JD Wetherspoon could be a victim of the supermarket price war. To fight the discounters, the pub chain offers competitive prices for breakfasts and Lavazza coffees - of which it has already sells 50m cups a year- between certain hours. It also sells 24m breakfasts a year and hopes to triple the sales of both within the next 18 months. That would be enough to feed every person in the UK 1.07 breakfasts and 2.2 coffees.
For the 26 weeks ending 25 January, the pub chain announced a 0.9 per cent drop in profit before tax (PBT) and exceptional items and a 1.1 per cent fall in operating profit, despite revenue rising nine per cent and like for like sales being up 4.5 per cent. The blame, according to the chain, rests on increased competition from supermarkets and higher pay and bonuses for staff.
Profit before tax and exceptional items came in at £37.5m, down from £37.8m for the same period last year, while revenue was up to £744.4m from £683.3m in 2014.
Why it’s interesting
Pubs and supermarkets, supermarkets and pubs. Because the food pubs serve is cooked, it is subject to VAT of 20 per cent, while supermarkets’ food is unprepared and not subject to the same taxation. This allows supermarkets to cross-subsidise alcohol, undercutting pubs.
What is more, supermarkets are forcing each other into lowering prices ever further, as the old guard attempts to keep pace with young upstarts Aldi and Lidl. This means pubs are being even more undercut, and are suffering as a consequence.
Next Wednesday’s budget announcement is rumoured to include beer price freezes or reductions. The beer tax escalator’s inexorable rise has been halted, and the tax on a pint of beer has hit 42p. A freeze or reduction may play well with the fun-loving public, but is unlikely to make much of a difference for those on the other side of the bar.
What Wetherspoon said
Tim Martin, chairman of J D Wetherspoon, said:
The first half of the financial year resulted in a reasonable sales performance and free cash flow, although our profit was under pressure from areas which included increased competition from supermarkets and increased pay and bonuses for pub staff.
As previously highlighted, the biggest danger to the pub industry is the continuing tax disparity between supermarkets and pubs.
The issue, Martin said, is gradually entering the mainstream
Thanks mainly to the work of Jacques Borel's VAT Club, there is a growing realisation among politicians, the media and the public that pubs are overtaxed and that a level tax playing field will create more jobs and taxes for the country.
Wetherspoon is trying to fight back against the supermarkets, but only time will tell how effective its measures, such as lowering the prices of popular drinks, will be.