Langton Capital – 2015-09-25 – Dining trends & day-parts, more on T Cook & other:
A Day in the Life:
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Don’t you find it harder to get out of bed in the morning when it’s dark.
And there might be four, five or six other people still asleep, which doesn’t make it any easier as you stumble down the stairs, feed the dog, the ducks, lament the passing of the chickens, grab the car keys and leg it out of the door.
I suppose there’s not a lot that you can do about it although I suppose you could move 40-50 miles south every day in order to follow the sun. Or, and this is my favourite, you could shorten the working day in the winter such that you only had to put in four or five hours or so.
Then you could get up when it was light, get home from work when it was light and generally have a bit more of a life. What’s the downside.
Anyway, at the end of a week that’s seen M&B on the one hand and Thomas Cook on the other tell us that consumers are still a bit choosy about where they spend their cash, let’s move on to the news:
Pub, Restaurant & Drinks Producer News:
• Horizons’ director of marketing and business development, Emma Read, has said the lunch market represents a big opportunity for the on-trade. Speaking at yesterday’s ‘lunch!’ trade show, Read said: ‘Consumers expect to be able to eat when they want, wherever they happen to be whether it’s out shopping, at work, travelling or in a garden centre. Lunch is extending beyond its traditional times – it could now be anything from mid morning to late afternoon. Operators need to be prepared for this and adapt.’
• More from Horizons. Analyst says: ‘There are also new, innovative chains offering a much wider choice of lunchtime dishes – how much longer can the humble sandwich be our lunch of choice when you can buy fantastically healthy salads, noodle pots and a vast array of other foods-to-go?’
• Magners-maker C&C has held discussions with Carlsberg to acquire its UK business as recently as last month, although talks have since stopped. The group has been searching for deals that will help it expand outside its main markets of Ireland and Scotland, which account for more than 80% of its profits. A proposed deal with Spirit failed as the pub operator was bought by rival Greene King in a £774m deal.
• Punch CEO Duncan Garrood has said some of the group’s chains such as its Champs sports bars and an upcoming coffee-led concept have national potential. Garrood added to Propel that a team behind the scenes continues to work on other ‘possible concepts’. Its ‘Brewed & Baked’ coffee-led format will debut in East Lothian, Scotland, next month.
• More from Punch: Garrood said at the roadshow: ‘The heartland of Punch will always be the local community pub… I look slightly jealously at the casual dining sector. People want to spend time eating and drinking with their family. We are in a hospitality industry that is thriving and focused on understanding its customer and delivering good value for money. I strongly believe a successful pub has to have the appropriate food offering.’
• Two separate reports both argue fast-casual operators can do more to capitalise on the lunchtime period. Technomic’s Value & Pricing Consumer Trend Report and the 2014 Lunch Consumer Trend Report both found that consumers believe more can be done to appeal to them over the lunch period, while the studies also identifies delivery service as another lunchtime opportunity, particularly in dense urban markets to the local business population.
• The ACS has warned that ‘Convenience store investment [is] falling’ ahead of NLW investment and is down 35% over the past three months.
• Starbucks has promised to raise UK wages to just under £8 per hour in November, will offer interest free loans for housing. Starbucks is quoted in the FT as saying ‘we believe in equal pay for equal work.’ That doesn’t quite seem to be the point. The move follows similar statements by Lidl last week. The group says it will begin offering its staff interest-free 12mth loans to pay rent deposits.
• Chapel Down on course for good year, revenues +33% in 6mths to end June. Still wine sales +57% reports The Telegraph. Co says ‘some fantastic opportunities came out of the 2014 harvest. We’ll have some real surprises coming out by Christmas, which will make people’s eyes pop.’ Co says ‘we’re not burning cash and the balance sheet is extremely strong. When you are growing at the rate we are, you have to invest in people and systems and all the usual ephemera. What we have said is that we’re reinvesting all our incremental growth profit into the business. It is a fantastic time to be part of the English wine industry – it’s booming – so we wouldn’t want to slow growth now.’
• Coca Cola is to sell 9 production facilities to 3 of its largest bottlers in a move to sell more low-margin assets
• MatchPint has reported that pubs need to spend £63 per day in order to provide a comprehensive sports offer on TV. It says this is a 25% increase compared to three years ago.
• MatchPint reports that its survey responses of 1,321 sports fans suggest ‘in principle at least, the investment is worth it.’ It says ‘customers spend twice as long in the pub when watching sport, and the inclination to spend compares favourably with other visit-types’. It says ‘firstly, sports fans like going to the pub…second, the two aspects of a pub that matter most to fans are promixity and atmosphere, suggesting that they are sports fans first, and pubgoers second…finally, the inclination of fans to watch different events in the home, the pub, or the stadium varies greatly from sport to sport.’
• Pizza Express to launch delivery business. Says planned in short term to be available only in Central London. Richard Hodgson, PizzaExpress CEO, reports ‘this is an enormous growth opportunity and by extending what we’re already famous for – delicious pizza, great service and excellent value – we can bring about a step change in delivery.’ Group is planning to open 150 delivery sites over the next five years, creating 2,500 jobs.
• McDonald’s is to source potatoes from British farmers only. The group is already one of the largest buyers of British potatoes
• With beer sales in the off-trade now making up nearly 70% of all sales, the ALMR is calling for more help for the hospitality sector. ALMR Chief Executive Kate Nicholls commented on the latest official figures: ‘while the licensed hospitality sector is in good health, pubs and bars continue to face enormous financial burdens and there is a huge disparity between the on and off-trade…
• Hospitality sector continued. ‘High employment costs and property taxes combine to make pubs and bars uncompetitive which pushes customers towards unregulated off-trade alcohol. If the Government is serious in its aim of promoting both tourism and business in the UK as well as tackling alcohol-related health harms, it needs to ensure a level playing and a fairer deal for the licensed hospitality sector.’
• Breakfast sales at Abokado now comprise more than 10% of total sales, writes M&C. Breakfast and coffee sales also now make up nearly a quarter of all transactions by volume for the company, which recently opened its 26th store at Aldersgate in the City.
• More from Abokado. Founder Mark Lilley said: “We’ve recognised for some time that the most exciting growth within our sector lies outside of the core lunch period. My team have worked incredibly hard over the past couple of years improving our coffee and breakfast offer and as a result we’ve seen strong growth in both of these key areas. Most excitingly, there’s still so much more room for growth. Building our morning trade and coffee business further will remain a key focus for us going forward.”
• South Africa’s income from grape production rose by 38% between 2008 and 2013, while wine production costs increase by 52%. With Nielsen data showing an average price for South African wine of just £4.78 per bottle in the UK, wine producers from the country have warned that if they don’t increase prices the industry will go bust.
• A report has found that the Asia Pacific beer market could grow at a CAGR of 5% from 2014 to 2020 to $220bn. Growing consumer incomes across Asia are driving an increase in off-trade premium beer, with well-known Belgian and Czech exports to China proving especially popular.
• Citizens Advice has warned that young adults are increasingly facing ‘stifling’ levels of debt after borrowing from banks and payday lenders. The charity said that people aged 17 to 24 asked for advice on 102,296 debt issues in the last year, a 21% rise on the previous year.
Holidays & Leisure Travel:
• Thomas Cook, see Wrap below. May be putting a bit away for a rainy day? Group performing strongly.
• Tourism minister Tracey Crouch has insisted that she regards the outbound tourism industry as equally important to domestic tourism.
• Amazon France has launched two new sites — grocery, and beers, wines & spirits, which stock more than 34,000 products between them.
Finance & Markets:
• US ‘on track’ for interest rate rise this year says Janet. She tells Uni. Massachusetts that economic prospects ‘generally appear solid’. She adds ‘most including myself, currently anticipate… an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.’
• World markets: UK + Europe down, US down in later trading, Far East down in Friday trade
• Oil price little changed at around $48.20 per barrel
• BBA has said that expectations of a rise in interest rates and ‘competitive’ deals are fuelling an increase in mortgage lending.
• Core consumer prices in Japan fell year on year by 0.1% in August — the first decline in over two years. The headline consumer price index rose 0.2% from a year ago, but remained flat from the previous month.
• The National House Building Council (NHBC) said 106,887 new homes were registered up to August, compared with 95,524 in the same period in 2014. Activity is on course to beat last year’s total of 145,174 new homes, which itself was up 9% on 2013.
• UK housebuilding: However registrations were down by 6% in August, the first monthly year-on-year decrease since January, leading NHBC CEO Mike Quinton to comment: ‘We are now seeing registration volumes fall in the public and affordable sector after a good start to the year. This may be due to housing associations holding back on developments in the light of welfare reforms and the cap on rental increases.’
Retail Roundup from Nick Bubb:
John Lewis Partnership Sales Watch: Contrasting trading for the 2 Divisions last week; John Lewis had another decent week, helped by a soft comp, with sales up by 6.0% (c5% up LFL) in w/e Sept 19th, but Waitrose had another tough week, down a tad overall (down nearly 2% LFL) and, although the comp was quite tough, this may explain why a “Half Price Event” has been launched this week
News Flow Next Week: “Super Tuesday” brings interim results (and back-to-back analysts meetings) for Boohoo, SCS and Moss Bros, whilst on Wednesday we get the Sainsbury Q2 update and the Topps Tiles pre-close. And as it’s the end of the month (already!), the CBI Distributive Trades survey for “September” is out on Tuesday and the monthly GFK Consumer Confidence Index is out first thing on Wednesday. And Conviviality Retail complete the acquisition of Matthew Clark at the end of next week and change their name to…Conviviality.
Nick Bubb – firstname.lastname@example.org
This was produced for distribution yesterday afternoon: So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following:
Rugby & wet-led pubs:
• Sport favours wet-led pubs over their food-led peers.
• It can be a big nothing for foodie operators but it is more often the wrong side of neutral & is actually negative.
• We’re not saying that’s the reason that Enterprise Inns’ shares were amongst the top ten risers in the FTSE250 – they were 3rd at plus 4.15% – and Greene King’s shares were amongst the top ten losers – they were 8th bottom at minus 1.55% – but it is consistent with what you may expect to see.
• That is, of course, if the market were a bit puerile & chose to favour short-term movements over longer term trends.
• So that’s a yes, then.
• For the record, Revolution reports 29 Sept, MARS updates 14 Oct, Whitbread is 20 Oct, Punch is 12 Nov, ditto Young & Co. Enterprise reports 17 Nov and Fuller’s H1s are on 20 Nov. Mitchells & Butlers should report around 25 Nov and Greene King reports H1 numbers on 2 Dec.
Drinking, social responsibility etc.
• See earlier email for more detail on BBPA Statistical Handbook.
• The BBPA rightly points out that alcohol consumption per capita has fallen by 19% since 2004.
• Disorder etc. is on the way down and, if alcohol-related diseases are more prevalent – there is some debate as to whether or not this is true – this can only be a lag effect because of the point made above.
• So, tempting though they may be, headlines along the lines of ‘boozed up Britain’ are simply misleading.
• Consumers, and particularly younger consumers, are simply drinking less.
• This may be hard for pioneers to accept – things should always happen now, my time (though it’s only 70yrs out of 6bn) has to be the most important etc. – but it is nonetheless true.
• The major battles re alcohol have been fought (or avoided) and, though misuse is still an issue, the majority of pubs have moved on
Thomas Cook Q4. Very good but not brilliant, company re-stocks its financial larder?
• Accountants really shouldn’t put something away for a rainy day – so let’s assume that they don’t.
• But it’s hard to start the next sentence with anything other than a ‘but’ because TCG has conceded that the Lates market has been strong and that Scandinavia has made a strong H2 recovery.
• It then goes on to say that trading is therefore in line with expectations when it must have been hard to expect poor weather in August in both the UK and in the Nordic countries, and for Sterling to be strong and for hundreds of thousands of consumers to decide at the same time that enough was enough & that they needed, deserved and were going to have, a foreign holiday.
• Hence we believe that TCG has something in the tank for its FY numbers on 25 Nov.
• We also see upside re 1) Fosun buying 5% in the market, 2) Fosun potentially bidding for the company and 3) via the launch of the inbound & outbound Chinese tourism JV with Fosun ‘this calendar year’.
• If investors want a slice of the Chinese tour operating market then TCG may be for them.
• Against the background of the above, we believe that a single-figure FY16 PER is too low.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Given buoyant trading and references to ‘robust’ trading from both TUI and TCG, it is not altogether surprising to see that On the Beach is coming to the market. TUI and TCG may be trying to differentiate their products but Dart Group (Jet2) and On the Beach have both demonstrated that there is plenty of demand for bucket & spade holidays out there.
• Sterling down a bit against the US$. Bets being laid that the Fed will raise rates come its December meeting.
• The latest composite PMI for the Eurozone was the best in 4yrs. Do with that what you will.