JD Wetherspoon chairman Tim Martin and chief executive John Hutson spoke to the media following this morning’s full-year results announcement. They discussed the company’s changing sales mix; the early impact of takeaway coffee; Martin’s plans to increase his stake in the company; how JDW has a majority freehold estate for the first time; the goal to build a national hotel chain and why even Tim Martin didn’t believe the UK would vote to leave the EU.
Sales mix
During the year the group continued to grow revenue and like-for-like sale with average weekly sales per pub at a record high of £39,000 – up from £37,400 last year and £31,100 five years ago.
The sales mix saw a considerable shift to towards food, which now accounts for 37% of the total, compared to 59% for bar sales. In 2000 the mix was 18% and 76% respectively.
Chief executive John Hutson said there was no ceiling for how much of the sales mix the company expected food to account for.
He said: “We try to run a good pub in every area we trade and we do what works. On average is food is 37% but in some pubs it’s lower and in some it’s higher. As long as the pub is popular and successful, we don’t mind.”
Chairman Tim Martin said breakfast sales now accounted for between 5-10% of total sales and were continuing to grow.
He said the takeaway coffee offer introduced earlier this year had “been a slow start but an offer which is appreciated”. He added: “I don’t think Costa or Starbucks are shaking in their boots but it’s a useful offer. It’s like breakfasts – it’s a slow start but it is now pretty busy in our pubs before 11am. I suspect takeways will never be a huge part of our trade but rather a facility for customers.”
Martin said craft beer was an increasingly important part of the drinks offer and that people were willing to pay more for the products.
He said: “It’s still a minority product but a very important minority product, in the same way coffee or breakfast was 10 years ago.”
On the subject of millennial customers, Martin said: “Young people still use the pubs but in different ways. They go for breakfast or for beer and burger deals.
“It’s partly a fashion thing. 25 years ago the number one selling bottle in the country was Diamond White, which was a cider almost as strong as wine.
“People will continue to want to go out. They are social creatures. Social media is slowly driving people mad and I think there will eventually be a reaction against that.
Current trading
JDW has seen sales growth of 4.1% in its current financial year.
Martin said: “We’re not throwing out hats in the air just yet but it has been a solid few months after a slowish first 8/9 months of last year. We were quite surprised it was so slow at the start last year.”
He stressed that there was no one factor that drove recent growth but said the group had benefitted from sporting events such as the Olympics, Wimbledon and the early stages of Euro 2016. He said while JDW pubs would never become sports pubs, they were well suited to “prolonged” sporting events such as the Olympics.
Martin said it was also quite likely that the company had benefited from his high-profile during the referendum campaign.
Disposals
JDW opened 16 pubs during the year and sold or closed 41, to end up with 926 pubs, compared to 957 at the at the start of the year – the first time its estate has shrunk during a financial year since it floated. It expects to open 15-20 pubs this year.
Martin said the group had sold or had offers on approximately three quarters of the pubs it had put on the market, with the remainder still for sale.
The average cost of developing JDW pubs rose from just over £2.1m last year to £2.5m.
Over the year the group spent £36.1m on freehold reversion and investment properties. For the first time it now has a higher proportion of freehold (51.4%) than leasehold.
Hotels
The group opened seven hotels during the year, to take its estate to 46 in total and over 1,000 rooms across the estate.
Martin said the group hoped to open 50 to 100 hotels over the next decade.
He said: “It’ll help us because we’ll have a small national chain of hotels. If we can offer national coverage that will be attractive to certain kinds of customers.
“But it’s a flexible approach. We’re very happy if there’s a hotel above our pub which belongs to someone else or offices or even flats.
“What we have found when we put a hotel above an already successful pub is that the hotel does well and the pub does even better.”
Share buybacks
Martin revealed that over the past 10 years his shareholding has increased from 21.2% to 29.5% and that the company was now considering a rule 9 whitewash, under the UK City Code on Takeovers and Mergers, allowing further buybacks.
Martin said: “I don’t want to take over the company. I like being a listed company despite the odd penetrating cross-examination from the press. When I’ve looked into a whitewash it would allow me to go to 35%.”
Brexit
Unsurprisingly, Brexit dominated the conversation between Martin and the media.
He stressed that he did not see a significant impact on prices of wine and that he thought it was unlikely tariffs would be added to wine coming from EU countries.
He said: “European wines have had massive competition and so, if their price goes up and new world wines go down, there would be massive pressure on the wine industry to not impose tariffs. There would be a fear of other countries being tariff-free and the EU less competitive. So over the short and medium terms, I see no impact.”
He reiterated his point raised in this morning’s announcement that the UK should not see itself as beholden to agreeing a trade deal with the EU.
He said: “The one thing neither party should do is admit – ‘I must trade with you or I’m in big trouble’. You wouldn’t want someone to wander into negotiations on behalf of Wetherspoon’s in Diageo and say ‘ If we don’t get this deal to buy Guinness, we’re history’. In fact, we have gone into Ireland and traded there very successfully with no Guinness because that’s what they thought.”
On the immigration debate, Martin said that in a poll of the company’s latest openings – most of which were outside of London – 5% of the staff were born outside of the UK. However, stressed that company was committed to doing all it could for its foreign-born workers.
On a future immigration system, he said: “I would be happy for people from existing European countries to be able to come and work here and for future countries joining the EU to have a points-based system.”
He also admitted that despite his bullish performances in the lead-up to the referendum, even he wasn’t confident of success, adding: “I was asked to on the Brexit round-up with David Dimbeleby and about three hours before I pulled out because I thought we were going to lose. I wasn’t going to go on there and say ‘the best man won’. What an opportunity for a gloat! I was kicking myself.
VAT
Martin agreed with the comments made by Chris Guyver – head of the campaign to cut VAT for pubs and restaurants, who told MCA this morning that Brexit could help the cause.
He said: “It creates a feeling of self-reliance and there’s less of Big Brother taking care of us. There’s fewer obstacles between a national desire to do something and the objective because it’s your own Parliament that is deciding.
“I wouldn’t say it makes us more ambitious but certainly we feel confident that now is the right time for issues like this to come to the fore.
Corporate governance
Martin’s wide-ranging commentary in this morning’s City update included a section on corporate governance.
He set out his objections to the current system, saying: “The dog that hasn’t barked yet is that since all this corporate governance came into being we’ve had major banks going bust and the supermarkets have got into trouble so I think the current system of corporate governance could perhaps be used as something you could impose on a company if you felt it wasn’t being run correctly. But it’s actually not a very good way of running a company in the long-term.
“In the pub world the companies which have done best have been the ones that have least followed corporate governance rules. They have a CEO who has become chairman, they’ve got two or three members of the founding family on the board and they don’t do what they’re supposed to do, or at best pretend to do what they’re supposed to. There’s often not enough representation from the people who actually make the company work. There’s too much concern on box-ticking.”
Martin said he would consider adding a staff representative to the board and stressed that regular forums are already held involving senior management and workers.
Zero-hour contracts
Asked what the company’s approach to zero hours contracts was, Martin said: “It’s not something that was ever, ever brought in my conversations over the years but suddenly it got this catchy name and everyone started talking about it. It used to be called hourly pay and I think most of us have done jobs on that basis in the past.
“We decided to do a trial, which started six months ago in certain areas of the company. It was big enough to get a good idea of what the take-up has been.
“We have offered guaranteed hours contracts to a percentage of our workforce and they’re all going to be offered them in the next few months. Despite me saying there’s no advantage to them etc, they have had good take up – 70% or 80%.”
