Comment: A welcome return for cautious optimism

Economists refer to the threat of Britain suffering a “Japanese style” bout of deflation. They fear that the financial woes will trigger a prolonged period in which the economy shrinks and the stock market remains mired in depression, just as happened in Japan throughout the 1990s.

Some of that legacy remains. For instance, last year the Japanese consumer only drank 50% of the beer volumes downed in 1999, and the market is continuing to shrink as the population ages and the young switch increasingly to wine and soft drinks.

So it is hardly surprising that Kirin and Suntory are in merger talks to create a food and drinks giant with sales of $41bn, the main objective being to cut costs, diversify and expand overseas.

Britain, of course, has been undergoing an almost continuous process of consolidation in the brewing and pubs industries since the infamous “Beer Orders” of 1990.

And with 40 pubs a week going out of business, some would say that the industry is suffering its own Japanese-style crisis. Confidence and optimism have not been to the forefront for at least a couple of years.

Yet despite the worst unemployment figures ever in the three months to the end of May, some economists, the CBI and the British Chambers of Commerce, say the economy may not be in such dire straits as predicted. A few even predict that the worst may be over but still warn that growth may not return until 2011. That said, recent trading reports from drinks companies have contained words such as “confident” and “optimistic”.

Britvic reports that revenues were 5.9% up in the three months to the end of June compared with last year. It says the British take-home soft drinks market is showing “signs of improvement” and predicts it will beat its previous full-year profits predictions.

Among the pubcos JD Wetherspoon says its profits for the year to the end of July will match the most bullish predictions by analysts despite a marginal drop in like-for-like sales. Mitchells & Butlers has reported “robust sales growth” with like-for-like sales up 1.7% in the eight weeks to 11 July and says it is “well positioned to deliver a continuing robust trading performance” despite the difficult trading conditions.

Young & Co, which has 221 upmarket pubs in London and the Home Counties, says it has made a “solid start” to its new financial year, notwithstanding continuing tough trading conditions. “We are encouraged by the resilience of the business to continuing difficult economic conditions,” it said.

None of the groups is predicting halcyon days; all tempered their statements with warnings about the fragile nature of consumer spending. Nevertheless, the fact that companies are issuing cautiously optimistic statements will come as a relief to investors.

Finance on Friday, 17.07.2009