Wetherspoon business model labelled a “double-edged sword” following trading update

Nationally operating pub chain J D Wetherspoon has today announced a trading update which is said to be indicative of the barriers the brand is currently facing as it attempts to recover from the damage dealt by the global pandemic.

Like-for-like sales in the first 11 weeks of quarter 4 of the current financial year were minus 0.4 per cent, compared to the same, pre-pandemic, period in 2019. Losses for the current financial year (FY22) will be higher than expected at approximately minus £30m, reflecting higher labour, repair and marketing costs.

The group comments that inflation has “proved to be far higher and more intractable than anyone anticipated”. However, the group believes its overall costs will increase by less than the current rate of inflation in FY23.

Charlie Huggins, head of equities at Wealth Club, commented: “It’s been an incredibly tough couple of years for Wetherspoon, but there are signs it is now emerging from the abyss with sales finally recovering to pre-pandemic levels in the fourth quarter.

“However, just as one major threat recedes, another starts to rear its ugly head - inflation. The group’s costs base is far higher today than it was a couple of years ago, this means it will make a higher than expected loss this year.

“While it’s encouraging that the group thinks it can contain costs below the rate of inflation in FY23, those cost increases still pose a major headache for Wetherspoon shareholders. The thing is, in an inflationary environment, Wetherspoon’s business model is a bit of a double-edged sword.

“On the one hand its scale, low prices and brand leave it well positioned to deal with an inflation-led economic downturn. With almost 900 pubs, each massive and serving huge volumes of drink and pub grub, Spoons has a size advantage over pretty much all its rivals. This helps it extract great deals from its suppliers, giving it a cost advantage.

“Many companies might be tempted to pocket those savings for themselves, earning juicy margins. That’s not Wetherspoon’s style. For decades, it’s worked to keep prices down. It’s not going to change that now, especially when its customers are really starting to feel the pinch.

“Love or hate them, it’s hard to find a cheaper pint anywhere else, which should keep the punters flocking back, even when the economy hits the ropes.”

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