A Day in the Life:

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It’s easy to become outdated rather quickly these days.

To be fair, our ancestors were probably saying the same thing 500yrs ago but now, if you blink, you’ll miss it. You may still be phoning your friends when you should be texting them, you may still be collecting DVDs when downloads are all the rage and you may be setting up your websites as though, every now and then, somebody might want to print a page from them.

Because, nowadays, as I was told when I found out that a graphics heavy, one-page About Us section from a restaurant group’s website was going to take 11-pages to print, ‘who prints?’

Well thank you very much but I do for one. And I may be the only one left who does but I still like to be able to scribble on a sheet of paper from time to time and, heaven help me, to occasionally then hole-punch said hard copy and file it away for future reference.

But perhaps the younger generation have such super-memory that they don’t need to do the above. Which would clearly explain why they still can’t find their shoes in the morning. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Vianet updates on H1 numbers, saus ‘trading for the first half of the current financial year was ahead of the same period last year’. It adds it has achieved ‘good growth in line with the Board’s expectations.’ It says ‘encouraging commercial and operational progress has been made across the Group’s businesses, notwithstanding the continued pressure on trading in the pub sector, with the focused approach to exploiting growth opportunities, such as in vending telemetry, set to underpin the Group’s return to growth.’ Chairman James Dickson reports ‘whilst trading in the pub sector remains challenging, we have continued to make good commercial progress across the business by delivering highly relevant customer solutions where data insights and actionable data drive strong returns for our customers.’ He concludes ‘given the Group’s
encouraging prospects and cognisant of providing a superior yield for our shareholders, the Board intends to declare a maintained interim dividend of 1.7 pence per share.’

• M&B has completed the integration of the 173-strong Orchid estate and its programme director Steve de Polo will now join Enterprise Inns. De Polo is to become retail concept director at Enterprise, where he will be in charge of developing the group’s new retail concepts touched on in its recent post-MRO strategy update.

• The Restaurant Group non-executive director Tony Hughes sold 200,000 shares at a price of 705 pence per share on Thursday, equal to 0.1% of the firm.

• Stonegate Pub Company has pledged to increase it apprentice numbers by 50% and is hosting its own Apprenticeship Month this month.

• French spirits producer Remy Cointreau’s H1 sales fell 5.9% as a result of distribution changes in its key markets.

• McDonald’s franchisees are calling its all-day breakfast menu, launched on 6 October in the US, a ‘nightmare’ as it is slowing down service. The change has also been blamed for reducing average ticket costs and causing confusion in the kitchens, with one franchisee commenting: ‘All-day breakfast is a non-starter. We are trading customers down from regular menu to lower-priced breakfast items. Not generating new traffic.’

• PMA reports a Wagyu steak from Australia won the title of best steak at the World Steak Challenge last week

• Five Guys UK sales jumped from £3.6m to c£24m in the year to the end of 2014, with LfL sales up 10% in stores open more than a year. The group is on track to open around 40 sites by the end of this financial year.

• PwC research shows 2,634 UK shops closed in the first half of 2015 at a rate of 14 stores a day – the lowest closure rate in five years. Coffee shops, charity shops and jewellers were among those growing at the fastest rate during the first half of 2015.

• Shares in German fashion Hugo Boss have sunk 10% after it said trading in the third quarter of the year had been weaker than expected. As with Burberry’s recent trading update, the company blamed a deteriorating market environment in Asia (alongside slowing US sales) for the tough conditions. Hugo Boss cut its 2015 growth forecasts for sales and core profits to 3%-5%.

Holidays & Leisure Travel:

• Elegant Hotels updates on FY trading, says ‘trading since the interim results in June has remained solid’. It adds ‘the operating results for the year ended 30 September 2015 are in line with expectations at the EBITDA and earnings before tax level.’ CEO Sunil Chatrani says ‘there has been a significant amount of activity in the business over the summer months following the successful listing on AIM in May, and it is a great reflection on the considerable efforts of the whole team that the business continues to perform in line with its targets. As we move in to the key winter months ahead, we continue to focus on building the profitability of our core existing business while looking closely and selectively at acquisition opportunities in Barbados and the surrounding Caribbean islands.’

• Uber has reported that revenues increased more than 10x to £11.3m in the UK in the last year

• Welcome Break to be sold, sources suggest value of around £700m. Group currently has 27 sites across UK

• China cruise market reported to exceed 1m passengers this year, some 5x the number that travelled in 2012. FT reports ‘after an unprecedented 50 per cent year-on-year surge of orders in 2015, the market is expected to add an additional 146,000 passenger berths by 2020.’ Currently, North American and European passengers account for 85% of the global cruise market of 22m passengers per year.

• The number of overseas tourists visiting London was up 6% to 5.1 million in the second quarter of 2015. Tourist spending in the capital reached £3.2bn in the quarter, up 8% year on year according to ONS figures, and London is on track to eclipse Bangkok and Paris in terms of full year numbers. Some 9.9 million international visitors came to the UK as a whole in the period.

Other Leisure:

• Falling Barbie Dolls sales hit earnings at the US toymaker Mattel in the three months to September, with net income down from $331.8m to $223.8m. CEO Christopher Sinclair said the results were “broadly in line” with expectations.

• Match Group, owner of dating services Tinder + Match.com, has filed with U.S. regulators for an IPO of c20% of its stock. Revenue rose 10.3 percent to $888.1 million in 2014 per the filed documents. Sales rose by 19 percent to $254.7 million in Q2 to end-June.

• Bookmakers are reported to be “refusing to take bets” from successful gamblers.

Finance & Markets:

• China’s economy grew by 6.9% in Q3, the slowest rate since the global credit crunch. Result nonetheless slightly above expectations

• World markets: UK mixed on Friday, Europe higher + US also up. Far East lower in Monday trading

• Oil price little changed over the weekend at c$50.40 per barrel

• The rise in the cost of renting a home in England and Wales is matching and even exceeding house price growth by some measures. The owner of letting agents Your Move and Reeds Rains said average rent was up 6.3% to £816 in the year to the end of September.

• The Rightmove UK house price index advanced 5.60% on an annual basis, in October compared to 6.40% in September.

• New car registrations across the 27 EU countries rose 9.80% year on year in September, down from 11.2% the prior month.

What works & what doesn’t in 60 seconds…

Introduction:

1. We see pizza, burger & chicken as staples as far as casual dining is concerned

2. There are always going to be operators looking for the next big thing

3. This may be Vietnamese street food or tapas or whatever but see 1 above

Recent developments:

• There’s a big difference between what may cut it in Hoxton & what might operate to capacity on a rainy Monday in Hartlepool; bear this in mind if you want to open a Peruvian waffle shop.

• Having said that, Mexican, BBQ & noodle chains could grow to a decent size

• Not surprising to see Soho House operate Pizza East, Dirty Burger & The Chicken Shop, that Meat Liquor owns Chicken Liquor

• Pizza Express is testing a chicken rotisserie offer but (apologies to Café Rouge) French-style offers, though popular at the top end, have not taken the mid-market by storm

• Hence comme on dit en francais un petit aide-memoire

Potential hits: Pizza, chicken, burgers. Stick in the word ‘artisanal’. Don’t make the place feel like a cog in the corporate wheel. Prove provenance (product, chefs & waiters). Provide theatre, spectacle.

Definite misses: Spud shops, egg restaurants and anything to do with porridge. Most other plastic, corporately moulded me-too operators & anything that serves bad food. Simples.

Langton Licensed Retail Index – Major Movers

The LRI was in line with the market last week, falling 0.66% as the All-Share was down 0.68% with oil and telecoms stocks leading the market down.

Domino’s Pizza UK was up 13.86% following a strong Q3 update which saw group sales up 19.4% with another 12 sites opened, bringing the year-to-date tally to 33 stores.

Across the pubs sub-sector, Greene King (-1.39%) and JD Wetherspoon (-1.66%) were down slightly more than the index, as was Enterprise Inns (-1.56%) however Punch Tavern’s outperformed, rising 5.04%.  M&B was down 0.15%, slightly outperforming its peer-group, though Marston’s Held its value following the group’s Q4 update, rising 0.25%. 

Young’s was down 0.84%, though Fuller’s share price took a hit this week, down 7.08%.

Revolution gave back some of its recent rally last week, falling 2.13%, having risen 4.45% the previous week.

SSP Group was down 3.44% and Merlin was down 3.87% perhaps on fears of reduced traveller numbers as the oil price rallies, while Whitbread this week was down 0.64%, in line with the index. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

The grocers gave back ground last week after a fortnight of strong gains, dragging Langton’s Food Retail Index 2.98% lower. Its constituents all struggled to varying degrees, with the exception of Greggs (+2%), McColls (+1.02%) and Conviviality (+0.74%).

Grocers

Tesco had the worst week of the bunch, down 5.47% as investors take stock following its recent outperformance. The group recently announced its shift from a price matching scheme to a brand guarantee scheme, adding that more price cuts would be forthcoming over the next six months.

At 196.95p, Tesco shares currently trade at around 28 times forecast earnings. It remains unclear how quickly the group can recover and what its underlying level of profitability will be an evolving trading environment. The same can be said of Sainsbury’s (down 4.36% to 263.68p), which is axing its mobile phone service, and Morrisons (down 3.37% to 174.8p).

Ocado shares also had a bad week, falling 5.1% to 336.24p as the market continues to weigh up the potential impact of Amazon’s first steps into the UK online grocery market. Analytics firm Profitero found that the groceries sold by Amazon in the first week of its service in Birmingham were some 45% cheaper on average that the Ocado equivalent. The internet giant’s prices were also significantly cheaper than any of the big four’s online offerings.

As Sainsbury’s CEO Mike Coupe pointed out, however, Amazon Fresh’s low prices come at the expense of breadth of offering. The service, at least in its initial form, offers a limited amount of products compared to the established UK retailers.

Specialty/Wholesale

Booker was down 3.54% to 177.6 on the back of mixed results for the 24 weeks ended 11 September. The group oversaw a 10% rise in operating profit to £75m and PBT to £74.1m despite a 1% fall in LfL sales to £2.2bn for the. LfL non-tobacco sales were up 0.6% but LfL tobacco sales held the group back, falling 3%.

The group commented on current food retail sector conditions: ‘We anticipate that the challenging consumer and market environment will persist through the coming year and the UK’s food market remains very competitive. Whilst there is increasing price competition in the UK grocery and discount sectors, we will continue to deliver our plans to offer our customers even better choice, prices and service.’

Booker is a well-run company and its management has been busy (with its recent acquisition of Musgrave among other things) but, given its proximity to the turbulent supermarket industry and with its shares at near 52-week highs of 177.9p (for a PER of 26.4 falling to 25.6), we would argue there are better investment opportunities elsewhere in the market. Jack Brumby – jack.brumby@langtoncapital.co.uk

Leisure – The Week Ahead

Intercontinental Hotel Group has its Q3 IMS on Tuesday. At the group’s interim update, underlying profits were up 10% with the interim dividend being raised 10%.  The group saw UK trading up 6.1%, with regional growth outperforming, up 8%.

Whitbread produces its interim results also on Tuesday this week.  Strength in the UK hotel market will also benefit Premier Inn, but with much of the group’s value based on the growth potential of the Costa Coffee brand, investors may be concerned about any perceived China slowdown. Chris Roger’s, the head of Costa, has announced wage rises for the group’s baristas ahead of the National Living Wage rise, and has announce it will not be raising coffee prices in the UK.  New CEO Alison Brittain is set to take the helm company in January 2016.

In gaming, Ladbrokes and William Hill have Q3 updates on Thursday and Friday respectively this week.

Retail Sales Figures for the UK come out on Thursday at 9:30, with BBA Mortgage Lending Numbers out on Friday, also at 9:30. Will Brumby – will.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
The highlight of the Saturday papers was a detailed feature article in the FT Weekend magazine about the John Lewis Partnership, headlined “Trouble in store” and based on interviews with senior management and visits to the John Lewis Oxford Street and the Salisbury Waitrose stores. Although it was pegged on an internal survey showing that 29% of JLP staff weren’t satisfied with their jobs, the bulk of the article focused on the Online and discount retailing challenges to the business and it noted our view that, although JLP invests for the long term, unless it controls costs profits and bonuses will suffer. The main section of the FT also looked at the challenges faced by the management of Debenhams, as the City waits to judge next week’s final results, and the News pages had an article about the pressures in Online fulfilment from the push by Amazon and
Argos into offering same-day order delivery. The front page of the Telegraph highlighted that shops could be prevented from opening longer on Sundays, due to a rebellion by Tory MPs who plan to vote against the mooted changes to Sunday trading hours. In other news, the strong interim results announced by the Mountain Warehouse chain (and its push into Online retailing in China) were noted by the Telegraph, the Independent and the Daily Mail, inter alia, and the stockmarket reports highlighted the round of broker downgrades in Burberry, after the profit warning on Thursday, with the Daily Mail report headlined “Burberry faces dreary outlook”. Finally, the Independent had a big feature interview with retail veteran John Timpson, ahead of the launch of his new book “High Street Heroes: The Story of British Retail in 50 People”, with the headline “All the great
retailers know their customers. Does M&S?”.

Sunday Press: 
The main feature in the Sunday papers was the Sunday Telegraph article about whether Tesco’s decision to introduce a new Brand Guarantee scheme is “a gimmick or a game-changer”, noting, in passing, our view that if it was likely to have a big impact on profits Tesco would have made an official RNS announcement about it. The Sunday Telegraph also had a preview of the Debenhams results headlined, a little bizarrely, “Debenhams in rare profits jump”. The Sunday Times had a front page Business story about a possible Chinese takeover of Hamleys, but its main Retail feature was a look at the recent PR blows to the reputations of Mike Ashley and Dave Forsey at Sports Direct. The Observer noted that with 30-40% of Burberry’s sales coming from Chinese shoppers the management skills of CEO Christopher Bailey are going to be tested. The Observer also
flagged that Tuesday will see new CEO Nick Beighton unveil the final results of ASOS and that he will have his work cut to get the ASOS share price back to anywhere near its peak. Finally, the Mail on Sunday had a big feature on “Black Friday”, noting the view of Marks & Spencer’s Patrick Bousquet-Chavanne that “Black Friday” is again not going to expand the total Retail cake, although M&S is better prepared for the massive discounting event than it was last year.

Today’s Press:
The big story in the Independent is that High Street retailers are set to be hit with a 17.2% jump in Business Rates bills in April, as the amount paid breaks through the £8bn a year barrier for the first time, after the abolition of rate relief. The Times flags that the watchdog that is struggling to win the confidence of the suppliers it was set up to protect has blown the identities of a “Big Four” grocery chain and a wine supplier in dispute (the Groceries Code Adjudicator accidentally emailed to the Times a letter addressed to the supermarket in question, which the Times has not revealed). The Telegraph flags that Tesco is expected to face pressure from the Advertising Standards Agency over its new Brand Guarantee scheme, as rivals say that it does not make it clear that the refund will be available only if customers buy more than 10 items and it only matches
prices against its “Big Four” rivals. There are plenty of previews of the Home Retail and Debenhams results this week and several mentions of the latest BRC/ Springboard footfall monitor, which shows that total retail footfall in the UK in September was only 0.2% lower than a year ago (an improvement on the 1.6% fall in August).

Grocer Watch:
The launch of Tesco’s new “Brand Guarantee” scheme last Monday came too late for the widely followed Grocer “33” weekly supermarket pricing survey last week, but based on the Grocer’s calculations it would not have stopped Asda from returning to its usual position as the cheapest supermarket overall, given its lower own-label prices. The Asda basket was £54.62 in total, with Tesco 3rd on £57.25. Morrisons dropped from 1st to 4th this week, implying that last week’s win was a blip rather than a sign of it permanently sharpening its prices. Waitrose was well off the pace again, with a £61.46 basket. The separate Grocer “Mystery Shopper” survey on Store Service and Availability was won again by Sainsbury, for the 5th week in a row, as their 44,000 sq ft store in Beaconsfield topped the rankings, with an impressive score of 90 out of 100.
nicholas_bubb@hotmail.com

Friday Wrap:

This was produced for distribution Friday 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:

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 summary. 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 offering.

• 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.