Tim Martin: taxes and wages are hurting businesses, not Brexit

15 September 2017 by
Tim Martin: taxes and wages are hurting businesses, not Brexit

JD Wetherspoon boss Tim Martin has hit out at the government for raising taxes in the hospitality sector such as business rates, the National Minimum Wage and the introduction of the apprenticeship levy.

He said that these increasing costs are proving to be more damaging to the industry than concerns around Brexit.

In the 895-strong pub group's reports, published today, Wetherspoon showed growth for the 53 weeks to 30 July 2017. Revenue was up 4% to £1.7m (2016: £1.6m), profit before tax was up 28% to £103m from £81m last year, and average weekly sales per pub were £417,000, up from £390,000 last year.

However, Martin expressed his concern for the industry when it came to rising taxes. Wetherspoon paid £768m in taxes for the year, which equated to 41.8% of sales.

The breakdown of taxes showed Wetherspoon paid 4.5% more in wages to its 37,000 employees due to the adjustment to the National Minimum and Living Wage, saw a £7m increase in business rates and a £2m increase for the apprenticeship levy per annum.

Martin said: "People think that Brexit has brought the pound down, therefore input costs have gone up. There's a little bit of that but it's very small. The real costs are taxes and wages. Pubs have had big cost increases and it's making them gloomy. Since the holidays have finished, sales have slowed. More duty increases will be unfortunate to pubs.

"We think we should pay taxes and it's essential to make the world go round, but we think it's unfair that we pay more than supermarkets. We actually think in the long run that the government shouldn't get less money, however it should get more by equalising the playing field between the on trade and the off trade because I don't think it works out economically for people to visit a supermarket and take things home rather than go spend out. It generates a lot less jobs too. The places it's affecting the most is in less affluent areas where people can't afford to pay the differential between the on- and off-trade which has resulted in pub closures."

This year, Wetherspoon opened 10 pubs and sold or closed 41. The company made a loss of £18.4m on the disposal of pubs during the period. He estimated that if there was equal tax, Martin thinks he would be able to open 1,500 or 1,600 pubs around the country.

He said that the government is focused on the "immediate impact of a reduction of VAT and they should be focusing more on a regime of getting the same amount of tax that doesn't discriminate against economic activity".

Like-for-like sales increased overall by 4% which broke down to a 3% increase in bar sales, 6% in food sales and 10% rise in hotel sales. Martin explained that although there has been caution surrounding public expenditure, sales in pubs and restaurants still appear to be growing.

"It's like a well-oiled machine. We have to think about price alongside other factors such as our food offering. We have invested in new kitchen equipment and also enrolling staff into our catering academy. 11,000 people have gone through the academy so far which is available to staff who are hoping to climb the ladder in our kitchens."

"Our food sales are now growing at a faster rate and attribute to 35% of sales. Over the last few years we have added breakfast to our offering, which is now our highest selling meal."

The Peach Brandtrack report, published in April 2017, revealed Wetherspoon was the fifth most visited eating brand in Great Britain, where McDonald's sits in first place followed by Costa Coffee and Greggs. It was the fourth most visited for breakfast.

The overall performance was credited to improved sales and the sale of some lower-margin pubs.

Martin explained that the company was buying back the freeholds of its pubs, which has resulted in 57% of pubs in the group being freehold. In 2017 freehold revisions and investment properties equated to a cost of £89m, compared to £36m the year before. EBITDA stayed flat at 3.4%.

Martin also warned today that the "unelected oligarchs in charge of the EU" will eventually damage the economy of the EU.

"Lavazza coffee is Wetherspoon's best-selling drink which is made in Italy. What would happen if it was put in a position where it was difficult to trade with the UK? We can source other coffee from the UK, but because the EU doesn't have an elected president, who can Lavazza go to to ask for help and to what extent will they be listened to?"

He said that Wetherspoon and other importers are not afraid to look elsewhere for suppliers. "Most of our wines are imported from the rest of the world such as New Zeland, Australia and South Africa. After paying the tariffs, it's not much more expensive than sourcing from the EU."

Martin aims to open 10-15 more pubs this year alongside more hotel rooms to join the 11,000 it already has across the UK. He also predicts that like-for-like sales of between 3-4% will be required in order to match last year's profit before tax.

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