Business strategy
Mitchells & Butlers has developed its business strategy to focus on the growth parts of the eating and drinking-out markets. Our objective is to be the UK's preferred choice for informal eating and drinking-out with market-leading brands that provide excellent customer service, range and quality across the key customer occasions and grow shareholder value. Our strategy to achieve this goal has five key elements:
Focusing on the growth in eating-out
Food sales growth of 7.8% in FY 2011
Over the last decade, our strong brands, operational skills and understanding of the UK market have helped us position ourselves to profitably take advantage of the increased demand for eating-out, a market which has grown from £27bn in 2000 to £43bn in 2010. We have reshaped Mitchells & Butlers into a food-led business centred on core concepts with significant growth potential. We are opening new sites where there is a high level of demand for eating out, including 53 new sites in FY 2011 with 16 of these in leisure and retail parks. We also converted 48 existing sites to our expansion brands. This focus contributed to food sales growth of 7.8% in FY 2011. Food is now our largest selling product having grown by over 30% over the last four years and we estimate that nearly three quarters of our sales relate to guests using our businesses to eat.
Developing national brands
Our restaurants have satisfaction levels above 90%
Our aim is to own and operate brands that have a significant site distribution throughout the country coupled with very high levels of customer satisfaction. Many of our brands already have good brand recognition and a substantial number of sites. However, we see potential to grow this much further. Our restaurants have satisfaction levels above 90% and our experience has shown that new users of our brands are highly likely to return regularly. This makes us confident that we can significantly increase our restaurant numbers.
Generating high returns on investment
£180k operating profit per site, one of the highest in the industry
Our objective is to increase our scale advantages at unit, brand and corporate levels to drive higher site profitability. We operate large pubs with average weekly sales of over £22,000 per week, significantly higher than the average of our major competitors. This leads to strong labour productivity and lower wastage at the outlet level. Brand scale enhances staff training and advertising benefits. Corporate scale enables significant synergies to be gained in menu development and in purchasing where scale buying benefits in food and drink, distribution and capital expenditure can be significant. Each of these factors is a key driver of improved returns and profitability per site, with Mitchells & Butlers' EBIT per outlet of over £180k being one of the highest in the industry. This high site profitability enables expansionary capital to be invested with good returns. For example, EBITDA returns on expansionary capital invested in FY 2010 and FY 2011 were 21%.
Extending the skill base of excellence
2,300 NVQs undertaken during FY 2011
We are focused on attracting and training people with the skills and motivation to deliver exceptional customer service and to support the operational strategy of the business. At the pub level, a 13-week training programme is conducted with all new staff, as well as specific ongoing coaching to improve bar and kitchen staff service productivity and increase staff product knowledge. To support our food growth strategy, our staff members also undertook 2,300 NVQs during FY 2011, predominantly related to the training of new chefs.
Our customer facing teams are the core of the organisation and we have initiated a programme which will devolve greater responsibility and accountability to them, helping us to respond even more quickly to changes in the eating and drinking-out markets.
Continuing the sound financial base
Attractive long-term debt financing
The company has in place an attractive long-term debt financing at fixed interest rates that appropriately matches the stable, long-term cash generative nature of the business. The Board is comfortable with a net debt to EBITDA ratio of around 4.7 times, that gives the business ample headroom and opportunity to develop and grow the company in line with its strategic objectives. This long-term debt financing is backed by Mitchells & Butlers' £3.8bn asset base. Moving forwards, we will have a flexible approach to property ownership seeking both freehold and leasehold opportunities as they arise.
