Heineken, Punch, Dry Jan, inflation, costs & other:

A DAY IN THE LIFE:

Can you imagine how awful life would be if you did everything you were told?

I mean you’d be getting up for a walk, even in the middle of an exam, because your Fitbit commanded that you do so.

And then you’d be sitting down again (because you were told to) and then you’d be getting up in an hour to do the same again & then, when you left the exam hall to go to the Tube, you’d be signing up £3 per month for clean water in Africa, another £5 to help the aged & perhaps another £5 to help homeless donkeys.

All worthy but rather an intrusion, don’t you think.

And this is a living for the chuggers and then you’d have to feed the dog for the fourth time when you got home (because he’s not slow, he can smell weakness) & then you’d have to answer the phone to another bunch of charity muggers to do whatever they told you to and then you’d change your energy supplier, extend your phone contract for another 24mths and contract to a 2yr supply of Insects of Britain books when you’ve always firmly believed that the only good insect is a flat on.

And when you sit down in front of the telly, you’d have to spring into action and order all that new furniture, buy those manly tissues, purchase the chocolate, beer & yoghurt that you can no longer live without and stock up on washing powder, Sterident and pile cream and that despite the fact that you have all your own teeth & your bum’s still in decent working order.

It would be intolerable, wouldn’t it?

Which makes me grateful that I’m still in command of many if not most of my faculties and am not above telling all and sundry to bugger off and leave me alone. It works pretty well; on to the news:

PUB, RESTAURANT & DRINKS PRODUCERS:

• CGA reports one in five consumers is now participating in Dry January. It says, however, that ‘pubs and bars have used food offers and soft drinks to tempt them in regardless.’

• CGA supports view that to build business on people drinking more rather than less alcohol may not be sensible. Particularly when times may be about to get hard & drink costs 3x to 5x more in the on trade than it does in the off.

• CGA says 28% of younger consumers planned to go dry in January against only 14% of over-55s. CGA Strategy CEO Phil Tate comments ‘our research shows that Dry January has become a full-blown occasion. That presents pubs and bars with a challenge if they are to retain footfall—but it’s one they are rising to. Good food and soft drinks give people reasons to keep coming in through the doors, and operators that can maximise those opportunities are more likely to shrug off any negative impacts.’

• Heavitree Brewery reports FY numbers, revenue for the year to end-Oct 2016 rises 1% to £7.2m.

• Heavitree underlying operating profit +0.6% at £1.4m. Directors recommend 2% increase in final dividend to 3.75p making 7.425p for the year. The co says its ‘decision to recommend an increase in the dividend reflects another steady performance for the Company.’

• Heavitree comments re outlook ‘our pubs and their operators and our staff at Head Office have again combined to produce a good result for the Company against a backdrop of all sorts of peculiarities in our ever-changing world.’ It adds ‘the standards of presentation and operation in our houses remains very high and, together with the income streams generated from the reopening of newly refurbished houses, this should stand us in good stead for the coming year.’

• The Wine and Spirits Trade Association has warned that the cost of a bottle of Prosecco could increase by 59p in the UK next year and Champagne could rise by £1 due to Brexit, inflation, and alcohol duty.

• Heineken will review some of the initiatives in place across the Punch estate including its Falcon retail contract programme, per MCA. The drinks giant is seeking to ‘keep the best of both worlds in the newly expanded estate’ and intends to focus on investment and driving up food sales.

• Food to Go will continue to significantly outperform the wider market over the next three years, according to MCA’s Food to Go Report 2017, which predicts market growth of 3.8% in the year ahead to £20.2bn. Between 2017 and 2020 MCA is forecasting CAGR of 4.1% compared to 2.3% for the wider sector.

• Companies representing more than 50 breweries around the UK have now signed up to the Small Brewer Duty Reform Coalition (SBDRC), which aims to ask the Treasury to review and improve Small Breweries Relief.

• Cornwall based Sharp’s Brewery saw a 20% increase in beer volumes in 2016, with Doombar sales growing by 4% against a category decline of 4%.

• Lupita, the London-based Mexican restaurant chain, has been put up for sale by owners Calita, reports Propel. The chain of three sites, with a fourth to open in Battersea, is being marketed by Christie & Co.

• BrewDog is set to open its first US pub in Canal Winchester, Ohio, this February. The pub will be located at the company’s brewery headquarters and will include a 10,000sq ft taproom and a restaurant. BrewDog co-founder James Watt stated about the site ‘There’s an insane beer list ready to rock from the 20th February’. 

• Treasury Wine Estates (TWE) has shown strong performance in the US & China to deliver record half-year profits of AU$136.2m (US$104.6m). Strong performance in Asia saw EBITS there grow by 75.6% to AU$79m (US$60.6m) with the company saying ‘[sales] increased strongly and price increases across key brands delivered positive NSR per case growth’.

• UKIP MEP, Bill Etheridge, says ‘Don’t tax pubs to death’ in a show of support to the ALMR.

• The ALMR has decried rates inequality as Amazon receives business rates cuts whilst pubs face increases. Kate Nicholls, ALMR Chief Executive, said ‘Pubs, bars and restaurants are crucial employers and drivers of growth for the UK economy, yet they still face extortionate business rates. These bills are increasing in every region of the UK and many businesses will struggle to absorb the costs. Last week The Sun reported that over 17,000 pubs are looking at an average 19% increase in their bills … pubs and restaurants pay over a third of turnover in taxes whereas Amazon paid just £11.9m in tax in 2015 despite £5.3bn in sales.’

• Molson Coors Brewing saw worldwide beer volume rise 1.2% in its fourth quarter, although a 1.9% slip in Coors Light volume mean results failed to match expectations. Revenue doubled to just under $2.47bn and the company earned $1.44bn, or $6.65 per share, during the quarter. Earnings, adjusted for non-recurring gains, were 46 cents per share, while analysts polled by FactSet, on average, expected 88 cents per share.

• Dr Pepper Snapple Group Inc. misses Wall Street expectations with fourth-quarter earnings of $165m. It had been anticipated that the company would earn $1.04 per share, but the made 90 cents per share in reality. 

INFLATIONWATCH:

• ONS reports CPI of 1.8% and RPI (which includes housing costs) of 2.6%. Just why housing costs are not ‘real’ isn’t immediately obvious

• CPI was a shade below worst estimates although the input index, the PPI, rose by 2.4% compared with estimates of 2.2%

• Costs rising at their fastest rate in two-and-a-half years. Fuel costs spurring the rise. Clothing costs falling. Bank of England expects CPI to hit 2.7% by end-year.

• ONS reports ‘costs of raw materials and goods leaving factories both rose significantly, mainly thanks to higher oil prices and the weakened pound.’

• BBC quotes Markit as saying ‘while the further upturn in price pressures will fuel speculation that interest rates may start to rise later in 2017, the most likely scenario remains one of policy staying on hold over the next two years as the economy navigates through Brexit.’

• If interest rates rise, so will mortgage costs. This will spur RPI increases. To exclude housing costs will look somewhat misleading.

• Markit says ‘further upward pressure on prices looks inevitable in coming months as energy costs continue to climb and firms pass rising costs on to customers, pushing inflation up towards 3.0% in the second half of the year.’ It says ‘wage growth has crept up to 2.8%. However, our expectation is that it will slow, or at least remain muted, in 2017 as the labour market cools, providing the Bank of England with leeway to keep policy on hold.’

• IGD reports two thirds of consumers believe the cost of food will have an impact on their finances. Some 58% are concerned about energy bills and 53% are worried about petrol prices rising.

HEINEKEN FY NUMBERS:

• Heineken reports FY numbers, says organic revenue +4.8%, revenue per hl +2.2%. Beer volume +3.0%. Premium +3.7%

• Heineken FY: Says good in Americas, Asia, Europe but weaker in Africa & parts of Eastern Europe

• Heineken FY: Op. prof. +9.9% organically & net profit €2.1bn up by 8.5% organically. EPS €3.68 (+2.9%) with total dividend +3.1% at €1.34. CEO Jean-François van Boxmeer reports ‘we delivered strong results in 2016, with clear outperformance of our premium brand portfolio led by Heineken, and sustained momentum from our innovation agenda.’

• Heineken FY: Says ‘our unique diversified footprint was again a competitive advantage, enabling us to deliver more than 50 basis points margin expansion, despite more challenging economic conditions in some developing markets and significant currency pressures. Performance in key European markets was good and results in Vietnam and Mexico were strong. In Africa, Middle East & Eastern Europe market conditions remained tough, most notably in Nigeria, DRC and Russia. Excluding major unforeseen macro economic and political developments as well as the impact of the proposed acquisitions in Brazil and in the UK, we expect continued margin expansion in 2017 in line with our previous guidance.’

• Heineken FY: Re Punch, group adds nothing new saying resolutions have been passed & transaction should complete in H1

• Heineken FY: Re outlook, co says ‘economic conditions are expected to remain volatile and we have assumed a negative impact from currency comparable to 2016.’ However, the group says ‘we expect further organic revenue and profit growth.’ Co should achieve margin expansion in 2017 ‘in line with the medium term margin guidance of a year on year improvement in operating profit (beia) margin of around 40bps.’

• Heineken FY: Co says ‘cider volume increased mid single digit’ and ‘Strongbow…continued to outperform. In the UK, the home base of cider, we continued to gain market share driven by the ongoing success of Strongbow Dark Fruit, Strongbow Cloudy Apple and Old Mout. Outside the UK, cider delivered double digit volume growth.’

LEISURE TRAVEL & HOTELS:

• Isis members have reportedly threatened to attack popular Spanish tourist destinations and a government report notes that ‘ISIS has been publishing in Spanish, which means an increase in the risk of its influence on radicals living in our country’. Around 15 million British holidaymakers visit Spain every year.

• Thomas Cook has got rid of more than 100 partner hotels in a push to focus on higher profit margin through ‘higher quality’ offers rather than relying on volume of sales. Just last week, Thomas Cook cut ties with Jet2holidays by ending its commercial agreement with the growing Leeds-based operator. Meanwhile, bookings to Greece were boosted by 40% at the travel firm, overtaking Spain as the company’s highest selling destination.

• STR’s January 2017 Pipeline Report shows 163,648 rooms in 1,038 hotel projects Under Contract in Europe, down 2.2% year-on-year. Meanwhile, key US markets have driven a 16.1% increase in the number of rooms Under Contract across the pond, although ‘several [markets] are seeing occupancy levels and pricing power pressured by the influx of new supply.’

• The GBTA says the continued uncertainty around president Trump’s travel ban is ‘hurting’ the US business travel sector.

OTHER LEISURE:

• Amazon recorded some $6.4bn in sales from retail subscription services in 2016, up 43% year-on-year, rivalling the performance of the e-retailer’s much championed AWS division.

FINANCE & MARKETS:

• Reuters poll suggests ‘tone of Britain’s divorce negotiations with the European Union will be the main factor influencing the economy this year’.

• Hard Brexit fears with no running commentary may leave consumers with little to go on as regards financial planning

• US (current) Fed chair Janet Yellen says it may be “appropriate” to raise interest rates at one of the Feds upcoming meetings. Well, yes. Since we expect three rises this year, that would be necessary. The Fed’s next meeting is from 14 to 15 March. Ms Yellen says ‘waiting too long to remove accommodation would be unwise’. She says it could mean a more rapid rise at a later date.

• The Greek economy shrank in the quarter to December by 0.4% per official figures

• Joseph Rowntree Foundation reports 19m people are living on less than Minimum Income Standard. It says costs have been rising but incomes have stagnated.

• Brent around $55.67 per barrel.

• Sterling down at $1.247 per dollar and 117.8c vs Euro

• UK gilt yields rising again with 10yr gilt at 1.31% (vs 1.29% yesterday)

• World markets: UK & Europe mixed yesterday. UK banks better. US market up and Far East mostly up in Weds trade

TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS:

• Later tweets yesterday: Feeder cattle prices down 22% over last year (in US$$s) but hog prices +8%. Time to switch back from bacon to sausage?

• Miners up overnight as reflation trade makes comeback. UK CPI now running at 1.8% (high since 2014) with RPI up to 2.6%

• London hotels perform very strongly in January per STR. Should feed through to comments from MERL, WTB etc.

• CGA reports one in five consumers is now participating in Dry January. Food offers have evolved to cope

• Food to Go will continue to significantly outperform the wider market over the next three years per Food to Go Report 2017

• ONS reports CPI of 1.8% and RPI (which includes housing costs) of 2.6%. Just why housing costs are not ‘real’ isn’t immediately obvious

• Heineken reports FY numbers, says organic revenue +4.8%, revenue per hl +2.2%. Beer volume +3.0%. Premium +3.7%

• Heineken FY: Re Punch, group adds nothing new saying resolutions have been passed & transaction should complete in H1

• Isis members have reportedly threatened to attack popular Spanish tourist destinations

• Reuters poll suggests ‘tone of Britain’s divorce negotiations with EU will be the main factor influencing the economy this year’.

• US (current) Fed chair Janet Yellen says it may be “appropriate” to raise interest rates at one of the Feds upcoming meetings.

RETAIL NEWS WITH NICK BUBB:

• John Lewis Partnership Watch: The calendar shift of Valentine’s Day from a Sunday to Tuesday distorted trade for John Lewis last week, with gross sales down by 2.0% (c3.5% down LFL) in w/e Feb 11th. Over at Waitrose, the impact was also striking, with gross sales 2.9% down (over 6% down LFL) last week (“Valentine’s Day in 2016 it fell on a Sunday, meaning that many purchases would have been made in the equivalent trading week last year, whereas this year shoppers still have two days to treat their loved ones”).

• Homebase Watch: Things are quiet in the UK this week (as it is skool half-term week), but “down under” the giant Aussie retail group Wesfarmers has been talking about Bunnings/Homebase in its interim results statement today. And the summary message is that “Bunnings UK has moved at pace, making solid progress on phase one of its transformation plan. Earnings were affected by necessary restructuring, including clearance of deleted lines and high levels of price deflation associated with the move to ‘Always Low Prices’”. Bunnings UK (aka Homebase) reported a loss before interest and tax of £28m on revenue of £612m in the six months to Dec 31st, albeit that is the seasonally weaker half-year.

• Marks & Spencer Over-Charging Watch Part 2: Having complained yesterday that Mrs B’s purchase of a “Dine in for 2 for £20” Valentines’ Day meal deal on Saturday at M&S Kew Retail Park had not been recognised at the checkout, we must apologise to M&S, as it appears the issue is that you have to buy every single item in the deal for the till software to give you the discount…and Mrs B didn’t realise that some chocolates were included as well. This begs the question, however, of why there was no prompt at the checkout and why the deal isn’t communicated better. Our Weybridge correspondent reports that she had the same problem at M&S and was prompted at the checkout to get the chocolates and a starter, albeit she was only buying the meal deal, whereas Mrs B had bought other stuff as well. And perhaps the deal should be worded “Starter, Main, Side, Dessert, Wine (or
Prosecco) and Chocolates”. Having said that, other correspondents report that they too have regular problems with M&S Food promotions not being recognised at the till. But everyone is agreed that M&S Food staff are always good at dealing with issues like this when they are brought to their attention.

• News Flow This Week: On Friday we will learn what last month was like for Small Retailers on the High Street on the Planet ONS, via the ONS Retail Sales figures for January.