Wetherspoon says price cuts will hit profits for two years

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The Independent Online

JD Wetherspoon, the pub group famed for its cheap drinks, warned yesterday that the need to slash prices further to try to revive flagging sales would hit profits for the next two years.

JD Wetherspoon, the pub group famed for its cheap drinks, warned yesterday that the need to slash prices further to try to revive flagging sales would hit profits for the next two years.

The company also scaled back its new pub opening plans to just 15 next year, down from 28 last year. Just two years ago, the group opened about 100 pubs a year.

Analysts said the downturn in trading made it more likely that Wetherspoon would be taken private, although the company said it had no plans to delist.

A cocktail of woes spanning stiff competition from rivals to a surge in the supermarkets' share of the take-home market meant group like-for-like sales growth has stalled, falling from an increase of 4.8 per cent in the first half to flat in August. Bar sales have plummeted, with only a rise in food sales compensating.

"We have had no like-for-like sales growth for three or four months. Pubs have got sharper on their pricing," Jim Clarke, the finance director, said. Wetherspoon's shares fell as much as 6 per cent before recovering to end up 2.5p at 247p amid hopes of a bid from a private equity group.

The group launched a fresh round of price cuts yesterday, slashing the price of a pint of Carling to £1.49 and of Marston's Burton Bitter to £1.29, as it sought to regain sales lost to the supermarkets. It warned profit margins would take a hit as a result.

It plans to start selling Tiger and Cobra lager, both popular among supermarket shoppers. John Hutson, the chief executive, said: "We are taking the battle to the supermarkets."

Analysts cut their pre-tax profit forecasts by about 10 per cent to £50m. Greg Feehely, at Altium Securities, said: "With costs continuing to rise at multiples of RPI and selling prices coming down even further to counter aggressive competition from the retailers, the outlook remains very challenging."

Mr Clarke said the decision to open fewer pubs reflected a desire to "keep our options open and cash flow steady in a challenging environment".

The group denied that selling even cheaper drinks would fuel the binge-drinking culture that the Government is so keen to clamp down on. Earlier this year, Wetherspoon removed the temptation for drinkers to binge by abandoning offers that had offered a double shot of spirits for the same price as a single, or two pints for £3.

Mr Hutson said: "There is no link in general terms between the price of drinks in pubs and public order issues. We shouldn't be excusing ourselves and saying 'we'll put prices up' because the net result is handing our industry on a plate to the supermarkets."

Wetherspoon reported a 12 per cent fall in pre-tax profits for the year to 25 July to £46.3m. The figure was hit by an exceptional loss of £7.8m on the sale of 20 pubs.

Wetherspoon's woes contrasted with a stronger performance from Greene King, the regional pub and brewer. Greene King said like-for-like sales in its pub company rose 2.6 per cent in the 12 weeks to 25 July - in line with expectations.

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