Langton Capital – 2017-11-07 – Fever-Tree, Conviviality, High St sales, productivity etc.:
Fever-Tree, Conviviality, High St sales, productivity etc.:
A DAY IN THE LIFE:
Weather’s yo-yoing around, isn’t it?
Half an inch of frost on the windscreen yesterday morning and warm as toast by Tuesday. That’ll put the cat amongst the retail pigeons but, as we’re due to be chilly again before the end of the week, the retailers should at last be shifting a bit of their winter gear. Bit busy this morning so let’s move on to the newes:
HIGH STREET SALES: BRC & WHAT IT MEANS FOR F&B:
• BRC-KPMG sales monitor shows non-food sales grew by only 0.1% in the quarter to end-October, the slowest rate since 2011
• BRC says slow sales could be a cause for concern in the run up to Christmas. Clothing sales, given a warm Oct, were ‘particularly hard hit’
• BRC says LfL sales in the quarter to end-Oct were down 1%. It says ‘consumers appear to have opted for outdoor experiences and excursions during half term, over visits to the shops’. The BRC says consumers are ‘ever more cautious in considering what purchases they can afford’. Non-food sales were down by 2.9% on a LfL basis.
• KPMG comments re negative LfL shop sales ‘unseasonably warm weather last month will not have helped, but this is unlikely to be the only reason the new ranges are proving unpopular.’
• Black Friday, which has thankfully become less of a thing, this year falls on 24 November.
• BRC comments ‘real consumer spending power has been on a downward trend in the last year as the acceleration in inflation has caused shoppers to become ever more cautious in considering what purchases they can afford. Many now face higher borrowing costs, given the rise in interest rates, which will only serve to heap further pressure onto household finances.’
• High street rents under pressure. Some talk of failed £150k lets coming back on the market at £90k or even £80k.
• What does this mean?
• Rents. Companies that expanded into primary space rapidly in 2015 and 2016 could arguably have secured the same sites for 30% or 40% less. Over the length of a 15yr (upward only, remember) lease, that’s a pretty large hit. Competitors who bide their time or who pick up units from failed operators, will be at a major disadvantage. Existing failed operators may try to pre-pack in order to get themselves back onto a firmer footing.
• Capacity. As phone, DVD, CD and book shops have left the High St and as other operators such as opticians, travel operators etc. have focused more online, excess space has been let (or in many cases has failed to let) to alternative users. These have included F&B but, as Langton has suggested for some time, there is currently no shortage of coffee shops or ‘better burger’ operators out there.
• Residential. Poodle parlours and nail bars simply lack the scale to take up the slack. We might get more cash-for-gold outlets & charity shops, pawn brokers etc. but, in the main, some of the High St may have to go back to residential use. Some may even be given over to artisanal uses, Middle-Ages type outlets selling crafted leather, pottery, beads etc. It is relatively unlikely, in the short term at least, that much capacity is actually demolished.
PUB, RESTAURANT & DRINK PRODUCERS:
• Fever-Tree has updated on Q3 trading saying ‘the Board is pleased to announce that the strong growth seen in the first six months of 2017 has continued during the second half.’
• Fever-Tree reports its ‘pioneering focus on taste and ingredients continues to transform the global mixer category driving growth across all the Group’s regions.’ It says ‘the exceptional performance in the UK, the Group’s largest market, has been particularly impressive with the rate of sales growth and momentum strong across both the on and off trade. The mixer category is now the fastest growing category across the UK soft drinks sector with Fever-Tree responsible for 97% of the value growth in retail over the last 12 months.’
• Fever-Tree concludes ‘given the strong performance in the period to date, the Board anticipates that the results for the full year ending 31 December 2017 will be materially ahead of current market expectations.’
• Conviviality updates on trading saying sales for the half-year to 29 Oct were +9.2% at £836m. The group says it is ‘pleased to report that sales in each business unit for the 26 weeks ended 29 October 2017 were notably above the corresponding prior period.’
• Conviviality CEO Diana Hunter reports ‘we are pleased to have delivered strong revenue growth during the period.’ Ms Hunter concludes ‘during this period the Company has undergone significant change as we continue to implement systems that will ultimately serve to future proof our business and enable us to continue to deliver the outstanding service that our customers and Franchisees expect from us.’
• Productivity across the leisure and hospitality industries has fallen and wages as a percentage of sales have increased by 0.9% since May 2017, according to data from Fourth Analytics. Sales per labour hour, which looks at the hourly pay of thousands of hospitality workers across the hotel, restaurant, QSR, and pub sectors, now sits at £34.01 — down 62p since May 2017. The figures have been impacted by heavy discounting across the restaurant and casual dining sectors, with many groups pursuing aggressive discounting policies in the UK over the past four-to-six weeks. The Telegraph has noted a rise of 20-30% in discounting over the past year alone. Sales per labour hour here has dropped as low as £30.65. The fall in productivity has coincided with steady wage-cost inflation. The average hourly wage in the hospitality industry has risen by 2% to £8.28.
• Commenting on the figures, Mike Shipley, Analytics & Insight Solutions Director at Fourth, said: ‘Our figures show that a domino effect of aggressive discounting in the hospitality industry, particularly the restaurant sector, has taken a heavy toll on productivity as brands compete for custom in a very competitive market place… Discounting is a quick fix to this complex situation and with Brexit looming on the horizon, it’s imperative that operators scrutinize all aspects of their operation to understand where they can cut costs, such as smarter scheduling software and renegotiating procurement deals in line with the market. As with all adversity, there is a silver lining and, ultimately, the businesses who successfully navigate this period, streamline their business models and increase efficiency of labour and procurement, will be well placed for growth when the market
• The ALMR welcomed steps by the government to retain existing licensing measures, but is also cautioning against the introduction of ‘potentially unhelpful’ new legislative powers. ALMR Chief Executive Kate Nicholls said: ‘The Government has shown signs of pragmatism in its recommendations. By retaining the current structure of licensing fees and the current licensing objectives, the Government has recognised the burdens that many venues are under, particularly through business rates, and avoided an increase in legislative or financial pressures. We are, however, hugely disappointed that the Government rejected the Committee’s recommendation to scrap Late-Night Levies and Early Morning Restriction Orders.’
• The BBPA’s Brigid Simmonds had this to say on the response by the government to the House of Lords inquiry and report into the 2003 Licensing Act: ‘I welcome the Government’s sensible, overall focus in making the existing legislation work better. In particular, there are no plans to increase licensing fees, or to take up the proposal that fees should be set locally, which was a concern. One disappointment is that the Government has not taken up the call to abolish the late-night levy or EMROs. I hope they will keep this under review, as partnership working, through the establishment of Business Improvement Districts as the Lords Committee recommended, is a much better approach.’
• Subway rival Jon Smith Subs has teamed up with United Franchise Group (UFG) to ‘fast-track’ its global expansion and will open its debut UK store in early 2018, per MA. The sandwich chain is targeting up to 45 locations in the UK over the next eight years.
• Per Morning Advertiser, Marston’s will remove its beer-flow monitoring equipment, Brulines, from its leased estate starting January. In a letter, Marston’s said a physical flow-monitoring system would be provided to pubs that opted for it and that information from the systems would not be accessible by the firm. This comes after some licensees were concerned the systems were being used by pubcos to check if they were buying outside of the tie.
• According to Bowmark Capital’s Ron Pearson, the refurbishment of Corney & Barrow sites has led to a 25% sales uplift and has helped to ‘transform’ the Drake & Morgan estate. Speaking at the Propel Multi Club Conference, Pearson added: ‘We have further to go in the redevelopment of the C&B Bars estate, we’ve currently done five, there are a couple that are going to be invested in, in early 2018, and we’re continuing the roll-out – focusing certainly in the near-term on London. We’ve built a pipeline of sites to open during 2018 and the good thing about the headwinds we’re facing is there should be more great sites available in the next 12 to 18 months.’
• Jeremy Simmonds, co-founder of the Institute of Competitive Socialising, told the Propel conference that street food and crazy golf concept Swingers has a ‘halo effect’ on other businesses in the City of London.
• Whitbread has launched its new pub restaurant concept, Cookhouse and Pub, in a former Brewers Fayre site in Oldbury. The concept is set to roll out in Tyneside, Ripley and Kilmarnock over the next few months.
• Research from The Grocer reveals nearly two-thirds of consumers believe that food waste distribution should be subsidised by the government in an effort to get surplus food to charity. Adam Leyland, editor at The Grocer, said the model put forward by the site was ‘cost effective and virtually risk-free’.
• In a further blurring of the lines, NRN reports that some casual diners in the US are developing take-out only units.
• US restaurant sales bounced back in October after hurricanes disrupted August & September trade. Houston area restaurant sales were reported to be +6.6% two weeks after Hurricane Harvey whilst they were flat elsewhere in the US.
• Red Robin Gourmet Burgers in the US grew sales in Q3 by 2.3% to $304.2m. The group says it will pause unit growth at the end of next year in light of casual-dining “category volatility.”
• Bloomin’ Brands reported traffic up 0.1% at Outback Steakhouse attributing it to an improved customer service, making it the first quarter of improved traffic since 2016. Same-store sales increased 0.6% with Hurricanes Irma and Harvey denting comparable sales by 1%. The group’s other brands all posted negative same-store sales for Q3.
• Michel and Albert Roux, the masterminds behind the three-Michelin-starred The Waterside Inn in Bray, have caused outrage after banning guests from taking photos of their meals.Gordon Ramsay has waded into the argument stating: ‘How bloody pompous! It’s a compliment to the chef the fact that customers want to take a pictures of dishes they’ve paid for’.
• Nestlé has acquired the No.1 organic cold-brew brand in the US, Chameleon Cold-Brew.
• Oxford Street is to be pedestrianised next year, in time for the launch of the Elizabeth Line has been opened.
• US restaurant employment increased in October with 88,500 new jobs being created, bringing the sector employment total to 11.7m jobs.
HOLIDAYS & LEISURE TRAVEL:
• Grab, the Uber rival, has reached the milestone of 1 billion rides in Southeast Asia.
• The World Travel Market 2017 Industry Report’s poll of 1,000 people has found that a hike in the cost of foreign holidays, specifically as a result of the worsening pound/euro exchange rate, is the main post-Brexit fear for British travellers (54%). Nearly the same amount (52%) were worried about holidays in general becoming more expensive and 45% were concerned about the cost of flights.
• A ‘hard’ Brexit could cause a switch to better value holiday destinations next year, according to Tui UK boss Nick Longman. He added: ‘People will still go on their core holiday but if they went on a holiday worth £5,000 last year and it costs £5,500 this year, they might stick to their £5,000 budget and work out what they can do for that. They will work out how to stick within their budgets.’
• Elena Kountoura, Greece’s tourism minister, said the country is expecting more than 30 million international arrivals this year, followed by a ‘significant increase’ in revenues. Kountoura said the country saw a double-digit growth in arrivals from ‘almost every European country’, including Germany, France and the Scandinavian nations, while she said numbers had also ‘increased significantly from dynamic markets such as the US, Canada, Russia, the Middle East and China’.
• Hollywood Bowl has opened a new bowl in Dagenham after a £500k investment. The operator says ‘Dagenham is the fourth new Hollywood Bowl centre to open in the last 12 months, following new builds in Derby and Southampton, the London O2 centre and nine rebrands and refurbishments throughout the existing estate.’
• Talks between 21st Century Fox and Walt Disney have broken down over a disagreement on the price at which 21st Century Fox should offload a significant part of its business to Disney. It is understood that Disney had in recent weeks discussed buying film, television production, cable network and international distribution assets. The talks were not active yesterday and there was no certainty that they would come to any agreement in the future, sources close to the discussions said.
FINANCE & MARKETS:
• Latest ICAEW UK Business Confidence Monitor shows an improvement in sentiment in Q3. This remains negative at minus 3.4, but it is better than the minus 8.0 recorded in Q2. The ICAEW reports ‘overall sales growth remains steady but slow. Export sales growth is still weak though gently improving.’
• ICAEW reports ‘a slowdown in input price inflation and moderation in wage growth are generating modest improvements in profits.’ It says ‘employment continues to grow, backed by similar modest increases in spending on staff development.’
• Overall, the accountancy body reports ‘low levels of business confidence and high levels of spare capacity are holding down significant increases in investment.’
• SMMT reports a fall in October sales of 12%, the 7th month in a row of volume declines. Diesel sales fell by nearly a third. The SMMT blamed a drop in business and consumer confidence for the decline. It says ‘declining business and consumer confidence is undoubtedly affecting demand in the new car market but this is being compounded by confusion over government policy on diesel.’
• Eurozone composite PMI for October down to 56.0 from 56.7 in Sept. Down a shade but still very positive and slightly ahead of expectations.
• Oil up nearly another $2 at $64.25
• Sterling up vs dollar at $1.3162
• Pound stronger vs Euro at €1.134
• UK 10yr gilt yield unchanged at 1.27%
• World markets: UK virtually unchanged yesterday. Europe down, US up and Asia up in Tuesday trade
o Brexit is 507 days away.
o Everyone telling everyone else to buck their ideas up and get on with it. What ‘it’ is, is not yet known
o British business seeks clarity on trade. How will 5x as many lorries as crossed in 1980s negotiate the Channel without delays?
o BT says CBI conference it needs clarity this calendar year or it will have to start planning for a damaging, Hard Brexit
o Guy Verhofstadt tells World Travel Market conference Brexit is weakening the whole of the EU & diminishing the importance of Europe in the world
PRIOR DAY’S LATER TWEETS:
• Later tweets: City Pub Group to IPO & double in size. Jamie’s Italian calls for help, beer sales lurch down & more. See email
• IPOs pulled. Bakkavor cites market uncertainty etc. Guardian says no-deal Brexit would increase shopping bills by £930 p.a.
• People telling other people to get on with Brexit. Specifics thin on the ground. Hair on fire, headless chicken-style government etc.
• Rent cuts to be demanded by M&S & others? Would be nice. Me too, please. Form orderly queue. Overrenting big issue for 2015, 2016 expanders
• Mothercare & others cutting High St jobs. Vaguely bad news permeating into mainstream. BRC to comment tomorrow
• Short sellers targeting retailers. Yes, but online is an option for some. Wouldn’t property companies be a better target?
• SMMT says car sales down for 7th month in a row in Oct. Diesel car sales down a third on last year. Big ticket slump?
START THE DAY WITH A SONG:
We started the week with Coldplay’s Scientist. This morning, who sang:
Rulers one thing but come Brixton
Nobody stands in between me and my man
cause it’s me and Mr. Jones
RETAIL NEWS WITH NICK BUBB:
SMMT New Car Sales: The SMMT figures for October published yesterday morning were predictably awful, with total unit sales down by 12.2% to c158,000 cars, but this was heavily influenced by the near 30% slump in diesel car sales, as petrol car sales were actually up by a modest 2.7%. As Mike Hawes, the SMMT Chief Executive, said “Declining business and consumer confidence is undoubtedly affecting demand in the new car market but this is being compounded by confusion over Government policy on diesel” and he called on the Chancellor to restore confidence in new cleaner diesel cars in the Budget.
BRC-KPMG Retail Sales for October (4 weeks to Oct 28th): We flagged yesterday that the eagerly awaited BRC-KPMG Retail Sales figures for October were likely to be as much as 2% down LFL, but the outcome wasn’t as bad as feared, at -1.0% LFL. But that was still a big downward shift of momentum, after +1.9% LFL in September, despite a much weaker comp and despite continuing solid Food sales growth. Over the last 3 months, Food LFL sales growth has averaged 2.4%, thanks to food price inflation, and October Food sales must have been at least 2% up LFL. That would imply that Non-Food sales must have been at least 4% down LFL in October and the overall survey is in fact headlined “Record Decline for Non Food in October”, with Helen Dickinson of the BRC flagging that October saw “the worst performance of Non-Food sales since our records began in January 2011”, calling on the Chancellor to
ABF (Primark) finals: Today’s results from the conglomerate ABF cover the 52 weeks to Sept 16th and show that mighty Primark continues to grow inexorably: total sales topped the £7bn mark (up 12% at constant FX) and, although margins were under pressure, operating profits edged up by 5% to £735m. Primark performed particularly well in the UK, where LFL sales were 10% ahead of last year and total clothing market share increased significantly. There is nothing about current UK trading, but ABF does say that “the consumer response to the new autumn/winter range has been encouraging”. ABF also note that, “of Primark’s top 20 stores by sales density, 15 are now in continental Europe including seven in the newest markets of France and Italy”.
Conviviality: Today’s strong pre-close trading update from Conviviality, which now calls itself “the UK’s leading independent wholesaler and distributor of alcohol and impulse”, covers the 26 weeks to 29 October and shows that gross sales were up by 9.2%. The overall message is that “Conviviality continues to perform in line with the Board’s expectations for the 52 week period ending 29 April 2018. However, reflecting the phasing of cost savings, profits for the full year will be more H2 weighted”.
News Flow This Week: The New Look interims are expected to be published today. Tomorrow brings the Marks & Spencer interims. Then on Thursday we get the Sainsbury interims, the Burberry interims, the Halfords interims, the SuperGroup pre-close and the Lookers Q3 update. And any day now the CMA will issue its delayed provisional findings on the Tesco bid for Booker. Finally, the much-hyped Christmas TV ads (including the famous John Lewis ad) get going this week (with Sainsbury one of the few retailers to wait until after Remembrance Day).