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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 Wetherspoonโ€™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.

โ€œOn 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.

โ€œWetherspoon has been held back by having an almost entirely urban estate โ€“ with Covid restrictions and then peopleโ€™s own tastes, influenced by infection levels, much better suiting large rural pubs with lots of outdoor space.

โ€œThe companyโ€™s business model has been more focused on volume than margins for years. This wasnโ€™t such an issue when inflation was low. Now prices are surging, those skinny margins mean it doesnโ€™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.

โ€œWetherspoon 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.โ€

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