Chairman Tim Martin today reported that his company’s expected operating margin for the half year ending 25 January was down a percentage point to 7.3%, and that bar sales have been flat in December and January.
What’s the reason for JDW’s malaise? Well for Martin it remains the tax disparity that “has been created and increased by the fact that… supermarkets pay no VAT in respect of food, whereas pubs pay 20% - enabling supermarkets to subsidise the price of beer and other products”.
And why does this situation persist? Because, says Martin: “Neither [the major pub companies] nor the main pub industry newspaper, the Publican Morning Advertiser (PMA), have campaigned for tax equality with supermarkets. In the case of the PMA, the editor has questioned the financial motives of the leader of the tax equality campaign, Jacques Borel, but has utterly failed to campaign himself or through his newspaper for tax equality, which would help to ensure the future of pubs.”
We’ve been here before, and I’ve made my position clear on the subject, so I won’t repeat myself. But let’s examine some facts.
If what Martin says is true, the big four supermarkets must be raking it in. Not only are they enjoying an unfair advantage over pubs and restaurants, but the economy is suddenly conducive to business success. We’ve emerged from recession, employment is up, earnings are finally outstripping costs of living and disposable income is rising.
But Tesco’s latest like for like sales figures were down -2.9%, Sainsbury’s -3.9%, Asda’s -1.6% and Morrison’s -2.8%. By contrast Wetherspoon’s Q2 like-for-like sales were up by 2.8% - a figure the grocers would kill for. The company simply has a problem converting that into a satisfactory profit margin.
To blame that on everyone other than Wetherspoon’s own management team is, as one analyst described it, “annoying”, and surely just a smokescreen for failures in the company’s own strategic decision making.
Wetherspoons is – to borrow a phrase from a colleague of mine – “at the wrong end of the ‘wow seesaw’”. It’s been a great recession brand, outperforming the market during the dark days, but as we emerge blinking into the sunlit uplands of economic recovery, it is simply in the wrong place.
As Doug Jack of Numis commented: “With improving consumer cash flow, it is clear that consumers are trading up on the fewer occasions that they venture out. Thus, upgrade momentum is with the restaurants and premium pubs/bars, whereas downgrade momentum is with those trapped in discounting.”
I’ve no intention of having another public argument with Tim Martin – because I have little to add to what I’ve said before – but merely suggest that maybe he indulges in a little self-reflection.
To that end, let me recommend to him the Gospel of Matthew, Chapter 7, Verse 3: “Why do you see the speck that is in your brother’s eye, but don’t consider the log that is in your own eye?”