M&B reports 0.4% like-for-like sales growth: Mitchells & Butlers has reported 0.4% like-for-like sales growth in the 52 weeks ended on 28 September. Profit before tax was £150m (FY 2012: £83m). Total sales grew 2.2% to £1,895m. Operating margin was up 0.5% to 16.5%. Staff turnover dropped 4 percentage points and net promoter scores rose by the same amount. Like-for-like sales grew 0.1% in the first eight weeks of its new financial year. Chief executive Alistair Darby said: “We have worked hard this year to deliver our transformation plan and position Mitchells & Butlers for future growth. We are proud that, through the measures we have taken, we have been able to grow sales and build our margins in a challenging and competitive consumer environment, leading to EPS growth of 17%. I am confident that our continued emphasis on developing our people, focusing on our brands and delivering great service for our guests will result in a better business and produce sustainable value for shareholders in the future.” The company added: “2013 has not been an easy year for UK consumers. With wage rises not keeping pace with the general level of inflation in the economy, discretionary income has remained tight. This economic backdrop continues to drive a challenging consumer environment and ever greater expectations when people do choose to spend their money. It is in this context that we are especially pleased with our financial progress this year. A number of factors are impacting our market’s evolution and we believe will continue to do so:

• The market is large but fragmented: The eating and drinking out market is worth £75bn a year and we are one of the largest players in that market with sales of around £2bn, approximately 3% of the total. Our largest brand by sales, Harvester, has just 210 outlets in the UK compared to around 125,000 eating and drinking out venues in total. The opportunity for scale operators to grow by taking market share with leading brands is significant in a market of this size.

• The importance of brands is increasing: Although the majority of the industry is unbranded, the branded restaurant and pub sector has consistently grown at a faster rate than the unbranded sector and this has accelerated in the downturn as guests seek the guarantee of quality that a brand can offer. We expect that this trend will continue.

• Leisure spending has been protected: Through the downturn, families have tended to protect low ticket leisure spending. Average weekly family spending on leisure increased 4% from 2007 to 2011, whereas overall weekly family expenditure was down 6% over the same time (source: ONS family spending survey 2012).

• Food remains the primary long term route to sustainable growth in this sector: We benefit from being principally focused on eating-out, with around three quarters of our turnover generated from guests eating in our restaurants and pubs. We expect the eating-out market to grow at least in line with overall consumer spending in future. Even in the structurally declining drinking out market, brands and formats with strong locations, a clear brand proposition and customer focus should outperform.

• There are significant economic disparities by region and by economic grouping: Between 2006 and 2012, London, the East and the South East achieved substantially higher economic growth than the rest of the country and this trend is forecast to continue. 45% of our revenues are generated in these areas and we are well placed to benefit from this improving trend. Different economic groups have also been impacted to varying degrees by the economic slowdown and subsequent austerity measures. Baby boomers and more affluent economic groups have been relatively well protected whereas 18-34 year olds and the lower income deciles have been the hardest hit. Our brand portfolio is targeted at guests from across a wide spectrum, so it is increasingly important that we focus the business to benefit from these dynamics. We have invested heavily in this area in FY 2013 and our brand teams are now highly focused on the specific market trends, which impact their guests.”

M&B also stated that it is increasing efficiency of capital allocation and maximising returns on investment through three broad operating and expansion strategies.

Invest and expand: The upmarket social, special and family spaces, together worth £35bn, currently benefit from the most attractive market trends and our businesses in these areas were the strongest performers in FY 2013. We have strong brands in these segments and we expect them to deliver good organic sales and profit growth in the future. In addition, we will be expanding our footprint in these areas and are currently focusing on Harvester, Toby Carvery, Miller & Carter and All Bar One, where we can deliver attractive returns on investment. We opened 13 new sites in these brands over the financial year. We will also expand our other businesses in these market spaces on an opportunistic basis and we opened one Browns and two Alex sites in the year. We expect the rate of new openings to accelerate in this segment over the medium term towards 50 each year.

Optimise and invest: The everyday social space, currently worth £2bn, is a market focused on drinking and eating out in relaxed, comfortable, community pubs. We expect to grow in this area through optimising the sites we already have rather than expanding site numbers. To this end, we have reallocated a proportion of our maintenance capital to improve amenity levels in certain brands and ensure the brand positioning is suitable for their target customers. As an example, we are planning to invest in Ember Inns over the next two years, with a clear focus on driving both drink and food volumes in warm and welcoming suburban pubs, firmly embedded in their local communities.

Protect and compete: The heartland space, worth £4bn, is a market characterised by the need to offer value to consumers who have been most exposed to the economic downturn. The effects of the recession and austerity have hit this consumer group more than other segments and the market dynamics are the most difficult of the market spaces in which we operate. Our strategy is based around local flexibility and working hard to deliver exceptional value for our guests while generating cash. New menus in Sizzling Pubs and Oak Tree Pubs resulted in an improved volume performance in the second half of the year. We have extended our sports coverage with both Sky Sports and BT Sport and we are focusing on improved staff recruitment and induction. As a further example of this strategy, we recently launched new autumn menus in Crown Carveries, which featured great value main courses at £3.69, compared to the main carvery price of £4.19. These products satisfy a guest need for great value, traditional meals at a price point less than £4, whilst protecting our cash margins per dish. We have also restructured our operations in this area, with a more efficient structure now in place to reduce travel time for regional management.