Langton Capital – 2018-05-08 – William Hill, Deliveroo, menu innovation, BrewDog etc.:
William Hill, Deliveroo, menu innovation, BrewDog etc.:
A DAY IN THE LIFE:
I can only remember one careers advice meeting when I was at school.
Admittedly, and I love it dearly, the school was one that defined success as keeping its kids out of prison for a year or two after they left but, as I said I liked reading and that history was one of my favourite subjects, I was advised that I should be a librarian and that I should ask to work in the history section.
I was a little perplexed as I’d not been asked what my attitude to money was. Once I’d factored this into the mix the rest, as they say, was history as I ignored the advice of the one and only professional that I’d ever met and became an accountant instead.
Which, as student loans would be only partially cancelled out by the revolutionary idea of giving young people £10k each just for being young (see below), led me to ponder the difference between jobs and hobbies.
Because surely nursing, plumbing, engineering and, dare I say it, accountancy are jobs whilst a whole host of other degree subjects, including perhaps history, are hobbies.
Perhaps the one should involve the payment of students via, and here’s a revolutionary idea, an apprenticeship scheme and the whole lot should be funded by the hobbyists studying the history of fashion design in soft fabrics. Or whatever. On to the news:
60 SECONDS ON DISRUPTORS & THE GRAB N GO MARKET:
Deliveroo: The £4.99 lunch direct to your desk…
Existing operators face cost headwinds…
• Existing operators include sandwich shops, supermarkets, Mexican wrap chains, East Asian wraps & food-box vendors, street food, sushi etc. etc.
• These players pay high rents, rates, insurance, utility costs, wages and the like
• They must make back these costs plus a margin over a 90 minute window at lunch time
• The £4.99 ‘Flash Deal’ price is firmly in this, the grab-n-go, territory
But disruptors, well, disrupt:
• Deliveroo (and others) can operate from cheap, secondary locations
• If they use 3rd party restaurants, it may be at marginal rather than average cost
• Whilst this generates some contribution, if the operators lose higher margin existing customers and Deliveroo itself makes huge losses, it’s hard to spot the winner
Capitalism; red in tooth and claw…
• Whilst the above hardly seems fair, that’s not the point.
• Deliveroo doesn’t have the expensive leasehold baggage (or sticky, pricey workforces) of some oF the companies that it is targeting
• But that’s capitalism for you. Like tigers (which prefer to attack old, weak, sick, vulnerable small animals that have got their backs turned), competition is about winning
• With that in mind, refer back to the last sentence of the paragraph above
PUB, RESTAURANT & DRINK PRODUCERS:
• Menu innovation in the eating out sector has fallen over the last year, data from the MCA has shown.
• The highest price increases on menus were seen in the pub sector, with the average price up 1.9% compared to last year according to data from the MCA. BrewDog was found to be the company that increased prices the most, with the vegan burger up 19% in 2018.
• James Horler, chief executive of 3Sixty restaurants has become the non-executive chairman of coffee shop and wine bar group, Notes, the MCA has reported.
• Wahlburgers, the US brand owned by chef Paul Wahlberg, has announced it will make its UK debut in London this September.
• Luminar founder, Steve Thomas, has been declared bankrupt, per MCA.
• Caifornia-based The Habit Restaurants Inc. has blamed a 1.4 % decline in Q3 same-store sales on a free burger promotion and storms across the state. Moving forward, the chain is looking to boost sales and foot traffic by ratcheting up plans to open more drive-thru restaurants, adding self-serve ordering kiosks and finally moving ahead with testing breakfast.
• C&C Group has signed an agreement with Tsingtao Brewery to be the exclusive distributor of the Chinese beer in the UK and Ireland. The group’s CEO, Stephen Glancey, commented: ‘This distribution agreement is consistent with our strategy to build an international premium brand portfolio that complements our national and local heritage brands. Tsingtao is a brand with a rich history and has become the UK’s number one Chinese beer. We are excited about this partnership, the opportunity to broaden Tsingtao’s presence and to introduce this quality beer to discerning consumers across the UK and Ireland.’
• Lidl owner Schwarz Gruppe plans to continue investing in the UK over the next year to maintain its discount chain’s pace of growth. Schwarz Gruppe also aims to open around 300 to 350 new stores in 201 and grow its product range to 2,500 items.
• Nestlé is paying Starbucks $7.15bn (£5.28bn) in cash rights to sell its coffee beans directly to consumers through supermarkets and other shops around the world. The deal, which needs approval from regulators, is expected to complete by the end of the year.
• Pizza Pilgrims has delivered accounts to 30 June last year to Companies’ House. These only contain a balance sheet showing that the company saw a reduction in retained profits of around £16k for the period under review.
• According to the Daily Mail, motorway service station McDonald’s, Costas and KFCs are charging up to 28% more for a coffee.
• Shake Shack has gone back on its goal to operate fully cashless restaurants following complaints from customers. CEO of the fast food group, Randy Garutti said: ‘Some of the things we’ve clearly seen is that our guests do often want to pay with cash’.
• Heineken UK is to launch a new on-trade campaign for lager brand Foster’s. Everytime a customer buys a jug of Foster’s to share in a pub, they will also receive a scratchcard for a chance to win up to £1,000 pounds.
• The Telegraph has reported that retailers are in the worst shape for nearly five years, as the industry faces weakening demand and soaring costs, according to research conducted by KPMG.
• The Government should give a £10,000 grant to every 25-year-old in country in an effort to deal with the growing economic gap between the generations, the think tank Resolution Foundation has found.
• Wet Wipes could be next on the list of products targeted to combat plastic waste. The government has stated that its plan to eliminate plastic waste ‘includes single use products like wet wipes’.
HOLIDAYS & LEISURE TRAVEL:
• Barclays Bank claims that the number of holidays paid for on credit card is set to rise up to 80% due to the ban on surcharges in January.
• Iata reports global passenger demand up 9.5% yoy for March with capacity growing 6.4% and load factor up 2.3 percentage points to 82.4%. Alexandre de Juniac, CEO of Iata, said ‘Demand for air travel remains strong, supported by the comparatively healthy economic backdrop and business confidence levels. But rising cost inputs – particularly fuel prices – suggest that any demand boosts from lower fares will moderate going into the second quarter.’
• William Hill has updated on trading to 17 April saying it has seen a ‘3% growth in Group net revenue with strong Online and US performances partially offset by Retail’.
• Wm Hill reports online net revenue up 12% with Sportsbook +17% and gaming +8%. Retail net revenue is down 4% with Sportsbook down 9% and gaming flat
• Wm Hill reports ‘significant year-on-year gross win margin increases driving unusual short-term trends’. It has generated a ‘strong US performance driven by 31% wagering growth and positive sports results.’
• Wm Hill CEO Philip Bowcock comments ‘William Hill has had a positive start to 2018, making further progress against our strategic priorities to grow UK market share, drive international revenues and deliver key transformation projects.’ He says ‘continued momentum in Online and strong growth in the US have driven a good performance during the period. In the UK, an unprecedented run of bookmaker-friendly sporting results led to unusual wagering and gaming trends, which we expect to normalise over time. The sale of our Australia business has further strengthened our balance sheet.’
• William Hill concludes ‘while we await the outcome of the UK Triennial Review and the Supreme Court’s decision on US sports betting legislation, we remain focused on continuing to deliver a great customer experience, particularly ahead of this summer’s World Cup.’
• The Digital, Culture Media and Sport committee will hold a one-off evidence session regarding the proposed £600m sale of Wembley stadium to Shahid Khan, owner of the NFL Jacksonville Jaguars.
• Adidas reports Q1 net income up 18.6% to €540m from revenues of €5.5bn, with online sales up 27%.
• The FT reports that Team 17. known for hit video games such as Worms and The Escapists, is selling a 50 per cent stake on London’s Aim. It says the listing is expected to value it at about £200m.
FINANCE & MARKETS:
• SMMT reports that new car rose for the first time in a year last month. Comps were easy but, nonetheless, the rise has been welcomed. The timing of Easter has also helped. The SMMT says that the rise was ‘not unexpected’. It says ‘consumers need certainty about future policies towards different fuel types, including diesel, and a compelling package of incentives to deliver long-term confidence in the newest technologies.’
• People in England and Wales are now less likely to move home than they were 40 years ago reports Queen’s University Belfast
• Eurozone investor confidence slipped in May.
• Sterling down vs dollar at $1.3546 but up vs Euro at €1.1371
• Oil up sharply at $75.42
• UK 10yr gilt yield unchanged at 1.40%
• World markets: UK up Friday but closed yesterday. Europe & US up in Monday trade with Far East higher in Tuesday business.
• Brexit, politics etc.:
o Customs’ Partnership back on the table say some as it would ‘solve the Irish problem’.
o Customs’ Partnership a non-starter say others. Boris Johnson calls the plan ‘crazy’. He says, in a moment of non-craziness, that it would add another layer of bureaucracy to trade. Jacob Rees Mogg tells Robert Peston it would bring with it the need to pay into the EU, to allow free movement and would prevent the UK from negotiating its own trade deals.
o EU yet to opine on whether a Customs’ Partnership would be acceptable, what it would mean, etc. Bloomberg says PM ‘and her divided cabinet now have two key decisions to make: first, what kind of customs deal they want with the EU; then what temporary measures will apply until the new system is operational.’
o Bloomberg says choices are delay, call another election, stay in the Customs’ Union or leave with no deal. No 10 seems to favour the first choice.
o Ireland pushes for border issue to be sorted next month before trade etc. is discussed
PRIOR DAY LATER TWEETS:
• Later tweets: Sunshine helps but can only go so far. Q1 GDP c0.1% & people must pay gas bills etc. But we’ve had another payday, tills will be ringing
• Grab & Go operators have property costs & need to earn their revenue in a 90 min window. Now Deliveroo is offering lunch at £4.99 per pop!
• DP Poland updates on Q1 trading saying ’in line with management expectations’, LfLs +17% w. 2 new stores in quarter & margins better
• On the Beach says bookings strong & few England fans to travel to W Cup in Russia.
• NIESR says ‘we have revised lower our GDP forecast for 2018 to just under 1.5%’. Need to do 1.4% or so in 3 quarters, then. Tall order?
• NIESR cuts GDP estimates but, after a tough Q1 (only 0.1%) there’s a bit of a hill to climb in Qs 2, 3 & 4 even to hit reduced forecasts
• Games Workshop: ‘Good growth trends have continued’ & ‘profits for 2017/18 to date are therefore slightly above expectations’
• BDO: High St fashion sales +2% with online fashion sales +27%. We also have Jacques Vert, H of Fraser etc. struggling. Any link here guys?
START THE DAY WITH A SONG:
Last Friday’s song was Philadelphia by Bruce Springsteen, but today who sang:
Turning away from the light,
Turning into my soul
I wanted to bite not destroy
RETAIL NEWS WITH NICK BUBB:
Saturday Press and News: The main story in the Saturday papers was the news that SMMT new car sales bounced by 10% in April, although the comp was very weak (the main Business headline in the Telegraph was “Jump in car sales is a blip, not a revival, say dealers”). The Guardian and the Daily Mail highlighted the collapse of the Jacques Vert fashion concession business Calvetron and the Guardian also noted that Sports Direct has, ludicrously, blamed the former Labour MP Iain Wright for encouraging staff abuse and “a media circus” over its working practice problems. The Times had a feature interview with the boss of the fast-growing sports footwear brand New Balance and the FT had a feature on the rivalry between Gucci and LVMH in luxury goods. The FT also had a good follow-up on the Sainsbury’s/Asda deal, with an analysis of the positives and negatives for other supermarkets
Sunday Press and News: There were plenty of features about the Sainsbury’s/Asda deal in the Sunday papers, although the most interesting news was the scoop from Oliver Shah of the Sunday Times that Amazon made an informal approach last year to buy Waitrose from the John Lewis Partnership. The Sunday Times and Sunday Telegraph also picked up the intriguing Mail on Sunday story that Sports Direct is launching legal action against the beleaguered House of Fraser for freezing it out of any financial information (despite its 11% share stake) and has criticised its “opaque” Chinese dealings. As for the Sainsbury’s/Asda deal, the Sunday Times had a background feature article that highlighted that “Amazon casts a shadow across British supermarkets”, whilst the Mail on Sunday had a double-page spread on the merger plan, flagging that Sainsbury’s CEO Mike Coupe has vowed that he will honour his
Bank Holiday Monday Press and News: The strong denial by Charlie Mayfield, the Chairman of the John Lewis Partnership, that Amazon made an approach last year to buy Waitrose gets picked up by the Telegraph, the Guardian and the Daily Mail (“Amazon sent packing on talks over Waitrose takeover”). The Daily Mail also noted the news that Sports Direct is launching legal action against the beleaguered House of Fraser to get hold of up-to-date financial information and highlighted the growth in the affordable wedding wear market, eg an £80 wedding dress from H&M. The main Business story in the Guardian was that many local MP’s are concerned that a Sainsbury’s/Asda merger would create “monopolies” in many towns, with Torquay, of all places, used to illustrate the issue. And the Times flagged the view of the New Economics Foundation think-tank that the Sainsbury’s/Asda could cost thousands
Dixons Carphone: On Friday morning Dixons Carphone got a boost from a bullish note from RBC, flagging that Q4 trading has been surprisingly good, then on Friday evening there was a smack of firm government from the new Dixons Carphone CEO Alex Baldock, via the news that the heavily loss-making Honeybee software business has been dumped on a small US tech company called Synchronoss.
News Flow This Week: After the Bank Holiday weekend, this week starts quietly, but tomorrow brings the BRC-KPMG Retail Sales survey for April (which is likely to be flat at best, given the early Easter impact), the Greggs AGM update and the Vertu Motors finals. Then on Thursday we get the much-awaited Next Q1 update, the Morrisons Q1 update and the Superdry Q1 update, as well as the MPC meeting/Bank of England Inflation Report.