Langton Capital – 2017-03-15 – Feb Tracker, YUM, food costs, new openings & other:
Feb Tracker, YUM, food costs, new openings & other:
A DAY IN THE LIFE:
Psychologists agree that the ability to defer gratification is one of the (relatively few) early markers in childhood that is common for individuals who later prove to be successful.
A biscuit now or two biscuits when we get back from the shop.
I mean I get it but, I have to say, nobody has explained this to our dog who regularly begs and begs for the treats and leftovers that would otherwise go into his food bowl in the morning such that, when the morning comes, there’s often nothing more exciting that a bit of stale bread to spice up his pretty grotty-looking biscuits.
But I’ve told him and told him.
And he seems to understand at the time. He wags his tail and looks soulfully at me whilst I’m waving a bit of bacon the evening before but he just won’t have it, he won’t put it off and, whilst we’re on the topic of his many and varied faults, he’s not much of a sharer, either.
Because, in all of his four, long years, he’s never offered me any of his food whilst he’s constantly begging for some of mine. Maybe it’s time that I learned that he will never learn. I could buy him a subscription to Etiquette Monthly and he would just wee on it. On to the news:
FEBRUARY 2017 – COFFER PEACH TRACKER:
• Tracker suggests there has been some ‘relief for pubs and restaurants as public continues to eat and drink out’
• Feb LfL sales +1.7% across the country. Just less than inflation of 1.8% (CPI) or 2.6% (RPI). Implies a small move backwards.
• Total sales, including new openings, up by 4.7%, implying around 3% new capacity going into the market.
• Tracker says ‘Britain is continuing to go out to eat and drink – particularly in managed pubs and branded restaurants, which saw collective like-for-like sales grow 1.7% in February against the same month last year.’
• CGA Peach’s Peter Martin reports ‘with mounting pressures on the sector from business rate hikes, the falling pound leading to higher food costs and the general uncertainty around Brexit, the fact that consumers are still coming through their doors to eat and drink will be a welcome relief for operators.’
• Restaurants outperformed pubs in Feb with LfL sales +2.4% at the former but only 1.2% at the latter
• London performed more strongly than the rest of the UK (up 2.6% against +1.4% outside of the M25).
• Slightly undershooting inflation may not be sufficient to hold margins. CGA Peach’s Peter Martin says ‘encouraging though these figures are, pub and restaurant groups will be working even harder this year to maintain trading levels as their margins are squeezed by increasing overheads.’
• CGA says three quarters of companies are looking to pass cost increases on to customers. It says ‘that means they will have to redouble efforts to up the customer experience.’
• Coffer Corporate Leisure comments ‘London restaurants and bars are seeing strong sales growth which they certainly need. With overheads increasing ahead of inflation the top line growth is very important to food and drink operators.’ LfL sales are a touch ahead of CPI in London but they remain behind RPI and behind the index for rises across food & drink – see comments from Prestige Purchasing below.
• Prestige Purchasing reports we are set for a ‘perfect storm’ with rent increases, rates raises, apprenticeship levy, NLW and possible restriction to EU labour.
• Prestige comments that food prices have outstripped the CPI over recent months. It is now running some 3.7 percentage points higher – that is around 5.5%.
• Prestige points out that the UK imports around 40% of the food it consumes. It also points out that the fact that the low pound is boosting exports of food stuffs means that prices in the UK are rising more strongly.
• Prestige argues operators should simplify menus. It also says dishes should be bespoke in order to justify higher price points.
PUB, RESTAURANT & DRINK PRODUCERS:
• Selling company owned units to franchisees has become a thing.
• YUM Brands has agreed to sell 180 of its 230 company owned KFC stores in the UK for £300m. The company also has around 700 franchised outlets. The units will be sold in 15 separate packages to new and existing franchisees per The Times. YUM has also announced that Martin Shuker, the GM of its UK & Ireland business, is to hand over UK leadership to his CFO, Paula MacKenzie.
• McDonald’s is trialling a trio of new McCafé drinks in Northern California as part of an ongoing drive to expand its beverage business. The new drinks include hot and iced Caramel Macchiato, French Vanilla Cappuccino and Americano. The restaurants will be adding new McCafé equipment to kitchens to enhance the products.
• MPs have passed the Brexit bill, leaving the government free to kick off the process of leaving the EU. Prime Minister Theresa May said yesterday that the status of EU nationals would be dealt with ‘at an early stage’ of the Brexit negotiations but could not be resolved without a deal on the rights of Britons living in Europe.
• Fulham Shore owned pizza operator Franco Manca celebrated the opening of its 30th unit, a site in Victoria’s Nova development, on Monday evening. Considerable number of new openings said to be lining up.
• How much beer do we need? Micro urge to open a new brewery meets macro fact that we don’t need any more
• The number of new breweries in the UK leapt up by 55% to a record high of 520 last year, up from 336 new breweries opened in 2015. Sales in both the UK and overseas are growing and the Small Brewers Relief schemes, which provides a reduced rate of alcohol duty to brewers producing below 60,000 hectolitres per year, also adds a helping hand to new entrants into the market.
• The Ivy Collection plans to open a site in Manchester’s Spinningfields district through a licence application to Manchester City Council.
• Delivery is big. So is mobile ordering. Get with the programme.
• MOD Pizza UK has teamed up with Deliveroo to offer delivery from two of its five sites (Leeds and Nottingham), per MCA. Earlier this year Five Guys, which is also backed by Charles Dunstone, started offering delivery in select sites. MOD plans to open ten sites in the UK this year in areas such as Leeds, Nottingham, Newcastle, and Brighton.
• The drinks industry has welcomed a report by the EU Commission that invites its members to present a self-regulatory proposal within one year to provide calorie and nutrition labelling on alcoholic beverages. The move will effectively close a loophole within a previous ruling that came into effect in 2011 which made it mandatory for all foods, including alcoholic beverages, to provide an ingredient and nutrition declaration, but which saw beverages carrying an abv of more than 1.2% exempt.
• Carlsberg’s Cask Report 2017 has found that 60% of people feel pubs don’t offer sufficient information or tasting notes for cask ales. Cask ale, often referred to as real ale in the UK, is unfiltered and unpasteurised beer which is conditioned and served from a cask without additional nitrogen or carbon dioxide pressure.
• Crowdfunding putting more cash into the market. Saturation, at some point, will become an issue. When could you last not find a coffee shop? But here, the new entrants may be causing problems for the market as a whole rather than for themselves specifically. As we’ve said before, the market doesn’t have a braking mechanism, just a crashing mechanism.
• Notes, the six-strong coffee shop and wine bar concept, has agreed a £600k loan in order to fund its ‘aggressive expansion’ across the capital. Notes has two sites lined up in Nova, Victoria and Angel Court and believes it now has the finances in place to cope with up to 20 sites and expanded roastery sales.
• Wild Beer is overfunding on Crowdcube. It has raised £1.22m of a £1m target.
• Curious Restaurants is looking to raise £600k on Crowdcube. The single-site group, which had turnover of £1.4m in FY16, is coming off a pre-new money valuation of £2.5m.
HOLIDAYS, LEISURE TRAVEL & HOTELS:
• PE house Inflexion has sold a further 15.3m shares in On the Beach. Numis ran the book & placed the stock at 280p. Inflexion last placed stock on 20 December. Numis reports ‘the remainder of OTB shares held by Inflexion following the Placing will be subject to a lock-up which ends 90 days after completion of the Placing (subject to waiver by Numis and to certain customary exceptions).’ Inflexion now owns around 11.8% of On the Beach’s equity.
• Be nice. Monarch customers will soon be rewarded for polite behaviour with extra legroom seats as well as priority check in. The initiative, which covers a total of 10 upgrades or priority check ins a week, comes as Monarch seeks to promote the traditional values of courtesy, chivalry and respect as reflected by its staff in recent TV advertising.
• The STR’s February 2017 Pipeline Report indicates that there are 161,656 rooms in 1,027 hotel projects under construction or planning stages across Europe. This is a 1.3% reduction on the same period last year. The four European nations with more than 5,000 rooms under construction are the UK, Germany, Turkey and Russia.
• The STR report also found that 578,508 rooms in 4,775 hotel projects in the US are currently under contract. This represents a 16.3% rise compared to the same period last year. Bobby Bowers, senior VP for operations at STR stated ‘Hotel development activity continues to ramp up, and we’re now just 8% below the all-time construction peak reached in 2007,’ but continued with ‘as expected, all of the new supply entering the market is affecting occupancy levels and hotelier pricing power.’
• The Eurostar is to begin selling tickets for its new route from London to Bordeaux today (March 15th). The service will begin on July 2nd, and will start from £110 return. Nick Mercer, commercial director at Eurostar, stated: ‘With the new high-speed line, passengers will benefit from a more civilised way to travel with city-centre-to city-centre travel.’
• Severe snowstorms on the east coast of the US have forced thousands of flights to be grounded. Flights to and from New York, New Jersey, Pennsylvania and Connecticut have been affected. A 24-hour blizzard warning has been issued, as gales reach 60mph.
FINANCE & MARKETS:
• SNP calls for referendum, Sinn Fein ditto in Northern Ireland. Don’t leave the Union says May as she prepares to leave the Union.
• NIESR says ‘the UK Government’s policy of ever harder Brexit, without so much as a vote, raises issues of political legitimacy north of the border.’
• Sterling has fallen to an 8wk low on what Reuters calls Brexit gloom. Says reality is setting in, further falls possible.
• US rate rise expected this evening
• Gin and scooters have been included in the basket of goods used to measure inflation in the UK. Children’s swings and menthol cigarettes are out.
• Brent up 35c or so at $51.69
• Sterling up a little vs Euro at 114.56c but unchanged vs US$ at 121.84c
• UK 10yr gilt yield down a little at 1.23% (was 1.25%)
• World markets: UK & Europe down yesterday with US also lower. Far East mostly down in Wednesday trade
• Later tweets: Industrial metal prices up, gold weak. Oil not playing ball but, otherwise, the reflation trade is back on. Rates on the long march higher
• ASDA ‘winning’ Grocer 33 price-watch for cheapest basket. Industry a bit jittery lest the Leeds operator hits the ‘price’ button?
• Deloitte suggests retail industry will take a £3bn hit this year from rising costs. Won’t be alone. Double whammy if consumers hit too
• Sinn Fein calls for referendum on Irish unity, aims to leave Union ‘a.s.a.p.’ Scots to vote again. Who’s the winner here?
• As she prepares Art.50 to leave the union, PM May says Scots shouldn’t leave union. It’s a leap in the dark, she says…..
• Poor old Queenie. Liz has to sign this rubbish into law. With paintings of her ancestors looking down at her. Pretty uncomfortable
• French Connection not as bad as expected. Says H2 should be better. Tomorrow’s jam one day nearer than it was yesterday
• Ocado sees ‘first signs of a change in market pricing’. Explain, please. Prices are rising? Well yes. Good for Food manufacturers etc.?
RETAIL NEWS WITH NICK BUBB:
• Sports Direct: Another day, another bizarre 7am RNS announcement from the constantly embattled Sports Direct…This time it is raging about so-called “fake news” and the claim by the shareholder body PIRC that Sports Direct had “a chief executive-to-average employee pay ratio” of 400:1, the second highest in the FTSE 350. It claims that this was skewed by a hypothetical bonus for former CEO Dave Forsey and rages, in Donald Trump-like fashion, that “This is fake news that appears to have been either deliberately or recklessly circulated by an irresponsible organisation that is making headlines at the expense of Sports Direct”. Infamy, infamy, they’ve all got it in for me…
• John Lewis Partnership Watch: The shift of Mothering Sunday lifted John Lewis last week, with gross sales up by 7.0% (over 5% up LFL) in w/e March 11th. Fashion sales were up by 11% gross and Electricals were up 7.5%, with Home up by 2.6%. That leaves the cumulative 6 week run-rate at a better-looking +1.6% gross (c0.35% down LFL). Over at Waitrose, despite the impact of the Mothering Sunday shift, gross sales were only 0.4% up last week (c1.5% down LFL). Over the last 6 weeks combined Waitrose sales are still running up by just 0.3% (down c1.6% LFL).
• News Flow This Week: Today is the embattled Philip Green’s 65th birthday! Tomorrow brings the Sainsbury Q4 update (for the 9 weeks ending March 11th) and the latest MPC interest rate announcement.
• TIPS Watch: The great 4-day Cheltenham Festival jumps racing started yesterday and our alter ego, “Honest Nick”, is bringing you his each-way Tips each day. Now, the great Irish trainer Willie Mullins had a poor day, with no winners (his great Irish rival Gordon Elliott had 3 winners and his great English rival Nicky Henderson had 2 winners, including the “banker of the day”, Altior), but in the big race at 3.30, the Champion Hurdle, his outsider Footpad ran well to finish 4th at 14-1 and some bookies paid out on that. In terms of our other e/w tips, we are pleased to report that River Wylde came third at 8-1 in the first race and Two Taffs came third at 7-1 in the last race. Today, Willie Mullins has the banker of the day in the form of mighty Douvan in the big race, the Champion Chase at 3.30, but the 2-7 odds are prohibitive. In the first race, at 1.30am, we’re taking on the
• Quote of the Day: Here’s another quip from the American writer and actor Robert Benchley (1889-1945), which may be worth dedicating to a few of the punters at Cheltenham today: “Drinking makes such fools of people, and people are such fools to begin with that it’s compounding a felony”.