United Kingdom: An alcohol price war and soaring utility costs have hit British pub chain JD Wetherspoon, which reported a 20 % drop in profits on Friday, February 25. But the group's strategy of pre-empting a government ban on public smoking has started well, Reuters cited Wetherspoon, which specialises in cheap pub food and cut price beer. The group reported "testing" trading conditions during the six months to Jan. 23 and a 1.9 percent fall in like-for-like sales during February.

"It's a case of almost uncontrollable cost increases at a time when revenue growth has been quite modest," Finance Director Jim Clarke told Reuters. "It's very competitive out there, whether it's other pub companies or supermarkets," he added. "There are still too many pubs in a lot of towns and cities."

Wetherspoon reported profit before tax and exceptional items of 22.3 million pounds ($42.6 million), compared to 27.8 million pounds in last year's first half. "The fundamental problem is their proposition is not working," said analyst Robin Chhabra at Evolution Securities. "They have very price-sensitive clientele, and they're not up-market enough to avoid competition from the supermarkets." He said research had suggested 40 percent of the group's customers, when not at a Wetherspoon pub, stay at home, drinking low-price alcohol from shops.

Wetherspoon expanded rapidly through the 1990s, but heightened competition from rival pub operators and escalating costs forced it into three profit warnings during 2004. Clarke said the cost of electricity and gas had soared 30 percent during 2004, wage costs were up 8 percent after the government increased the national minimum wage, and changes to licensing laws had cost 1.5 million pounds.

"Once you've taken things like utilities on the chin, hopefully that's it," he said. "Hopefully the cost environment looking forward is a little more stable." Wetherspoon said attempts to centralise the distribution of food, toilet rolls and other supplies had exceeded estimates, leading to a 2.2 million pounds exceptional charge. More exceptional charges could follow in the second half, it added.

"We're still confident that it's the right approach, but it'll be a while before we see the benefits, which won't start until next year," said Clarke. Wetherspoon said its strategy of pre-empting a government ban on public smoking had started well. "Our first two non-smoking pubs in Exeter and St. Albans have been very successful so far, with sales substantially higher than the company average," it said. Wetherspoon said in January it would ban smoking in 10 % of its pubs from May 2005 and in all 650 of its pubs by the end of May 2006.

Plans for a widespread ban on smoking in public places were announced by the government last November as it looks to encourage healthier living and crack down on antisocial behaviour. The ban could be fully in place by 2008.

Wetherspoon said 16 pubs would be put up for sale leading to a first-half charge of about 6 million pounds on them. "A lot are older pubs that are too small and can't cope with the food menu, and a couple are newer pubs that are not performing as well as we hoped they would," he said. Its shares were down 1.3 percent to 268-1/2 pence at 0920 GMT, valuing the group at about 505 million pounds.

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