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Pubs giant slumps as smoke ban saps sales
Hugo Duncan7 Mar 2008
Pubs group JD Wetherspoon today heaped more misery on the struggling industry when it warned of rising costs and falling sales as the smoking ban and economic slowdown hit home.
The 681-strong chain said business in the second half of the year will be no better than in the poor three months up to Christmas and over New Year, when like-for-like sales fell by 3.2%.
Chairman Tim Martin added that rising costs such as energy and food will make matters worse for the firm, which has seen its share price more than halve in the last 12 months. The shares today fell 27 3/4p, or 9%, to 284p.
Matin said: “We expect second-half sales trends to be broadly similar to those of the second quarter, to experience some cost pressures, and therefore have a slightly more cautious outlook for the second half of the financial year.”
The warning came as Wetherspoon posted a 13% fall in first-half profits to £28.5 million after turnover rose just 0.4% to £440.2 million.
Like other chains, Wetherspoon has been hit by the smoking ban which came into force last year and put many drinkers off visiting pubs. It is now also suffering from a collapse in consumer confidence and spending in the wake of the credit crunch and slowdown in the housing market.
A shift away from premium lagers to cheaper drinks and coffee is a clear sign that pub-goers' finances are stretched. Wetherspoon has turned to food to boost business, and while this makes more money than bar sales, it is also more expensive in terms of staff and raw-material costs.
Energy and food prices are now rising, squeezing Wetherspoon's profits at a time when sales are falling. Martin said: “The first half was a challenging period for the company, and for the pub trade generally, since it followed smoking bans in England, Wales and Northern Ireland.
“As anticipated, the introduction of the bans resulted in a strong growth in food sales but a decline in bar sales, which put pressure on margins and profits. In February, we continued to generate strong growth in food sales combined with a decline in bar sales.”
Wetherspoon now gets about 60% of its trade from food and drinks with meals. Weekly food sales have jumped from an average of £7900 per pub to £8600 while it is now selling 12% more coffees and teas, or 514,000 per week.
Chief executive John Hutson said he expects the smoking ban to be good in the long-term for the pub trade, but added that the exact timing of the recovery is “still uncertain”.
“We would have liked to have turned things around a bit quicker than we have but we haven't,” he said. Wetherspoon has not passed on many of the price rises it is dealing with to customers.
“We haven't raised our prices,” said Hutson. “We cannot put prices up in a no smoking world. We cannot put prices up when we have negative like-for-like sales. It is too competitive out there.”
