Langton Capital – 2016-02-26 – Daily Wrap: Wet sales vs Food, London, market outlook, travel fears & 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:
Wet sales vs food:
• See earlier email for detail.
• Suffice it to say that Alix Partners & CGA say that the number of wet-led units in the UK fell by 1.2% in the year to December 2015 whilst the number of food-led units rose by 1.6%.
• This continues a well-established trend. We note that it does not attempt to comment across the size of units opening (presumably rather large, perhaps chain-units) versus those closing (likely to be small).
• Of more importance, perhaps, were the comments that 1) the rate of wet-led closures was slowing and 2) London new-openings in the food-led space were lagging those in the rest of the country
• Re closures. The slowing is perhaps not a surprise as the weak will have gone to the wall long since.
• And it’s refreshing to see that the ‘slowing’ refers to the % rate of closures rather than an absolute number of units because the latter should have been expected to fall as the industry itself shrank in size.
• Re London, we have been hearing for some time that there were some signs of indigestion in the market, no pun intended.
• Unfortunately, the 2014 and 2015 stampede for sites will have pushed up rents and this will remain a burden on London operators, potentially for many years.
• We still hold the view that new entrants, nimble, relevant, innovative etc., can continue to take share from established operators
The industry overall:
• Not very reassuring to see the CGA Peach Business Leaders’ Survey suggesting that some respondents believed that ‘2015 might even have marked a high point for restaurant and pub operators.’
• However, we would suggest that, if there are any chill-winds to be felt, these will impact lazy, entitled or incompetent incumbents rather than new entrants or relevant and innovative existing operators.
Terrorism & leisure travel.
• As mentioned in previous emails, the two do not mix well.
• Today (see earlier email), we have the FCO warning on Indonesia, On the Beach saying that cutting prices won’t help where there are safety fears and the Egyptian authorities saying that they are trying really hard to avoid any more planes being blown out of the sky.
• We refer to our first point, leisure travel and terrorism do not mix well.
Random information, hopefully not all of it useless:
• We’re writing this early as we’ve got a train to catch but it does look, at least at the time of writing, as though the FTSE100 should close above its 50dy moving average today. That will give the chartists something to write about.
• Having said the above and accepting that the market has a mind of its own, corporate earnings across Europe as a whole are running behind estimates. Even Lloyds yesterday (up 13% on the day) missed numbers. So did RBS – down some 9% at the time of writing
• Sterling still weak but at least not falling at the moment. All of the comments re a weaker pound’s impact on costs etc. remain unchanged
• Oil over $35 per barrel. Who would have thought a couple of years ago that we would have been trumpeting that as good news?
• Gold still moving in the opposite direction to the oil price.
• Looks like we may have missed our chance to buy all that cheap chocolate.
• Commodity of the day. Soybean meal. Dull? Yes but also an important input product. Price tried to go markedly better around 8mths ago but then fell back exhausted. The gloop is now trading some 23% where it was a year ago.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Alix/CGA Market Growth Survey says ‘restaurant openings continue to make up for the fall in licensed premises caused by pub closures’.
a. Alix/CGA Survey. Says that the ‘pace of expansion [of restaurants] is easing’. 2015 wet led numbers down 1.2%, food-led +1.6%.
b. Openings: Wet led numbers still falling (down 1.2% in the year) but rate slowing in context of 12.6% fall over 5yrs
c. Openings: Survey shows 0.1% increase in total number of licensed premises (to 124k), restaurants +1.6%, pubs down 1.2%
d. Openings: Says ‘growth in openings of licensed premises in London was lower than national average at 0.4%’. Comments on ‘over-heating.’
2. CGA Peach Business Leaders’ Survey shows both optimism & caution. Competition, levels of spending & property costs among main concerns.
a. Business Leaders’ survey: Concern that ‘2015 might even have marked a high point for restaurant and pub operators.’
b. Leaders’ Survey: Main concerns for 2016 are re property & people costs. The NLW will add cost & rents rarely go down.
3. IAG FY: Says Q4 operating profit was €540m excluding Aer Lingus, €530m including it. Revenue for full year +13.3% to €22.9bn
4. Staycity is extending its Heathrow site by 250 apartments and will add a guest lounge, café, breakfast area, and terrace.
5. European hotel industry occupancy rose by 1.4% YoY to 54.7%, according to January 2016 data from STR Global.
6. FCO says terrorists may by in ‘advanced stages’ of preparing attacks in Indonesia & urges visitors to ‘exercise a high degree of caution’
a. EasyJet has pulled all but one of its routes to Sharm el-Sheikh for the summer due to ‘reduced demand’
b. Egyptian tourism officials will focus on security, cultural tourism, and the quality of its resorts as it seeks to win back tourism revenue.
c. On The Beach founder Simon Cooper has warned that slashing holiday prices to Turkey will not help the country this summer.
7. Merlin will face charges under health and safety legislation over the Alton Towers rollercoaster accident that left 5 people seriously injured
8. Air passenger duty (APD) for children over the age of 12 and under 16 will be abolished on economy flights from 1 March.
9. The US hotel industry saw all three of its key performance metrics rise during the week of 14-20 February, according to STR Global
10. Wm Hill FY: Says ‘good progress on strategic priorities leaves William Hill well placed for 2016’.
11. UK economic growth in Q4 last year has been confirmed by the ONS at 0.5%. Growth rate for FY15 was left at 2.2%
12. BBA reports mortgage demand up to 47.5k as buy-to-let investors seek to beat the rise in Stamp Duty in April
13. Consumer confidence in February has fallen to its lowest level in a year per GfK.