Langton Capital – 2016-02-17 – Daily Wrap: On-trade capacity, London slowing, inflation & 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:
Pub & restaurant spending trends – London:
• See earlier email for detail on the Coffer Peach tracker.
• We see the main points as centring around 1) London, 2) capacity, 3) pubs vs restaurants.
• To deal with them in order re 1) it would appear that London is slowing.
• We would go so far as to say that it probably peaked in Q3 last year.
• There may not be a dramatic decline – and indeed total spend numbers may continue to rise – but capacity has been an issue and LfL sales could be anaemic. Or even absent.
• The Tracker says ‘companies trading away from London saw the best of January’s sales uplift’. Sales outside the M25 were +2.4% with London sales up by only 0.4%. Peter Martin comments ‘the Capital was a tougher trading environment for all in January’.
• David Coffer says ‘the January like-for-like sales figures for inside London reflect, to some extent, the emotional sentiment Londoners experienced as a result of the November Paris atrocity.’
• This is likely to have been a minor negative with occupancy costs, we would suggest, more of an issue. Mr Coffer says ‘superior like-for-likes for outside London are no surprise and confirms the trend of expansion away from an ever more expensive London market – in terms of property acquisition, and indeed consumer prices.’
• There are two issues here. First occupancy costs for operators (these should not impact LfL sales but will hit margins) and second the cost of living for residents in London in general. This will clearly impact their ability to spend.
• Coffer says ‘the very high cost of London living is seeing the boundaries of Greater London extend to the provinces with many now commuting on a daily basis from provincial cities. This trend will also continue and further enhance trade outside of London.’ It would also, if true, increase transport costs & reduce spending money for the commuters concerned.
• We would also highlight work carried out by HVS last week. It ‘outlines the fact that London is to see the opening of a further 7,000 hotel rooms this year, at a time that occupancy has declined for the fourth consecutive quarter.’ It goes on to say ‘HVS chairman Russell Kett warns that this will put increasing pressure on operators in London at a time that a peak in the hotel market may nearly have been reached.’
Pub & restaurant spending trends – Capacity & Pubs vs Restaurants:
• Re 2) above, the Tracker points out that, whilst LfL sales were up by 1.9% in January, total sales were some 5.4% higher. The difference between the figures will be as a result of new capacity being added.
• This competition for sites will put upward pressure on occupancy costs – see David Coffer comments above.
• This will impact most operators as comparative rents are used when re-setting prices. Unfortunately both higher capacity and higher rents will be semi-permanent
• Re 3) it would appear that casual diners outperformed pubs & bars in January. The Tracker says sales for casual diners were +3.6% nationally and +4.7% outside London.
• The Tracker comments ‘this January’s pattern was similar to last year’s…with restaurants outstripping pubs, perhaps reflecting the continued impact of ‘dry January’.’
• We would echo the dry January comment and would also highlight strong cinema releases & wet weather as favouring eating out.
• UK rate now at 0.3% is actually a 12mth high.
• Stats are now lapping food price reductions this time last year alongside cheaper 2015 petrol.
• This will continue to be a feature in coming months.
• Could be that a negative rate was not a lasting feature, could rather have been a one-off step down.
• Certainly this has been the Bank of England’s contention though it now seems likely that we will not get back to the Bank’s target rate (2% inflation) until perhaps 2018.
Random information, hopefully not all of it useless:
• Travel stocks higher yesterday on relief that the Russians & Saudis did not agree to cut production. Oil price weaker for same reason.
• US market less strong than hoped yesterday & Far East rolling over. Slight surprise, therefore, that UK market is so buoyant. Up 70+ at time of writing & looking a good bet to close up for the fourth successive trading session.
• Hog prices higher. Check charts for further detail. Watch out for pork processors.
• Gold price off its highs. Rally yesterday failed to carry through.
• German GDP growth thought likely to be sluggish as Chinese consumers decline to spend quite so much on imports
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. January Coffer Peach Tracker has LfL sales +1.9% across the UK’s largest restaurant + food-led pub chains
a. Coffer Peach Tracker suggests that the UK provinces outperformed London in January trading.
b. Coffer Peach Tracker: Total sales in January were up by 5.4% suggesting that new capacity added >3% to sales
c. Coffer Peach Tracker: Says ‘companies trading away from London saw the best of January’s sales uplift’.
d. Coffer Peach Tracker: Casual diners outperformed pubs & bars in January. Sales there +3.6% nationally and +4.7% outside London
e. David Coffer: Suggests sluggish London trading reflects fears post the November Paris atrocity.’
f. Coffer: ‘Superior LfLs for outside London are no surprise & confirms trend of expansion away from an ever more expensive London market’.
2. Enterprise non-exec (and former MAB CEO) Adam Fowle has bought 60k shares in Enterprise at c80p per share
3. Domino’s Australia has reported a hefty 56.7% rise in net profit for the six months to December on the back of ‘organic growth’
4. Premier Foods is entering its Ambrosia brand into the frozen category, with the launch of Ambrosia Frozen Custard
5. M&C Allegra’s Food To Go Tracker shows the category continued to outperform the wider eating out sector in Q4 2015.
6. McDonald’s is opening unit in Korea that will serve beer and ‘premium’ burgers, joining branches in other markets that also serve beer.
7. CDG brand Bella Italia is opening four new sites this month as part of a schedule that will see it open some 20 units between now and May.
8. Easyfoodstore has been forced to limit the amount of items customers can buy to prevent other retailers reselling its stock for a profit
9. STR Global’s preliminary January 2016 data for London, England, indicates a negative YoY performance
10. UK visitor numbers driven by significant growth from Asian markets, including Japan, Hong Kong, S Korea, Singapore, Malaysia, Thailand.
11. Business travel company Hogg Robinson has noted promising trading in H2 despite ‘strong competitor pricing.’
12. UK inflation rose to a 12mth high of 0.3% in the year to January reports ONS. Says year ago falls in petrol prices were not repeated
13. Oil price up a smidge after giving up much of its gains yesterday on disappointment over lack of production cuts