Empty shops, delivery, restaurant failures, Scotch & other:

A DAY IN THE LIFE:

Here’s an interesting thought for you.

The US is the third largest nation in the world in terms of population. We all know who the top two are but, if the US were to add 1 billion people to its population, that is if it were to quadruple in size, it would still only be the 3rd largest nation in the world in terms of its number of citizens.

China apparently used more concrete in the three years to 2016 than the US used in all of the twentieth century and there are more than twice as many people in China with the surname Wang than there are citizens of the UK.

And another thing; who makes Pringles? I ask because I notice that Walkers (Pepsi) are doing a ‘tube-based crisp snack’ that looks almost indistinguishable from Pringles and I had always imagined that the American goliath made those crisps in the first place.

But they don’t. The answer is in our ‘Start the Day with a Song’ section below. On to the news:

ONLINE RETAIL AND THE HIGH STREET VACUUM

On the back of the Lloyds Chemist decision to close 190 High Street stores (added to the exodus by travel agents, phone shops, electrical retailers, book shops and the like) and our contention that there are already enough F&B outlets out there, we put this piece out to clients yesterday.

Evolving Retail: Next and Debenhams

• The High Street and department stores must fill the vacuum left by online retailing. This might entail a shift towards a wider variety of leisure pursuits.

• Debenhams wants to make its stores more of a ‘destination’ and Next has indicated it will step up its concessions.

• This is still in trial mode – concessions that have so far been tested include: sports retail, restaurants, cafes, beauty services, gyms. Not all of them will work.

New Models in Leisure…

• Meanwhile, Brighton Pier Group is moving away from nightclubs and towards becoming a ‘mini Merlin’ that focuses on experience-led attractions.

• We have already seen mini-golf, cinemas, bowling, darts, ping pong, karaoke, and football tables get a modern twist. What else is there?

• Escape rooms is another potential growth area, although Tick Tock fell short of its crowdfunding target and publicly-listed Escape Hunt remains under the radar.

Where to from here?

• Retail has been busy filling vacant shops with A3 operators but the casual dining market is now arguably saturated.

• We should expect downward pressure on rents as landlords struggle to occupy units.

• The winners in this scenario might well be casual dining operators with strong brands, who can then pick up better sites at lower rates.

• There could also be room for arcades, social gaming, and food courts.

• Not all of these concepts mentioned above will work. Even if they do, it might not be enough to plug the gap.

• A shift to residential tenancies might pick up some of the slack. Ultimately, though, there might just be too much space.

PUB, RESTAURANT & DRINK PRODUCERS:

• Just Eat updates on Q3. Says seen ‘strong Q3 performance’ and gives ‘increased full year revenue guidance’

• JE Q3: Group reports Q3 revenue £138.6m (up 47%, constant currency +44%). Says this was ‘driven by strong order growth and the inclusion of SkipTheDishes’

• JE Q3: UK orders +22% ‘against a comparative period that was impacted by unseasonal weather conditions.’

• JE Q3: Group says ‘we are pleased to raise our previous revenue guidance for full year 2017 of £500-515 million to between £515-530 million and retain that of underlying EBITDA of between £157-163 million.’ CEO Peter Plumb reports ‘the Just Eat team has once again delivered another period of strong growth. As I get to know the company, it is great to see the UK business in good health and positive momentum across our international markets, particularly in Canada where SkipTheDishes’ delivery expertise and relentless focus on customer service are driving excellent results.’

• Pragma Consulting has likened Farfetch’s shakeup of the fashion industry to Deliveroo’s for the food delivery market. Farfetch operates as a liaison officer between brands and customers, and has recently received $397m in funding from JD.com (China’s second largest e-commerce company). 

• The MCA has reported that as many as 20% of UK restaurants are at risk of failing due to Brexit, according to new research conducted by accountancy firm Moore Stephens. Restaurants declaring insolvency has risen by 13% in the year ending March 2017. Jeremy Willmont, head of restructuring and insolvency at Moore Stephens stated: ‘The increase in the number of insolvencies in the last year is indicative of how difficult the market conditions are now. Finances can be uncertain in the restaurant sector but this is beyond the norm’.

• Famous Brands has seen a 59% drop in earning for the six months ending 31 August 2017, due to sluggish performances from its GBK restaurants, Propel has reported. A spokesperson for Famous Brands said: ‘During the review period, Gourmet Burger Kitchen’s high-end consumer market shifted from dining casually and often to formally and occasionally, impacting negatively on sales’.

• UK wine producers hits record highs, rising 13% in the past year to 397, according to data from UHY Hacker Young. James Simmonds of the UHY suggested the growth can attributed to people opting for local, homegrown drinks, stating: ‘It is more of a talking point and more of an event, to order a Welsh wine than French. But it’s not just novelty value – critics are giving English and Welsh wine higher and higher ratings’. 

• Per Morning Advertiser, 15 pubs are closing per week in the UK following April’s tax changes, a total of 390 sites. The business rent and rates specialists said pubs faced a ‘triple whammy’ of increased inflation, rates and the expiration of the £1,000 pub discount. The group said pubs are set to face an average increase of £2,909 per pub next April.

• The value of UK exports was boosted by the growing demand for single malt Scotch Whiskey in the first six months of the year. The figures from HM Revenue and Customs showed value up 3.4% to £1.78bn but volume down 2.2% to 528m bottles, implying a continued trend towards premium brands. Demand from the US grew by 14% to £128m in the first half of the year, keeping the US as the biggest market by value.

• Constellation Brands has acquired a 9.9% stake in Canopy Growth Corp, a Canadian marijuana firm, for £141m with plans to produce cannabis-infused drinks. Canopy Growth is the largest publicly traded cannabis company in the world with a market value of £1.3bn. Euromonitor predicts the legal marijuana market to be worth US$7.5bn in Canada and US$10.2bn in the US next year.

• The UK 2020 report claims getting rid of interest on student loans and extending the payback time limit from 30 to 50 years could avert a future debt crisis. 

• Smashburger is trying to encourage US customers to prepay for burgers this holiday season. The group will sell coupons valued at $54, which will allow customers to then buy $1 burgers from its venues everyday.

• Drinkers could be about to face more expensive rounds, as the pub industry plans how to deal with the £204m business rate hike. New data has shown that 390 pubs were closed, converted or demolished between April and September 2017.

• The Yorkshire Meatball Company has permanently closed for business, as the Harrogate group blames an influx of chain restaurants into the town.

• Mondelez had reported better-than-expected Q3 profits, up 12% to 57c per share (analysts had expected 54c per share). Overall group revenue increased by 2.1% to $6.5bn for the three months to the end of September.

• Texas Roadhouse has reported Q3 & 9mth numbers saying revenue in the quarter rose by 12.2% to $541m. Income rose by 18.3% to $45.5m with EPS of 43c vs 36c last year.

• Texas Roadhouse in US bucks trend, reports LfL sales +4.5% in Q3. Margin fell by 31bps due to ‘wage rate inflation, partially offset by the benefit of lower food costs’.

• Texas Roadhouse boss Kent Taylor says ‘we are pleased to deliver another solid quarter of results including a 19.9% increase in diluted earnings per share driven by double-digit revenue growth.’ Taylor says ‘as we look to 2018, our balance sheet and strong cashflow have us well positioned for continued growth including approximately 30 planned restaurant openings.’

• Texas Roadhouse reports early Q4 LfL sales +5.3%. Says expects food price deflation for 2017 as a whole of 2%. Labour costs will rise by 7% to 8%. In 2018, the company expects to see positive LfL sales.

• High end bars in US hotel are finding success with non-alcoholic drinks, which are now considered ‘as complex’ as their alcoholic counterparts, writes The New York Times.

HOLIDAYS & LEISURE TRAVEL:

• PPHE Hotel Group updates on Q3 saying revenue +9.95 on a LfL basis ‘driven by strong trading notably in London and Croatia and a currency exchange rate benefit.’

• PPHE reports flat Q3 occupancy but REVPAR +9.2% in Q3. Boris Ivesha, President & Chief Executive Officer reports ‘we are pleased to report a strong performance in the third quarter as we benefited from positive trading across several of our operating regions and new room inventory in London.’ Mr Ivesha concludes ‘based on our results to date and our outlook for the final quarter of the year, the Board anticipates the Group’s full year results will be in line with its previous expectations.’

• Hays Travel managing director John Hays has warned that the rise in fake and exaggerated gastric illness claims ‘is not a victimless crime’. Speaking at the group’s annual Independence Group conference, Hays talked of a significant increase in premiums quoted when it came to renew its public liability and professional indemnity insurance cover last month.

• RMT union members have warned of strike action across multiple UK rail carriers on 8 and 9 November as part of a dispute over alleged driver-only trains.

OTHER LEISURE:

• Netflix has stopped production of the new series of House of Cards after lead actor, Kevin Spacey was accused of sexually harassing a teenage boy in the 80’s. Netflix has said it is ‘deeply troubled’ by the allegation against Kevin Spacey.

• The government review of fixed-odds betting terminals (FOBTs) will soon be released, with many in the industry anticipating a clampdown on what has been described as the ‘crack cocaine of gambling’. Some in the industry expect the current maximum bet to be reduced from £100 to £2. FOBTs generated £1.8bn in revenue for bookmakers last year.

• Lindisfarne Festival is approaching its £70k crowdfunding target.

• A report from Kantar TNS has found that, for the first time, people aged between 16 to 24 might be spending slightly less time on their smart devices. The study found that people within that group now spent an average of 3.8 hours on their phone a day compared to 3.9 hours last year.

FINANCE & MARKETS:

• UK consumer credit advances netted out at £1.6bn in September.

• The number of mortgage approvals fell to 66.2k in September from 67.2k in August.

• Oil price up another 40c or so at $60.78

• Sterling better vs dollar at $1.3209

• Pound up vs Euro at €1.135

• UK 10yr gilt yield down 2bps at 1.34%

• World markets: FTSE100 down yesterday with Europe up and US down. Far East mostly down in Tuesday trading

• Brexit:

o Various ministers either apologising or under investigation for inappropriate behaviour.

• HSBC & Goldman’s say they need to see clarity on the post-Brexit situation before making decisions on commitment to UK

• IEA says Brexit is not to blame for rate hike due on Thursday. Indeed Brexit was the reason rates were cut from 0.5% to 0.25% last year. The IEA says ‘it makes little sense to blame Brexit for the reversal of a rate cut that was itself due to Brexit.’

PRIOR DAY’S LATER TWEETS:

• Buyers’ market for assets as more come up for sale. Luke Johnson says sellers ‘inundating’ advisers with offers. See e/m.

• Lloyds Pharmacy to create another 190 holes on the High Street. There may be enough F&B outlets already. Who will take these units?

• Revolution Bars Group’s merger with Deltic may still have legs. Some shareholders said to remain keen.

• Millennium & Copthorne says London & Europe down but US up in recent weeks. Shareholders saying it’s selling too cheap

• Brexit a Tory issue. They own it as young flock to Labour. Keir Starmer says no deal would be a bad outcome. Massive muddle goes on.

• Department stores selling ‘experiences’. But they’re truly in the shallow end if they think visiting a hairdresser is an experience

• Teleg. says Oct car sales awful. Uncertainty => business confidence => hiring decisions => consumer confidence => Big ticket spending. Duh?

START THE DAY WITH A SONG:

Yesterday’s song was Massive Attack’s ‘Teardrop’. Today who sang:

People always told me be careful of what you do,

And don’t go around breaking young girls’ hearts

Regarding Pringles, understandable if you said Mondelez, Nestle or one of the other giants but the manufacturer is…Kellogg’s.

RETAIL NEWS WITH NICK BUBB:

Consumer Confidence Watch: The widely-followed GFK Consumer Confidence Index for October has eased to -10 this month from -9 in September, matching the consensus from a Reuters poll of economists, and continues to hover near a three-year low. GfK’s Joe Staton said: “As concerns about the wider economic prospects for the UK economy dampen our outlook, consumers are showing no real ‘get-up-and-go’”, but, nevertheless, the sub-index on big-ticket spending intentions edged up to a five-month high, prompting GfK to comment that “Our enthusiasm for spending…is more worrying than reassuring”. Joe Staton said: “Surging credit card use is fuelling spending at the expense of our appetite for saving, which is growing at the slowest rate since the start of the 2008/2009 financial crisis”.

Next: Back on Sept 14th, with the interims, Next were in more confident mood, after a few months of better trading and more helpful weather, and CEO Simon Wolfson declared that “our prospects going forward appear somewhat less challenging than they did six months ago”. But 6 weeks on, he may not be so confident, after a tough October, impacted by hard comps and warm weather, so it will be interesting to see whether the company tones down its full-year sales and profit guidance tomorrow, with its Q3 trading update. Given a strong August/September, the City is expecting full-price sales to be nearly 4.5% up in Q3, driven by Next Directory, which is above the guidance from Next for the second half overall for full-price sales to be in the range of -2.8% to +3.8%. But the Q4 comps are much tougher…

Today’s Press and News: The overnight GFK Consumer Confidence Index for October gets a fair amount of coverage in today’s papers, but the big Retail story is that Asda have dumped their stop-gap CEO Sean Clarke and appointed the COO Roger Burnley to the role (with effect from Jan 1st). The Evening Standard last night noted our view that the news is no surprise, as the feeling was that the highly-experienced Roger Burnley would take over as CEO as soon as he had his feet under the table at Asda, after a lengthy period of garden leave after leaving Sainsbury.

News Flow This Week: November starts with a bang tomorrow in the form of the much-awaited Next Q3 update. Thursday is then very busy, with the Morrisons Q3 update, the Howden Q3 update and the Intu Properties Q3 update, together with first dealings in the Footasylum IPO, the much-awaited MPC interest rate decision at mid-day and the Apple Q4 results in the US in the evening. Friday brings a Kingfisher Capital Markets Day. And one day soon the CMA will issue its provisional findings on the Tesco bid for Booker. Finally, by tradition, the much-hyped Christmas TV ads get going in early November, with Sainsbury one of the few retailers to wait until after Remembrance Day.