I would like to say how much I enjoy the e-mails from Langton Capital on a daily basis. I use the newsletter as an ideal way of keeping me up to date with what is going on financially in the drinks industry.
Tenanted pub company
Carluccio’s, discounts, exports, Gaucho & other:
A DAY IN THE LIFE:
Why is it that dogs always have love in their eyes and food on their minds?
At least, that is, when they’re not chasing some furry creature or gnawing on a bone but for them, life is simple. Love is the way to food and food gets you through till tomorrow, job done.
Anyway, on a different but still food-related subject, I’ve always thought that, when attending receptions, pre-speech drinks or whatever, you should hit the ground eating because, when you analyse the alternatives, it makes good sense.
I mean if you decide to throw a few drinks down to loosen up you could end up as the drunk in the room and, if you don’t eat anything, you risk the food running out and that might turn you to drink, in which case the risks above come back into play.
So, doing your most dignified impression of the dog let loose in the cake shop, you should concentrate on the job in hand and fuel up. That’s our advice, anyway. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Carluccio’s upcoming ‘Fresca’ transformation plan will see the group abandon all voucher led promotions. With many competitors offering up-to 40% off main menu prices Carluccios will instead focus on their fresh food and service quality.
• Discounts akimbo. Prezzo, ASK & Café Rouge up to 40% off, Bella Italia 30% off, Pizza Express 25% off and Toby 3-meals-for-£10
• The Food & Drink Federation has reported that UK exports of food and drink rose by 5.5% to £5.2 billion in Q1. The FDF says ‘positive growth was recorded amongst all of the top ten products (including whisky, chocolate, cheese, wine and beef), apart from salmon and beer.’
• FDF says ‘food and drink exports showed continued growth in January-March 2018. This growth was based on robust demand for the UK’s high-quality products. Much of the demand comes from nearby markets, as demonstrated by strong growth to EU27 countries.’
• Peter Backman comments on US trends saying ‘the current state of the US restaurant market is eerily similar to what’s happening in the UK – not identical but there are many broad echoes.’
• Backman says ‘delivery is a big talking point in the US (as it is in the UK).’ He continues saying sales are slowing in the US and the ‘pattern continued into 2018 with March representing some sort of highlight with substantial growth’.
• US features ‘fragile consumer demand’ reports Peter Backman. He says ‘eating out demand from consumers seems fragile and it probably won’t take much to change consumers’ habits and perceptions, from not so good to worse, or if luck is on the side of the restaurant sector, from not so good to a bit better.’
• Delivery is breaking down boundaries in the US with Peter Backman saying ‘there is a general perception in the UK that delivery has always played a major role in the US eating out market. But even today it only accounts for about 3% of total demand (and closer to 5% if carry out sales from C-stores are taken out of the definition).’ This is growing rapidly.
• Backman concludes ‘the US restaurant market is weak and is suffering from two disruptors - delivery and potentially changes in the supply chain. And that’s just like the UK where I have identified three disruptors – delivery, potential changes in the supply chain – and Brexit.’
• Planning officials at Hull City Council have allowed the redevelopment of King William House, at the heart of Hull’s Old Town conservation area, into apartments above an arcade of retail units. Construction company The Broadley Group is working alongside an active York based property syndicate to turn the first, second and third floors of the building transformed into 30 one and two-bedroom apartments, along with an arcade of nine retails units at ground level, fronting onto Market Place.
• Oakman Inns has announced a sales increase of 22.2% to £28.3m for the year to 1 April 2018, with like-for-like sales up 6.8% over the 12 months, thanks in part to an ‘excellent performance from new sites’. Commenting on the figures, CEO and company founder, Peter Borg-Neal, said: ‘We have had an excellent year with significant progress on many fronts. We were delighted with our 6.8% LFL growth, but it is perhaps even more pleasing that our Comparables are, at 5.4%, showing the strength of our core estate. This excellent like-for-like sales growth has continued into the new financial year, and we are 5.2% up over the first seven weeks despite rolling over Easter 2017.’
• Borg-Neal added: ‘We are still disturbed by the Government’s inflexibility on the matter of business rates, the on-going disparities of VAT and the inept mismanagement and financial impact of the Government’s Apprentice scheme. We do, however, welcome the Government’s eventual support for our campaign to ban straws and our aspiration to ban the consumption of single-use plastics throughout Oakman Inns. These little differences, if made by every company, will help make a world of difference.’
• Sales of Californian wines in the US hit a retail value of $35.2bn in 2017 -- its highest ever record and the sixth year in a row of climbing sales. ‘California wine sales in the U.S. market have grown 15% in the past decade from 209 million cases shipped in 2008 to 241 million cases in 2017,” said Jon Moramarco, founder and managing partner of BW166, and editor of the Gomberg-Fredrikson Report, which compiles annual analysis on behalf of the California Wine Institute. “Last year the growth mainly came from premium wines priced over $10.’
• Philippines-based fast food group Jollibee will debut in the UK with a site in Earl’s Court that was previously a Wagamama.
• Pernod Ricard will take control of Myanmar’s leading whisky brand following a joint venture with Yoma Strategic Holdings and two other partners. Philippe Guettat, chief executive of Pernod Ricard’s Asia business, described Myanmar as ‘a very promising and dynamic market which has seen tremendous economic progress over the past years’.
• Homebase has been sold by Wesfarmers for a nominal sum of £1 to restructuring specialist Hilco, which rescued HMV in 2013. Homebase employs 11,500 people, with thousands of jobs at risk.
• Gaucho is now considering all options, including a sale of its entire business. The group hired advisors to examine whether to sell its underperforming Cau brand, made up of 22 sites, but KPMG now has a broadened mandate to solicit proposals from potential investors for the entire company. Those close to the 16-strong Gaucho business maintain that the brand is performing ‘in line’ with the broader restaurants sector, however company-wide EBITDA has reportedly fallen further below the £9.4m figure posted for the year to the end of 2016. Furthermore, a significant number of CAU sites are thought to have been secured under cross guarantees with its more established sister brand.
• Tesco will ban all packaging not suitable for recycling from next year. This initiative coincides with the supermarkets recent efforts to drastically reduce food waste.
• Darwin & Wallace will open its sixth site in Wimbledon, called 601 Queens Road.
• Whitbread is set to open its fifth Bar + Block Steakhouse following success from the first four. The site will be located in Nottingham city centre, in the Chapel Quarter.
• Per MCA, GBK LfLs fell 6.8% in the year to 28 February with the burger brand planning to close six restaurants, slow down its expansion and refresh 30 sites instead. Ten sites were opened in 2017 compared to two to open in 2018. Derrian Nadauld, managing director, said the brand had been hit by a combination of factors, including consumer confidence but also the rapid increase in competition.
• Crussh Fit Food & Juice Bars will see 35 franchises open over the next 5 years in the UK & Ireland following a partnership with Sodexo.
• Retail sales increase by 1.6% in April, beating expectations, however, the ONS has stated that the sector remains broadly subdued. Rob Kent-Smith of the ONS said: ‘Retail sales bounced back in April, as petrol and other sales recovered from the snowfall. But the underlying position remains subdued with the volume of goods sold over the last six months broadly unchanged’.
HOLIDAYS & LEISURE TRAVEL:
• Around 45% of people have planned their summer holidays around the World Cup. Research has also found that 31% of holiday makers say it is important for their holiday hotel to have screens to watch the football.
• STR data has shown the US hotel industry dipped 0.5% in occupancy to 70.2% for the week ending 19 May. The data also indicated ADR up 3.5% to $132.36 and RevPAR climbing 3% to $92.92.
• Uber is rumoured to be gearing up for a $600m funding round, with the group’s latest results showing revenue of $2.5bn.
• Netflix has become the most valuable media company in the world valued at £114bn after shares rose 2% in Thursday trading. However, rival Walt Disney managed to reclaim the title by trading close, with Netflix shares ending the day up 1.3%. The trend looks good for Netflix, with the shares more than doubling in the last 12 months.
• San Francisco 49ers, an American football team, has taken a 10% stake in Leeds Utd. Current owner Andrea Radrizzani acquired Leeds in 2017 and estimates say he has spent £100m on the club so far.
• Las Vegas casino employees have voted for a strike commencing around the 1st June. The union is seeking higher wages as well as stronger job protection against automation.
FINANCE & MARKETS:
• Fed minutes show that most policymakers think another interest rate increase would be warranted “soon”.
• Deutsche Bank is to cut 7,000 jobs globally & scale back its London operation.
• Bank says it would cut interest rates and print money if the UK wobbles after a hard Brexit. Governor Mark Carney says ‘a more disorderly transition, or a materially different end state from our assumption, would have implications for monetary policy.’
• UK exporters are said by the BCC to be struggling to meet orders due to widespread labour shortages. The BCC says ‘future prospects are being constrained because it's becoming harder and harder to recruit the people they need to grow.’
• Sterling stable, oil down, 10yr gilt yield 1.40%
• Brexit, politics etc.:
o Brexit legislation to come to Parliament next month. Cabinet still divided. Talk continues of a leadership challenge and / or a General Election in the autumn.
o Times reports that U.K. will ask the EU to extend the transition period for up to another 7yrs in order to focus on the question of the Irish border
o EU continues to say the 28 June summit is the key date.
o Britain has apparently said it will demand its money back from the EU if it is excluded from GPS data going forward
o The Brexit select committee has said it is "highly unsatisfactory" that the Cabinet has not yet defined what Brexit means
o Sir Ivan Rogers, former British ambassador to the EU, has said that Brexiters are peddling “buccaneering blather”. He says that some ministers (meaning Boris Johnson and Liam Fox) have ‘only a hazy understanding about multilateral, regional and bilateral free trade deals, have never negotiated one — but know it’s straightforward, once one has left the EU’.
o UK tells Europe its approach to Brexit negotiations may damage security
PRIOR DAY LATER TWEETS:
• Later tweets: Young’s share price unchanged on blistering numbers. Current LfL sales +7.5% but shares, on 23x earnings, unmoved
• Lower inflation (see below) should help household incomes & free up some spending money (or, less likely, provide funds to pay down debt).
• Kingfisher blames the weather. LfLs Q1 down 4%. B&Q down 9% LfL but 6% of that due to the snow, apparently
START THE DAY WITH A SONG:
Yesterday’s song was On My Way by Rusted Root. Today, who sang:
Yeah, I used to wear Gucci,
I put it all in the bin 'cause ...,
True, I used to look like you
But dressing like a mess? Nah, ...
RETAIL NEWS WITH NICK BUBB:
Today’s Press and News: The big focus is today’s papers is on the poor Kingfisher Q1 trading news (widely attributed to the “Beast from the East”) and the surprise rebound in the ONS Retail Sales figures for April, which get the usual uncritical coverage (eg “Healthy rebound in Retail Sales gives the economy warmer feel” in the Times and “UK Retail Sales jump as High Street shoppers shake off winter blues” in the Guardian). But the news that the owner of Covent Garden, Capco, is demerging its troublesome Earl’s Court development also gets some attention, whilst the Times notes that Sainsburys is pressing ahead with its controversial new pay deal and that Cath Kidston has recruited an American, Melinda Paraie, to replace CEO Kenny Wilson (who is off to run Dr Martens, of all things).
Trade Press: The fortnightly Retail Week magazine has not been published today, but Drapers magazine has been published and its front cover is a photo of “Meghan”, to flag up a feature on how she is “making her mark” on Occasionwear (“Distinctive necklines to reign supreme after Royal Wedding”). The Editor of Drapers magazine notes in her column that, alongside what seems like a constant stream of CVA’s , the fashion industry is also experiencing a flurry of people moves, and that there were two surprising announcements in the last week (Missguided CEO of Online, Gareth Jones, is leaving the business after only eight months, while former Mothercare CEO Mark Newton-Jones will return to the role just five weeks after stepping down). In terms of News stories, Drapers focuses on the news that Clarks’ CEO Mike Shearwood said this week that he was bullish about future growth at the footwear retailer (even though it has plunged into the red in y/e Jan), M&S is to shut 100 stores in a ‘radical’ overhaul, Burberry ramped up the rate of its store closures last year and Moss Bros is recovering from stock shortages. Drapers also have features on the Mothercare CVA plan (including a list of the store closures) and a look at Zara’s high-tech new store at Westfield Stratford.
BDO High Street Sales Tracker: We flagged on Wednesday that the hot weather and Royal Wedding did not help John Lewis last week and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday May 20th, is also poor, despite weak comps. BDO Fashion Store LFL sales were down by 0.9% and, including very weak Homewares and Lifestyle sales, total Store LFL sales were 5.1% down. And overall Online sales were only up by 4.2% (although Online Fashion sales were up by 10.3%).
News Flow Next Week: After the Bank Holiday on Monday, next week starts quietly, but Wednesday brings the B&M finals and the latest monthly Kantar/Nielsen grocery sales data. Then on Thursday, as the month draws to a close, we get the monthly GFK Consumer Confidence index and the Card Factory AGM trading update.