Additionally, snow disruption will also have tipped performance in favour of city center sites away from more suburban destination ones. The outlook remains cautious, with soft demand and rising costs now well flagged and largely baked into forecasts - important as we approach the next labour/rates hikes in April.”
