Langton Capital – 2018-09-21 – Uber & Deliveroo, Tasty, JDW strike, brand values etc.:
Uber & Deliveroo, Tasty, JDW strike, brand values etc.:
A DAY IN THE LIFE:
Bit busy today with admin. Corporation tax, annual returns, VAT and other stuff that simply add value to the rich tapestry, make life worth living etc. On to the news:
60 SECONDS ON CASUAL DINING, CAPACITY & CRUNCHES:
How did we get here?
• 2017 was notable as the year in which London — a global centre for restaurants — finally showed signs of buckling
• This year has, unfortunately, been pretty grim for casual dining operators around the country
• There are early signs that conditions might be improving for some of the better placed brands
• For the majority, though, the environment remains extremely tough
• Put simply, there are just too many restaurants out there. It takes years for overcapacity to subside, so welcome to the new normal
Where are we now?
• Consumer sentiment has turned, and a market shakeout is on the cards
• For a long time, casual dining spend grew at a faster rate than wage growth. This is not sustainable
• With costs rising, the operators that are to survive must have pricing power
• It seems, more often than not, that the contrary is true as discounts are rampant
What does it mean?
• Those with high cost bases, me-too offers, and low returns on capital will find their positions hard to defend
• Consumers will be more discerning with their cash and will focus on value for money and distinctive offers
• Roll-outs will be much more cautious as operators secure their market position and finances and hold out for better leases
PUBS & RESTAURANTS:
• Uber is in early talks to buy Deliveroo and any price would need to be significantly higher than the $2bn valuation made last year when Deliveroo raised $98m from private investors. Sources close to the matter say that the deal could fall apart because Deliveroo and its investors are reluctant to hand over control of the company.
• Tasty PLC has reported H1 numbers saying revenue fell 5.7% to £23m and the group lost £11.6m (or 17.9p per share) in the half year. In H1 2017, the group lost £9.3m or 15.6p per share.
• Tasty reports an impairment charge of £11.2m and provisions of £1.7m. The group had an operating loss of £119k before write downs and provisions. It then paid £125k in interest. Net debt was £4.1m, down from last year’s £5.4m.
• Tasty chairman, Keith Lassman, says the 60-strong operator had a challenging H1. Mr Lassman says ‘as highlighted previously the market conditions in 2018 continue to be challenging and have been exacerbated by unfavourable weather conditions and the World Cup.’
• Tasty says it has ‘implemented major operational structural changes.’ Mr Lassman says we ‘are beginning to see early signs of improvements which we expect to continue in the second half of the year.’ The company says ‘in spite of the tough trading conditions the Directors, believe the Group’s brands remain attractive to consumers and are focused on optimising the performance of the estate.’
• Tasty adds ‘the Board has no plans to open any new sites at the current time and, in line with the change of strategy from accelerated to suspended expansion, we continue to seek to optimise our capital structure with a view to utilising the proceeds of property disposals to reduce gearing.’
• It won’t be needing expansionary cash any time soon and says ‘we have decided to reduce our funding costs by cancelling the unutilised £5 million Revolving Credit Facility, that was previously earmarked for new restaurant openings.’
• Re the outlook, Tasty comments ‘market conditions remain difficult, but we are starting to see the benefits of the infrastructure changes that have been, and continue to be, implemented. Our focus will continue to be growing sales and maximising value.’ The group concludes ‘the Directors believe that our restaurants are appealing to customers and, once the economic climate has improved, the Group is well placed to resume growth.’
• Tasty now has accumulated losses since incorporation of £16.9m and shareholders’ funds, largely due to its share premium account, of £11.4m. Conditions are tough. Whilst pointing the finger at no-one specifically, Comptoir yesterday said ’a number of well-known national restaurant chains, with a fairly generic homogenous offering and no real ‘differential’ in their proposition to customers, have fallen recent victim to the challenging marketplace. We have observed a significant increase in the level of promotional activity within the restaurant sector.’
• Wetherspoons has closed a site in Harrogate after employees reported symptoms ‘consistent with norovirus’, the MA has reported. JDW spokesman Eddie Gershon said: ‘The cause of the infection is not yet known but there is no indication that it is food-related. The closure of the pub and thorough clean down is a precautionary measure as advised by local authorities and Public Health England’.
• A co-ordinated day of strike action is planned for 4 October by workers at number of JD Wetherspoon, McDonald’s and TGI Fridays outlets over pay. The workers want to agree a pay deal of £10 an hour.
• JD Wetherspoon has said that it is raising pay because of economic trends rather than pressure from striking staff.
• Research into the value of brands in the UK conducted by WPP and Kantar Millward Brown has suggested that new brands such as Just Eat, Innocent, Deliveroo and Brewdog have entered this year’s UK top-75 list. Just Eat is the highest F&B new entry in the list at number 30. WPP comments ‘the nation’s most valuable 75 brands have all risen to the top in a highly competitive, crowded and uncertain environment. Consumers value innovation, and it is key to helping UK companies’ future-proof their brands, deliver sustainable growth and increase in value; ever more vital in a post-Brexit world.’
• The BRANDZ reports suggests ‘food and drink is seen as the most innovative category of all with an average score of 109, driven by new brands such as Deliveroo, Just Eat and BrewDog.’
• The latest UK RestaurantMarket Report 2018 has suggested that over-supply’ and under-demand is ‘leading to Darwinian survival and [the] rising importance of exceptional, experiential value’
• Prosecco exports to the UK have fallen for the first time in over a decade, declining 7% in H1 2018.
• Data from the MCA indicates that the UK restaurant sector is expected to see sales slump 2.8% this year due to rising input costs, challenges around staff shortages and more budgetary conscious consumers.
• Pret A Manger has taken its vegetarian concept outside London for the first time, opening a site in Manchester.
• Allplants, a startup that delivers vegan meals, has raised £7.5m in Series A funding led by Octopus Ventures, which was an early backer of healthy snack delivery firm Graze.
• Prezzo executive executive chair Karen Jones has told MCA that, prior to her arrival, the chain had lost its core focus on hospitality and was no longer serving customers effectively.
• PayPal has agreed to buy Swedish payments specialist iZettle for $2.2bn (£1.67bn) in a move to expand its range of services it provides for small businesses. iZettle had previously been preparing for what would have been Europe’s largest financial technology IPO.
• Uber Eats drivers staged a protest over pay at the company’s London offices after claiming rates for every delivery had been reduced without agreement.
• Coca-Cola has entered the kombucha market with the acquisition of Organic & Raw Trading Co, which is based in Australia.
HOLIDAYS & LEISURE TRAVEL:
• UK hotels face the prospect of stalling growth in 2019 due to a combination of economic uncertainty, weak business travel demand and a rush of new supply, according to PwC.
• PwC’s hotel report suggests that, in London, ‘2017 was a hard act to follow and 2018 has been held back by uncertainty, slower economic growth, significant supply additions, reported weaker business travel volumes and challenging comparisons from the first half of2017’.
• In the provinces, PwC reports ‘while growth is forecast for both 2018 and 2019, the pace is a little weaker than we predicted in our prior forecast in March’. PwC points to possible staffing problems going forward and says that new supply, without additional demand could ‘dampen trading performance in some London locations as well as some regional cities where the demand / supply equation becomes unbalanced’.
• Riu Hotels & Resorts will open its first London hotel in the building next to Victoria station, at a cost of €250m. The 350-room hotel will be branded a four-star Riu Plaza, set to open by the end of 2020.
• Minoan agrees to sell Stewart Travel for £6.5m to Zachary Asset Holdings. Zachary will then lend Stewart Travel via loans to Brooklyn Travel Holdings.
• BCD Travel claims global hotel rates and air fares to go up in 2019, with global average ticket prices for both regional and intercontinental air travel in business and economy classes to increase by 1%
• Groups of airline passengers account for up to two-third of all incidents at individual airports, with the aviation urging them to fly responsibly or not fly at all. Figures revealed that the larger the group, the greater the risk of a disruptive incident during the journey.
• US hotel occupancy decreased 3.3% to 69.8% during the week of 9-15 September, and a 0.3% ADR decrease to $131.03 pushed RevPAR down 3.7% to $91.47, per STR.
• Aston Martin has set its price range for its public listing at between £17.50 and £22.50 per share, valuing the company between £4.02bn and £5.07bn. The company expects its shares to be admitted to the stock exchange by around 8 October.
FINANCE & ECONOMICS:
• The ICAEW reports ‘following a weak start to 2018, the UK economy has seen a slight pick-up due to the weather and the World Cup. However, ICAEW predict GDP growth will remain unchanged at 1.3% for the year. As discussions with the EU are ongoing and the government prepares for the potential of a no deal Brexit, businesses remain cautious of over spending on wage increases and job creation.’
• Retail sales came in stronger than expected in August per the ONS.
• Sterling stronger at $1.327 and €1.1263.
• Oil down at $78.79
• UK 10yr gilt yield down 2bps at 1.59%
• Brexit etc.:
o Donald Tusk has said that PM Theresa May’s Chequers’ proposal ‘will not work’. BBC suggests ‘as things stand, it seems Theresa May is going to have to budge, or walk away.’
o ‘Brexit is defeating itself’ says the New Statesman. It says ‘the rejection of Theresa May’s plan was inevitable – the promises made by her and the Brexiteers have never been deliverable.
o Some Brexit proponents are liars or fools suggests French PM.
o Various politicians putting in their two penneth. French PM Macron says ‘Brexit is the choice of the British people, pushed by those who predicted easy solutions. Those people are liars.’ Maltese PM Joseph Muscat voiced several people’s views when he suggested that a second referendum would make sense now that the complications regarding and economic consequences of Brexit were becoming more apparent.
o If you don’t understand history, you may repeat it. Have a look at the hubris, arrogance and ignorance that led to the 1956 Suez Crisis.
o Abyss staring could lead to Brexiters meekly falling in behind the Chequers’ deal.
o But this has now been rejected by the rest of the EU and the chances of a no-deal Brexit, new PM, general election, second referendum and / or a socialist government, all somewhat higher.
PRIOR DAYS LATER TWEETS:
• Later tweets: Gaucho Grill’s administrators, Deloitte, have said that they estimate the chain has a ‘deficiency to members’ (negative net worth) of c£64.6m
• Gaucho business plan: Labour hard for decades, earn salaries & directors’ fees, make shareholders negative £65m??
• BBPA says RPI and CPI figures of 3.5% and 2.7% for August ‘worrying news for pubs and brewers alike’.
• Raab says Chequers’ proposal ‘not perfect’. Michael Gove says could be changed post Brexit. EU says ‘moment of truth’ is approaching
• Express quotes David Davis saying Mrs May is a ‘much greater danger than the EU’. How to make everyone, but everyone, unhappy?
START THE DAY WITH A SONG:
Yesterday’s song was Ain’t No Sunshine When She’s Gone by Bill Withers. Finishing the week, who sang:
Darling I feel you, under my body,
Darling you’re with me, forever and always.
Give me shelter or show me heart.
And watch me fall apart, watch me fall apart.
RETAIL NEWS WITH NICK BUBB:
• Nick is taking a well-earned break.