Despite strong sales over Christmas, pub operator JD Wetherspoon has revealed its pre-tax profits for the first half of the financial year will be down in 2019 due to higher operation costs.
JD Wetherspoon chairman Tim Martin said in a trade update that labour costs had increased by £30m, while other rises were expected in areas such as interest, utilities, repairs and depreciation.
“Profit before tax in the first half is expected to be lower than the same period last year,” said Martin. “Our expectations for the full year are unchanged.”
During the 12-week period up to 20 January, JD Wetherspoon total sales increased by 8.3% compared to the previous year, while like-for-like sales increased by 7.2%.
“How Wetherspoons chooses to react to rising staff costs will be interesting,” says GlobalData foodservice analyst Peter Ramshaw. “They could either pass these additional staff costs onto their customers, which would hurt traffic, or make do with fewer staff, which could damage quality of service.”
Since the start of the financial year, JD Wetherspoon has opened two new pubs and sold six. It now plans to open between five and ten pubs in the current financial year.
Ramshaw says that from 2013-2018, the UK’s restaurant industry has expanded by over 4,000 outlets.
“This has intensified competition for workers, driving up wages which is now beginning to reflect on a restaurant’s bottom line,” he says.
A free-trade approach to Brexit
According to Ramshaw, rising staff costs could be a persistent problem in the future, partly due to the UK’s departure from the EU.
“Concerns over Brexit and falling EU migration will limit an already drying talent pool of potential employees,” he says.
“As a result, restaurant operators will be forced into offering more creative benefits to attract and maintain staff. These could include stronger career development programmes, referral bonuses or discounted meals.”
A staunch Leave supporter, Martin also said in the trading update that JD Wetherspoon would benefit from a free-trade approach to Brexit, as well as avoiding a deal which involved paying £39bn to the EU.
“This approach also means that the UK, without the agreement of the EU, can end some or all of the protectionist tariffs and quotas that apply on non-EU imports,” he added.
“Ending tariffs reduces prices for consumers, without loss of government income, since the proceeds are currently remitted to Brussels.”
JD Wetherspoon has been replacing European beers and wine across its 900 pubs with options sourced from the UK, US, Chile and Australia.