On the back of JD Wetherspoon’s half year results this morning, Tim Martin spoke to MCA about reducing hours for its managers, its focus on premiumisation and how its product swaps have been performing.

JD Wetherspoon has moved its managers to a 40-hour straight shift pattern, which should affect around seven to eight people per pub, down from 42.5 hours, and on the same pay, chairman Tim Martin told MCA.

The change, which is effective from this month, follows other investments in its employees, such as training academies for catering and coffee, and higher than average wages, which recently saw it named one of Britain’s top employers for 2019.

Martin said that a key focus going forwards was going to be on improving staff facilities at its pubs. “We want to improve staff rooms and changing facilities – it’s a massive job, around £40m over the next four to five years,” he said. While all pubs currently have some kind of staff room, only a third of the estate has been upgraded so far. “We also want to make sure that we continue to improve training for staff,” he added. “Anything that you can do to make people’s lives easier is good for the business.”

Commenting on the hit to profits from its increased labour costs, Martin said that while wages were up c13% (contributing an additional £33m in the first half of the year), he put this mainly down to the fact that unemployment is at record lows, which has put pressure on wages. However he added that this should also have a positive effect on sales in turn, which should help balance out some of the costs.

He said that while the sector as a whole had been impacted by the increases in the National Minimum Wage and National Living Wage, Wetherspoons had been largely unaffected because its wage levels were already higher.

“I think that higher pay always helps (in terms of performance), but the balancing act occurs when it’s at the expensive of profits,” he told MCA. “There is a leap of faith that if you make that investment then it results in increased sales.”

Expansion and investment

Martin has said he sees scope for up to 300 more pubs in the UK, but that it would be on basis of c10 openings per year. He said that while the operator had predominately stayed out of London, he joked that there was the potential for them to have a pub at every entrance to the newly developed London Bridge station. In terms of pubs in the pipeline he said they were currently looking at applying for a site in New Milton in Hampshire.

Earlier this week JDW confirmed it would be bringing another 16 pubs to market, but Martin said that hopefully there would not be too many more disposals however the leases were due to expire on several pubs which may be relocated. In terms of the accommodation side of the business, he said that it was cautiously expanding its hotel arm, because the level of regular investment in those sites was high, and there were also many more pubs with rooms opening across the country, so perhaps it was a sign to go easy.

Martin said the business had just renewed its bank facilities to cover the next five years. Implemented in January, it sees its total facilities, including finance leases, increase from £860m to £895m. Closing net debt decreased from £756.4m last year to £724m.

While Wetherspoons’ cut investment during the recession, it has since upped the levels. “Hopefully we have invested reasonably well,” he said, but admitted that it had over-expanded in certain areas. “We are reaching the limits of our fast expansion – in fact we probably reached it years ago,” added Martin. “The name of the game is to try and buy things that make economic sense and to try and avoid investment.”

Commenting on the increase in investment in freehold revisions for the half year (from £11.3m in H1 2018 to £51.9m in H1 2019), Martin told MCA that “it was very much an opportunistic thing”, but added that the number of pubs available for them to revert was very low as the prices are high.

He said that benefit it the reversions were that interest on freeholds is generally a bit less than rent - “it’s all fine and dandy until interest rates go up of course”.

Product performance

In terms of products he said that spirits in general had traded very well, with gin in particular putting in “a completely phenomenal performance”, with sales up c20% year-on-year.

In terms of the move towards premiumisation in the sector, Martin said that the operator was “100% concentrated on trying to premiumise the offer”, which has included the introduction of craft ales and improved steaks. “It’s really just another word for continuous improvement,” he said.

Its pizza offer, which is now in c600 pubs, has been a big investment, and one that has been difficult to get right, he said. “I can’t say that we are making a lot of money from it yet, but we are hoping it will become as successful as our coffee,” he said.

On its product swaps, he said that the greater success had been with Strika – a herbal liqueur, produced by Halewood Wines & Spirits based in Liverpool – which has taken the place of Jagermeister (which had been its highest performing imported drinks in terms of sales). “It has been an extraordinary success,” he said, while Australian brandy Black Bottle had also been performing well. Martin said that it would be holding-fire in terms of any additional swaps for now in order to assess performance of the current range.

Both brands came in a 10p less in price per serving, and although JDW could have charged the price of the existing products he said they passed the cost saving on to customers as he thought it was a good story.

Responding to several stories in the national press recently, highlighting price increases on its menus, Martin said these increases had not been reflected in its figures, and that it had in fact lowered the price of several items on the menu, including Guinness.