Langton Capital – 2015-10-16 – Daily Wrap: Consumer spending, chicken offers & other:
Leisure Wrap & Other:
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. As always, contact us if you’d like further details:
Consumers – the ability to spend vs the desire to spend:
• We could write a (somewhat rambling, opinion-filled) book on this.
• But we won’t at the moment, suffice to say that, whilst the former is looking better, the latter isn’t.
• A brief sumamary. In a recession or during the balance-sheet-restructuring phase immediately thereafter, there is no ability to spend.
• Whether there is a desire to spend at that stage or not, therefore, is irrelevant.
• Later on, like now, for instance, real wages may be rising at 2% per annum and consumers may be able to spend – but they simply do not.
• This is initially a repair job on the domestic balance sheet and later it may be disguised as big ticket spending hogging income but, at some point, this will work through and we may, just may, be left facing the prospect of lower relative demand for some time.
• This plays on deflationary fears, prompts responses such as the National Living Wage etc. but, as they say, you can take a horse to water but you can’t make it open its gob.
• Hence if consumers don’t want to spend, they won’t.
• This is maybe novel, probably generational and certainly worrying because, if deflation gets a grip, we may live to regret ushering it in in the first place.
Generational spending habits:
• Older consumers may remember (or at least know of) recessions in the early 70s, 80s and 90s as well as the 2009 crunch.
• They may take recovery for granted.
• But the 1992-2008 boom was c16yrs long meaning that younger and even not so young consumers, realistically those below the age of 40, only remember the 2008-09 credit crunch.
• And that was a bad one.
• Add in the policy responses 1970 through 2008 and you may conclude that the alcoholic never really sobered up from his previous excesses.
• There may have been an accumulation of excess and who’s to say that younger consumers aren’t right to be holding back on spending, eschewing debt and the rest? Just saying.
Pizza Express trials chicken:
• Langton has suggested that the casual dining majors remain pizza, burger & chicken.
• It’s not surprising to see premier operators such as Soho House offering the above via Pizza East, Dirty Burger and Chicken Shop. Elsewhere, MeatLiquor owns Chicken Liquor.
• With the above in mind Pizza Express opens its first Reys chicken rotisserie at The Corn Exchange in Cambridge this week.
• The Hony Capital-owned group currently majors in pizza via its Pizza Express, ASK & Zizzi offerings.
• The group will be muscling into a fragmented market led but not dominated by Nando’s and it will be interesting to see whether the corporate makeover of an old favourite appeals to a wider public.
• Reys is said to be inspired by Parisian café food. Hum…
It’s China, stupid…
• The above has become a rejoinder within the arsenal of market commentators. They can use it – along with the oil price, interest rate concerns etc. – when they don’t really know what’s going on.
• Certainly Langton will be caught using it from time to time.
• However, there were a couple of reminders from the real world yesterday that the world has changed. China may have been growing like topsy for two decades or more but there’s a chill in the wind.
• Wynn Resorts’ boss Steve Wynn, in referring to the 37.9% drop in net revenues in Macau in Q3, said ‘in my 45 years of experience, I’ve never seen anything like this before.’
• And Burberry added its voice to the throng saying that it was facing challenges in the global luxury market. It referred to an “increasingly challenging environment for luxury, particularly Chinese customers”.
• Total sales were flat but LfL sales were down 4 per cent in the second quarter, compared with a 6 per cent increase in the first.
• CFO Carol Fairweather blamed the deceleration on slack Chinese demand. She said ‘we believe the slowdown is macro.’
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Equity markets generally better, US now at an 8wk high.
• Sterling strong yesterday, particularly against the US$. Seems a little anomalous given NY and Cleveland Fed comments to the effect that an interest rate rise this year was still possible and/or likely and desirable.
• Oil price up on the back of firmer equity markets & improved sentiment re economic outlook. Price currently anchored just >$50. Nothing to worry about at this stage but a period of stability, perhaps near or slightly under $50, would be helpful.
• Red meat prices still down >21% on the last 12mths but just showed a bit of life yesterday:
• Whilst the natural corporate policy response to the NLW may be to recruit more U25s, lawyers are right to point out that this may be illegal. Even if a reduction in youth unemployment was one of the policy goals, putting this into practise may be easier said than done.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Still 6wks to go but the press is full of Black Friday once more. November 27 should see shopping frenzy – but there’s finite cash out there
2. Upcoming in Wrap (clients <11am, otherwise >4pm): comments on ability vs desire to spend. Former improved, latter still flat
3. YUM Brands has appointed activist Keith Meister to its board. The 5% shareholder + founder of Corvex joins today
a. YUM Board member Meister has previously said the group should spin off its China operations.
4. Pizza Express rotisserie chicken concept Reys debuted in Corn Exchange Thurs + hopes to add 3-4 sites by July 2016.
5. BBPA warns of impact the National Living Wage (starting off at £7.20/hr for workers aged 25 or over) could have on many pubs – see email
a. BBPA chairman Jonathan Neame urges pub sector to embrace the challenges of the NLW or face further legislation.
b. Lawyer Travers Smith caution against risks of discrimination claims if employers circumvent NLW by hiring U25s
6. Prezzo has announced it will open 11 new sites between now and the New Year in Farnborough, creating 175 jobs
7. John Lewis suggests could be 70s trend re furniture + clothes. I sincerely hope that’s not correct
8. Wynn Resorts profits sharply down on gambling-crackdown-related slowdown in Macau. Net income Q3 $73.8m v $191.4m last year
9. Reuters poll highlights fears re economic slowdown. Poll of 300 economists reports belief that slowdown could extend to 2016
a. Fed member comments: Two suggest that rate rise still likely and possible this calendar year