Langton Capital – 2018-06-19 – Wet led pubs, football, discounts, over-building & other:
Wet led pubs, football, discounts, over-building & other: A DAY
A DAY IN THE LIFE:
I knew that we had a relatively large number of kids when it took our youngest about three years to remember the names of all of her brothers.
Indeed, for ages they were Iwiam (William), Dack (Jack), Dom (Tom) and, unfortunately (Dat One) James.
But recognition gradually dawned and, rather than do an identity parade to ascertain who had stolen Freya’s pudding, we could simply ask her to follow the age-old tradition of grassing up her siblings verbally to her parents.
Anyway, just a couple of thoughts: If less is more, why bother putting a redundant letter ‘e’ at the end of the word and why make dyslexia so hard to spell?
Not all down to the football but not a lot of news today. On to what there is:
PUB, RESTAURANT & DRINK PRODUCERS:
• Sapient’s Peter Hansen has commented in the MCA stating that we are at a point in the cycle where wet-led pubs have been trading as well or better than food-led pubs for the last three years. Mr Hansen continued, saying that wet-led pubs are more profitable per pound of turnover than food-led, due to lower labour costs less need for discount offers.
• Wet-led pubs have recently benefited from the good weather and, per the Coffer Peach Tracker data published yesterday, they outperformed on the back of the May Bank Holidays and, perhaps, the Royal Wedding as well.
• England’s win last night makes progression to the knock-out stages of the World Cup considerably more likely. Football typically benefits wet-led pubs but is a negative for restaurants as it disrupts trade.
• A Monday match will have benefited wet-led operators without taking too much business from the casual diners. The upcoming Sunday match (1pm vs Panama) will do considerable damage to restaurant trade. Next Thursday’s match vs Belgium will be similarly negative. Putting this in perspective, however, whilst high rents, overcapacity and the sluggish consumer may persist, the World Cup will be over by the middle of next month.
• Discounting. Again, a casual dining rather than a wet-led problem. Symptomatic of overcapacity.
• Langton’s The Walk note (2017 trip vs 2006 trip, three miles in Central London, comment on new build, overcapacity etc.) available on special offer for £100 plus VAT or same in beer. Offer open till 15 July.
• Overcapacity could take a decade or more to unwind. Next best use of a busted restaurant (with perhaps a £600k to £800k fit-out in its premises) is still as a restaurant. Could be decades before there are enough vape shops, cash-for-gold outlets etc. to take the space.
• Discounting. Prezzo moves back to 40% off. Bella Italia 30% off. Frankie & Benny 2-4-1 (50% off in my book) and Pizza Express up to 25% off.
• The hospitality sector is ‘overpaying’ on business rates by £1.8bn, MP for York Central Rachael Maskell has estimated. Maskell told Westminster on Friday ‘The hospitality sector employs 2.9m people across the UK and although it pays 10% of all business rates, the sector’s share of turnover is just 3% — as the sector puts it, it has made an overpayment of £1.8bn’.
• Deliveroo has announced its intentions for rapid expansion across the UK, a move that will bring it in further conflict with rival Just Eat.
• The number of wineries opening in the UK have reached record highs, with 80 launching last year. James Simmonds, partner at UHY Hacker Young said that English and Welsh wines are ‘now not only being recognised by domestic consumers, but also starting to win acclaim on an international level. Whilst City workers may have previously invested in the traditional wine regions of Bordeaux or Chianti, they now have the option of being part of the UK wine scene’.
• China has announced a counter tariff on US imports into China, including a 25% hike on American whiskey.
• A probe has been launched into Deliveroo’s working practices, following similar investigations into Hermes, Uber, DPD and Parcelforce. The launching of an investigation comes just days after a union was given the go-ahead for a full judicial review of whether gigging Deliveroo riders ought to be classified as ‘workers’.
• MCA writes that a no-deal Brexit could see a 38% fall in profits for restaurant chains, according to a study by consultants Oliver Wyman.
• Coca-Cola is rumoured to be considering a £3bn bid for GSK’s Horlicks drinks brand. Other bidders include Kraft Heinz and Nestle.
• Molson Coors’ are donating the proceeds from a special beer to The National Brewery Heritage Trust, to support their aim of protecting and preserving Britain’s brewing heritage.
• EI Group partners with University College Birmingham to host a food strategy training day. Paul Farr, Head of Food at Ei group commented: ‘An important part of the business is about educating our operational teams and creating a learning organisation, whereby they can go out to the field and work closely with our publicans to grow their businesses’.
• Supermarkets and suppliers have cautioned the competitions watchdog that Sainsbury’s £15bn merger with Asda could reduce choice and increase prices at checkouts.
• HIS Markit has reported that financial pressures on UK households intensified slightly in June, largely as a result of higher living costs. The Household Finance Index dropped to 43.4 in June from 44.9 in May. Any number below 50.0 represents net pessimism regarding the outlook for finances.
HOLIDAYS & LEISURE TRAVEL:
• A Cuuver.com poll has found that the majority of British people do not think Brexit will affect where they travel anytime soon. However, more than 40% of respondents aged 18-25 to a new poll believe Brexit will have an impact on their travel plans in the next five years, showing a difference of opinion between generations.
• Duke Street Capital confirms it is in talks to acquire Great Rail Journeys in a deal expected to be worth £100m. Duke Street also owns Wagamama and go-kart operator Team Sport.
• Secret Escapes, an online luxury travel deals business founded in 2010, is targeting £1bn turnover within two years. Founder Tom Valentine said ‘We are now in 20 territories and we are competing with Google for hires. What we do is work with hotels who fundamentally own the experiences and allow them to manage their prices more effectively.’
• Google has paid $550m for a stake in JD.com, the Chinese ecommerce group. The two are to collaborate on retail and other other initiatives.
FINANCE & MARKETS:
• A report by the Bank for International Settlements has concluded that cryptocurrencies have no real worth and are useless as a form of exchange. Perhaps it would, wouldn’t it, but the BIS points out that the ‘currency’ is not backed by assets or revenues. Or by the military might of any one country or group of countries for that matter.
• The Financial Reporting Council has reported that the audit work of the ‘Big Four’ accountancy firms is not up to scratch. It has shown an ‘unacceptable deterioration’. It singles out KPMG saying ‘there has been an unacceptable deterioration in quality at one firm, KPMG.’ The FRC adds re the Big Four ‘they must address urgently several factors that are vital to audit, including the level of challenge and scepticism by auditors, in particular in their bank audits.’
• Donald Trump has ordered the drafting of plans to extend tariffs to a further $200bn of Chinese exports. China sold over $460bn of goods to the US last year. US exports to China were only some $115bn. Mr Trump says that the US would win a trade war ‘one thousand times out of a thousand’.
• Sterling a little weaker at $1.3256 and €1.1398
• Oil up nearly $2.00 at $74.87
• UK 10yr gilt yield down 2bps at 1.31%
• World markets: UK, Europe & US down yesterday with Far East down in Tuesday trade.
• Brexit & politics:
o Government had up as it does not yet know how it will pay for the extra £20bn promised to the NHS. No Brexit dividend as it will actually ‘weaken’ public finances by £15bn p.a.
o Another vote on Brexit in Commons on Wednesday as MPs seek a say on the final deal.
o Bloomberg says emotions running high and given the stakes ‘bringing the government down, in comparison, wouldn’t seem such a big deal.’
o People’s March for a democratic say on Brexit this Saturday. Two year anniversary of the initial vote.
PRIOR DAY TWEETS:
• Later tweets: CGA Tracker says sun better for pubs than restaurants (at plus 3.5% vs down 2.1% respectively). Overcapacity a major issue
• Tracker says LfLs +1.4% but total sales +4.5% suggesting that, despite CVAs etc., new builds are still coming on in quantity
• Tracker yearly growth is just 0.6%, well below inflation. Also includes low-margin delivery. Profits under pressure
• Discounts. Prezzo 30% off food, Bella Italia also 30% off. Pizza Express up to 25% off.
• Sunday Times: Private equity made a ‘dog’s dinner’ of High Street.’ Some maybe just trend-riders, not really good at business?
• Crowdcube’s halo slips as revenues fall & cumulative losses mount to £16m since 2013. Solution to a problem that doesn’t exist?
• Unstoppable trends? Debit card spending overtakes cash for first time. Contactless growth even more spectacular
• Forget Brexit & economy / social polarisation says No10, up-skirting & fatuous comments on NHS are new Big Issues
START THE DAY WITH A SONG:
Yesterday’s song was ‘We are the Champions’ by Queen, but today who sang:
I remember some days,
We were singing our lungs out
in the backseat together
And the seatbelts were burning our fingers
RETAIL NEWS WITH NICK BUBB:
Debenhams: Despite the boost it will get next year from House of Fraser store closures and the boost it should have got from the recent warm weather, the Debenhams share price has been under pressure, dropping below the 20p mark, and today’s profit warning explains why…Debenhams has brought forward its scheduled update from next week to warn that “trading in May and early June has been below plan despite weak comparatives” and that, despite more cost-cutting, it now expects pre-tax profit for FY2018 (y/e August) to be in the range of £35m-£40m (with EBITDA in the range £160m-£165m), compared with the current market PBT consensus of c£50m. Constant currency LFL sales for the last 15 weeks have been down by 2.2%, despite good Online sales, with management flagging “increased competitor discounting and weakness in key markets, like Beauty”. Management are holding a conference call for
Footasylum: Ahead of the long-awaited Footasylum finals today (for y/e Feb), the share price has been ominously weak, as if something was amiss, although management has said nothing since the analysts briefing back in mid-Feb. The first clue is that the statement is headlined “Strong revenue growth”, with profits barely up and then CEO Clare Nesbitt says “While our core target market of the 16 to 24-year-old consumer has proved to be comparatively resilient in a downturn, our trading since the beginning of the new financial year has undoubtedly been impacted by the widely documented weak consumer sentiment on the High Street” and warns that, because of increased investment and costs, adjusted EBITDA for FY19 is likely to show even more modest growth than in FY18…