Langton Capital – 2019-03-22 – PREMIUM – Ed’s, Giraffe, branding, familiarity, UK wine, Brextension etc.:
Ed’s, Giraffe, branding, familiarity, UK wine, Brextension etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Smells can be very evocative.
We’ve got the builders in an office on our floor and, though I don’t know what they’re doing, I do know that the smell of sawdust & scorched wood (oil your saw, young man) takes me back to the woodwork rooms at school some billion years ago.
When times were simpler. You didn’t have to worry about mortgages, work deadlines, the kids’ schoolwork etc. but perhaps it wasn’t all rosy.
Teachers were wont to bash you with a big stick or hit you with a board rubber. You had to do your maths without a calculator, there were no mobile phones or laptops, the economy had crashed, unemployment had just passed a million (going up, rather than down), there were three-day weeks, the electricity was off in the evening and the government had latched onto going into the EEC as a remedy for some of our economic woes.
And then the sugar ran out. There were shortages, yes, but aah, those were the days. And, depending on how the government handles developments next week, we could all be taking a trip down memory lane pretty shortly. On to the news:
BRANDING VS INTIMACY; HOW TO PROCEED:
Should you brand and build scale, or remain intimate & build barriers?
• Branding removes uncertainty in the mind of the would-be customer. From the supplier’s point of view, it may provide a barrier to entry and allow premium pricing. The question is, when’s it appropriate and when is it better to offer a personalised service.
• Branding may be like an elephant. It’s easier to recognise than it is to describe. Guinness is a brand, but many things aren’t.
• The brand implies consistency, uniformity and the absence of surprises. It doesn’t not imply intimacy or personal touch.
• Products are arguably easier to brand than services. Beer, spirits, coffee etc. may be branded but with services one perhaps should be more careful because, as suggested, a degree of service is implied
It’s always more complicated than that…
• Whatever we say, the above is true. Therefore apologies for oversimplification.
• However, taking a spectrum from product to grab n go, QSR and white-table cloth restaurants, brands are more evident and bigger to the left and smaller or non-existent to the right
• So, food itself may be branded & packaged. Then Subway lends itself to branding, so do grab n go outlets such as Gregg’s & QSRs such as McDonald’s, Burger King, KFC etc.
• Casual diners are also branded but, here, consumers often want to have their cake & eat it, they want authenticity and branding – often claiming they want the former more than the latter
• This is a conundrum for RTN, MAB, Casual Dining Group and others.
• Where chains are large enough, fine dining is often unbranded (think Brunning & Price or Premium Country Pubs vs Frankie & Benny’s and Harvester)
The dangerous middle ground…
• There may be limits to branding – both in terms of the type of service that it is appropriate to brand, and the number of units that a true brand can support
• It’s probably no surprise that Subway, Gregg’s and McDonald’s have more units in the UK than does Pizza Express
• And Pizza Express (over 400 units) has more than most casual diners – and it is now finding itself embroiled in discounting etc. in order to retain trade
• We could go on here but time’s pressing.
FAMILIARITY BIAS – BEHAVIOURAL ECONOMICS No3: 22 March 2019:
We tend to overemphasise what we know, ignore what we don’t:
• We are hard-wired to spot patterns. That’s why Rorschach tests are used as they give an insight into what people are thinking. We often spot patterns that don’t exist. It helps in evolution. Best to jump away from a snake that doesn’t exist rather than step on one that does. The familiarity bias (a.k.a. availability bias or WYSIATI) means that, if your uncle’s shed burns down and a shed burns down in Carlisle, you spot a pattern and behave accordingly.
Incorrect focus in business:
• The availability heuristic means that behaviour is tempered by how easily a problem (or a solution) comes to mind.
• A beaten dog will snarl at any human despite that fact that 99.9% of us would not hit it with a stick. This can be a hard habit to break.
• Focusing on things that don’t exist is a business negative rather than a positive.
• An antidote is to have a good communication system where more junior members of a team are allowed (or encouraged) to state the obvious from time to time – such as the King has got no clothes on or double margins in a CAKE business are not sustainable over time
• The above comes out in many anecdotes. You can’t teach an old dog, for example. They’re ‘set in their ways’ or ‘we are always fighting yesterday’s wars’ (because we know what happened)
• The fact that the future is not as predictable as it will look when it is in the past (if you KWIM) is a factor of life.
• That’s why Freakonomics was a successful book when all it was doing, in reality, was looking for the not so obvious solutions to everyday problems
• Caution: Studying behavioural economics can lead to us falling into a behavioural economics trap – i.e. believing that issues are easily and tidily categorizable in a way that, really, they are not.
• More heuristics, comment on CVAs (are we seeing landlord push-back) & other.
GENERAL NEWS – PUBS & RESTAURANTS:
• Authentic Alehouses has brought its seven pubs to market after falling into administration. The group fell into administration after defaulting on a loan to refurbish the portfolio.
• WineGB estimates the industry will create an additional 20-30,000 jobs by 2040, generating an additional £648m in revenue per annum. Britain’s wine industry currently comprises of more than 500 vineyards and 165 wineries, yielding an estimated 15.6m bottles in its 2018 harvest.
• Per Food service equipment journal, Frankie & Benny’s will start trials of a simplified core menu as it looks to exit from 31% of its sites which are in what it calls ‘structurally unattractive’ locations.
• Per Morning Advertiser, JD Wetherspoon launches its new vegan burger in a bid to expand on its plant-based offerings.
• Next said it sees ‘no evidence that this [Brexit] uncertainty is affecting consumer behaviour in our sector’ as it reported flat profits for last year.
• Creditors approve Boparan’s CVA proposal which will see 27 Giraffe and Ed’s Easy Diner restaurants close. Boparan will also receive rent reductions at 13 sites.
• Shakespeare Distillery in Stratford-upon-Avon opens its doors to the public, offering tours and classes at its new Gin School.
HOLIDAYS & LEISURE TRAVEL:
• Silver Travel Advisor claims domestic tourism among over-50’s is a ‘big opportunity’ for agents, with domestic holidays being second in popularity after city breaks. Data revealed 42% of the age group stated a UK-based holiday or country-house hotel stay was their preferred type of holiday, up from 37% the year before.
• Motel One reports sales up 22% to €487m in 2018, with 71 hotels and 20,160 rooms in operation. The company reported EBITDA up 23% to €150m.
• Ski-Val ceases trading with ‘great sadness’, with the business licensed by the CAA to carry 4,170 Atol-protected passengers. The CAA’s Atol crisis management team has stepped in to assist customers.
• STR reports US hotel occupancy down 0.9% to 70.2%, ADR up 0.6% to $134.50 and RevPAR down 0.3% to $94.40 for the week ending 16 March.
• Stansted airport invests in facilities and staff ahead of a record-breaking summer season. Last summer, 8.4m passengers passed through the airport, reaching 10,000 in one day at its peak.
• The government moves to abolish landing cards and opens up the use of ePassport gates to an additional seven inbound markets. From June travellers from the US, Canada, New Zealand, Australia, Japan, Singapore and South Korea will be able to use the gates.
• Dover Harbour Board chief executive Doug Bannister warns travellers of potential disruptions in the run-up to Brexit. Dover handles 17% of the UK’s goods trade, worth more than £120bn, with around 2.3m tourist vehicles passing through the port every year.
• Spotify, Amazon Music and Apple Music made revenues of £468m in the UK last year, 54% of the £865.5m total income for the recorded music industry. Subscription streaming services grew by 35% yoy in 2018.
FINANCE & ECONOMICS:
• Bank of England’s MPC yesterday held interest rates (as expected) at 0.75% and keep the stock of government bonds repurchased at £435bn.
• High Street sales are holding up reports ONS. Could be some stockpiling ahead of what may be a hard Brexit next Friday.
• ONS reports net borrowing of only £200m in February, only a sixth of the level recorded in the same month last year.
• Sterling down at $1.3142 and €1.155. Oil down at $67.88. UK 10yr gilt yield sharply lower at 1.07%. World markets mixed. UK up, Europe down. US up but Far East mixed in Friday trade.
• Brexit & politics:
o Mrs May in Brussels, EU agrees two tier Brextension. If Mrs May’s deal is passed by the House of Commons, the extension is to 22 May in order to allow legislation to pass. If her deal is not passed, then the deadline is 12 April.
o At that point, the UK must ‘indicate a way forward’ i.e. ask for a long delay, revoke A50 or drop out with no deal.
o Will Mrs May’s presidential style backfire? Mr Trump can maybe pull off appealing over the heads of his rivals direct to the backwoodsmen that elected him but can Mrs May. Various MPs calling her delusional, disgraceful, toxic etc. would seem to think not.
o Telegraph says a government attempt to ‘reboot the UK car industry’ ahs stalled due to Brexit turmoil in Westminster
o The TUC and the CBI have jointly called upon Mrs May to prevent the UK leaving the EU without a deal. The bodies said the ‘current deal or no-deal’ approach must not be the only choice and add ‘a Plan B must be found – one that protects workers, the economy and an open Irish border, commands a parliamentary majority, and is negotiable with the EU.’
o Sky reports there have been ‘hundreds of gagging orders’ imposed by HMG to stop hauliers, government staff etc. talking about Brexit planning
o Business Europe has reported that EU planning for a hard Brexit also falls ‘short of what is needed to limit major disruptions’
PRIOR DAY LATER TWEETS:
• Gouging, upselling, premiumisation, call it what you will, is a late-cycle feature. We’ve got some of it now. But also discounting. Go figure?!
• Confirmatory bias – we are all at risk of believing our own blather – and that can end badly. Leads to echo chambers etc
• Provisions. The might protect the P&L but they do nothing to help cashflow. Can lead to profit >> cashflow for a number of years
• Stockpiling ahead of Brexit could lead to shortages, a top official at the Office for Budget Responsibility has warned. No kidding?
• Mrs May blames recalcitrant MPs for ‘delaying’ Brexit. Respect my authoritaay…Says she is on the side of the public. Whatever that means
• Sky poll: 90% of Britons think UK/EU negotiations are a ‘national humiliation’. CBI says UK manufacturing is ‘in despair’ re uncertainty
START THE DAY WITH A SONG:
Yesterday’s song was Basket Case by Green Day. Today, who sang:
It’s been too hard living, but I’m afraid to die,
Cause I don’t know what’s up there, beyond the sky
It’s been a long, a long time coming
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:
Planet ONS Watch: We flagged yesterday that, in the real world, Retail Sales were quite weak last month, as per the BRC-KPMG Retail Sales figures for February (the 4 weeks to Feb 23rd). But, amazingly, “seasonally adjusted” life was quite good on that mysterious parallel world, the Planet ONS (aka the Office of National Statistics), via yesterday’s official Retail Sales figures for February…As usual, City economists swallowed at face value the 0.4% rise in month-on-month seasonally adjusted sales volume, which was much better than expected. We focused, as usual, on the year-on-year non-seasonally adjusted sales value figures and the controversial split between Large and Small Businesses. Overall Retail Sales (ex-petrol) were said to up by 4.0% (after 3.5% growth in January), but the ONS reported 3.4% sales growth for Large Businesses and 5.9% growth for Small Businesses (a modest
News Flow Next Week: Next week will bring the final key Brexit vote in the House of Commons, ahead of Friday’s scheduled EU departure date…and we are escaping the madness by fleeing to the US on holiday. In Retailing we aren’t missing too much, although the Moss Bros finals and the MySale interims are on Tuesday. And with the end of the month/Q1 coming up quickly now, on the Economics front we get the CBI Distributive Trades survey for “March” on Wednesday and the monthly GFK Consumer Confidence survey on Friday…
News Flow In The Week After Next: The week after next, as April gets underway, is a bit busier, with the latest monthly Kantar/Nielsen grocery sales figures on Tuesday April 2nd, along with the Superdry/Julian Dunkerton EGM. The Topps Tiles pre-close and the Signet Q4 (in the US) are on Wed April 3rd. And the AO World Q4 should be out at the end of the week.
Trade Press: Retail Week magazine has not been published this week, but Drapers magazine is out today, focusing on Sustainability and the Editor in her column notes that “hosting the first ever Drapers Sustainable Fashion event last week highlighted how widespread the ambition is for fashion businesses to ensure a greener future”. In terms of News stories, Drapers highlight that Arcadia needs to jettison its ’tired’ brands (according to experts in the industry) and that JD Sports has ‘rescued’ its rival Footasylum. In terms of features, Drapers interview Carl Tennants and Mike Murray, “the men charged with elevating Sports Direct’s upmarket fascia, Flannels, into the world’s biggest luxury high street fashion retailer”
BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis were hit again last week by the calendar shift of Mothering Sunday, and the BDO High Street Sales Tracker for medium-sized Non-Food chains for last week, w/e Sunday March 17th, is muted. BDO Fashion Store sales were up by 1.6% LFL (including Online) and Total BDO LFL sales (including Homewares and Lifestyle sales) were up by 0.2% last week (down by 4.0% in Store sales and up by 8.9% Online).