JD Wetherspoon, the cut-price UK pubs group, is launching an assault on high street coffee chains including Pret A Manger as it battles for a bigger share of the breakfast market.
The group, founded by Tim Martin, the colourful publican, said it was seeking to triple sales of coffee and breakfasts over the next 18 months, as Britain’s pubs are forced to transform their business models to compete with cheap supermarket drinks deals.
Announcing the plan with its half-year results on Friday, the company cautioned that its expected full-year performance would be “reasonable” given the pressures on its profits and the impact of staff pay increases, sending its shares down by nearly 3 per cent.
Wetherspoon already serves 50m coffees and teas and about 24m breakfasts a year, but said it would increase that number by slashing prices.
From next week, it will sell Lavazza filter coffee for 99p, with free refills in order to entice customers through the doors of its 880 UK pubs in the mornings and early afternoons. It also said it would reduce the price of its breakfasts as it eyes a slice of the lucrative coffee shop and food-on-the-go market in the UK.
“We don’t do a flat white yet, but it’s under review,” Mr Martin said. He accepted that cutting prices and offering US-style free refills could have a “slightly unpredictable effect on sales and margins” but was keen to expand into the coffee market as it was “becoming an increasing feature of British life”.
“Our department of dodgy statistics calculates that if someone buys a couple of cappuccinos for £5 a day switches to Wetherspoons 99p filter coffee with a free refill, they would save enough for a fortnight in the Caribbean within a year,” he said.
Mr Martin said that as well as undercutting the coffee prices of high street chains, Wetherspoon pubs offered more space and better facilities to serve breakfast.
“Coffee shops are usually quite crammed and the toilet facilities are poor, but we’ve won Loo of the Year awards for years on end,” he said. “Waitrose is doing coffee for nothing — even they understand there’s a big market there.”
However, analysts were more concerned about the effect cut-price breakfasts could have on the pub group’s profit margin.
“Price wars mean margin injuries,” said Lewis Sturdy, dealer at London Capital Group. “It will be a fight to the last croissant crumb as Wetherspoon declares a bap-to-cappuccino war, taking on not just supermarkets but opening up a western front against Pret A Manger and mighty Starbucks.”
However, he said the pub chain’s breakfast push would still pit them against competitive supermarket pricing. “Pub owners and restaurants have to pay 20 per cent VAT on cooked food such as hot croissants while supermarkets are VAT exempt for uncooked food,” he added, saying Wetherspoons would wage the price war “with one arm firmly tied behind its back”.
Mark Brumby, veteran drinks industry analyst, said: “The group has once again managed to worry on margins and the shares could come under some downward pressure today.” He added that reducing the prices of coffee, drinks and breakfasts would be “a drag on margin”.
Wetherspoon reported a 1 per cent fall in profit before tax and exceptional items to £37.5m for the 26 weeks to 25 January, on revenues that rose 9 per cent to £745m.
Wetherspoon increased like-for-like sales by 4.5 per cent during the half year but has previously warned about the pressure on its profit margins, as cheap supermarket deals encourage Britons to drink at home rather than in pubs.
Before the results, analysts’ full-year consensus for pre-tax profits stood at £79m-£80m.
In early London trading, Wetherspoon shares fell 2.9 per cent to 788p.
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