The chain runs almost 800 pubs
JD Wetherspoon says it is facing a huge increase in costs with energy up 80 per cent and wages up more than 60 per cent, while the amount people drink in pubs has been halved. Despite the challenges, Wetherspoon says its sales are now 22 per cent higher than they were in 2019 – the year before lockdown – despite cutting the number of pubs by 85.
But it says its wage bill is 61.1 per cent higher after a series of Government policies – which have also increased energy prices.
Chairman Tim Martin, writing in the pub chain’s interim financial report, said: “Substantial tax and cost increases have been imposed on the hospitality industry, including a plethora of stealth taxes (non-domestic electricity charges; climate change levies; packaging charges etc), by recent governments, so that profits are still below pre-pandemic levels.”
He added: “As Morgan Stanley research demonstrates, pubs have lost 50% of their beer trade since the millennium – including about 15% since the pandemic.”
The company has reported operating profit of £52.9 million for the first half of this financial year. Six Wetherspoon managed pubs opened in the year and six were sold or closed.
At the end of the period 794 managed pubs were trading. The company intends to open approximately 15 managed pubs in the current financial year, excluding the franchised pubs.
Eight franchised pubs opened in the period, bringing the total number to 16. The company anticipates opening approximately 15-20 franchised pubs in the current financial year. Franchised pubs have performed well, with encouraging sales levels.
In total, there could be 35 new Wetherspoon pubs by the end of the year.
Julie Palmer, Managing Partner at financial and real estate advisory group BTG, said: “Despite incredibly challenging market conditions, JD Wetherspoon has still managed to serve up the resilient sales performance it has developed a taste for, though the hit to its profits is a sign that even the biggest chains aren’t immune to the drop in spending and soaring costs.
“The pub giant had already warned profits would be lower back in January due to increasing wages, energy bills, repairs and business rates, but with these cost burdens likely to continue to increase in the face of uncertainty across the supply chain, it may be left with no choice but to increase prices.
“Wetherspoon has always been able to provide the value that entices customers through the doors of their vast pub empire, though its immunity to the decline in people eating and drinking out to save money seems to be fading. If spending and confidence with customers continues to dry up, it could begin to lose share in a shrinking market, particularly if the supermarkets sweep up the business of those opting to stay at home to save money. The chain will be under more pressure than ever to keep prices low from its customer base, but there may not be many avenues left to explore to improve margins that don’t involve more drastic cost saving measures like closures and job cuts.
“Increasing margins is crucial to strengthening the bottom line, but for hospitality businesses there is little to no room for manoeuvre when their costs are so high but customers want prices to stay low. For Wetherspoon which relies so heavily on high volume and low prices, its business strategy and expansive presence could quickly go from being the key to its success to being its Achilles Heel if it cannot increase margins while demand falls and costs remain high.”
