Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

It's not about Brexit, it's about burgers.

JD Wetherspoon, chaired by Tim Martin, a prominent Brexit supporter, reported better-than-expected profit for the year through July 24. He said Friday that business since then has been encouraging, and there may be a slight improvement in the current financial year, now that forecasts of economic doom in the wake of the June 23 referendum haven't come true. 

In contrast, rival pub company Greene King saw like-for-like sales slow in the first quarter, and said that amid a softening of some economic indicators and weaker consumer confidence after the referendum, it was "alert to a potentially tougher trading environment ahead."

Two pub companies, two different outlooks. They may both be right.

The common factor for both is that the pain of Brexit may be yet to come, and that's particularly true of the restaurant trade. In tougher times, ditching dinner at a pub for a meal at home is an obvious economy.

When the damage hits, Wetherspoon looks better placed. That's reflected in the share price, with Wetherspoon gaining 4.5 percent on Friday, compared with a 4.5 percent fall at Greene King. 

That Cheap Beer Looks Pricey
J D Wetherspoon's forward price to earnings ratio may be a bit too high given risks to margins from faster inflation
Source: Bloomberg

Wetherspoon's focus on cheap meals, including breakfast, gives it an advantage. Over half its sales involve a meal, part of a growing trend for Britons to buy food when when they visit a pub -- turning up just to drink is waning in popularity.

Greene King has a smaller exposure to food. In its managed pub business, food-led establishments account for about 40 percent of sales. But, these locations contribute 80 percent of its revenue, the rest mostly comes from tenanted pubs, which are often traditional drinking outlets. The connection to food is looser here, and so could make Greene King more vulnerable to a consumer-spending pullback.

Wetherspoon could also benefit from customers trading down from more expensive eateries, or more chichi coffee shops. Greene King has pitched itself a bit more upmarket with its family-friendly focus. 

So it looks like Wetherspoon could a Brexit winner. Like Greggs, the down-to-earth baker, its food is cheap, cheerful and decent quality. 

But there's a hitch in the relatively sunny outlook.

Under Pressure
Rising staff costs have crimped Wetherspoon's operating margin
Source: Bloomberg, company reports

A threat for both is inflation -- the pound's slump after the referendum raises import costs, including for food. Wetherspoon reckons it could cope with higher food prices. But this would be a challenge, and may hinder its efforts to increase its operating margin. 

Wetherspoon shares trade on a forward price earnings ratio of 19 times. That's almost double Greene King's 10.8 times. While Wetherspoon's stronger performance and superior market position warrants a premium, the relative valuation looks a lot more pricey than one of its curry nights.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andrea Felsted in London at

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