The struggles of the hospitality industry are well-documented. Wetherspoons, however, is outperforming the wider industry and making the best of a bad situation.
In the first 14 weeks of the financial year, like-for-like sales rose 3.7% year-on-year. Bar sales climbed 5.7%, whilst food grew a modest 0.9% and slot machines jumped 8.9%. Hotel room sales fell 6.3%.
Total sales increased 4.2% year-to-date.
“J D Wetherspoon’s sales growth has slowed in the first fourteen weeks of the financial year to 3.7%. At the last check, that number stood at 3.2% for the first nine weeks, so investors should take some comfort in the pub chains continued resilience,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
The CGA RSM Hospitality Business Tracker, which monitors monthly like-for-like sales across multi-site pub and restaurant operators, reported industry sales of 0.2% in September. Investors will take some solace in the fact that Wetherspoon posted 3.4% growth for the same period.
The pub chain has now outperformed the industry tracker for 37 consecutive months.
But, arguably, the most interesting part of today’s trading update was the criticism of the UK government by the Wetherspoons Chairman:
“In our recent annual report, it was stated that a “main lesson of the 1970s (is that) if energy prices go up… inflation results and almost everyone is poorer,” said Wetherspoon chairman Tim Martin.
“The point was also made that the proposed development of “standby” nuclear power, for periods when wind and solar energy were unavailable, would require the UK to approximately match France’s 59 nuclear reactors.
“However, the UK has only nine nuclear reactors today, most of which are due to be decommissioned by 2030.
“So far, the logic of the points made in the annual report has not been questioned and more detailed arguments, emphasising the need for wider public debate, are advanced in the most recent edition of Wetherspoon News.
“A second point made in the annual report is the startling fact that none of the chairmen of the mega-successful US technology companies (Microsoft, Apple, Meta, Amazon, Nvidia etc) comply with UK corporate governance guidelines, which include, for example, a ludicrous “nine-year rule”.
“As a matter of common sense, few sensible technology entrepreneurs would envisage a London flotation for this reason alone.
“Perhaps the UK powers-that-be don’t feel we need to try and attract these sorts of companies. However Nvidia, alone, is apparently worth nearly one and a half times the capitalisation of the entire London stock market.
“I have written about the absurdities of corporate governance for many years- for example in this article from 2014. Strangely, almost no one has ever contradicted the points made- yet nothing much has changed either.
“A final and related point concerns wages and taxation. The average price of a pint in pub is about £5.16 and labour is about 35% of the ex-VAT sales price (Mitchells & Butlers 36.2%, FY24), about £1.50 per pint.
“A supermarket pint costs about £1.50 and labour is about 12% of the ex-VAT sales price (Tesco 12.0%, FY24), about £0.15 per pint.
“Therefore, it can be seen that a 10 per cent wage rise will increase the cost of a pint by about 15 pence in a pub versus about 1.5 pence in a supermarket.
“Increased labour costs are, consequently, dramatically widening the pricing differential between pubs and supermarkets, to the anger and consternation of customers.
“A further widening of the differential results from pubs paying 20% VAT on food sales, whereas supermarkets pay nothing.
“As investment bank Morgan Stanley pointed out in recent research, pubs have lost 50% of their beer volumes to supermarkets since the year 2000- price is surely the main culprit.
“It is important to emphasise the above points since it’s not clear that they are fully appreciated by legislators, economists or the public.
“The company is pleased with the continued sales momentum but is mindful of the Chancellor’s Budget statement later this month and, as a result, is slightly more cautious in its outlook for the remainder of the year.”