Cost-conscious drinkers have boosted sales at JD Wetherspoon as the high street pub company soaked up recent cost increases instead of passing them on to punters.
Wetherspoon reported 2 per cent growth in like-for-like sales in the 13 weeks to April 22, while overall sales increased by 8.4 per cent. However, as a result of the company’s decision to limit the impact of cost increases – mostly VAT and beer tax duty – on customers, operating margins slipped to 8.1 per cent compared with 9.3 per cent in the first half of the financial year.
Patrick Coffey, an analyst at Liberum Capital, said that the sales increase was unexpected.
“Wetherspoon’s have not been able to put through any meaningful price rises to a customer base that is cash-strapped as they don’t want to see volumes declining,” he said. “So the negative impact of cost increases is being taken by the company, or people may trade down to supermarkets or reduce consumption altogether.”
The company, which has about 850 predominantly drink-led UK pubs, cited government tax increases as the reason for margin slippage.
“We expect the operating margin for the second half of this financial year as a whole to decline, compared with that achieved in the first half,” said Tim Martin, Wetherspoon’s chairman and founder. “The increasing burden of taxes will result in fewer pubs going forward and few jobs created.”
The company said higher VAT and beer duty – neither of which applies to food or alcohol in supermarkets – accounted for most of a £24m rise in tax for the first half of the year compared with the same period in 2011.
As a result the company has scaled back its expansion plans from 50 new pubs to 40 this year – a figure it said would drop to 20-30 pubs next year.
Last year Wetherspoon said it had long-term plans to have a total of 1,600 pubs in the UK, revised up from 1,500 in April. It has opened about 50 pubs a year for the past three years.
The steep rise in beer taxes over many years has been blamed for widespread pub closures by the industry.
An average of 12, mostly in suburban and rural areas, closed across Britain every week between September 2011 and March, according to pub campaigners the Campaign for Real Ale.