Business Strategies: J D Wetherspoon - Essay Example

Business Strategies: J D Wetherspoon Executive Summary The report aims to provide a detailed of J D Wetherspoon’s business operations. Itstarts with the brief overview of the company’s business, employee strength and financials. It then covers business description of the company in terms of its product offerings, segments and geographic footprint. Also, a brief history about the company along with its recent developments has been covered. Further, the report provides a detailed description of the company’s business strategies. Five strategies have been covered including: Improving its coffee retail operations; Focus on the expanding business operations; Focus on maintaining market leadership; Focus on Strategic Acquisitions; Industry Recognition to Enhance Brand Image. Recent initiatives taken by the company has been incorporated under each strategic head. One of the company’s strategy ‘Focus on expanding business operations’ has been evaluated. Finally, the report covers various challenges faced by the company and its areas of concern. Contents Business Strategies: J D Wetherspoon 1 Executive Summary 2 Company Overview 4 Business Description 4 Brief History: 5 Business Strategies: 5 Improving its Coffee Retail Operations 6 Focus on the Expanding Business Operations 6 Focus on Maintaining Market Leadership 7 Focus on Strategic Acquisitions 8 Industry Recognition to Enhance Brand Image 8 Evaluation of Company’s Strategy: ‘Focus on the expanding business operations’ 9 Areas of Concern for the Company: 10 Substantial Debt 10 Limited Liquidity 10 Stringent Regulations 10 High dependence on the UK market 11 Competitive Pressure 11 References 12 Company Overview J D Wetherspoon (Wetherspoon or ‘the company’) is engaged in the development and management of public houses such as pubs and lodgings. The company owns and operates pubs throughout the UK. It is headquartered in Watford, the UK and employs about 21,177 people. The company recorded revenues of £996.3 million ($1,567.3 million) during the financial year ended July 2010 (FY2010), an increase of 4.3% over FY2009. The operating profit of the company was £89.5 million ($140.7 million) in FY2010, an increase of 19.1% over FY2009. The net profit was £40.8 million ($64.1 million) in FY2010, an increase of 61.2% over FY2009. Business Description J D Wetherspoon (Wetherspoon or ‘the company’) is an operator of managed pubs and lodgings in the UK. The company offers eating, drinking and entertainment facilities through its 775 pubs in the UK. The company in addition to alcoholic drinks also offers non-alcoholic drinks, such as coffee, and breakfasts in its pubs. The company provides its services under three categories: pubs, food and drink, and lodges. Wetherspoon operates in England, Scotland, Wales and Northern Ireland. The companys operations comprise pub retailing and lodging. The company offers a variety of beers and lagers, spirits, wine, draught beer, soft drinks, cocktails and bottled beverages. It has a range of real ales and guest ales, which includes regular beers from brewers across the UK. The company also offers a range of food products like salads, pastas, delis, breakfast, and meals among others. Wetherspoon also operates Lloyds No 1 bars and J D Wetherspoon Lodges. Brief History: J D Wetherspoon (Wetherspoon or ‘the company’) was established in 1979 by Tim Martin in North London. In the early 1980s, the company bought pubs and opened new locations in order to enhance its portfolio of outlets. By 1986, the company was operating 12 pubs in North London. Wetherspoon opened its first pub at Liverpool John Lennon Airport, and three new outlets were opened in 2005. In the same year, a new pub was opened in Cowgate, Peterborough. in 2005, four new pubs were opened, including two airport sites, and one in Telford. In 2008, the company’s 131 pubs were recommended in the CAMRA Good Beer Guide. In the same year, Wetherspoon introduced Coors Light and the company became the largest retailer of this product in the UK. In January 2009, Wetherspoon reopened its former market hall pub, in Mexborough, South Yorkshire. In March 2009, the company opened three new outlets in Fareham (Hampshire) and Rotherham (South Yorkshire). Wetherspoon opened six new pubs in July 2009, including The Sawyer’s Arms (Exeter), The Queen’s Hotel (Newport), The Cordwainer (Northampton), The Chevalier Inn (Exeter) and The Thomas Leaper (Derby), and The Lawrence Sheriff (Rugby). Business Strategies: Business strategy is the plans, choices and decisions used to guide a company to greater profitability and success. AN inspired and clearly considered strategy provides the impetus for commercial success whereas a weak or misunderstood strategy may lead to a company going out of business. Understanding what constitutes strategy is therefore crucial in developing a successful business. Implementation of strategy is of utmost importance, rather than just setting it, and equally important is for a strategy to be clear and effectively communicated to everyone with a role of implementing it, and to other stakeholders. A focus on strategy will highlight where a unit or group of business can be more successful as well as those areas where it is weak. It will show in detail where the business is making money and why. This insight is used to build profit, cash flow growth and shareholder’s value. Also, the process of developing and implementing strategy enables managers to better understand their customers and competitors. Further, a successful strategy makes sure that resources are devoted to most important customers in order to retain their loyalty. Some of the important strategies identified for J D wetherspoon are as follows: Improving its Coffee Retail Operations The company has been recording strong growth in the sales of coffee in recent years. In FY2010, Wetherspoon’s coffee sales increased by 40% to over 600,000 servings per week. For the same period, Wetherspoon became the world’s number one seller of Tierra, Lavazza’s Rainforest-Alliance-certified sustainable coffee. In addition, the company retained its worldwide leadership on Lavazza’s sustainable coffee from Rainforest Alliance. Hence, strong performance of coffee operations enables the company to expand its consumer base and drive revenue growth. Focus on the Expanding Business Operations Wetherspoon opened many new pubs in recent years to expand its business operations. For instance, in 2009, the company opened three new outlets in Fareham (Hampshire) and Rotherham (South Yorkshire). Followed by this, Wetherspoon opened three new pubs:The Robert Ransome in Ipswich, The Merton Inn in Bootle, and The World’s Inn in Romford. The company also opened new pubs: The Boot Inn opens in Burnley, The Flying Boat in Dartford, and The White Swan in Portsmouth. Wetherspoon opened six new pubs in July 2009, including The Sawyer’s Arms (Exeter), The Queen’s Hotel (Newport), The Cordwainer (Northampton), The Chevalier Inn (Exeter) and The Thomas Leaper (Derby), and The Lawrence Sheriff (Rugby). In addition in FY2010, the company opened two new pubs: The Albany Palace opens in Park Road, Trowbridge, and The Silk Kite in Church Street, Tamworth.Wetherspoon also opened three new pubs: The Water Gate, Barnstaple, Bank House, Cheltenham, and The Art Picture House, Bury. Most recently, the company opened six new pubs in October 2009. Expansion of facilities would help the company to expand its customer base and generate incremental revenues. Focus on Maintaining Market Leadership Strong market position coupled with strong brand name is helping the company to attract huge customer base, which in turn has a positive impact on its top–line performance. The company’s market leadership position could be attributed to its business model, where the company drives down the price to the consumer. Moreover, it invests heavily on its pubs to provide a better ambience for the customers. Its pubs were spruced up with GBP 1 million-plus conversion costs, equipped and maintained accordingly. It offers premium and leading brands, besides quality specialist products. Other major success factor is its innovation in service. J D Wetherspoon was the first pub chain in the UK to provide all-day menus and open at 7 A.M. for breakfast, it was the first pub chain in the UK committed for 25% its pubs to be non-smoking, well before ban on smoking came into force. Its market leadership can also be attributed to strong market presence. It has presence in the UK market, operating business through its own pubs in England, Wales, Northern Ireland and Scotland. As of 2010, the company owned and operated over 775 pubs in England, Scotland, Northern Ireland and Wales, and is adding more pubs. The company also opened over 47 pubs during fiscal year 2010, of which, 15 were freehold. In addition, it owns and operates over 16 delightful hotels. Moreover, it offers food and drinks to its customers at competitive prices. The company’s market leading position and lavish pubs may expand and strengthen its business further. Focus on Strategic Acquisitions The company focuses on strategic acquisitions of pubs, which may have a positive impact on its top-line performance going forward. In this line, the company agreed to acquire about 12 sites from 3D Entertainment subject to landlords agreeing for dropping rents in the range of 20% to 30% in a deal estimated at about GBP 4.0 million. Lately, in 2009, the company acquired five pubs from Punch Taverns plc, a UK-based leading pub chain operator. The acquired pubs are the Red Lion in Petersfield, the Childwall Fiveways Hotel in Liverpool, the Black Horse in Northfield, Aunt Sally in Sheffield city, and the Berkshire Tavern in Newbury. Further, in September 2009, the company acquired Bar Med pub, which include two outlets within 500 yards of each other. Acquisition of pubs such as these makes the company’s entry into new areas much easier at relatively lesser cost, coupled with group of customers. These acquisitions come at a time many pub operators are closing down their sites. According to British Beer & Pub Association in early February 2010, pub closures in the region ran at about 39 a week. Acquiring pubs during a time, the UK pub industry goes through tough times provides a good value proposition for the company. Industry Recognition to Enhance Brand Image Wetherspoon is one of the most recognized operators of pubs in the UK. The company has been receiving many awards and recognitions for its services. For instance, the company was named Pub Company of the Year at the 2010 Publican Awards and won 2010 ‘Best Town and Local Pub Menu’ at the Menu Innovation and Development Awards (MIDAS), sponsored by the Inside Foodservice organisation. Further, in FY2010, the company’s The Yarborough Hotel, Grimsby, was named ‘Pub of the Year 2009’ by branch members of the Grimsby and Northeast Lincolnshire CAMRA.The Robert the Bruce pub in Dumfries was awarded third place, in the licensed premises category, in the annual competition organised by Civic Pride Dumfries and supported by Dumfries & Galloway Council. Also, seven Wetherspoon pubs in Manchester City Centre achieved recognition in the city’s Best Bar None awards 2009. Earlier, the company’s Red Lion pub, Thomas Sheraton pub, and The Corn Exchange pubs were named as ‘Pub of the Year’, by CAMRA (Campaign for Real Ale) in 2009. Thus, strong recognition in the industry further enhances brand image of the company and gives it a competitive advantage. Evaluation of Company’s Strategy: ‘Focus on the expanding business operations’ Strategy evaluation is essential to ensure that stated objectives are being achieved. In many organizations, strategy evaluation is simply an appraisal of how well an organization has performed. Have the firm’s assets increased? Has there been an increase in profitability? Have sales increased? Have productivity levels increased? Let’s discuss it from the context of expanding company’s business operations. The company has significantly increased its assets with the opening of new pubs like The Robert Ransome in Ipswich, The Merton Inn in Bootle, and The World’s Inn in Romford. This resulted in increased sales for the company. In FY2010, the company’s revenue increased by 4.3% to reach £996.3 million. Also, driven by the company’s continued business expansion, its revenue has grown at a compounded annual growth rate (CAGR) of 4.13% during 2006-2010. Such stable revenue and growth rate will allow the company to pursue strategic capital investment opportunities in the future. Areas of Concern for the Company: Substantial Debt Huge debt is a serious cause for concern to the company. The total debt of the company as of July 31, 2010 was GBP 414.47m, as compared to GBP 413.15m in 2009. Its long term debt reflected at GBP 411.64m, with an increase of 32.6% during the fiscal year 2010. As a result, the debt-equity ratio of the company was 4.62 as compared with 4.11 in the previous year. Such huge debt increases the debt servicing obligations of the company and impacts its cash flows adversely. It could limit J D Wetherspoon’s ability to raise debt in future and pursue other strategic opportunities. It would also increase the company’s vulnerability to adverse economic and industry conditions. Limited Liquidity The company has low current assets with respect to its current liabilities. The current liabilities of the company as at July 31, 2010 were GBP 176.88m, as compared to current assets of GBP 65.72m. As a result, the companys current ratio was 0.37 at the end of fiscal year 2009. Additionally, the company recorded high payables with an increase of 19% to GBP 87.76m in 2010, as compared to GBP 73.77m during 2009. High amount of payables lead to sharp increase in the current liabilities of the company and hamper its liquidity. A lower current ratio indicates that the company is in a weaker financial position than other companies in the sector. Weak liquidity could lead to additional risk in the short term, making it difficult to obtain a short term loan to fund its outstanding payables. Stringent Regulations The company’s business is to conduct its operations in compliance with several licensing and regulatory bodies such as alcoholic beverage control, health and safety, sanitation, and fire agencies in the state, county and region. It is also subject to federal and state environmental regulations. The company has to comply with such several other regulations as part of its operations, which requires a significant amount of investments. Any change in such regulations might have a material adverse affect on the company’s business. High dependence on the UK market Wetherspoon is dependent on the UK market for the generation of all its revenues. Its outlets are spread across the UK, and have no overseas operations or franchises. This geographical concentration would increase the risks associated with any adverse changes in socio-economic, political and regulatory controls in the market. Thus, the companys dependence upon a single geography makes it susceptible to demand fluctuations in that particular market and may affect company revenue negatively. Competitive Pressure The company’s business is subjected to intense competition. Companies in the UK pub market compete in terms of pricing, pub ambience, and quality of food and drinks, among others. Competitors of the company include Luminar plc, Mitchells & Butlers PLC, Whitbread PLC, Enterprise Inns PLC, InterContinental Hotels Group PLC, Scottish & Newcastle, Eldridge Pope & Co plc, Punch Taverns Plc and The Wolverhampton & Dudley Breweries PLC. Competition has become intensive with the market shrinking, at the back of weak economic conditions and increased prices of beer. References wetherspoon. 2009. Mexborough Opening. [ONLINE] Available at:http://www.jdwetherspoon.co.uk/home/news/mexborough-opening. [Accessed 18 May 11] wetherspoon. 2009. Wetherspoon is opening three new outlets in March . 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