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JD Wetherspoon faces costs challenge

by LLB Reporter
18th Mar 22 11:55 am

The boardroom at JD Wetherspoon might need a few reasonably-priced drinks to steady some nerves right now as it looks at the current economic backdrop.

On the one hand a cost-of-living crisis could suit Wetherspoon’s budget proposition and its survival. The fact other independent competitors did not make it through the pandemic should result in a stronger market position for Wetherspoon.

“On the other hand if pressures on household budgets become so acute that people stop going out full stop or at least not as much then any hopes for a meaningful rebound could be squashed,” said AJ Bell’s Russ Mould.

“Wetherspoon has been held back by having an almost entirely urban estate – with Covid restrictions and then people’s own tastes, influenced by infection levels, much better suiting large rural pubs with lots of outdoor space.

“The company’s business model has been more focused on volume than margins for years. This wasn’t such an issue when inflation was low. Now prices are surging, those skinny margins mean it doesn’t take much to push the company from a profit into a loss and the debt pile is starting to build too. However, if Wetherspoon responds by putting prices up too much its unique value-based selling point could be undermined.

“Wetherspoon will have to hope that a modest improvement in trading in recent weeks is sustained and that it can weather the storm and, eventually, enjoy a fulsome recovery.”

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