Langton Capital – 2018-09-11 – Delivery, discounting, DP Eurasia, pub numbers & other:
Delivery, discounting, DP Eurasia, pub numbers & other:
A DAY IN THE LIFE:
Don’t you find automated checkout machines in busy supermarkets infuriating?
I mean they often wait until you put on your last banana before giving up the ghost and telling you there’s something unrecognised on the scales & that it simply cannot continue.
It’s having a nervous breakdown or whatever. Perhaps it thinks that those two monster bananas that you’ve been able to break from different bunches weigh as much as three under normal circumstances and, though I would be prepared to deny this, maybe it’s right but then the thing has the temerity to tell you ‘help is coming’ when, often, it simply isn’t, is it?
So, you stand there like a busted shoplifter with a red light flashing above your head before packing everything back in your basket and shamefacedly queueing at the one manned till behind a line of smokers, gamblers and drinkers swearing that you’ll never use the machines again.
Not until the next time, anyway. On to the news:
60 SECONDS ON DELIVERY: FRIEND OR FOE?
Where are we now?
• Operators don’t want to be on the wrong side of history
• Delivery isn’t new – but apps & Google Maps are
• Delivery may have become a ‘must-have’ accessory
Problems in practice:
• Nothing about food (price, temperature, consistency) improves over the journey
• Customers don’t want worse food, delivered late & at higher prices
• Restaurants may be using underutilised facilities
• But existing customers may be ignored, riders may antagonise nearby residents
• And, whilst the customer may desire convenience, who is making money here?
• Delivery: Deliveroo lost £129m to Dec 2016, has lost £163m since incorporation, & will have lost more in 2017
• Operators: They pay c20% to Deliveroo, Uber & Amazon & c14% to Just Eat. They need additional facilities to deal with increased collections
• Staff: Waiters lose out on tips, delivery drivers are hardly overpaid, jobs are insecure, etc
A current snapshot:
• Delivery is growing, it is convenient, it may be unstoppable, and it drives LfLs
• But it is only marginally profitable, it’s not green, not socially beneficial, etc.
• And it causes as well as solves a number of problems
• Re. new units, a dedicated collection point, perhaps at the rear, may work well
• But older, make-do operators may struggle with delivery & still alienate existing customers
PUBS & RESTAURANTS:
• Discounting getting worse. Or better if you’re a diner with Frankie & Benny’s offering 40% off mains, Pizza Express 2-4-1 (50% off by our reckoning), Bella Italia 40% off, Prezzo 30% off, Loch Fyne 25% off, Café Rouge 20% off and Domino’s 30% off deliveries over £20.
• See earlier Langton comments on discounting & gimmicks versus Everyday Low Pricing.
• DP Eurasia reports H1 numbers to end-June saying the number of stores rose from 593 to 672 and system revenues rose from 399m TRY to 510m TRY.
• DP Eurasia reports system sales in Russia up by 69% at 153m TRY. Group says it is seeing ‘robust top line growth, strong network growth and continued operational delivery.’
• DP Eurasia reports total adjusted group EBITDA of 40.3m TRY up 8%. Group says it added 79 stores over the last 12mths.
• DP Eurasia says ‘Turkey and Russia like-for-like growth is strong’. The group confirms it has no remaining hard-currency debt. It says ‘the Board expects the full year Adjusted EBITDA for 2018 to be in line with expectations.’
• DP Eurasia CEO Aslan Saranga comments ‘in Russia, we are continuing with our regional push’ and says ‘online ordering continues to be the main driver behind our like-for-like growth in both markets.’
• DPP says ‘with respect to the macroeconomic headwinds that we are experiencing in Turkey, we are offsetting the impact of higher inflation by increasing our prices more frequently without any discernible negative impact on volumes.’ The group says ‘historically, the business has been relatively robust in challenging economic conditions’ and adds ‘we have come through stronger relative to the competition due to our market leadership position, focus on value and service to the customer and resilient franchise partners.’
• The latest Market Growth Monitor from CGA and AlixPartners highlights ongoing pub closures and mounting challenges in the casual dining sector, with the number of licensed sites across the country falling by 2.5% year-on-year to 119,800 as of June 2018. This means that Britain has 3,116 fewer restaurants, pubs and bars than it did 12 months ago, representing average net closures of around eight premises a day — nearly double the rate seen in the last Market Growth Monitor just three months ago.
• The decline was seen around the UK, with 3.4% less sites in Wales, 1% less in the West Midlands and 2.3% less in London. Community pubs continue to make up the bulk of closures, although restaurant numbers were also soft as a result of well-documented pressures affecting the sector. CGA vice president Peter Martin said: ‘Given the multitude of challenges facing the sector at the moment, it is no surprise to find that the pace of licensed premises closures is increasing. People continue to eat and drink out, and new and exciting restaurant, pub and bar brands are still achieving impressive growth. But competition from these dynamic start-ups, rising costs and the fickle nature of many consumers are combining to turn up the heat on established restaurant brands. In the current climate, standing still is simply not an option.’
• Between 2013 and 2018, packaged food grew at a CAGR of 1.0%, per Pragma Consulting, with a lot of that growth coming from an increase in branded healthy snacks. Salty snacks (mainly crisps) grew (+0.7%) and chocolate countlines (bars) declined (-1.2%), while snack bars grew (+7.0%) as did nuts, seeds and trail mixes (+7.5%). Popcorn enjoyed even greater growth (+14.6%) as consumers continue to favour healthier foods.
• Middle-aged drinkers are being challenged to not drink at least two days per week in a new government initiative aimed at curbing health risks.
• A considerable 40% of foodservice operators admit they don’t know how often they do, or should, clean their ice machines and research undertaken by ice machine manufacturer Ice-O-Matic suggests a ‘surprisingly high’ number of operators do not clean their ice machines regularly as per manufacturers’ recommendations.
• Alcohol has become one of the fastest-growing retail products when it comes to fairtrade, with Brits spending £86.9m on sector in the 52 weeks ending October 2017.
• The Inn Collection Group will open its 9th site after completing the acquisition of the Lake District property, The Waterhead Hotel.
• Henley brewer and pub operator Brakspear has entered into a collaboration with Toast Ale to brew an ale from surplus bread. Brakspear chief executive Tom Davies said, ‘This is the first collaboration brew for the Bell Street Brewery and we’re delighted with the result – a deliciously tasty ale brewed from bread that would otherwise have been thrown away, with a donation towards ending food waste’.
• Coaching Inn Group reports turnover up 17% to £20m in the year to 31 March 2018, with EBITDA increasing 39% to £2.1m. The 15-strong pub chain invested £3.2m across the estate in addition to acquiring 2 new inns over the course of the year. Each of the key revenue streams have grown significantly during the year – Liquor up 17.0 % – Food up 19.2 % – Room letting up 17.7% with occupancy now at 77% across its 431 rooms.
HOLIDAYS & LEISURE TRAVEL
• Tui is negotiating a ‘letter of comfort’ with the CAA which will create a bespoke 12-month transition deal for the company, mitigating the effects of a no-deal Brexit, according to industry sources.
• Hotelbeds Group will cut the number of brands it uses in its retail travel agency operation following its acquisition of GTA and Tourico Holidays. The company on Monday announced it would gradually phase out the TravelBound, TravelCube and GTA brands with travel agents, migrating to the Bedsonline platform.
• Trailfinders reports revenue up 10.7% to £719.1m in the year to February 28 2018, with pre-tax profits up nearly 52%. Trailfinders has more than 30 branches and employs more than 1000 staff.
• STR reports that luxury hotels are leading the growth in preliminary occupancy and rate data in the US: It says ‘early data shows luxury hotels growing average daily rate 3% to 5% and revenue per available room 4% to 6%, with occupancy growth flat to up 2%.’ STR adds ‘overall U.S. hotels saw occupancy flat to 2% with ADR growth of 2% to 4% and RevPAR up 2% to 4%, as well.’
FINANCE & ECONOMICS:
• The UK economy grew at its fastest rate in almost a year in the 3mths to July. The ONS reports that this is thanks to stronger consumer spending during the World Cup and summer heatwave.
• ONS reports GDP +0.6% in the 3mths to end-July, up from 0.4% in the 3mths to end-June. The economy grew by 0.3% in July alone, up from 0.1% in June. The UK’s large services sector grew by 0.6% in the period with construction up 3.3%. Manufacturing declined slightly.
• Strong data underpins further rate rises. Sterling up.
• NIESR reports its ‘latest economic data confirms that the UK economy has recovered from a soft patch earlier in the year and is now growing at a pace that is above potential.’ Such talk implies that it agrees further rate rises are likely.
• Sterling up at $1.3037 and €1.1237
• Oil up at $77.54
• UK 10yr gilt yield up 1bp at 1.47%
• World markets: UK slightly higher yesterday, Europe up and US lower. Far East mixed in Tuesday trade.
• Brexit etc.:
o Expectation management at work as Liam says Brexit will be good for the country but warns against ‘irrational positivity.’
o Michel Barnier has said that a deal should be possible within the next six to eight weeks.
o A spokesman for No10 says Britain is focussed on securing a Brexit deal in October. The spokesman commented ‘we are focussed on securing a deal in October and that continues to be what we are working towards.’
o Mrs May is to meet worried car industry chiefs in Birmingham today.
o Former minister Steve Baker has said that up to 80 Tory MPs will vote against the Chequers’ proposal as it now stands.
o Labour still uncertain what it thinks about Brexit, a second vote etc.
PRIOR DAYS LATER TWEETS:
• Later tweets: Statement of affairs from the administrators of Gaucho Grill show the company has a deficit to creditors of £65m
• US restaurant data has continued to recover in August with LfL sales up 1.8%, according to data from TDn2K
• Morar HPI says delivery up as a thing. Staycations benefit UK. Hoseasons strong. GDP numbers also good for economy as a whole
• Tesco Dave says if HMG doesn’t reform business rates ‘it will be a deliberate decision not to support the retail industry’.
• ABF says re Primark ‘our share of the clothing market has increased significantly’. Public perhaps prefer EDLP over gimmicks & vouchers?
START THE DAY WITH A SONG:
Yesterday’s song was ‘Somewhere Beyond the Sea’ by Bobby Darin. Today who sang:
Burning bridges shore to shore,
I’ll break away from something more
I’m not turned on to love until it’s cheap
RETAIL NEWS WITH NICK BUBB:
D Sports: Ahead of today’s interims from mighty JD Sports (which is close to getting into the FTSE 100 index), the profit warning from Footasylum last week briefly gave pause for thought about whether its problems reflected a tougher industry environment, but the City quickly decided that Footasylum’s issues are company-specific and that judgement looks to have been right because JD Sports is doing just fine. It was “another record result for the half year” with Group EBITDA up by 26% and underlying PBT up by 19% to £122m on the back of a 35% jump in sales to £1.85bn (as boosted by the big US acquisition). LFL sales growth of more than 3% was achieved “against a backdrop of widely reported retail challenges in the UK”. The only weak spot was the Outdoor Division, which was hit in Q2 by “a significant and understandable decline in jackets and other waterproof apparel”, but this is a small
Debenhams: We flagged yesterday that the beleaguered Debenhams had not seen fit to issue an official comment on the Sunday Telegraph story that it has called in the restructuring specialists at KPMG to weigh up a potential CVA, nor had it issued a pre-close trading update for y/e August, but the alarming slump in its share price in the morning (which threatened to push it into the dreaded ranks of “penny stocks”) forced it to rush out an update over lunch, with the result that the shares ended the day only 10% down at 11.5p. The message was that, despite difficult summer trading, pre-exceptional pre-tax profit for FY2018 of around £33m will be within the current market range of £31m-£36.5m and that year end net debt of c£320m will be in line with guidance. Despite providing some reassurance on the banking covenants and flagging that the new season has started well, the market is clearly
News Flow This Week: The Superdry AGM is being held today in the City at 10.30am, but no statement is expected. Tomorrow brings the Dunelm finals and the high-profile Sports Direct AGM…Then on Thursday we get the Morrisons interims and the much-awaited John Lewis Partnership interims.
News Flow Next Week: The Ocado Q3 is on Tuesday, along with the latest monthly Kantar/Nielsen grocery sales data and the B&M AGM. The Kingfisher interims and the Games Workshop AGM are on Wednesday. And the French Connection interims and the ONS Retail Sales for August are on Thursday.