The government's announcement of the introduction of a National Living Wage adds "considerable uncertainty" to the future financial performance of the pub industry, according to Tim Martin, chairman of Wetherspoon.
Martin (pictured), who was commenting on Wetherspoon's latest financial figures ahead of the company's full year results on 11 September, spoke out at the decision by the Chancellor George Osborne to pay workers over the age of 25 at least £7.20 an hour, rising to £9 an hour by 2020. The minimum wage currently stands at £6.50 an hour.
For the 11 weeks to 12 July, like-for-like sales across the pub group increased by 2.9%, with total sales rising by 6.5%. In the year to date (50 weeks to 12 July 2015) like-for-like sales increased by 3.4% and total sales increased by 7.6%.
The operating margin in the 11 weeks to 12 July 2015 was 7.0%, compared with 8.3% in the same 11 weeks last year. The full-year operating margin is expected to be around 7.4%, with full-year profit before tax unlikely to be higher than last year.
Wetherspoon has opened 26 new pubs and disposed of six since the start of the financial year, with a further nine pubs under development. In total, the company intends to open around 30 pubs in the current financial year and between 20 and 30 pubs in the next.
Martin said the proposed increased labour costs following the introduction of the National Living Wage will affect pubs with "greater force" than supermarkets.
"The average price of a pint in a supermarket is less than £1 and we estimate staff costs to be around 10% or 10 pence," he explained. "In contrast, a pint in a pub costs around £3 and staff costs are about 25% or 75 pence.
"This disadvantage is compounded by a huge VAT and business rates disparity between pubs and supermarkets, which is putting unsustainable pressure on many pubs in our industry, especially in smaller towns and less affluent areas.
"Pubs contribute around 40% of sales as taxes of one kind or another and are important generators of jobs. Capricious initiatives by the government, widening the financial disparity between pubs and supermarkets, will threaten the future of many more pubs.
"Wetherspoon is conscious of the need to attract and retain excellent staff. In addition to a 5% minimum starting-pay increase announced last October, we agreed an 8% increase for 3 August this year, before the government introduced its latest plans. We also pay approximately one third of profits to staff in bonuses and free shares and 80% of this is paid to staff who work in our pubs.
"Furthermore, we estimate that each of our pubs generates taxes of approximately £650,000 per annum, around 10 times our net profits per pub. We strongly urge the government to harmonise VAT and business rates for pubs and supermarkets and to end the current tax inequalities."
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