COMMENT: JD Wetherspoon profits up in smoke
By Datamonitor | 6 May 2005
UK pub chain JD Wetherspoon plans to ban smoking in a further 13 of its pubs by the end of this month.
Several months ago JD Wetherspoon decided to pre-empt the UK government and ban smoking in 17 of its 650 pubs. The company has admitted that beer sales are down in the smoke-free pubs, squeezing margins. However the smokeless pubs offer an opportunity to tempt consumers with an improved dining option in an atmosphere that many will perceive as more conducive to eating.
Wetherspoon stands by its decision to outlaw smoking in an initial 17 outlets, and remains dedicated to a total ban across the chain by May 2006. Wetherspoon's plans came initially on the back of government announcements to make all food-serving establishments non-smoking by 2008.
However, in trying to pre-empt government legislation, Wetherspoon could find itself unwittingly pushed into a more niche offering. Publicans and industry bodies remain cautious regarding the issue of smoking restrictions and news that non-smoking pubs are pressurising the chain's bottom line will only reinforce the view that the best option for pubs would be to get rid of food offerings instead.
Furthermore, these announcements provide an additional obstacle for those, such as health campaigners and trade unions, who continue to push for a total and more immediate ban. These campaigners had previously claimed Wetherspoon's initiative would show that a smoking ban would not harm pubs' business. But the Wetherspoon figures suggest that off-trade beer sales may be given a further boost if a widespread smoking ban is implemented, and consumers eschew pubs as a result.
However, such negative thinking could well be doing Wetherspoon an injustice. The company itself is insistent that this immediate slump was envisaged and will pass, while the company's annual financial targets as a whole will be reached.
Furthermore, the economic climate and increasing dominance of supermarkets has resulted in both the alcoholic drinks industry as a whole and the wider sphere of general consumer spending experiencing, at best, sluggish growth so far in 2005. Perhaps in such a climate the increased food sales, though of limited value at current margins, may prove the more significant development in the longer term, as diners previously put off by smoky atmospheres are tempted to eat at smoke-free Wetherspoon pubs. The chain should surely develop its dining offering to cater for this audience.