Langton Capital – 2010-10-14 – Inflation, thin margins, Elegant Hotels, pub prices & other:
Inflation, thin margins, Elegant Hotels, pub prices & other:
A DAY IN THE LIFE:
So Marmite is back on the shelves.
And that will come as a relief to many but the spat between the 99% UK-based Tesco and the 99% internationally-focused* Unilever does raise some interesting questions as to who should take the hit from a lower Pound.
Because Unilever wants to earn its money in dollars or Euros and the Pound is simply not worth as much to them now as it was four months ago.
Yet Tesco knows that it would have a devil of a job persuading its customers to pay more for products that are no better now than they were in the summer and it certainly doesn’t want to take the hit itself.
But this won’t be the last tussle between producers, retailers and the consumer and the issue will grow in importance as currency hedges and the like expire.
Most of us were either at school or still to be born when we last had inflation at anything like truly problematic levels but, re-watching Dominic Sandbrook’s excellent documentary on the 1970s might be a good idea.
Because inflation is corrosive, divisive and, above all, represents a huge waste of effort (a.k.a. shoe leather) as one group of individuals strives to ensure that it is not disadvantaged to the benefit of another. Companies with fixed rate and significant debt, however, could end up laughing. On to the news:
*Please allow us to exaggerate slightly. It’s stupid-o’clock in the morning.
PUB, RESTAURANT & DRINKS PRODUCERS:
• Punch Taverns has said that it has seen an ‘astounding’ level of attendance at 6 recent nationwide roadshows.
• Next boss Lord Wolfson has said that inflation will be a problem for retailers next year.
• Soho House UK has posted a 24% increase in turnover to £104m for the 53 weeks to 3 January 2016, although new site development costs led to a loss of £6.7m, per Propel.
• Unilever has resolved its pricing dispute with Tesco, adding in a brief statement that it is pleased to move on from the ‘supply situation’.
• Pho has just completed a two-week campaign on Snapchat to better target the student population.
• Whitbread has appointed Deanna Oppenheimer and David Atkins as non-executive directors from 1 January 2017. The pair will replace Wendy Becker and Stephen Williams, who are stepping down in the coming months after nine years’ service.
• The Gipsy Queen in Kentish Town, known for its famous clientele, is available on Fleurets as a free-of-tie leasehold with a guide price of £150,000. Elysia Wilson-Gunn, Associate at Fleurets commented: ‘This property is charming both internally and externally, however it also possesses a two double bedroomed manager’s flat as well as a substantial beer garden.’
• Village pubs are still in great demand for pub use, at least across Gloucestershire and Oxfordshire, according to a Fleurets report. The surveyors found that the majority of pubs sold across this region continue to be used as pubs, and have been sold for between £200,000-£450,000, including pubs such as The Inn at Greatworth and The Red Lion in Bloxham. While the latter’s status as an Asset of Community Value did put off developers, the pub was purchased by existing village operators and refurbished to a high standard.
• Chris Irving, Divisional Director from Fleurets, commented: ‘I have been involved in marketing pubs for over 25 years and it is very pleasing to see the return of confidence for purchasers looking for character village pubs which often offer not only great trading prospects, but a pleasant environment to live. A number of parties needed to raise funding for a percentage of the purchase price or to undertake full refurbishment programmes. It is great to see these investments, which not only make the pub a continued success but also keep villages vibrant.’
• Fuller’s has teamed up with Spanish premium lager Cervezas Alhambra to distribute the latter’s portfolio across the UK. Cervezas Alhambra’s products include Reserva 1925 and Especial, which have won numerous awards. Cervezas Alhambra Area Director, Santiago Fernandez Soriano commented: ‘The UK market is the leading territory outside of mainland Spain and we want to maximise the opportunity for consumers to choose our products. The on and off trade channels are an essential part of our strategy, and we were keen to support our growth ambitions in these areas.
• ‘Fuller’s has an extensive distribution network and field resource. Our partnership with Cervezas Alhambra will enable us to provide increased and focused support to our trade customers and to jointly develop plans that drive sales within the Spanish beer category.’
• Braspear will open its ninth managed pub at the end of November, the Retreat in Staines, formerly called the Anglers Retreat, following a major refurbishment.
LEISURE TRAVEL & HOTELS:
• Elegant Hotels updates on trading for full year, says results will be in line with market expectations.
• Elegant Hotels says uncertainty means bookings are running behind the same period last year. Group says it ‘is only 14 days into its new financial year and, whilst it appears UK consumer confidence is returning, the political uncertainties in the UK over the summer months are, it believes, responsible for bookings for the current financial year tracking slightly behind the same period last year.’ The group adds ‘given these recent booking trends, the Board believes it is prudent to have a cautious outlook, with Group revenue for the current year currently expected to be broadly flat in comparison with FY16.’ CEO Sunil Chatrani reports ‘while the underlying market conditions of the last few months have undoubtedly been challenging, we are delighted to have successfully launched Waves Hotel and Spa, our first acquisition since IPO, and are looking forward to finalising the management
• The US hotel industry’s occupancy fell once more in the week to 8 October, down 1% to 70.9%, as RevPAR was propped up by average daily rate increases. Among the Top 25 Markets, San Francisco/San Mateo, California, posted the largest year-over-year performance increases in ADR (+25.9% to US$326.74) and RevPAR (+22.3% to US$296.86). Occupancy in the market was down 2.8% to 90.9%.
• The BHA has said that London hotels are struggling to attract their fair share of Chinese visitors. The BHA says operators need to be more pro-active. It says ‘London is the greatest city in the world but it’s lagging behind its European neighbours in terms of attracting Chinese tourists and it’s time to take action.’ The BHA continues ‘hoteliers want to capitalise on what is likely to be a much more mature market in five or ten years’ time, but we need to be proactive today.’
• The UK Brexit vote has had ‘no impact’ on bookings, according to Thomas Cook UK managing director Chris Mottershead, but terrorist attacks have ‘changed the industry’. Mottorshead added that ‘bookings are strong for future seasons,’ and downplayed the current impact of the falling sterling, explaining at the Travel Convention in Abu Dhabi that ‘the impact of the exchange rate will be [felt] more down the road.’
• Consumer confidence in holiday bookings has not been rocked by the UK’s vote to leave the EU, according to PwC partner David Trunkfield.
• Consumer confidence in holiday bookings have not been blown off course by the Brexit vote. The main holiday continues to be the second most important spending priority after grocery shopping and above savings and investments and home improvements, according to PwC research released at the convention in Abu Dhabi.
• Monarch managing director Andrew Swaffield came out at the recent Abu Dhabi Travel Convention to ‘thank the trade for supporting Monarch’.
• The long-awaited decision on airport expansion could be made as early as next Tuesday.
• William Hill’s largest shareholder at 14.3%, Parvus Asset Management Europe, has written an open letter opposing the group’s proposed £6bn merger with Amaya. Parvus wrote in the letter that the nil-premium deal had ‘limited strategic logic and would destroy shareholder value,’ and told the board that it was ‘extremely concerned about your pursuit of the reverse takeover of Amaya.’
• Samsung is expecting further profit hits following the universal withdrawal of the Note 7, explaining that revenue will be hit in Q1 2017 as well as Q3 and Q4 2016. The group’s revised outlook brings total losses to more than $5bn, with $2.3bn of that coming in the third quarter.
FINANCE & MARKETS:
• The US Labor Department has been able to report that initial claims for unemployment benefit were at a 43yr low last week
• The SNP is to prepare the ground for a second referendum on Scotland’s membership of the UK. The Scots voted in June to remain within the EU. SNP boss Nicola Sturgeon comments ‘I am determined that Scotland will have the ability to reconsider the question of independence and to do so before the UK leaves the EU – if that is necessary to protect our country’s interests.’ She continues ‘so, I can confirm today that the Independence Referendum Bill will be published for consultation next week.’
• There are now more US dollar billionaires in China than there are in the USA.
• World markets: UK & Europe down yesterday, US also lower. Far East markets better in Friday trading
• Oil off a little further at around $52 per barrel for Brent Crude.
• Sterling bounced a little yesterday. Falling as we write but trading around $1.223 per US dollar
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Giraffe Concepts, part of Harry Ramsden’s owner Boparan Restaurants Holdings, has acquired Ed’s Easy Diner
• Vianet updates on H1 trading, says trading ‘was ahead of same period last year, achieving good growth in line with Board’s expectations.’
• Game Digital has announced a 5.1% fall in like-for-like sales to £822.5m for the 53 weeks to 30 July 2016
• Japanese brewer Kirin is to take a 25% stake in Brooklyn Brewery & will take the rights to sell Brooklyn’s beers in Japan
• Resolution Foundation has suggested that wage growth will weaken next year and says rises in the NLW should moderate.
• E-Cigs are now biggest ‘smoking cessation aid’ in the UK. Yet, as the IEA points out, health authorities worldwide are trying to ban them
• Tesco has stopped selling a number of Unilever brands after the latter pushed for raised prices post Sterling’s collapse
• CGA Strategy survey suggests consumers will spend 24% more on a cocktail that has been served properly and to a high standard
• Greybull has put £165m into Monarch Airlines easing recent fears over the group’s finances
• UK China flight numbers set to double with flights rising from 40 per week to 100. Cargo services will be unlimited
• Christie & Co says London RevPAR down 2.3% year-to-August 2016 due to faltering occupancy levels as a result of supply side pressures
• Thomas Cook’s UK & Ireland managing director market disruptors like Airbnb will become regulated as customers demand ‘safety and security’
• Other tweets: Sugar +63% over 12mths in US$ terms. In Sterling, it’s +97%. Oil +135%. Hog prices down 19% in US$ but unchanged in Sterling
• Orange Juice +80% in Sterling, one Euro costing £1.13 in some airports. Distortions already becoming apparent, inflation likely to follow
• Tesco Unilever spat won’t be the last. International operators will want to earn same in $$s or €€s. That means higher Sterling prices
• Odds on Dec rate rise Stateside still 65%. US$ weakness not likely unless that changes. Sterling still at lows
• WH Smith. Not being funny but just remind me, what’s the raison d’etre? Ditto Game Digital. If they didn’t exist, would you invent them?
• Defunct business models. Look what happened to Blockbuster. Somebody was buying those shares till the day it keeled over
• Ed’s. A lesson in non-success (a.k.a. failure). Still, Boparan prob. getting 35 sets of loos, kitchens, furniture, F&E etc. for <£0.5m each
• Monarch. Brinkmanship or good money after bad? Betting probably on the former. No drop in capacity. Was the expected outcome
RETAIL NEWS WITH NICK BUBB:
• New Malden Watch: The busy junction on the A3 by the Tesco Extra at New Malden (at so-called Shannon Corner) has seen flagship stores opened by B&Q and Currys PC World in recent years, but we noticed the other day that a brand new Next out-of-town store has just been built. The site was a disused old office block and demolition only began in January, but, amazingly, the new store is now fitting out and will include a Costa Coffee.
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis did very well last week and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for w/e Oct 9th flags that Fashion Store LFL sales were 2.0% up, helped by the arrival of colder weather and a significant influx of Chinese tourists for “Golden Week”, albeit the comp was very weak. Boosted a little by robust Homewares and Lifestyle sales, total Store LFL sales were up by 3.8%, with Online sales up by c26%.
• Trade Press: The front cover photo of Retail Week magazine today is a smiling photo of Tesco CEO Dave Lewis, with the headline “Lewis’s turnaround gathers pace”, flagging that the Tesco boss has set a new margin target. RW also has a profile of the discount chain Home Bargains (the first of an “Under the Radar” series of retail success stories) and an article about what it takes to bring a retail brand back to life. In terms of news stories, RW focuses on the news that Iceland has unveiled a new-look store in Clapham and plans to focus on Food Warehouse openings, plus the news that Mountain Warehouse has shelved plans for an IPO (as the Brexit vote deterred its founder from floating the business). And in his column the Editor thunders that “Etail’s transformation may have just begun”, flagging that Jeff Bezos of Amazon topped their annual Etail Power List.
• News Flow Next Week: The ASOS finals are on Tuesday, along with the Burberry Q3 and the latest monthly Kantar/Nielsen grocery market figures. There is a trading update from that great DIY trade barometer, Travis Perkins, on Wednesday. The ONS Retail Sales figures for September are out on Thursday morning and the impressive new John Lewis Leeds store also opens on Thursday morning.