TUI full year, hospitality costs, new openings & other:

A DAY IN THE LIFE:

I think that when you try to put your shoes on and the laces snap, you know you’re in for a tough day.

Because there’s that ‘butterfly flaps its wings in China’ kind of impact. You must either hunt around for a new lace or change your shoes. You could slop to the tube station or whatever without a lace in one or more shoe, of course, but you might then either miss your connection or take a header down a flight of stairs and neither of those outcomes would be anything near optimal.

So, you’re behind from the first minute. You’re bad tempered, irritable and/or shoeless and you miss that first cup of tea. You overlook a couple of RNSs, you slap down more than your fair share of typos and you hit ‘send’ before you’ve removed that odd swear word and, before you know it, your day heads down from there. Lovely. On to the news:

60 SECONDS ON INFLATION, MARGINS, AND SAVVY CUSTOMERS

Inflationary Pressures and the Spectre of Price Rises

• Inflation is coming in 2017 – but how much will there be, and who is most affected?

• Forecasts can be a fool’s game, but that doesn’t stop us from giving our two cents.

• Evidence suggests the UK consumer credit cycle is relatively mature, with many households extended and increasingly value-focused.

• Meaning input cost inflation (supply prices are c2% up on last year, per Prestige) will be absorbed by the company should it wish to retain its customer base.

Inflation feeding through the system – who blinks first?

• The latest BRC data notes that although ‘November took shop price deflation into its 43rd month’ this is because of ‘retailers’ effectiveness in controlling inflationary pressure.’

• Meanwhile, ‘increasingly value-driven and informed customers mean retailers will have to remain highly competitive.’

• A similar point might be made across the Leisure industry – when it comes to price rises in 2017, most operators will be playing a game of Who Blinks First.

The UK consumer: value-conscious, tech-savvy, disloyal, and indebted?

• We are now seven years into a bull run. Consumers have been spending more and saving less but real wage growth has been slow.

• Exceptionally low interest rates and easy access to cash has spurred higher household borrowing.

• The Bank of England confirms this: households are in ‘the early phase of re-leveraging’ with increasing unsecured credit. Meanwhile credit scoring criteria ‘continued to loosen’ and defaults are increasing.

• All of this paints a picture of overextended household finances, suggesting that operators may have to sacrifice margins for a while yet.

PUB, RESTAURANT & DRINKS PRODUCERS:

• KFC’s plans to double the size of its estate would see it overtake McDonald’s in terms of unit numbers

• NIESR says ‘looking ahead, we do not expect such buoyant consumer spending growth to persist. Sterling’s pronounced depreciation this year is expected to pass through to the consumer prices throughout the course of 2017 and 2018, eroding the purchasing power of households substantially.’

• Prices, they are a rising. Readers write: Wine prices (from one supplier) +10.7%, from another +4.7%. Beef up 24% in some cases, salmon +11%.

• Costs & Prices. Will operators try to maintain their percentage margins? Could get ugly.

• Tom Byng is to step down as CEO of Byron but will remain as an advisor to the board, per MCA.

• London-based healthy food and juice brand Crussh is looking to double in size after unveiling a new identity and store concept, per Propel.

• JDW has bought back another 30k of its shares at an average price of 827.5p per share.

• Camden Town Brewery is to roll out its Hells Lager across New York bars & restaurants from next month. Owner InBev is to fund a £25m investment at the brewer’s Enfield site.

• Enterprise Inns has announced its sixth expert partnership: Dirty Liquor, in partnership with experienced operators Hugh O’Boyle and Caroline Jones. The pair specialise in opening sites in gentrifying areas of London ahead of the competition and currently operate five pubs across the capital, which boast pizza, hot dog and burger offers. Caroline Jones commented: ‘We believe the time is now right to accelerate our growth plans alongside our long term business partner, Enterprise Inns. The London market has never been a more exciting place and we are delighted that we are well positioned to expand in 2017.’

• Starbucks presents 5yr plan for growth, aims to add 12k stores globally to take it to c37k units by 2021

• Starbucks has projected 10% annual revenue growth with 15% to 20% EPS growth per annum for the 5yrs to 2021. Outgoing CEO Howard Schultz reports ‘I have never been more energized or optimistic about the opportunities ahead as Kevin [Johnson, his successor] transitions to the CEO role and leads the most talented and experienced leadership team in Starbucks history.’

• Starbucks CEO elect Kevin Johnson reports ‘Starbucks continues to deliver record financial performance.’ He says the company is serving 80 to 90 million customers a week and adds ‘we are today executing against an ambitious, carefully-curated, multi-year strategy to further elevate the entire Starbucks brand and customer experience around the world, and further extending Starbucks leadership around all things coffee, retail and mobile. The power of our brand, the strength and momentum in our business, and the world-class management talent we have assembled give me great confidence in our ability to capture the enormous global growth opportunities ahead.’

• JDW has announced that, following recent share buybacks, founder & chairman Tim Martin now owns some 30.01% of the company

• Liverpool City Council has confirmed that 70% of the funds collected via its Late Night Levy will go to the police

• German lager Hofmeister is to be reintroduced to the UK market after a 13yr absence.

• Coaching Inn Group has made its fourth acquisition of 2016, purchasing The Castle Hotel, Conwy for £3.35m and taking the group to 13 properties. The group recently secured £10m of funding from the Business Growth Fund (BGF) to support a £50m expansion plan that targets 25 sites before the end of March 2019, having raised £4.5m of initial investment from the BGF in 2015.

• An industry expert has warned of an impending ‘global shortage’ of bulk wine following a small harvest this year will drive prices higher in the next 12 to 18 months. Prices are already increasing with the reduced 2016 vintage threatening global supplies and savvy buyers are already shoring up supply for next year, says Denys Hornabrook, who earlier this year founded Vinex. Vinex’s Global Price Index (VGPI), which combines the major producing countries trading each varietal to determine an average weight price, recording a 28% increase in the past 12 months to 16 November.

• China is expected to see a decrease in wine production in 2016 as major wine regions suffered from bad weather and farmers turning to other crops.

• Ministers have confirmed that the soft drinks levy will be introduced in April 2018 and believe the measure is ‘in the best interests of the nation’s children’. The Association of Convenience Stores has reiterated its calls to government to cancel the plans, arguing that they will affect small businesses disproportionately. ACS chief executive James Lowman said: ‘Convenience stores are already playing an important role in addressing the issue of obesity by increasing their ranges of healthy and fresh foods. We are concerned that a levy on soft drinks manufacturers will result in increased costs for retailers, as the manufacturers could pass on the levy through the supply chain.’

• Research from YouGov and GT Nexus finds that a strong media presence only influenced 5% of millennials in terms of brand loyalty.

• Intertain CEO John Leslie and CFO Mike Foster are to leave the group following its £39.5m acquisition by Stonegate, writes MCA.

• Five Guys has lined up two further flagship sites in south west London, meaning the fast-expanding better burger brand will finish the year with 59 sites. The group also debuted in France this year and plans to open 40 restaurants across the channel, including 15 by the end of 2017.

• British shoppers are happy to sign up for retail reward cards but show little loyalty when using them, according to a survey of 63 countries by Nielsen. 

TUI REPORTS FULL YEAR NUMBERS:

• TUI has reported FY numbers saying ‘we have delivered a second year of strong performance post-merger’

• TUI reports 12.5% increase in underlying EBITA including Travelopia or 14.5% for continuing operations

• TUI says ‘our sustained strong performance is a clear demonstration of the success of our growth strategy and the strength of our competitive position.’ It continues ‘we believe our strategy creates value for our customers, our people and our shareholders alike, and we remain committed to paying an attractive dividend, proposed at 63 cents per share in respect of 2015/16.’

• TUI says ‘we are focussed on delivering transformational growth in our own hotel and cruise brands, supported and enabled by a strong and flexible balance sheet.’

• TUI FY revenue down 1.9% at €17.2bn. Underlying EBITDA +5% at €1.0bn. Pro forma EPS +2.4% at 86c and dividend 63c (+12.5%)

• TUI outlook. Group should ‘deliver at least 10% growth in underlying EBITA in 2016/17’. It should maintain this to FY19. The group says ‘this balanced guidance is a clear demonstration of the confidence we have in our growth strategy, against what continues to be an uncertain geopolitical and macroeconomic backdrop.’

• TUI says ‘the UK delivered a strong operating performance, with customer volumes up over 4% and an increase in load factor.’ The group says ‘this was driven by the strength of customer demand for our unique holidays, with growth across short, medium and long haul, and the launch of our new ship TUI Discovery. We have also made further significant progress in increasing online distribution, with 58% of UK holidays booked online this year, up four percentage points.’

• TUI says Turkey has ‘more than halved in size as a destination.’ This has led to increased demand elsewhere’

• TUI reports ‘in Germany, market conditions remained challenging and margins were adversely impacted by subdued demand for Turkey. Despite this, we continued to grow market share in the year, building on the strength of the TUI brand.’

• TUI: France & Belgium were tough as a result of terrorist activity & a ‘remix away from North Africa’.

• TUI current trading. Winter ‘remains in line with our expectations.’ Summer 17 is also ‘progressing in line with our expectations’. The UK is 20% sold.

LEISURE TRAVEL & HOTELS:

• The Cuban government has given permission to Royal Caribbean Cruises to begin cruises in Cuba.

• Marriott International will grow its luxury portfolio with 30 new destinations in 2017.

• SeaWorld Entertainment has implemented a restructuring programme across its 12 parks as it seeks to reduce costs.

• Global airline passenger demand growth fell in October from a 7.1% year-on-year growth rate in September to 5.8%. Capacity grew by 6.3% in the month but load factor slid 0.4% to 80.1%.

OTHER LEISURE:

• Apple Music has acquired its 20 millionth subscriber. Apple will continue to tie artists to exclusive deals saying ‘the exclusives are relatively short term – it’s not something that stays on any one platform. But being able to do unique things with artists is a good thing and I think that’ll continue.’

• Japan’s lower house of parliament voted through a casino promotion bill which brings the nation a step closer to legalising casinos. 

FINANCE & MARKETS:

• NIESR reports UK GDP grew by 0.4% in the quarter to end-Nov. It grew by the same amount in the quarter to October. Rebecca Piggott of the NIESR reports ‘recent economic growth has been driven almost entirely by the UK’s broad service sector, supported by robust consumer spending. In stark contrast, the official figures suggest that the production and construction sectors of the economy have declined over recent months.’ The NIESR is currently looking for 2% growth this year and 1.4% next.

• World markets: UK sharply higher yesterday, buoyed by mining stocks. Europe & US also up & Far East up in Thursday trade

• Brent trading around $53.05 per barrel.

• Sterling down at $1.265. Trading down vs Euro at 117.4c.

• US 30yr bond rates down sharply from 3.08% to 3.02%.

• The RICS has said that a paucity of homes for sale means that the UK housing market will get off to a slow start in 2017.

• France’s financial regulator has told the BBC that a number of banks are in advanced stages of planning a move from London to Paris. Benoit de Juvigny told Newsnight that ‘many other companies’ had begun to make enquiries.

• UK manufacturing output fell by 0.9% in October compared with the same month a year ago, per the ONS.

• Manufacturing production in UK sees biggest drop in over 4yrs in October. Oil & Gas production down 10.8%.

• Bank of England warns that commercial property prices in the UK have a ‘risk of further adjustment’ post the Brexit vote. The Bank says ‘there [is] the risk of further adjustment in the sector. This could create financial stability risks, given the reliance of the market in recent years on inflows of foreign capital, and given that valuations in some segments of the market continued to appear stretched. An adjustment could result in a tightening of credit conditions’ by reducing the ability of companies to use commercial property as collateral for their loans

• Halifax reports that house prices in the UK rose by 6% in the year to November, the first acceleration of prices in 8mths

• City AM has reported that ‘house prices in prime central London have been falling since 2014’ & says some are down by 30%. This as a result of the higher rates of stamp duty imposed by former chancellor George Osborne on homes worth over £1m.

• NIESR reports net EU migration to the UK could halve between now and 2020 reducing per capita GDP by 3.4% by 2030. Some low paid Brits will be better off, however, as some pay rates may rise. The NIESR reports ‘our estimates suggest that the negative impacts on per capita GDP will be significant, potentially approaching those resulting from reduced trade’.

YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:

• With Christmas almost upon us, will it happen? We think it will. But costs, prices & spending will be re-appraised in Jan/Feb. See email

• Barclaycard has reported spending up some 5.1% y-o-y in November. It does not include Black Friday spend.

• Barclaycard reports ‘pub and restaurant spending accelerated in November after a relatively weak October.’

• Allegra’s Project Café2017 Europe report finds that the European branded coffee shop market saw growth of 6.4% in 2016

• Fleurets’ annual rental survey highlights a 21% jump in rents for free-of-tie leases in London

• Fleurets reports free-of-tie and shell units in London have seen rent increases of 21% and 22% over 5yrs respectively.

• Fleurets reports most major pub companies have ceased their major disposal programmes

• Chipotle shares down 7% yesterday after CEO said in New York  he was ‘not satisfied with the rate of recovery’.

• Health ministers will consider whether minimum unit pricing and a reduction in the drink-drive limit will help reduce drink-related crimes

• The CEO of Prestige Purchasing has warned that Brexit will have a fundamental impact on food and drink prices, w. food prices up 3.4% in 2017

• China’s wine imports in 2016 are expected to grow 25% year on year, with Q4 expected to rise in both volume and value terms.

• Shares in spreadbetting firms have crashed on the news that the FCA plans to tighten rules around CFD products

• Goals Soccer Centres has announced that Nick Basing will move from Executive to Non-Executive Chairman.

• Later tweets: Betting companies (spread-betters, a.k.a. ‘other financials’) completely mullered as HMG aims to protect punters from themselves

• Spread betters. If 82% lose then you’ll get better odds on a roulette wheel. And the gearing? Eye-watering at up to 500x

• Branded coffee grew 6.4% in 2016, +9.0% in 2015. Saturated? Operators say not but when were you last not able to find a coffee shop?

• Alcohol consumption falling for decade & a half. That’s approximately forever. Still talk of minimum pricing around though

• Prices & costs. Consumer is passive (price-taker but can go on spending strike) leaving companies to make 1st move. You first, mate…

• Surprised Theresa not picked up on puerile ‘red, white & blue’ comment. But have had some (poorly spelled) emails supporting such language

• Red white & blue? Last refuge of scoundrel? Come on T you’re better than that. You know full well much bad behaviour is wrapped in a flag

RETAIL NEWS WITH NICK BUBB:

Nick is on holiday.