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Supply Chain Management of JD Wetherspoon plc

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Netra Shetty
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Supply Chain Management of JD Wetherspoon plc - January 11th, 2011

JD Wetherspoon plc is one of the United Kingdom's largest and fastest growing chains of publican houses (pubs). Blending a unique formula of unconventional locations--including former automobile showrooms, theaters, banks, and grocery stores--low beer prices, all-day food service, non-smoking areas, and a strict ban on television and music, JD Wetherspoon operates more than 320 pubs in the United Kingdom. Moreover, with as many as 80 new pub openings a year, JD Wetherspoon is also one of the U.K.'s fastest growing companies. The company expects to run from 1,000 to perhaps 1,400 pubs or more, under such names as The Asparagus, The Spinning Mule, The Isaac Wilson (named after a local teetotaler!), and the Shakespeare's Head. The company is also eyeing plans to bring its successful formula to the European continent, starting with Paris. Wetherspoon is the brainchild of chairman Timothy Martin, age 44, who continues to hold 17 percent of the company and an iron rein on operations. Wetherspoon went public in 1979 and trades on the London Stock Exchange.

Trading One Bar for Another in 1979

English-born, New Zealand-raised Timothy Martin was a 24-year-old graduate law student in London in 1979. Martin had passed the bar, but eyed only halfheartedly a career in law. As Martin told the Independent in 1999, "I can only to this day read a law book at three pages an hour. A lot of students could read between 10 and 15 times that rate. By the end of the first term, I had a real inferiority complex." Like many a student, Martin sought solace at the end of a day in London's pubs; yet, for Martin, finding a pub he enjoyed proved difficult. Abandoning his own North London neighborhood, Martin began taking a taxi to a pub he had discovered in the Muswell Hill section. That pub had been converted from a former betting shop--a rarity at the time. The pub also featured a selection of regional beers, also rare, as most pubs remained the property of a small number of national brewers, who, of course, imposed their own products on their pubs' menus.

After learning that the Muswell Hill pub's owner was earning 500 per week, Martin found his calling. In 1979 Martin sold his apartment, which he had bought with a 100 percent mortgage. With the London real estate market then in an upswing, Martin was able to pocket a 10,000 profit on the sale. He then secured a 70,000 eight-year mortgage on the Murray Hill location, with an understanding that he would be able to extend the contract when it came due.

In the meantime, Martin began a crash course in pub-tending. His first move was to rename the pub, choosing the name JD Wetherspoon after a schoolmaster in New Zealand. "The least likely person to control a pub because he could not control a class," Martin told the Independent. Yet Martin's first day as a pub owner proved inauspicious: "I couldn't unlock the doors to let the cleaner in," Martin explained to the Independent in 1996, "and by the time the locksmith had opened them it was 11 o'clock, customers were arriving and it was still a mess from the night before."

Nonetheless, Martin's customers stayed--and soon the former betting shop, at 500 square feet only half the size of the usual pub, had become too small. Martin began looking for a new location; yet the country's pubs were more or less locked up by the national brewers, who were equally resistant to selling to the young Martin. Instead, Martin took his inspiration from his own pub, and began looking at other former retail locations for his next pub. In 1981, Martin opened his second pub in a former automobile showroom. Opening pubs in unlikely locations--with later pubs finding homes in former banks, grocery stores, and even well-known locations, such as the famed Marquee nightclub and the Half Moon theater--became a Wetherspoon hallmark.

Throughout the 1980s, Martin continued to refine the Wetherspoon concept. He soon instituted a chainwide ban on music and television, as well as ridding his pubs of games, such as darts and pool tables, that were traditional facets of the English pub. The company would adopt a similar position with the karaoke and bingo nights that its competitors would adopt over the coming decade. Wetherspoon pubs, each with their own name, often taken from a local personality, became known as places were people could talk, and where they could find not only a wide selection of smaller, regional beer labels, but also cheap prices&mdash much as 50 pence less than competing houses. Wetherspoon was helped also by the Campaign for Real Ale movement, similar to the microbrewery trend in the United States in the 1990s, that encouraged people to buy the regional brands over the dominant national brands.

By 1983 Wetherspoon, with four pubs, had become profitable, earning 180,000 in net profits. As Martin wrote in the Independent in 1996: "Had I stopped there I could have said this was a successful business. Instead, Wetherspoon went hell for leather for expansion, adding 40 to 50 percent to sales each year." In the summer of 1983, Wetherspoon doubled its number of pubs; from there the company began expanding beyond London. Finding locations continued to prove difficult, as the nation's pubs continued to be locked up by the national giants. Martin's choice of unlikely venues helped the company overcome this hurdle. In addition, the passage in 1989 of the British Monopolies and Mergers commission-inspired Beer Orders brought limits on the number of pubs the national brewers were allowed to own. The opening of the market to outsiders enabled Martin to step up the pace of his company's expansion.

Public Publican in the 1990s

By the early 1990s, Wetherspoon had grown to a national chain of more than 40 pubs. Martin had continued to refine his pub concept, including adding non-smoking areas and handicap accessibility; despite the increased potential to purchase existing pubs, Martin continued to seek out unusual locations for his new pubs, often choosing long-derelict buildings. The unusual choice of location could usually be counted on to give the new Wetherspoon pubs a degree of instant notoriety. While expanding and refining his pub concept, Martin had also been careful to expand his management team, telling the Independent: "By far the most important thing I've done is to develop a management team that can compensate for the shortcomings of the founder."

Yet Martin remained a decidedly hands-on manager, spending more time on the road visiting his pubs than at the company's headquarters. Martin's approach--he claimed to be inspired by late Wal-Mart founder Sam Walton&mdash′oved unorthodox in other ways. For one, he insisted on open communication among his employees, encouraging managers and other staff to speak up with problems and suggestions, even encouraging them to attend company board meetings. At the same time, Wetherspoon became well-known for its internal promotions: any employee, even maintenance personnel, had the opportunity to rise in the company ranks.

Martin was soon to become one of the U.K.'s wealthiest individuals. In 1992 Martin took Wetherspoon public, with a listing on the London Stock Exchange. Martin's 17 percent of the company placed him among the country's top 200 wealthiest people. The influx of capital also allowed the chain to go on a vast expansion drive. In just four years, the company had nearly quadrupled its chain, topping 150 pubs by the end of 1996. The company's policy of buying up unusual locations for its pubs had an additional side effect: as former department stores, theaters, supermarkets, and such, the new Wetherspoons were larger than their competitors. Indeed, the company's average store size during most of the 1990s was 4,100 square feet (scaled down to 3,300 square feet in the later part of the decade). This kind of size enabled the company to achieve the economies of scale that allowed it to offer at least one beer below 1, as the company made up the lost margins in higher turnover.

A flurry of pub and restaurant chain takeovers by the U.K.'s brewing giants--which sought entry into the dining-out market--led to speculation that Wetherspoon too was being eyed as a takeover target. In order to parry that threat, Wetherspoon quickly stepped up the pace of its pub openings, announcing its intention to open an extra 350 pubs through the year 2001, creating some 10,000 jobs. Indeed, the company began to eye even higher goals--such as eventually raising its number of pubs to some 1,000 to 1,500 in the United Kingdom. Wetherspoon also began looking into exporting its pub concept to the European continent, with Paris as a potential first target.

By late 1998, the company had again doubled its number of pubs, topping 300 locations throughout the United Kingdom. That year would prove somewhat difficult for Wetherspoon--in part because of Wetherspoon's own policy. Its "no-television" rule would cause the company to suffer badly during the weeks of the 1998 World Cup, as customers, in the grip of soccer fever, went elsewhere to view the popular sporting event; the company would not recover until late in the year. Nevertheless, Wetherspoon continued to announce aggressive expansion forecasts, with plans to add another 80 pubs--at a cost of some 100 million--during 1999.

Along the way, Wetherspoon had backed into the lodging industry. Several of its pub purchases were at former hotel locations. The company decided to maintain the hotel operations in addition to its pub activities, forming the Wetherlodges business unit. By the summer of 1999, the company operated three Wetherlodges properties--the 22-room Shrewsbury Hotel, the 26-room Golden Acorn, and the 44-room Yarborough. With occupancy rates of close to 100 percent, the hotel additions were a profitable but tiny addition to the Wetherspoon chain, averaging only 800,000 per year. Nonetheless, it pointed the way to a potential future growth area.

After placing all of its pubs on a single, national menu--with prices fixed for all locations--Wetherspoon continued its fast growth pace. By September 1999, the company had topped 350 pubs, and expected to top 400 pubs by year-end. At 44 years of age, company founder Martin remained solidly at the helm of what had become one of the fastest-growing companies in the United Kingdom. Wetherspoon's unique blend of location, service, and price promised continued appeal to the British pub dweller.
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Last edited by netrashetty; January 11th, 2011 at 05:58 PM..
   
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