Restaurant numbers, food prices, no-shows, ASDA, EU flights etc.:

A DAY IN THE LIFE:

So, should films be bleak and realistic, or should they be sweet and schmaltzy and leave you tearing up at the end, angry with yourself for being unable to stop Hollywood from tinkering with your emotions?

Well, putting the Oscars to one side, commercial success would seem to favour the former whilst artistic merit may be more obvious in the latter.

Because, whilst The Pianist, Sophie’s Choice and The Road won’t leave you singing, hopping and dancing on the way home, they perhaps add something (perhaps a negative something) whilst most other films, 99% of musicals and near 100% of the output of certain studios follow the format: intro, facts, downer, another downer, upper, redemption & happiness.

And it might be the same for some the news meaning that we can see why there is a desire to give negative output a positive spin (he lost a leg in a car accident but he’s saving a fortune on shoes etc.) and the very words and cadence that we use (he was incredibly fat but at least he was ugly, she was totally incompetent but my goodness, she was dogged etc.) shows how we want to find the good news in the bad.

And it’s the same in the trade. Asset prices falling = rent benefit for tenants, restaurant closures, job losses & CVAs = good news for surviving restaurants etc. Human nature; it’s hard to escape. On to the news:

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UK RESTAURANT NUMBERS:

• CGA & AlixPartners report that the number of managed restaurants in the UK fell last year for the first time in 9yrs. Expects further drop this year.

• CGA reports the closures have been driven because a ‘sustained decline in the wider licensed sector [has] continued’

• CGA reports that casual dining outlet numbers fell by 0.1% in December 2018 versus the same month a year earlier. The Coffer Peach Tracker, which includes only a part of the market and a number of pub companies, is still showing an expansion of around 2% per annum.

• CGA says ‘the news follows rising concerns about over-capacity in the restaurant sector, as well as mounting pressures on property, people and food costs and Brexit-related dents to business confidence.’

• CGA reports that London restaurant numbers, however, continued to rise (up 1.5%) whilst those in the provinces fell by 0.9%.

• The High Street saw a 1.1% drop in restaurant numbers whilst suburban areas still reported an increase in supply.

• CGA says ‘the boom in managed restaurants has been one of the British economy’s great success stories of the past decade. But after a string of closures and CVAs in the casual dining sector in the last 12 months, the sector is now in net decline—albeit a very modest one. We can expect to see further contraction in numbers over the course of 2019.’

• This is a success story only in part. Langton research reveals that a material proportion of the UK’s sexiest brands are making substantial losses. Like a swimmer currently underwater, at some point these restaurants, coffee shops and the like will have to come up for air. Some of their business models may make this rather a challenge. More in Langton Premium next week.

• CGA says ‘many casual dining brands continue to thrive, and we are seeing continued strong growth for small and medium sized groups in particular. Operators that have a distinctive offer, execute it brilliantly and select the right sites have a lot to look forward to—but for bigger brands that fail to keep pace with changing consumer habits and demands, the next few years may be a lot more challenging.’ This much is undoubtedly true.

• Wet led pubs have been averaging 3.6 closures per day for the last five years. CGA says this has now slowed to 2.2 per day. It says this ‘follows a strong 2018 for many pub operators, on the back of hot summer weather, the football World Cup and the rising popularity of drinks including craft beer, cocktails and artisan spirits.’

• AlixPartners says ‘the more positive outlook for pubs and bars is reflective of the buoyant M&A activity in the sector. Trade and private equity buyers are turning their gaze to pub and bar assets. This reflects not only the saturation of certain parts of the restaurant market, but also the combination of reduced supply and the continued rise of quality wet-led pub and bar operators. These factors have been driving strong performance in a challenging environment.’

PUBS & RESTAURANTS:

• Michael Gove reports farmers will be subsidised by tariffs as consumers incomes are used to maintain farm incomes. See below.

• People aged between 16-24 are the most likely to not turn up for a restaurant booking, with almost a quarter admitting they regularly failed to show up.

• Direct french wine and spirits exports to China have fallen 14.4% in value last year. However, Antoine Leccia, president of The Federation for Wine and Spirit Exporters said: ‘the Chinese market is largely supplied via Hong‐Kong and Singapore, which is not accurately reflected by export figures. At €2.5 billion, 2018 is the second‐best year for French wines and spirits exported to China / Hong Kong / Singapore, confirming the long‐term dynamics of the Chinese market’.

• Constellation Brands has announced that it is to discontinue up to 40% of its wine and spirits portfolio in order to focus on its ‘power brands’ that retail for more than $11.

• UKHospitality Executive Director for Scotland, Willie Macleod has commented on the Scottish Budget 2019-20: ‘It is very disappointing that a Budget that was lauded by the Scottish National Party-led Government as being such a boon to Scotland’s Economy contains a Tourist Tax. This additional tax will be another unwelcome burden on hardworking and vital businesses at the heart of communities all across Scotland. It will reduce tourism receipts for the sake of relatively small gains for local authorities, damaging a very important part of Scotland’s economy, all for political expedience’.

• The Parisian based restaurant group, Big Mamma Group is to open its first site in London.

• Align Public Strategies claims the restaurant industry is about to get ‘Uber-ized’ with the launch of Uber’s Cloud Kitchens, a global network of food delivery kitchens.

• Polpo puts its Berwick St and Notting Hill sites on the market as it seeks a CVA.

• KKR, a private equity firm, is considering a bid for Asda as the merger with Sainsbury’s looks set to fall at regulatory hurdles. The group cautioned that interest was at an early-stage and there was no certainty that an offer would follow.

• Andrew Khoo, chairman of Laura Ashley, has said no bid approach has been made for the company after a Manchester-born entrepreneur announced his intention for a takeover. 

HOLIDAYS & LEISURE TRAVEL:

• Flights between the UK and the EU are to be maintained without interruption in the event of a no-deal Brexit. UK Aviation minister Liz Sugg said: ‘Passengers can continue to book flights with confidence as the EU has provisionally agreed legislation ensuring flights will continue in a no deal scenario. The UK will reciprocate and provide, as a minimum, equivalent rights to airlines from those European states’. The EU’s proposed regulation on air services connectivity has provisionally been agreed for after the UK’s March 29 exit.

• Travel analysts and corporate buyers are split over whether UK travel demand and costs are set to fall or rise due to Brexit. Travel buyer Rudiger Bruss, travel and mobility category manager at automotive manufacturer Continental, warned ‘Costs will go down because demand will plummet.’

• On the other side, Florian Storp, head of the business travel committee at German travel association the DRV, said ‘We don’t believe trips will decrease. There will be the same number of trips to the UK from Europe. The DRV believes prices will slightly increase. We don’t see a slowing of transactions between the UK and EU.’ 

• Eurostar plays down a report warning of possible disruption and queues of 15,000 people a day in the event of a no-deal Brexit. A Eurostar spokesperson said ‘The scenario presented is extremely misleading and speculative. It assumes a worst-case situation and then assumes that neither Eurostar, nor the governments undertake any action to mitigate the impact.’

• Steve Norris, Flight Centre Travel Group corporate managing director for Europe and Africa, said ‘We’ve had record trading months. February is strong [and] we saw our largest year-on-year growth to date in the UK in January.’

• Norwegian Cruise Line Holdings reports adjusted net income last year at $1.1bn, compared to $907.7m in 2017. The company released an upbeat assessment of the prospects for cruise in 2019 and beyond.

• Airbnb has been subpoenaed by NYC for data on 20,000 listings to see if hosts are in compliance with laws on short-term rentals.

OTHER LEISURE:

• Cooperative Innovations, a Leeds-based VR tech studio, receives £500k seed investment to grow its team and develop its Ikabod platform which enables accurate reflection of players’ real-life physicalities in a VR avatar.  

FINANCE & ECONOMICS:

• President Trump says he is delaying plans to increase tariffs on Chinese goods & is expecting big new after “significant progress” in talks. Trump wrote in a Tweet this has been ‘a very good weekend for U.S. & China!’

• Sterling up at £1.3067 and €1.1572. Oil down a shade at $66.95. UK 10yr gilt yield down 4bps at 1.16%. World markets higher Friday with Far East up in Monday trade.

• Brexit, politics etc.:

o Michael Gove has said that he aims to impose food tariffs post Brexit to protect farmer’s incomes. Some Brexiteers have claimed that food price drops would provide a windfall to consumers.

• Gove says ‘it will not be the case that we will have zero-rate tariffs for food products.’ Separately he told Andrew Marr that price rises of up to 29% for beer, 18% for tomatoes and 32% for cheese were only one of a number of outcomes.

• ERG want out of EU because it’s a left-wing club. Corbyn etc. want out because it’s a capitalist conspiracy. Go figure?

• Electrolux has said that it has stockpiled 4wks of product. Capital, that could be used for expansion or job creation, is being locked up across industry.

• Guardian says Honda raised Brexit as a concern last year. The same paper quotes ‘EU sources’ as saying Brexit could be delayed until 2021 after Mrs May delays a meaningful vote to 12 March. HMG has agreed to pay consultants £104m for work on Brexit.

• Michel Barnier says he is more concerned than ever that the UK could crash our of the EU without a deal.

• Ireland has said it cannot accept a timelimit or unilateral UK exit clause to the Northern Irish backstop. PM Leo Varadkar says ‘we are not playing chicken, we are not playing poker, we are just standing by our position which has been solid since day one.’

PRIOR DAY LATER TWEETS:

• Later tweets: Public finances in good shape in Jan with surplus of £14.9bn as taxpayers coughed up by the end-Jan personal tax deadline.

• Liam Fox says no deal must be kept on the table. Also his Japan trade deal will not be ready for 29 March.

• Young adults are the demographic most likely to fail to turn up to restaurant bookings reports Open Table

• Flights between the UK & EU will be maintained in even of no deal says aviation minister Liz Sugg. Not sure if it’s just her choice?

START THE DAY WITH A SONG:

Last Friday’s song was Night Fever by the Bee Gees. Today, who sang:

Words are few I have spoken,

I could waste a thousand years

Wrapped in sorrow words are token

RETAIL NEWS WITH NICK BUBB:

Hammerson: After the Intu finals last week, the beleaguered shopping centre landlords remain in the spotlight, via the Hammerson finals, but the results do not look quite as bad as feared, eg with NAV per share only 5% down at £7.38 and the debt to assets ratio a mere 38%. There is little sign, however, of any big shift in strategy, despite the weekend press story about activist investor pressure: “Having successfully achieved £570m of disposals in 2018, we are aiming to dispose of at least £500m in 2019. We remain committed to exiting retail parks over the medium term and are in active portfolio-wide discussions on transactions of over £900m, which would add further strength to our balance sheet”.

ABF (Primark): Today’s pre-close update from the food conglomerate ABF covers the 24 weeks to March 2nd and the outcome for Primark is much as forecast, with 4% local currency sales growth from -2% LFL (split between flat UK and -3% Europe) and 6% space growth. Primark flag up weak trading in Germany (with plans to reduce store space), but strong trading in the US.

Saturday Press and News (1): The silly CBI Distributive Trades survey for “February” on Friday morning (which was headlined “Retail sales stand still in February”, for what it’s worth) got the usual uncritical coverage in the Saturday papers: the Times focused on the drop in investment intentions because of Brexit uncertainty, while the Telegraph chose to highlight a slight improvement in the survey of spending growth “for the time of year”.  

Saturday Press and News (2): In terms of other Retail stories, the spotlight remained firmly on the aftermath of the brutal CMA verdict on the Sainsbury/Asda merger plan: the Times highlighted the release of a consumer survey by the CMA showing that 89% of the public still do a weekly shop, as well as the support from “a top investor” in Sainsbury’s for a legal challenge to the CMA. The FT had a feature article on what the under-pressure Sainsbury CEO Mike Coupe will do next, with opinion divided on whether he will stay on and what the company needs to do now. The Daily Mail highlighted the Boardroom shake-up at Sainsbury next month, with City grandee Martin Scicluna taking over as Chairman. The veteran City commentator, Neil Collins, whose one-man campaign against the Sainsbury/Asda merger looks to have been fully vindicated, thundered in his FT column that “Sainsda was an attempt to
create a duopoly – dressed up as a defence against big beasts from abroad”. Neil Collins also turned his guns on the embattled Intu Properties (“Intu the void”) in his FT column, noting that if property values fall by 25% the debt to assets ratio would climb to as much as 71%…Finally, the Daily Mail picked on AO.com as its “Punt of the Week”.

Sunday Press and News (1): The aftermath of the provisional CMA verdict on the Sainsbury/Asda merger was also a big focus in the Sunday papers, with the Sunday Times leading its Business front page with the scoop that the private equity giant KKR is now eyeing up a bid for Asda and is being advised by the former Asda boss Tony De Nunzio. The Sunday Telegraph flagged that Walmart is “locked in crisis talks with advisers” over the future of Asda, with an IPO the other option to a private equity deal. Both the Sunday Times and the Sunday Telegraph had separate background articles about the fall-out from the CMA verdict, with the Sunday Times focusing on the pressure on Mike Coupe (“Still feel like you’re in the money, Mike?”) and the Sunday Telegraph concentrating on the general shock to the supermarket industry (“Asda and Sainsbury’s face being left on the shelf”). Elsewhere, the Business
Leader column in the Observer said the deal is “toast” and highlighted that Mike Coupe told MP’s last year that “standing still” is not an option for Sainsbury, given the growing competition from Online/discounters.  And the Mail on Sunday worked out that the slump in the Sainsbury share price last week cost staff £77m, given the size of their shareholding in the company. Finally, Oliver Shah of the Sunday Times noted in his column that poor old David Tyler, the Chairman of Sainsbury and Hammerson, has now botched 2 takeovers, thundering that “the fumbling at Hammerson and Sainsbury has left two companies vulnerable to takeovers and two chief executives with weakened credibility”.

Sunday Press and News (2): The Sunday Telegraph had a more modest Business front page scoop of its own, highlighting that a Manchester-born entrepreneur called Michael Flacks wants to buy the struggling Laura Ashley from its Malaysian owners.  The Sunday Telegraph also decided to take advantage of the fashion model photo opportunity provided by the obscure story that the founder of the Myprotein sports nutrition business remains in dispute with the Online giant The Hut Group, splashing the news all over its Business front page. The Sunday Times also flagged on its Business front page the news that activist investor pressure will force Hammerson to step up is asset sale programme and Superdry Chairman Peter Bamford is to step down by the end of the year. Elsewhere in the Business section, the Sunday Times noted that struggling fashion chain Jack Wills is trying to sell 4 stores and
that credit insurers are cutting their cover back even further to suppliers to the embattled Arcadia and Monsoon fashion chains, whilst the City expects that ABF will announce decent trading at Primark in its first half update tomorrow. Finally, River Island was one of the companies featured in the Sunday Times supplement on “Best Companies to Work For”, but it only came 21st in the survey (the highest ranked retailer was Iceland, in 8th place). 

News Flow This Week: Either side of the crunch Brexit “no deal” vote in the House of Commons on Wednesday evening, we will get a view from the apocryphal “white van man” on the outlook for the UK economy, via the Travis Perkins finals tomorrow and then the Howden finals and the Grafton finals on Thursday. Otherwise, we get the Hotel Chocolat interims tomorrow and the CapCo finals on Wednesday, whilst Thursday also brings the Inchcape finals and the monthly GFK Consumer Confidence survey. Further afield, the Zalando finals/Capital Markets Day in Germany on Thursday will interest ASOS and Boohoo watchers.