Langton Capital – 2015-11-02 – Daily Wrap: London rents, burgers & chicken, commodity prices & 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:
London rents, property bubble etc.:
• UBS would have it that London property is the biggest property bubble in the world. Fleurets report that higher London property prices are driving rents in the capital – see earlier email.
• There’s a bit of a trend developing but these things tend to be finite.
• Higher asset prices, paid admittedly by consenting adults, have been incentivising new owners to charge higher rents
• Demand has been there with new entrants, especially in the casual dining arena, competing for space
• Whilst good operators – and particularly good new entrants – can make excellent returns, there is the potential for this to end badly.
Fulham Shore & Bukowski:
• As mentioned in earlier emails, we see chicken, pizza and burgers as the staple products across casual diners
• No coincidence that Soho House has Chicken Shop, Pizza East & Dirty Burger.
• Fulham Shore (currently largely pizzas) has made it plain that it is to expand into the burger market
• This is arguably somewhat crowded already but, as we have maintained for some time, new entrants often cause more trouble for incumbents than they do for themselves
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Price of basic foodstuffs taking another header into the dirt. Wheat, pigs, soybeans all lower.
• Orange juice price, perhaps strangely, hitting recent highs:
• Majestic Wine share price truly off the top. Now 334p, was 470p 3mths ago hence down by nearly 30%. Question perhaps is why did the shares rise quite so much on the acquisition of Naked Wines in the first place? Defending market share against the food retailers, not least Aldi & Lidl, must be something of a challenge.
• Evolution continues apace. Burger King trying alcohol with their burgers in the UK. Will be interesting to see if other operators follow suit. McDonald’s currently serves alcohol in a number of European territories.
• New car registrations out on Thursday. Will give us a view on the big-ticket, small-ticket spending debate.
• November is a big month for pub figures. Including early Dec, we will be hearing from JD Wetherspoon, Revolution, Punch Taverns, Young & Co., Enterprise Inns, Fuller’s, Mitchells & Butlers, Marston’s and Greene King.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Fulham Shore announces franchise agreement with Bukowski Grill, operator of a London-based charcoal-grill restaurant + bar.
a. Fulham Shore + Bukowski. Latter currently has 2 restaurants in London at Brixton Market + BoxPark, Shoreditch.
b. Fulham Shore will add new Bukowski restaurant on D’Arblay Street in Soho. Cop has 15yr lease on the site. Will pay 5% of revenues
2. Pub estate owners, industry bodies welcome proposal to drop need for parallel rent assessments as too costly to implement
3. Fleurets reports rent increases over last 12mths. Says ‘London market continues to dominate as the largest single area of activity’
a. Fleurets says re London ‘new entrants to the market are also creating a surge in rents, particularly within the restaurant sector.’
b. Fleurets says London operators moving to the regions, e.g. Manchester Spinningfields etc. are pushing up rents.
4. Burger King to be 1st fast food chain to sell alcohol across its UK restaurants. It is to test the product at 4 branches including Hull
5. M+C Allegra research shows that operators are increasing prices, with premium prices in particular getting pushed up.
6. Fog is causing delays and cancellations across a number of airports in Northern Europe
7. Center Parcs moved a stage closer to opening in Ireland after submitting a planning application for its €233m project
8. Cineworld shares down on broker downgrade. Comps tough but surely Bond will help in the short term
9. Chinese manufacturing contracts for 3rd month per PMI. Recorded 49.8 in Oct (same as Sept) where any number <50 implies contraction
10. UBS says London housing market is the world’s biggest house price bubble. Ratios versus income well out of line