Langton Capital – 2019-03-01 – PREMIUM EMAIL – Everyman, quick fixes, cheap money, discounts, Pizza Pilgrim etc.:
Everyman, quick fixes, cheap money, discounts, Pizza Pilgrim etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Sometimes what’s best at the micro level, isn’t ideal at the macro.
For example, how many chips, scratches and dings can you stand to see in a coffee cup before you throw it in the bin and buy another one?
It likely depends whether you’re at home or at work because, whilst you might not mind slipping a couple of mugs in the trolley on the weekly shop for use at home, you might hesitate before doing it for the office because one of your colleagues will doubtless nab it, leave teabags in it overnight, stain it brown, break the handle off and similarly abuse it meaning that, before too long, it’s in a pitiful state and you’re a couple of quid out of pocket.
So, you don’t buy one.
You put up with the least awful one you can find and, because in a free market everyone is likely to do the same thing, you end up drinking sub-optimally and the best outcome for the office as a whole isn’t secured. There, job done.
If any readers feel compelled to ping us over a couple of corporate mugs for advertising purposes, the address is at the bottom of the email! On to the news:
OPERATIONAL SOLUTIONS TO STRATEGIC PROBLEMS:
• A short-term solution for a long-term problem is akin to sticking a plaster on a gunshot wound. It is unlikely to improve things in anything other than the very short term.
• But sometimes, it’s the short term that drives behaviour. Here we consider a few of the more common instances in the F&B sector.
Sales are dropping, let’s offer discounts:
• This may work at the micro level (if your competitors don’t follow suit) but, if your customers have disappeared or your product isn’t cutting it, it won’t solve the underlying problem.
• And discounting, though it may help managers to hit their targets, will likely provide extremely price sensitive customers who disappear when the discounts themselves are withdrawn.
• But it may be better than nothing.
Competitors are taking share, why not sack the CEO?
• Perhaps the CEO does deserve sacking but, if you run a high street shop and Amazon has pitched up and is offering a wider range of DVDs at prices you can’t match, then changing the CEO won’t help.
We’re no longer fashionable, we should advertise more:
• Sometimes a product or a service has just passed its best. Advertising bowler hats probably wouldn’t have done much good once fashion moved against them.
• The same may be true for some tired restaurant brands, poorly-located pubs and the like.
We’re running at a loss, we should sell the family silver:
• Established companies often have a few valuables lying around. Perhaps properties, brands or investments.
• They may choose to sell these rather than confront fundamental questions such as ‘should we be in business any more?’
We’re vaguely unhappy with our lot, let’s vote for Brexit:
• Perhaps we shouldn’t get drawn on this one. It’s all too recent.
FROM THE ARCHIVES:
Cheap money, the prequel:
• Over the period of a few months in Q3 of 2006 we had bids for De Vere Group, Hardys and Hansons, London Clubs, Stanley Leisure, Gondola (Pizza Express), Caffe Nero & World Gaming.
• There were rumoured approaches to Ladbrokes, Whitbread, Rank, William Hill & other.
• These were mostly Private Equity approaches driven in many cases by the availabitliy of what looked like cheap money rather than the belief that the businesses could be run more efficiently off-market
• Carluccio, Individual Restaurant Group, Prezzo, La Tasca, the gym companies, most hotel stocks and many others were also taken private
• In many cases, this did not end well.
• We had pre-pack administrations (remember them?), then stuttering recoveries, often followed by further failure, refinancings and now CVAs
More money than sense?
• The optimism bias is at work here because, whilst most people will agree that it’s possible to make unwise decisions when money is burning a hole in your pocket, those same people will suggest that they are an exception to the rule
• Hence PE houses and the like, while they are throwing money down a deep hole, will sincerely insist that they are not throwing money down a deep hole
• But observation at the macro level tells us that many, sometimes most, of them will be doing just that and, with money now cheaper than it has ever been, there may be some of this going on right now
• Furthermore, with the temptations sometimes to buy yourself out of trouble hard to resist, it is not a phenomenon confined solely to PE houses
GENERAL NEWS – PUBS & RESTAURANTS:
• Coffer Peach Tracker suggests delivery & discounting (and allegedly some supply coming out) and still restautants are recording negative LfLs.
• Research from the NPD Group has found that overall pub footfall has fallen by 0.2% in 2018, the Morning Advertiser has reported. This fall in the number of pub visits was led by a decline of 13.8% to independent venues.
• Above drop in footfall suggests that premiumisation, a.k.a. gouging the customer, is on the rise.
• JDW has put another parcel of pubs on the market for sale. The company, which has put up prices five times in the last two years, reports H1 numbers on Friday.
• Pizza Pilgrims has reported accounts to June 2018 to Companies’ House saying that ‘trading remainded strong’. The group says revenue y-o-y grew by 45% with operating EBITDA of £427k after central costs.
• Pizza Pilgrims reports that it will open four sites in London in the current financial year. The group shows a retained loss for the year of around £170k with cumulative retained profits since incorporation now down to £135k.
• The hospitality recruiter The Change Group has found that the number of Britons applying for hospitality jobs in London has increased, offsetting the drop in the number of candidates from the EU.
• The food writer and restauranteur Mitch Tonks has announced plans for a further three sites for his Devon-based restaurant brand, RockFish.
• Del Frisco’s Restaurant Group has sold off a number of restaurants over the last year, with no openings planned for the next two years as it considers strategic options, including a possible sale.
HOLIDAYS & LEISURE TRAVEL:
• Saga has hired the financial advisory firm, Duff & Phelps, to investigate the potential sale of two of its brands, Titan Travel and Destinology. The group are believed to be looking for £100m for the two brands, Travel Weekly has reported.
• The CAA has banned UK commercial flights using Boeing 737 MAX following the Ethiopian Airlines crash. There are currently five 737 MAX 8 aircraft registered and operational in the UK. Tui Airways currently flies six of the type and Norwegian has 18 Max 8s in service.
• Which Travel? claims paying extra to sit together is unnecessary as 9 out of 10 economy passengers who didn’t pay were seated together anyway. The study found Ryanair had the lowest proportion of passengers seated together without paying for it at 46%.
• Manchester Airports Group warns Brexit uncertainty will damage consumer confidence and be a drag on the economy. Chief strategy officer Tim Hawkins said ‘It is vital that the government recognises the key roles that airports like Manchester, Stansted and East Midlands will play post-Brexit.’
• Eurostar services are set to be affected by ‘work-to-rule’ strikes by customs officers in France. The industrial action could last until after Brexit, with Eurostar saying it is expecting delays of up to two hours on all services from Paris Gare du Nord and Lille until 12 March.
• The US FAA has said it will not suspend Boeing 737 Max aircraft despite pressure from senators and unions. So far, the aircraft has been banned from the airspace of UK, China, the European Union and Australia.
EVERYMAN MEDIA GROUP:
• Everyman Media has reported full year numbers to 3 Jan saying revenues for the year rose by 27.7% to £51.9m with adjusted EBITDA up 38.2% to £9.2m.
• Everyman reports admissions up 25% at 2.8m with ticket prices unchanged & food & beverage spend per head up 6% at £6.30.
• Everyman reports PBT of £2.0m (2017: £1.3m) with a basic EPS of 2.89p, up from 2.04p last year. The company says ‘a further 5 new Everyman venues opened in the last 12 months, growing the estate to 26 sites and 84 screens as at 12 March 2019.’
• Everyman chairman Paul Wise says ‘The Everyman experience continues to be embraced and enjoyed by our customers across our ever-growing variety of locations throughout the UK.’
• Mr Wise continues saying ‘by the end of 2018, Everyman had become the fifth largest UK cinema business, as defined by gross box office revenue.’ Regarding current trading, the chairman says ‘since the year end, trading has been in line with expectations and the film release schedule for 2019 looks both strong and diverse.’
• Ladbrokes claims day one of Cheltenham had gone in favour of the bookies.
FINANCE & ECONOMICS:
• UK economy grew by 0.2% in the 3mths to Jan, unchanged from the 3mths to December. Numbers somewhat better than feared.
• UK GDP – some concerns re stockpiling. Could go into reverse at some point. NIESR says ‘there was a general improvement across all major sectors in January, with the most significant contribution coming from the service sector, which is estimated to have recovered the ground lost in December.’
• NIESR comments ‘the latest ONS data come as something of a relief, after several successive months of downside news and some recent pessimistic commentary. Nevertheless, the pace of UK economic growth remains lacklustre, reflecting the impact of Brexit -related uncertainty and similarly weak growth in the global economy outside of the United States.’
• The NIESR concludes ‘the near-term outlook for the UK economy depends very much on the outcome of the Brexit negotiations.’
• Nissan is to stop production of two of its Infiniti cars in Sunderland due to declining global demand.
• IHS Markit reports that a rising number of British companies are planning to cut jobs & put hiring plans on hold.
• Sterling down yesterday as it looked increasingly likely that Mrs May’s Brexit deal would be rejected by the House of Commons (again).
• Pound at $1.3096 & €1.1601. Oil up a shade at $66.89. UK 10yr gilt yield down 3bps at 1.15%. World markets down yesterday bar the UK, which was up on Sterling weakness. Far East down in Wednesday trade. UK likely to open up down about 12 points.
• Spring statement due later today. Government finances in better shape than they have been for some time. Chancellor may put a Brexit spin on things after the House of Commons failed to back Mrs May’s tweaked Brexit deal last night.
• The Greek economy is said to be performing relatively well at the moment.
• Brexit, politics etc.:
o Comments from the attorney general, Geoffrey Cox, that the main legal terms of Mrs May’s agreement are unchanged & that the UK could be stuck in the Northern Irish backstop indefinitely, sank the PM’s deal yesterday.
o ERG was looking for a ladder to climb down. Geoffrey Cox kicked it away. A few Tory hardliners switched sides, but not many. Press scathing with Daily Mail calling the Commons The House of Fools. Guardian says it is reality, rather than a Ship of Fools, that brought Mrs May down.
o MPs will today vote on whether to take no deal off the table.
o Business said to be ‘exasperated’ after the latest failure by no10 to get a deal through Parliament. City UK has called on the Commons to take no deal off the table later today.
PRIOR DAY LATER TWEETS:
• Competition in delivery. Uber Eats has announced that Franco Manca, The Real Greek & MeatLiquor will now be available to order on its app.
• Uber Eats competing with Deliveroo. The latter is half a billion in the hole. Will need to make a profit at some point. Can’t really raise prices
• Premium email: Power of Incentives, EBITDA (the big lie) continued, From the Archive, Deliveroo vs Uber continued
• Discounts: Bella Italia 40% off food, Prezzo the same. Pizza Express 25% off food etc. etc. Are you creating real customers?
• Small Batch Coffee reports Luke Johnson no longer a director of company. JDW increases prices for 5th time in 2yrs
• Wasabi in talks to sell stake. Co looking for funding. Late in lodging its accounts. You needs to make a profit at some point!
• Mrs May flies back from Europe waving a piece of paper & claiming victory. Been here before? Pulling wool over H of Commons’ eyes…?
START THE DAY WITH A SONG:
Yesterday’s song was Tiny Dancer by Elton John. Today, who sang:
Well, I got down on my knees,
And I pretend to pray
You know the preacher like the cold,
He knows I’m gonna stay
TOPICS FOR CONSIDERATION IN PREMIUM EMAIL:
• Thematic pieces including Pubs vs Restaurants, Delivery, Experiential Leisure, Crowd Funding, CVAs, Employemnt levels (& costs) etc.
• Occasional ‘deep dives’ into stocks (Pat Val, RTN etc.), trends etc.
• Book reviews. Black Swans, The Honest Truth about Dishonesty, Dark Pools, Lean Start Up, Smartest Guys in the Room, Client Nine, Black Edge, The Billionaire’s Apprentice, Thinking Fast & Slow, Wizard of Lies & many others.
• Accountancy, Audit & other, thrill-a-minute topics
• Behavioural economics. Over-confidence, Hofstadter’s Law, confirmatory bias etc.
• Other. Guest contributions, From the Archive etc.
RETAIL NEWS WITH NICK BUBB:
Morrisons: Today’s finals for the 52 weeks to Feb 3rd are headlined “Meaningful, sustainable growth” and with underlying PBT up 10% to £406m and total dividends up by 25% shareholders will have much to be grateful to management for. And McColl’s shareholders will be pleased to hear that Morrison’s wholesale arm is expected to begin supplying their remaining c300 convenience stores at the end of this year and that 10 stores are to be converted to Morrisons Daily stores, although this is not really new news and there is no sign of a takeover, as might have been implied by the excitable jump in the McColl’s share price last week.
Waitrose Watch: Trading at Waitrose was messed up last week by the later fall of Mother’s Day this year and yesterday morning’s JLP weekly overview reported a 8.8% drop in gross ex-petrol sales (c9% down LFL) in w/e March 9th. The first 6 weeks of H1 are now running down c1% LFL (down 1.1% gross).
John Lewis Trading Watch: Trading at John Lewis was also weak last week, as w/e March 9th was also 8.8% down gross (over 11% down on a “LFL” basis, excluding new stores like Westfield), thanks to the later fall of Mother’s Day/Easter this year. In terms of sales mix, Fashion/Beauty sales were down by 10.1% gross last week, Home sales were down 10.7% gross and Electricals were 6.3% down gross. John Lewis LFL sales are running nearly 5% down over the first 6 weeks of H1 (down 2.5% gross).
News Flow This Week: The Spring Budget statement by the Chancellor (who would be well advised to cut out the jokes) is out at 12.30, ahead of the key vote on a Brexit “no-deal” in the House of Commons this evening…Tomorrow brings the DFS interims and the Signet Q4 (in the US), together with the prestigious “Retail Week Awards” in the evening. And on Friday John Lyttle takes over as CEO of Boohoo.
TIPS Watch (2): The great 4-day Cheltenham Festival jumps racing started yesterday and our alter ego, “Honest Nick”, is bringing you his each-way Tips each day. On a day of shocks, the Irish horses started the day well, with top trainer Willie Mullins winning the first 2 races, with Klassical Dream (which had been one of our fancies) and Duc de Genievres respectively, but in big race at 3.30, the Champion Hurdle, the Irish favourite Apple’s Jade disappointed and then in the 4.10pm the “banker of the day”, the Irish horse Benie des Dieux, fell at the final fence with the race at his mercy… As for our “Three to Follow” (e/w), Glen Forsa fell early on in the 2.10 and Up for Review faded badly after look every inch the winner before a big mistake at the third last in the 2.50, but we are pleased to report that A Plus Tard won the 4.50 impressively, at 5-1. Turning to today, racing goes ahead