Increased costs and competition hit Wetherspoon

Competition from supermarkets, increased excise duty and measures to combat binge drinking have all been blamed for a fall in profits at pub group JD Wetherspoon.

Pre-tax profits before exceptional items for the year to 25 July were down by 4% to £54.1m, despite an 8% increase in turnover to £787.1m.

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Wetherspoon: in reflective mood

But after an exceptional loss of £7.8m, relating to the sale of 20 pubs and write-downs against the disposal of further properties, pre-tax profits fell to £46.3m, an 11.7% drop on the previous year. Chairman Tim Martin said: "After a good first half to the financial year, sales in the second half of the year slowed, which affected profits." Like-for-like sales growth dropped from 4.8% in the first half to 1.9% in the second. Operating profit margins dropped to 9.9%, compared with 10.3% last year. Martin put this down to "higher labour and other pub costs". He added that the company was "very concerned about continuing increases in taxation of one type or another." In particular, he complained about increases in excise duty over the past two years, claiming this had cost Wetherspoon about £7m. Martin added: "Since the public is free to import alcohol from abroad at low or negligible rates of duty, the competitiveness of pubs and restaurants, important parts of the British economy, is being reduced." He also blamed lower prices for alcohol in supermarkets, which were encouraging more people to drink at home. When Wetherspoon started in business 25 years ago, off-sales accounted for just 20% of beer, wine and spirit consumption, he said. But this rose to 40% during the Euro 2004 football tournament this summer and could reach 50% by 2010. "This situation has put pressure on Wetherspoon's prices and margins, as well as on the pub trade generally," Martin claimed. To combat this, Wetherspoons is cutting the price of its biggest-selling lager, Carling to £1.49 a pint and launching a new marketing campaign based around real ales and featuring Marston's Burton Bitter at £1.29 a pint and Marston's Pedigree at £1.49. But concerns about binge drinking have led the company to stop all two-for-one offers and stop offering discounts to encourage customers to buy double measures instead of singles. This had "reduced our sales and profits to some extent", Martin said. Wetherspoon opened 28 pubs during the year, compared with 45 in the previous year. It now operates 643 pubs. The new openings have been larger than the average Wetherspoon outlet, which has increased sales per pub by 6%. Since the end of the financial year, like-for-like sales have been flat, although total company sales were up by 3%. Wetherspoon warned that the slowdown in sales, together with its price cuts and anticipated cost increases would affect profits this year, although it added that it was too early to put a figure on this. Because of the uncertain environment, Wetherspoon is reducing the number of pubs it will open this year to about 15. Buy this week's *Caterer* magazine for more industry news and analysis