Langton Capital – 2018-05-31 – Beer sales, consumer confidence, meal kits, claims &c.:
Beer sales, consumer confidence, meal kits, claims &c.:
A DAY IN THE LIFE:
Please forgive us if we’re a bit slow to respond to emails etc. this week but, in common with many others with school-age kids, we’ve got the family with us and are downing tools mid-morning to visit various attractions etc. in this fair city of ours. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• British beer sales fell 1.7% in the first quarter of 2018 compared to the same period in 2017, according to the latest Beer Barometer sales data from the BBPA. On-trade sales were down 1.9% and off-trade sales declined 1.5% year-on-year. Speaking on the Q1 Beer Barometer, Brigid Simmonds OBE, BBPA Chief Executive, said: ‘Beer sales experienced another fall at the beginning of the year and the industry will be hoping for better prospects this summer, especially as the FIFA World Cup will be a big draw to the pub. What’s still needed is a continued focus from the Government to reduce the tax burden on beer and pubs to ensure their success in the future.’
• The BBPA has welcomed the proposal by the European Commission to extend the threshold for low alcohol beers that can benefit from reduced duty rates from 2.8% ABV to 3.5% ABV. BBPA Chief Executive Brigid Simmonds comments: ‘Whilst it is possible to produce some great beers at 2.8% ABV, there is much more potential to grow the market for lower strength beers if the threshold is increased to 3.5% ABV… I very much welcome the proposed extension of the low alcohol threshold by the European Commission and will push for parliament to adopt it, which should boost investment and innovation in the industry for low and no alcohol beers that are a great way to enjoy sensible drinking whilst supporting your local pub.’
• Consumer confidence edged up in May but remained in negative territory per the influential GfK Consumer Confidence Index.
• GfK says UK is seeing ‘retail sales falling at their sharpest rate since the mid-90s, tough trading conditions…’ (see Economics & Markets below for further detail).
• IFS reports around half of the TV advertisements for food and drink seen by children are promoting products high in fat, salt or sugar or fast food restaurants
• Nielsen has reported that the meal kit market is set for further growth. It says they are ‘a small category with big potential.’ Using Australia as an example, Nielsen says ‘during the past eight months, the number of Australian households who have made a HelloFresh and Marley Spoon purchase was 1.5% of total households (around 150,000 households). However, if the Australian market follows the trend of the U.S., this could represent one million Australian homes buying meal kits in the next 12 months – significantly impacting the traditional and online grocery retail market.’ This is thought likely to impact the eating and drinking out market to a somewhat lesser extent.
• Nielsen says ‘meal kit shoppers are also high spend shoppers.’ They are an attractive demographic. It says ‘HelloFresh and Marley Spoon customers shop less frequently in bricks and mortar supermarkets than the average shopper (-11%).’
• The MCA’s Bakery and Sandwich Tracker Q1 2018 report shows the number of bakery occasions increased from 1.1 billion to 1.5 billion year-on-year. Burgers and pizzas also grew market share.
• KFC has vowed to revamp its menu and remove 20% of calories ‘per serving’ by 2025 and is currently considering offering healthy sides instead of fries for free and low or zero carbonated drinks.
• Fresh food price inflation has stayed at 0.9% this month, even though overall shop prices experienced their 61st month of deflation at 1.1% in May, according to data from BRC-Nielsen.
• Hi-Spirits is helping on-trade operators and their customers navigate gin options with a new support package that maps out the gin journey. Dan Bolton, managing director of Hi-Spirits, said: ‘On-trade operators now appreciate that consumers expect a choice of gin, but it’s just as important that every gin on the back bar earns it place with a distinct character and interesting signature serves’.
• Alibaba has led a $1.38bn investment into delivery business ZTO, acquiring a 10% stake in the company.
• The number of shoplifting incidents has increased by 4%, with over 378,725 offences reported in 2017-18, according to data compiled from 42 police forces by online marketplace OnBuy.com.
HOLIDAYS & LEISURE TRAVEL:
• Claims management companies ‘are pulling out’ of holiday sickness claims as ‘almost ever claim’ has to be reviewed for ‘fundamental dishonesty’, says Claire Mulligan (partner at law firm Kennedys. Claire continued with: ‘We’ve run 80 cases to trial and won 72. Six couples have been sent to prison and we’ve also had suspended sentences. Two claimants’ experts have run out of court in tears’.
• Long-haul holidays this summer are proportionately cheaper than short-haul breaks, research from TravelSupermarket has indicated. The research found that two people can take a fortnight’s holiday to Thailand for 23% less than one to Ibiza.
• Hyatt expects to announce revenues to more than double from China in five years, with group CEO Mark Hoplamazian saying: ‘If I look over the next four, five years, we will fully double our presence here moving from the 58 hotels or thereabouts that we have today to more than double that number’.
• Costa Cruises will nearly double capacity between 2019 and 2021 as four new ships enter service for the company.
• Reed & Mackay acquire Hillgate Travel in a private equity-backed deal, bumping the company into the UK’s top 10 travel management companies. The combined business will handle more than one million corporate travel transactions a year in the UK alone, with a UK staff of about 600 and UK turnover approaching £500 million.
• Regarding the cruise holiday industry, Cindy D’Aoust said the UK would remain the second market in Europe after Germany. Forecasts for the global number of passengers this year was 28m, up from 26.7m in 2017. Asia accounted for around 15% of total global ocean passenger volume last year.
• The ONS reports the UK experienced its lowest number of strikes on record last year. There were 79 stoppages in 2017, the lowest figures since records began in 1891. The number of workers involved in labour disputes also fell to an all time low of 33,000.
• Transport Secretary Chris Grayling claims the ‘rail industry has collectively failed’ following travel chaos caused by timetable changes by Govia Thameslink Railway and Northern. Northern has said it has commissioned a report to ‘ensure lessons are learned’.
• Zipcar will introduce a 325-strong electric car fleet in London, with the first cars set to arrive by summer 2018.
• Photo-Me, a British photo kiosk company, shares dropped more than a quarter on Wednesday following a profit warning due to poor trading in Japan. The company now expects to make £44m of profit before tax for the year to next April.
FINANCE & MARKETS:
• The OECD has increased its forecast for UK economic growth saying it expected 1.4% growth this year vs 1.3% previously. World growth is strong. The OECD says that Brexit uncertainty continues to depress the UK versus the rest of the developed world.
• GfK has said that UK consumer confidence rose slightly in May but says that it remains in negative territory.
• GfK says UK consumers remain ‘resolutely downbeat about the general state of the economy’. It says ‘these negative economic scores [re the economy in the run up to Brexit] are depressing the overall index and preventing it from breaking out into positive territory.’
• GfK says consumer confidence in the UK has now been negative for 29mths. The fall below zero pre-dates the June 2016 Brexit referendum.
• GfK says consumer confidence is minus 24. This is up 5pts on April but down 4pts on the figure for May last year.
• Italian fears abating somewhat.
• The number of cars built in the UK in April rose 5.2% on the same month last year, albeit against soft comps. The SMMT says that production is still being planned on the basis of ‘the free and frictionless trade afforded by our EU membership’. The SMMT says it is ‘critical that government acts to safeguard our participation in the EU customs union and single market.’
• Euro zone policy-makers are to propose a deal on Greek debt this week.
• The US economy grew at an annualised 2.2% in Q2. The latest Beige Book from the Fed reported ‘manufacturing shifted into higher gear.’
• Sterling up at $1.3301 but down vs Euro at €1.1401
• Oil up sharply at $77.31
• UK 10yr gilt yield up 6bps at 1.25%
• Brexit, politics etc.:
o Boris Johnson’s dad Stanley has said that there should be a second Brexit vote because of Russian interference in the June 2016 poll.
o EU industry tells PM trade with UK needs to be frictionless if it is not to be negatively impacted by Brexit. The group, including BP, Nestle, BMW & Vodafone said that trade needed to be ‘frictionless as with a customs union’.
PRIOR DAY LATER TWEETS:
• Later tweets: Richoux got support of its shareholders. Placing likely after AGM? Would group have organised a CVA otherwise?
• Time Out doing great in Lisbon. Question is what valuation is appropriate? Balance expansion opportunities with execution risk. Never easy
• Dixons Carphone closing 92 stores, M&S & various CVAs likewise. Won’t get enough Mountain Warehouse shops on the street to make up for this
• Packaging. Cardboard is ‘green’ & Amazon is boosting demand. Time for a plastic to wood pulp trade??
• George Soros makes valid point EU should ‘transform itself into an association that countries like Britain would want to join’
• EU, Brexit etc. Sharing blame. UK self-destructive protest vote vs EU intransigence & politicos moving faster than their electorates
• EU: Convergence politics should be ‘electorate appropriate’. Italy, protests etc.? 1,000 bikes in the village are better than one motor car
START THE DAY WITH A SONG:
Yesterday’s song was Thank You by Dido. Today who sang the following:
I can’t see much of a future,
Unless we find out what’s to blame, what a shame
And we won’t be together much longer
Unless we realize that we are the same
RETAIL NEWS WITH NICK BUBB:
Consumer Confidence Watch: The widely-followed monthly GFK Consumer Confidence index came out overnight and the overall index was up by two points in May to -7 (against a City forecast of -8), even though, as Joe Staton, Client Strategy Director at GfK, said, consumers remain “resolutely downbeat about the general state of the economy”. Feelings about personal finances remain positive, but there was a two point drop in the major purchase intention sub-index. Of course, this time last year we were in a pre-Election period and it’s fair to say that consumer spending doesn’t always track measures of consumer confidence.
Card Factory: It turns out that the B&M Q4 LFL sales (to end March) were flat, with March about 6% down because of the snow, so perhaps it shouldn’t be a surprise that today’s Q1 trading update (to end April) from Card Factory is also flat LFL, but the City was expecting more than that, so it’s a good job that the company says that “the Board’s expectations for the full financial year unchanged”.
FTSE Index Watch: As expected, M&S narrowly survived the cut in last night’s quarterly review of the FTSE 100 index, but Ocado will sweep in (on June 18th). Elsewhere, Mothercare and Moss Bros were dumped from the FTSE All-Share Index, but Carpetright survived, at the last-minute, whilst the embattled Pets at Home was demoted from the FTSE 350 index (with AO World now on the reserve list for the FTSE 350 index, with a market cap of £750m).
John Lewis Watch: We flagged a week ago that the Royal Wedding was bad for John Lewis, given that the weather was unhelpfully hot. But yesterday’s weekly sales overview from JLP flagged that the run up to the Bank Holiday weekend was better for business (given the boost from price-matching the House of Fraser Sale promotion) and w/e May 26th saw gross sales rise by 3.4% up (just over 2% up on a LFL basis, on our calculations). Fashion sales were up by 3.4% gross, Home sales were up by 0.9% gross and Electricals were up by 5.6% gross. Over the last 17 weeks, John Lewis is now running up cumulatively by 1.2% gross (flat LFL), which is obviously nothing to write home about.
Waitrose Watch: Over at Waitrose, the Royal Wedding and good weather did not exactly see picnic and barbecue fare fly off the shelves in w/e May 19th, with LFL sales only about 2.5% up, despite a mediocre comp. And the outcome was also disappointing last week, as gross sales were only 0.3% up (ex-petrol) in w/e May 26th (c0.5% down LFL). The cumulative sales picture for the last 17 weeks is now +1.7% gross for Waitrose (c1% up LFL), which remains below par for the supermarket sector.