Wetherspoon’s outspoken chief executive, Tim Martin, is back on his soapbox once again, this time issuing a rallying cry to his peers to challenge the VAT tax discrepancy between supermarkets and the hospitality sector.
Currently, a pub pays 20% VAT on any alcohol and food it sells.
At Wetherspoon’s pubs, Martin says that means for a 37.5% double vodka costing £2.10, 41p is VAT and the rest goes towards associated overheads (wages, electricity, rent etc), leaving little margin for profits.
Supermarkets, however, pay no tax on the food and drink they sell, with a few exceptions, including alcohol.
As a result, they can afford to absorb a loss on alcohol, in the hope the cheap booze will get people through the door who will buy other groceries where they will make their profits. In this instance, alcohol is a ‘loss leader.’
Martin believes and has believed for some time, that this diverts customers away from the pubs.
The 67-year-old mogul even went as far as suggesting that supermarkets have taken roughly half of the hospitality’s beer volumes since 1979 when Wetherspoons first started trading.
This situation has been exacerbated by the cost-of-living crisis.
Consumers have looked to down trade where possible, with leisure spending usually the first to bite the bullet, as seen during the Christmas trading period.
Under normal circumstances, a Winter World Cup coinciding with Christmas would have been a period of huge success for the hospitality space.
Wetherspoon’s update today shed light on the fact that this wasn’t the case.
Read more: Wetherspoon's boss calls on hospitality industry leaders to challenge VAT payments
Sales, while strong against an Omicron comparative, continued to lag pre-pandemic levels in the run-up to and including the Christmas period.
Many avid football fans also likely switched the pubs for the home during the World Cup, hosting watching parties to save a few pennies.
Clive Black, a retail analyst at Shore Capital, highlighted how the supermarkets would have benefitted this winter due to the cost-of-living crisis and games being watched in “nuclear units or more extended gatherings.”
This was echoed by Mark Brumby, a hospitality analyst at Langton Capital, who said that with household costs through the roof, supermarkets would reap the rewards of games being watched from the comfort of one’s home.
Grocers Sainsbury’s, Marks and Spencer and Tesco all boasted bumper sales over the festive period.
Wetherspoon may have lost customers due to the economic downturn, but it also would’ve benefitted from customers trading down, according to Brumby.
US bank Jefferies said “low-ticket leisure pub spend” remained resilient over Christmas.
Wetherspoon likely experienced a similar downtrading trend seen in the grocery space, with consumers switching out the more expensive, independent pubs for one of the chains.
“Wetherspoon’s value offer is helping it to outperform its peers, and the recent steps it’s taken to shore up the balance sheet leave it well placed to ride out the storm,” Derren Nathan, head of equity research at Hargreaves Lansdown.
In December, Wetherspoon reported a 21.3% uptick in sales compared to 15% for the sector, based on Coffer CGA Business Tracker, which monitors sales in the hospitality space, a clear of trading down in the hospitality space.