J D Wetherspoon plc has just published an update announcement on current trading, outlook and media misrepresentations.
Current trading
Apart from a small number of development sites, and pubs in airports and stations, Wetherspoon reopened all its pubs in England, Scotland and Wales as soon as permitted.
Some airport and station pubs have now reopened, but some remain closed. 844 pubs are now open, out of a total of 873.
LFL bar and food sales are -16.9% for the 44 days to 16 August 2020. Sales have gradually improved, with a rapid acceleration recently, largely due to subsidised food, coffee and soft drinks in the early part of the week.
Sales have also been helped by the addition of extra outside seating. Landlords, landowners and local and licensing authorities have been extremely flexible in accommodating extra outside space - which has helped Wetherspoon and the licensed trade generally.
The company nonetheless expects a period of more subdued sales once the scheme for subsidised early-week meals and drinks ends.
VAT
The ‘on-trade’ (mainly pubs and restaurants) has been the subject of a much more onerous tax regime in recent decades than the ‘off-trade’ (mainly supermarkets). Pubs and restaurants have been paying VAT on food sales of 20% and supermarkets zero.
In addition, pubs have been paying about 20p per pint of business rates versus about 2p for supermarkets.
This tax differential has created an increasing gap between on-trade and off-trade pricing, as VAT rates increased from 8% 40 years ago to 20% today.
Supermarkets appear to have used their VAT advantage in respect of food to subsidise lower beer prices, in particular, and have taken approximately half of pub beer sales in that period.
Pubs, restaurants, cafes and coffee shops are integral to the success of high streets.
As well as benefitting high streets and the public, tax equality would make general economic sense – it is an important principle of taxation that taxes should be fair and equitable.
It makes no sense for supermarkets, often operating outside town centres, to have a tax advantage. The Chancellor, Rishi Sunak, has recently closed the VAT gap between the on and off-trade, by temporarily reducing VAT on food sales in the on-trade to 5%.
If this major step towards tax equality is maintained in the long term, it will result in a significant increase in investment and employment in the on-trade.
Property
Since the beginning of July, the group has opened two new pubs, in Crossgates, a suburb of Leeds and in Kingswinford in the West Midlands.
Financial position
The company remains in a sound financial position. Net debt at the end of the last financial year is estimated to have been about £825m.
Since the closure of pubs in March 2020, Wetherspoons has received a waiver of bank covenants for April and July 2020.
In addition, a share placing raised £141m and a £48.3m loan was agreed under the government loan (CLBILS) scheme. The firm proposes to enter discussions with its lenders regarding waivers for the current financial year, in due course.
Misrepresentations
The company was the subject of a large number of harmful media misrepresentations in the aftermath of lockdown.
The issue was taken up with various media organisations, and corrections and apologies were forthcoming from, among others, The Times, The Daily Mail, The Independent, The Mirror, The Sun, Forbes, the BBC, Huffington Post, Sky News and local newspapers.
The corrections, available at the time it went to press, were published in the last edition of Wetherspoon News, which has been available in all Wetherspoon pubs.
The company is particularly concerned about Twitter comments made by Jo Stevens (MP for Cardiff Central) and Rachel Reeves (MP for Leeds West) – neither of which has been deleted.
Jo Stevens said (25 March, 2020) that “after a session in front of Rachel Reeves and BEIS Wetherspoons have u-turned on decision not to pay 43,000 staff”.
As both Jo Stevens and Rachel Reeves know, Mr Martin never appeared in front of the BEIS (Business, Energy and Industrial Strategy) committee, chaired by Rachel Reeves, and never ‘u-turned’, since no decision was ever made not to pay staff.
In a separate Twitter comment, (24 March, 2020) Rachel Reeves said Wetherspoon “refused to pay its 40,000 employees” and “refused to lockdown altogether”. Both these statements by Reeves are completely untrue.
More recently, the Guardian (Philip Inman, 17 August, 2020) ran a headline, apparently based on allegations regarding one pub (The Fox on the Hill, London SE5) that “overcrowding in Wetherspoon pubs may lead to [a] Covid spike”, and said that that “pubs will become a breeding ground for the next surge in the virus”.
The Guardian quoted Helen Hayes (MP for Dulwich and West Norwood) who said that Wetherspoon is “putting lives at risk” and is “allowing overcrowding”.
These statements are irresponsible and untrue.
Wetherspoon has made strenuous efforts to adhere to government regulations and guidance. Covid-19 operating plans have been developed for all countries in the United Kingdom, as well as Ireland.
Each pub has a specific Covid-19 risk assessment and an occupancy level based on the number of seats, so that all customers can be seated.
Tables have been spaced out to comply with social distancing requirements at all pubs.
The company has also installed floor screens between the tables and “till surround” screens at the bar.
There is an average of ten hand sanitiser stations around each bar area, as well as additional stations ‘back of house’ for staff.
Training has been provided for all staff on the safety procedures.
In the week ending 16 August, nearly a million (912,688) customers across the company registered their 'Test and Trace' details using either the paper or digital (QR) systems in place in all pubs. Bearing in mind that only one customer from each group needs to register, these numbers indicate that the systems are effective.
As a result of the Guardian article, the Fox on the Hill received separate visits from the Police, the licensing authorities and public health officials.
Following these investigations, the company received the following email on 21 August 2020 from an official at the London Coronavirus Response Cell:
“I am writing to confirm that we are satisfied following our risk assessment of the infection control measures you have in place at Fox on the Hill, and recommend no further action be taken with regard to the recent anonymous tips you received of there being COVID-19 positive people in the pub.”
During the Leveson Inquiry, MPs made it abundantly clear that journalists have a duty to correct misleading statements. MPs clearly have a duty to uphold the same principles themselves.
Outlook
The chairman of Wetherspoon, Tim Martin, said, “There is a debate in the scientific community, and among observers and commentators, as to whether lockdowns are beneficial in battling Covid-19.
“Many academics, including Nobel Prize winner Michael Levitt of Stanford University and Swedish government adviser Johan Giesecke, believe that they are not - and that social distancing, combined with rigorous handwashing are the practises for which there is genuine scientific evidence.
“Johan Giesecke explained his arguments in a short interview on Sky News Australia on 29 April 2020 (see transcript below, appendix 1), which can be viewed on YouTube. He correctly anticipated the problems of renewed outbreaks in countries placing excessive reliance on lockdowns.
“The debate is riven with rancour and political factionalism, but I believe, on the balance of the arguments, that avoiding full lockdowns and adopting the Swedish approach, is the better solution. I have written an article on this subject, which has appeared in the pub trade press.
“Wetherspoon had 5 positive tests for Covid-19 among its 43,000 staff before lockdown and has had 24 positive tests since pubs reopened on 4 July – since reopening, the amount of testing has substantially increased.
“Other environments seem to have higher levels of infection. For example, one sandwich-making facility in Northampton had 287 positive tests among its workforce, and one farm in Hereford had 77 cases.
“Some experts, such as Professor Hugh Pennington of Aberdeen University, believe that pubs are major centres of infection, but they have provided no evidence - in fact, our experience suggests otherwise.
“If Professor Pennington has evidence he should publish it, so that it can be peer-reviewed, as is standard practise among scientists.
“Risk cannot be eliminated completely in pubs, but sensible social distancing and hygiene policies, combined with continued assistance and cooperation from the authorities, should minimise it.
“The Company expects to make a loss for the year ending 26 July 2020, both before and after exceptional items. Some of these exceptional items will be related to the Covid pandemic.”