Pub groups face harsh winter amid energy price hikes

Pub groups have written to the government to demand a price cap on energy bills for the business sector. Companies including Greene King, owned by Hong Kong company CKA, said energy prices have risen by 300% in some cases and that they are now paying more for gas and electricity bills than rent. Ofgem has increased the energy price cap for domestic customers but there is no such price cap for businesses.

The move is a reminder that winter is coming for the last few listed pub groups, such as JD Wetherspoon, Mitchells & Butlers PLC and Fuller Smith & Turner, and it could be bleak. While JD Wetherspoon’s has already fixed its energy prices for 2023, it is facing higher wage costs and sales have yet to recover from their Covid slump.

Shares in the company are down 56% this year to 490.6p. In its July pre-close trading date, Wetherspoon’s told investors that it would now make a full-year loss of around £30 million. Sales were down 0.4% in the fourth-quarter, compared with a dip of 4% in the previous quarter.

Its clientele tends to be those on lower incomes, such as retired people and students. While its discounted beer and curry nights may appeal to those on a smaller budget, customers may prefer to stay at home with supermarket-bought drinks. Indeed, the company’s customarily outspoken trading statement complained of a “tax inequality” between supermarkets and pubs.

Inflationary “challenges” hit pub groups

Meanwhile, shares in Mitchells & Butlers, which owns Harvester, All Bar One and Vintage Inns, are down 46% to 156.6p. The pub operator told investors in July that inflationary cost pressures were a “major challenge” to the company, “particularly in the case of utilities, wages and food costs,” and that “these will persist at or above current levels well into the next financial year, increasing and prolonging the medium term impact on margins.”

Indeed, the company said in its third-quarter trading update that sales for the year to date were down 1.6%, due to Covid-related closures. Over the first 42 weeks of the year, drink sales fell by 4.9%, although food sales were more buoyant, up 5.5%.

Fuller Smith & Turner’s are similarly down 25% so far this year to 590p. Its summer trading update was more upbeat, with the company reporting a “sales recovery… especially in the City and West End of London.” Sales for the first 16 weeks of the new financial year were up 3% on pre-pandemic levels and up 81% on the same period in 2021. Fuller’s says its premium offer and supply chain management provide it with some protection against inflationary pressures.

Post-Covid fillip fails to materialise for pub sector

Pub companies are already struggling to recover from the Covid-19 pandemic. The footfall in many city centres remains quieter as workers continue to work from home on a regular basis.

“Many people predicted a boom in pub sales when lockdowns and restrictions ended, due to pent-up demand, but recovery for many companies has been slower and more laborious than was anticipated,” JD Wetherspoon said in its trading update. What’s more, wages have increased due to National Insurance hikes. Analysts at broker Deutsche Bank Aktiengesellschaft recently cut their price target on Wetherspoon's shares from 875p to 735p.

While these substantial share price dips may look like a buying opportunity, more pain looks yet to come for the pub sector. As such, unfortunately - for now at least - better value exists elsewhere.