U-turn on price cuts as JDW sees margins fall
by The PMA Team
High street operator JD Wetherspoon has performed a U-turn and increased its prices in an attempt to boost its margins.
The price rises forecast by the Morning Advertiser a fortnight ago come after analysts claimed the company had backed itself into a strategic cul-de-sac by chopping prices at the start of September.
Margins at the company had dropped by 2%, in part because of the price cuts, while like-for-like sales had declined by 0.3%.
JD Wetherspoon has increased the price of a pint of Carling, Stella Artois and Guinness by 10p and of bitter by 5p. Other price increases include adding 6p to a cup of coffee and £1 on a bottle of wine.
Finance director Jim Clarke said price rises would vary from pub to pub. He played down suggestions that the price rises were an admission that September's cuts had been a strategic failure.
"We haven't gone back and changed our overall strategy, but it makes sense to look at what's working well," he said.
Analyst Doug Jack, of Panmure, said: "The failure of September's price cuts marks an end to the theory that volumes can always be boosted by price cutting.
"High street competitors and investors should be delighted that this milestone has finally been reached. Wetherspoon has repeatedly repaid advice to increase prices by doing the opposite at great expense to shareholders.
"We welcome the decision to reverse past errors, but question who made it and where it all leaves management credibility."
Geof Collyer, analyst at Deutsche Bank, said the price cuts would test whether Wetherspoon's primary attraction for drinkers is cheap beer.
He added: "Given the group's supermarket fixation', raising prices at a time of year when the take-home trade traditionally adopts the lowest possible pricing strategies will put the everyday low prices policy of Wetherspoon's to the severest of tests.
"Putting up prices is the first thing that a bidder (for Wetherspoon's) would do.
"It is, in our view, a very clear signal that the group is not going private or selling out."
