M&B to launch Miller & Carter in Germany, reports full-year results: Mitchells & Butlers has reported full year like-for-like sales up 1.3% in the 52 weeks ended 29 September 2018 and up 2.2% in the most recent seven weeks. Total revenue was £2,152m (FY2017: £2,180m) and profit before tax was £130m (FY2017: £77m). In a sign of growing confidence, it is to launch Miller & Carter in Germany, where it already operates a brand called Alex. Miller & Carter, a premium steak offer, has grown to 100 sites in the UK. It has the highest Net Promoter Score of any brand in the UK – and had the lowest staff turnover rates of any of the 16 brands within M&B. Of the full-year results, chief executive Phil Urban said: “Focus on our three priority areas of building a more balanced business; instilling a more commercial culture; and driving an innovation agenda has continued to move the business forward over the financial year. The implementation of the second wave of initiatives from our transformation programme has resulted in sustained like-for-like sales growth, continued market out-performance and a return to profit growth in the second half despite Easter moving into the first half. We continue to work hard on driving efficiency gains and profitable sales growth through the ongoing roll out of initiatives to mitigate the cost headwinds impacting the industry. Overall, the company is positioned well to continue creating shareholder value in the long term.” The company added: “During the year we have maintained a strong trading performance, investing in our estate and mitigating £28m of cost inflation whilst maintaining quality for our guests. For a second consecutive year like-for-like sales growth outperformed the market. We achieved like-for-like sales growth of 1.3% in the financial year despite extended periods of snow, unusually hot weather in the summer and England’s prolonged success in the FIFA World Cup. The last reported period of like-for-like sales growth of 2.2% was free from one-off events and, since the year-end, like-for-like sales have continued to grow at 2.2%. Total sales grew by 0.5% on a 52 week basis impacted by disposals made in the prior year. Profitability in the first half was negatively impacted by snow in particular, resulting in a decline of £8m against last year. However, in the second half, adjusted operating profit grew by £3m, despite Easter shifting into the first half, as the momentum from our strategic initiatives continued to gather pace.” 

Of the external environment, it said: “The eating out industry has faced a number of challenges over recent years. The number of restaurants in the UK increased by 11% over the past five years, outstripping demand growth and resulting in pressure on sales per site across the sector. Over the same period, the sector has continued to face strong cost headwinds with the combined result of these two factors being a number of CVAs and business closures amongst our competitors in the past year. In the twelve months to September 2018, the number of restaurants in operation in the UK fell by 1.0% reflecting the competitive pressure in this highly fragmented sector. From a demand perspective there have been several economic factors impacting consumer confidence including Brexit, political uncertainty and limited growth in real wages. Despite this, turnover in the eating out market as a whole continues to grow, with forecast growth of 1.5% in 2018 indicating that leisure spend is currently being protected to some extent by consumers. Market trends suggest that consumers are eating out less frequently but spending more when they do, supporting our strategy of premiumisation and focus on providing opportunities for guests to ‘trade up’ menus. The impact of Brexit remains uncertain. Aside from macro-economic consequences, the specific areas of material impact for our business are increases in costs and reduction of availability of goods, and implications of restrictions on the free movement of labour. On exit of the EU, cost of goods would be impacted by changes in terms of trade and therefore tariffs, additional border controls and fluctuations in the value of sterling. From an employment perspective, at a time when unemployment levels are at a 40-year low, any restriction on the free movement of labour would have a material impact on both the cost of labour and access to talent. Currently across our business, 13% of staff are non-British EU nationals, with the proportion fluctuating by geographic region. We remain close to these issues whilst we await further details.”

Of efforts to build a more balanced business, it said: “Our estate comprises 1,750 pubs, bars and restaurants, of which more than 80% are freehold or long-leasehold. Our focus in this area is to optimise the balance of brands across the estate in order to create long-term value. During the year, we continued to improve the quality of the estate through premiumisation and amenity upgrades. We completed 232 remodels and conversions in FY 2018 (FY 2017 252) and remain on course to deliver a 6-7 year cycle of investment, from the 11-12 year cycle of previous years. In order to maximise the profit uplift following investment within the financial year, we completed more projects in the first half than in previous years. The in-year benefit from this, coupled with savings made in costs relating to closure, was £3m. Conversions remained focused on the expansion of Miller & Carter, which now consists of 105 sites and continues to perform strongly both in terms of sales growth and returns. We continued to enhance the amenity of sites through our remodel programme. Remodel projects provide a refreshed environment for sites which remain within the same brand, giving the opportunity both to delight existing, and attract new, guests. The remodel programme provides a vehicle through which brands can continue to evolve and innovate in the highly competitive market in which we operate.” 

Of efforts to instil a more commercial culture, it said: “We have made progress in developing a more commercial culture across the business over recent years, with a relentless focus on profitability essential in the current environment. Our centralised procurement process allows us to leverage our scale and during the year we mitigated £6m of inflationary costs across food, drink and logistics. In addition, centralised pricing changes have generated a benefit of £5m through benchmarking against local competitors, events pricing and menu psychology. Labour remains the most significant cost to the business and improving efficiency without compromising on quality is a constant focus. Last year we rolled out new software across all of our UK business to help managers to more effectively deploy labour through more accurate sales forecasting, scheduling recommendations and electronic time management. We have seen the benefit of embedding this software with in-year cost mitigation of £8m. We will continue to find additional efficiency benefits by focusing on best practice use of the software. Our focus on online interaction with guests continues with their increasing use of our digital platforms, such as apps and online feedback. Last year we introduced reputation.com – a feedback consolidation tool which enables managers to respond to comments from multiple sources through one system. Through this tool we now respond to 93% of all online feedback and we continue to see the benefits of the personal interaction this platform enables for the guest. In addition, it allows us to gather consumer insight to evolve our brands in line with consumer demands. Since the year end we have increased the average feedback score across the estate to 4 out of 5 reflecting the hard work undertaken in this area.” 

On driving an innovation agenda, it said: “Technological developments are constantly changing the way consumers behave and our digital strategy is designed to enable us to benefit from those changes and to satisfy guests’ changing needs. A mobile payment option is available in all of our brands, allowing guests to pay their bill on their mobile device. In addition, we continue to refine our order at table facility where guests can order food and drink from their mobile device at their table rather than having to queue at the bar. This facility is currently on trial in several O’Neill’s sites and the results show both a demand for, and a benefit from, introducing this technology across more of the business. As a result of this successful trial we plan to roll out the technology further across O’Neill’s and to four additional brands during FY 2019. Digital development provides us with the opportunity to better understand and enhance our guests’ experiences. An example of this is free wireless charging stations which we have trialled in a selection of our city centre locations with extremely positive guest feedback. We have also developed our customer relationship management platform which enables more targeted and personalised communication with guests, the result of which has been increased conversions to bookings.” 

On its project ‘Ignite’, it stated: “Ignite is the internal name used for our focused programme of work underpinning the longer-term strategy. The first phase of Ignite launched in FY 2016 and focused primarily on returning the business to sustained like-for-like sales growth. Having achieved this aim, work began on Ignite 2, a second wave of initiatives which continue the focus on sales growth and also incorporate more efficiency and cost saving workstreams aimed at improving profitability in the face of industry-wide cost headwinds. This second wave of initiatives required an in depth, cross functional analysis of processes and, in order to co-ordinate this work, a project office has been set up to support and govern the various workstreams. This focus will ensure that the maximum value can be extracted from the programme of work. Several initiatives are already in place within the business and are delivering value, whereas others are longer term projects which will require investment during the financial year to begin delivering returns from FY 2020. Examples of live Ignite 2 initiatives include the formation of a central expert labour deployment team who visit sites which are performing below the required labour scheduling accuracy. This team provides practical support and system expertise and the result has been a material improvement in performance of the 210 sites visited in the year. We have also introduced enhancements to our booking platforms by reducing the number of steps a guest needs to take to book a table which has improved our booking conversions. In addition, we have introduced the recommendation of alternative venues when there is no availability at the selected site. Take up of alternative site bookings equates to c.13,000 bookings per year. Following a successful trial, we have, from the start of FY 2019, removed cash expenditure for sundry expenses such as flowers, taxis, emergency food purchases etc. from our businesses. The aims of this are to increase visibility and therefore control over expenses of this nature and also to identify opportunities to leverage our scale to achieve a better price for these items. We have also introduced an interrogative software tool which analyses all transactional till data and identifies patterns of behaviour which require further investigation. We have a team of people trained in the software who support our managers in then taking action if required. Longer-term projects include a system update and change of processes around our stock management. Last financial year we updated our stock system, a complicated project which impacted each of our businesses, a number of central teams and also required the cooperation of our suppliers. The benefits of the system upgrade are significant; it allows us to automate tasks within the business which currently take up a large amount of management time. For example, remote counting will facilitate barcode scan stock taking which will significantly reduce the amount of time taken to perform a stock count and will automatically load the results into the system. Prep and par is a tool which will aid kitchen staff with identifying what to prepare for each session of the day based on site specific trading patterns and forecasts. This system, particularly when used in combination with auto-ordering, will help to reduce waste and instances of menu items being unavailable, improving guest experience. As digital developments gather pace, it is important to ensure that we are well positioned for future developments. Therefore, we are undertaking a significant piece of work to consolidate our data onto one platform which allows integration into third party technologies. This work will provide the foundation for fast adoption of future digital development opportunities. The Ignite programme of work is designed to encourage the challenge of boundaries on many fronts, and we have been exploring opportunities to work with third parties as a way to accelerate innovation. We have entered into a formal agreement with Ego Restaurants, who already successfully operate their Mediterranean offer in a few of our sites within the leasehold estate, investing in the brand’s parent company and agreeing a pipeline of our sites to facilitate the growth of the proposition. Further to this we will open the first Miller & Carter site in Germany, supported by the Alex team, in 2019 which provides us with an opportunity to test another market given the success of the brand in the UK.”