City Snapshot: JD Wetherspoon calls for tax equality with ‘far more profitable’ supermarkets

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JD Wetherspoon has called for tax equality between pubs and supermarkets as the group reported its losses for the year would be larger than expected.

The group said in its fourth-quarter trading update that the main long-term challenge to the pub industry was the tax disparity with supermarkets, which pay zero VAT in respect of food sales, whereas pubs pay 20%.

It added this disparity enabled supermarkets to subsidise the selling price of beer, wine and spirits, to the detriment of pubs.

Wetherspoons also noted that supermarkets pay lower business rates per pint than pubs and said pubs’ share of beer sales had dropped from 90% to less than 50% in recent decades.

The group added that supermarkets were “far more profitable than pubs”, with Tesco “probably more profitable than the entire pub industry”.

“Even so, like Monty Python’s Dennis Moore, successive governments have robbed the poor (pubs) and given to the rich (supermarkets),” the trading update said.

“A core principle of taxation is that it should be fair and equitable.”

It added: “Until there is tax equality between different types of businesses on the High Street, pubs will always be fighting with one hand tied behind their back - and will provide less in the way of jobs or taxes than they otherwise might.”

Like-for-like sales at Wetherspoons in the first 11 weeks of the fourth quarter declined 0.4% compared to the same pre-pandemic period of 2019. It represented an improvement compared to the previous quarter when sales were -4%.

The group said the predicted boom in pub sales following the end of Covid restrictions had not arrived and recovery for many had been ” slower and more laborious than was anticipated”.

Sales of spirits (+4.4%), cocktails (+18.6%), food (+2.1%), hotel rooms (+8.4%) and fruit/slot machines (+16.6%) were positive in the quarter, but draught ales, lagers and ciders, historically the largest contributors to pub sales, were 8% below 2019.

Losses for the year will be higher than expected at about £30m after the company invested “heavily” in labour, repairs and marketing once restrictions ended in February.

Shares in the pub group sank 6.6% to 588.5p on the back of the trading update.

Morning update

Revenues at Distil have plummeted as the spirits group remodels its business for accelerated growth.

The group behind the RedLeg, Blackwoods and Blavod brands announced earlier this month that it would remodel its UK business to handle all sales and marketing to its major retail customers directly rather than through a third-party distributor.

Volumes fell 79% and revenues decreased 81% in the first quarter to the end of June as stock was removed from the current distributor in preparation fot the new set-up.

Distil said that while this move would result in a one-off impact to full-year revenue in the current financial year, it expected the change to yield “significant revenue upside” from the 2023 financial year onwards.

Executive chairman Don Goulding added the one-off reduction in inventories would result in a £580k adverse impact to UK sales in the first half, but changes would have no impact on sales at the consumer level.

“The board expects that the short-term impact of this major change on UK sales will be offset by greater benefits next year and into the future,” he said.

Distil also said the overall UK spirits market in the first half of the calendar year had been “challenging”, with a decline in off-trade drinking habits as pubs and restaurants reopened.

Export sales at the group increased 84% year on year in the quarter as it expanded existing markets and opened new ones.

Shares in the group plunged 18.5% to 1.1p on the news.

The acquisition of a majority stake in drinks group Refresco by private equity giant KKR has completed this morning after receiving regulatory clearance.

KKR agreed to take the holding in February from former owner PAI Partners, which remains a significant minority shareholder.

Refresco CEO Hans Roelofs said: “I am excited to start the next chapter in the development of our company, with KKR as our new majority owner.

“We will continue to execute our strategy, focused on growing alongside our customers and expanding into new categories and geographies.

“We look forward to leveraging KKR’s capabilities, operational expertise and commitment to sustainability to further strengthen our position and achieve our vision of ‘Our Drinks On Every Table’.”

The FTSE 100 is back in the red this morning, opening down 0.7% to 7,158.51pts.

Early fallers, aside from Wetherspoons and Distil, include McBride, down 3.3% to 17.1p, Nichols, down 2.7% to 1,160p, DS Smith, down 2.3% to 280.9p, Just Eat Takeaway, down 2.2% to 1,252.2p, and THG, down 1.9% to 75p.

Wynnstay Group, SSP Group, Greggs and Glanbia all rose, up 1.6% to 630p, 1.3% to 240.2p, 1.1% to 1,932p and 1% to €10.85 respectively.

Yesterday in the City

The FTSE 100 got its nose back into positive territory after spending most of yesterday in the red - ending the day up 0.2% to 7,209.86pts.

Risers in the sector included McBride, which jumped 5.5% to 17.4p, Coca-Cola HBC, up 3.3% to 1,923p, and Kerry Group, up 1.8% to €97.22.

Naked Wines suffered another big fall, slumping 7% to 156.2p, while other fallers included Science in Sport, down 5.7% to 33p, Fever-Tree, down 5.1% to 1,251p, and Just Eat Takeaway, down 2.5% to 1,280p.