Langton Capital – 2019-04-08 – PREMIUM – Restaurant oversupply, discounts, Bookies etc.:
Restaurant oversupply, discounts, Bookies etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, we’ve found that one of the unintended consequences of keeping a bearded dragon is that the crickets you buy to feed it have a habit of hiding in its cage and then making a Godawful racket all night.
And this can activate the ‘problem-shared’ instinct in people who will wake you up at 3am to tell you that they themselves have been woken up.
You may then find yourself hunting around in a cage for a hopping insect that a lazy reptile has not had the gumption to catch itself. And this while avoiding scalding heat-lamps and other hazards which, though not deadly at most times of the day, are wont to catch out the unwary in the small hours of the morning.
All of this because I was wondering where that blister on the back of my hand had come from, I had thought it was all a dream. On to the news:
RECENT COMPANIES HOUSE REPORT & ACCOUNTS:
Numbers from Flyt (was flypay), EAT and London Union (late in filing its Confirmation Statement):
Flyt Ltd – full year numbers:
• Flyt is now a subsidiary of Just Eat. The latter has provided Flyt with guaranteed funding.
• Hospitality tech integration & management company Flyt, which co-ordinates payment methods via its platform, has reported numbers to 30 June 2018.
• These had to be lodged within 9mths, that is by end-March.
• The balance sheet shows that accumulated losses increased by £3m to £9.4m.
• The group saw shareholders’ funds decline to £2.2m – but it has raised funds subsequent to the June 2018 balance sheet date in August, October and December last year and in January this year.
EAT Limited – full year numbers:
• Eat has lodged accounts to June 2018 with Companies House. A synopsis of some of the trading figures were released to journalists last week. The ultimate parent is Villiers Topco Limited.
• Basic pre-released data included revenues (down c£4.3m) of £94.9m, EBITDA of £3.2m (2017: £4.3m) and an operating loss before exceptional items of £4.4m (2017: loss £5.0m).
• EAT has also announced that its parent company, Villiers Topco, made a loss on ordinary activities before tax of £17.3m. This is partly due to closure costs, but the parent company also lost £18,9m last year.
• The group of companies has accumulated losses of £19.8m.
• Subsidiary EAT had shareholders’ funds of negative £6.2m at its year end but EAT says that, post 28 June 2018, it raised £10m from other group undertakings. Whilst this helps, the group itself (see above) is arguably not in great shape.
London Union – first striking off notice:
• The Registrar of Companies wrote to London Union in a letter dated (oddly) 9 April 2019 to say that it was giving notice ‘that, unless cause is shown to the contrary, at the expiration of 2 months from the above date, the name of LONDON UNION PLC will be struck off the register and the company will be dissolved’.
• This is, most probably, a technicality due to the company’s latest confirmation statement now being more than two months overdue. This will, hopefully, be swiftly rectified.
FROM THE ARCHIVE: RESTAURANT OVERSUPPLY, THE EARLY DAYS.
Langton writing in 2006. Before the wheels fell off for the casual diners:
• As we mentioned last week, successful firms & concepts attract competition. Capital floods into a market but, due to a ‘ratchet effect’ (bricks & mortar, leases, management defending reputations etc.) it only trickles out. This means that oversupply can persist. We’re seeing this across the casual diners but was this foreseeable, was the writing ever really on the wall.
Langton writing in 2006:
• In the stock market, as in many other areas, if you’re too early, you’re wrong.
• Momentum can be a powerful thing and, for management having to deal with shareholders reading constantly about how this, that or the other thing is the best invention since sliced bread, it can be almost impossible to ignore.
• Less charitably, trend-following is easy and it can last for years and years meaning that, when we warned on overbuilding over a decade ago, we were several years too early.
• In our Oct 2006 piece ‘Restaurants – the ongoing land-grab’, we made the point that ‘with restaurant companies threatening to change hands at around £1.7m per restaurant (#Gondola), and costing between £600,000 and £750,000 to fit out, the temptation to expand as rapidly as possible is pretty obvious.’ Historical Note. Gondola was Pizza Express in an earlier incarnation.
• We continued ‘in an industry with relatively few barriers to entry, not many restaurant chains have resisted this temptation. #Carluccio’s looks to open 5 restaurants a year for example, #Tragus a dozen or more, #La Tasca 14 or so.’
• These, we feel obliged to point out, did not end well. Whilst they have recently made money for the CVA accountants and lawyers, they’ve done little for their equity-holders
More writing on the wall…
• We said (somewhat cynically but not incorrectly) operators were opening sites ‘either to 1) maintain their earnings growth or 2) to bulk up and to therefore make themselves more attractive either for an IPO or for a trade sale to a (usually) larger competitor.’
• The IPOs didn’t work very well either.
• We said the landlords were sitting back and banking cheques and pointed to ‘Chiswick, Putney etc’ as particularly crowded spaces
• Such high returns (build a restaurant for £700k and value it immediately at £1.7m) ‘were always bound to suck in new capital.’
• We said capital wouldn’t rush out in the way it had rushed in. We said ‘once built, restaurants tend to remain in place for several decades, ensuring that supply has been permanently rather than temporarily increased.’
• The next best use of a closed restaurant is, usually, as a restaurant. Oversupply persists.
• We pointed out that the market was not perfect. The £1.7m valuations should have fallen as new capital flooded in.
• But they didn’t. They held up and then crashed. We suggested ‘somewhere along the line, returns on capital would fall, L-f-L’s would do the same and, if the economy caught a cold, a lot of units would fall over.’
• Not wrong, that’s for sure. It’s just that it took a decade to come to fruition.
• More heuristics, it’s time we did a book review, comment on CVAs (are we seeing landlord push-back) & other.
GENERAL NEWS – PUBS & RESTAURANTS:
• Discounts continuing. Prezzo & Bella Italia 30% off mains, Café Rouge & Pizza Express 25% off mains, Domino’s 35% off orders over £30. Brewdog offering 20% off online orders.
• Bottomless brunches spreading to the evening with Café Rouge offering unlimited prosecco or beer from Friday to Sunday after 5pm.
• CGA together with Stone & River has researched into consumers’ favourite drinking and eating out brands and suggests that Greggs and McDonald’s ‘are sustaining their momentum in the on the go and quick service sectors, JD Wetherspoon leads the way in high street bars, while Mitchells & Butlers brands Stonehouse and Miller & Carter head the pack in pubs and restaurants, respectively.’
• CGA report identifies ‘convenience, service and differentiation as major drivers of brand momentum, and points to underinvestment and inconsistent location strategy as among the reasons as to why operators start to lose momentum.’
• CGA says ‘building momentum is so important for brands in the ultra-competitive world of eating and drinking out – but it can be very elusive to achieve.’ Stone & River says ‘our report shows a clear correlation between those brands that have invested in the customer experience, their proposition and their staff, and those performing more strongly in the report. With so many headwinds to contend with, investing in areas such as menus, staff and environment presents a real opportunity to achieve genuine differentiation with customers.’
• Leeds bars the Leeds Bierkeller, Shooters and Smokin’ Bar & Kitchen have closed after owners Leeds Entertainment Complex failed to agree a secure tenancy. Access Commercial Investors took the units over 5mths ago after previous owner Burning Night Group went into administration. A company spokesman is reported as saying ‘we had no advance knowledge and were given no warning of this and, as a result, everyone has been left in unnecessary limbo by the sudden closure.’
• The Spanish brewer Mahou San Miguel has acquired a majority stake in the US craft brewer Avery Brewing.
• Leon has stated that its recent menu revamp has resulted in a more than 20% uplift in sales in Q1 sales.
• Nearly 20,000 chefs are leaving the profession every year, approximately 10% of the UK hospitality workforce, a report from the Center for London think tank has found. Research manager Nicolas Bosetti said: ‘London’s restaurants and colleges need to cultivate local culinary talent to maintain and grow the city’s global and national reputation as a hub for culinary creativity and good food and benefit its workers’.
• Champagne shipments to the UK decreased by 1m bottles in 2018 to 26.8m.
• The Coaching Inn Group has seen sales increase 24% to £24.7m during the 52 weeks to 31 March 2019. The group reported EBITDA up just over £1m to £3.2m.
• JD Wetherspoon has opened the Windmill at Stansted Airport, costing £1.3m and seating up to 200 people.
• The BRC reports the biggest rise in shop prices in six years in March, with prices rising by 0.9% yoy. The driving force behind this increase was an acceleration in food prices, which rose 2.5% yoy.
• In the US, McDonald’s will shorten its late-night menu to improve service speed.
• Threadneedle, a major investor in Domino’s Pizza, claims the company has been too confrontational with its biggest franchisees. Threadneedle’s Philip Macartney says ‘It’s become adversarial between the franchisees and the company. It was a failing not to understand the franchisees’ concerns and pressures.’
• UKHospitality CEO Kate Nicholls says ‘Any measures the Government introduces to tackle at-till product restrictions should not extend to the hospitality sector…Hospitality businesses are, by and large, either adult or mixed environments. It would be unusual to see a group exclusively comprised of children in a restaurant and there are the obvious restrictions on unaccompanied children in pubs and bars.’
• BrewDog has acquired a craft brewery in Berlin from Stone Brewing, one of the largest craft brewers in the US. Stone blamed low beer prices in Germany for its exit.
• Moody’s reports that Constellation Brands’ announcement of the sale of some 30 wine brands to E. & J. Gallo Winery for $1.7 billion is credit positive. It says the sale ‘will help to accelerate debt repayment.’ Moody’s adds ‘debt is elevated following last year’s $4 billion step-up investment in Canopy Growth. We estimate debt to EBITDA leverage to be around 4.7x at its February 2019 fiscal year-end, slightly above our original expectations.’
• Crate Brewery has raised £535k of an intended £500k raise off a £12m valuation on Crowdcube.
• Sky reports that the executive who oversaw Weetabix’s £1.4bn sale to America’s Post Holdings has been approached about the top job at Premier Foods. Premier, which is currently undertaking a strategic review, has invited representatives from two of its ‘rebel’ investors – Oasis Management and Paulson & Co – onto its board. Sky quotes a ‘company insider’ as saying ‘the outcome of the review will determine what kind of chief executive the company needs.’
HOLIDAYS & LEISURE TRAVEL:
• ForwardKeys reports ‘Summer bookings from the UK to EU countries are lagging 4.6% on last year.’ Vice-president Olivier Ponti said ‘EU bookings to the UK slowed considerably in the first quarter of this year. Air bookings from the EU to the UK plunged.’
• Post Office Travel Money reports Sunny Beach in Bulgaria is the cheapest European resort for UK travellers. Portugal’s Algarve was next cheapest, followed by Marmaris in Turkey.
• The Bookies will be smarting after 4-1 favourite Tiger Roll won its second straight Grand National on Saturday, the first horse to do so in 45yrs. Bookies, when losing to regulars, can often bank on getting the money back over time. Given the one-off nature of many of the bets for the big race on Saturday, this is less likely to be case.
• Per Telegraph, Vue International will appoint JP Morgan as advisers to help refinance its £800m debt. The company pulled an IPO valued at £833m last year citing ‘unattractive market conditions’.
• Labour deputy leader Tom Watson cautiously welcomes plans from a leaked white paper to make tech and social media companies more accountable for harmful content. Mr Watson said the plans were ‘progress’ but there were still some gaps.
• Liberty Media, the US-based owners of Formula One, are reportedly nearing a deal to continue hosting the British Grand Prix at Silverstone. The owners of Silverstone, BDRC, had previously pulled out of its contract to host the Grand Prix, citing prohibitive staging costs.
• Merlin Entertainment has completed the sale of Hotham and Falls Creek to Vail Resorts.
FINANCE & ECONOMICS:
• The IMF has warned that fragility in the housing markets of either the US or China could drag the world into recession.
• The Halifax reported on Friday that British house price growth slipped in the first quarter of this year to 2.6% from 2.8% in the 3mths to Feb.
• The ONS has reported that UK workers’ productivity fell in Q4 last year, down by 0.1% on Q4 2017. Labour hoarding could be an issue. If companies are unwilling to invest in capital, they may invest in staff, which can be cut relatively easily.
• Sterling lower at $1.3068 and €1.1635. Oil back at 2019 highs at $70.63. UK 10yr gilt yield up 4bps at 1.12%. World markets broadly higher on Friday with Far East mixed in Monday trade.
• UK gilt yields hit what look to have been their recent lows around 31 March. This will not be helpful for any companies calculating their 3yrly pension liabilities at that date. The low gilt yields, although perhaps fleeting, will impact liabilities.
• Brexit, politics etc.:
o Tory Labour talks continue. Mrs May asked for end-June extension. Donald Tusk said to prefer 1yr. Philip Hammond says there are no red lines. Others apparently disagree. FT points out that EU27 solidarity has contrasted with a lack of consensus in either the House of Commons, the Tory Party, the Cabinet or even between the inhabitants of Downing Street.
o Default position in the absence of an extension is the UK leaves the EU on Friday at 11pm. Either that or it rescinds Article 50.
o Newbie Brexiter & No10 hopeful Jeremy Hunt says ‘a no-deal outcome is bad for the UK. It’s also very bad for the European Union.’
o France is said to be playing hard ball. General de Gaulle kept the UK out in 1963 and 1967. France now demanding ‘concrete plans’ as to what the UK wants to do. That would be refreshing.
START THE DAY WITH A SONG:
Last Friday’s song was I’m A Believer by The Monkees. Today, who sang:
Last Friday’s song was I’m A Believer by The Monkees. Today, who sang:
And that’s about the time she walked away from me,
Nobody likes you when you’re twenty three
And I’m still more amused by TV shows
TOPICS FOR CONSIDERATION IN PREMIUM EMAIL:
• Thematic pieces including Pubs vs Restaurants, Delivery, Experiential Leisure, Crowd Funding, CVAs, Employment 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:
• Saturday Press and News: The big Retail story in the Saturday papers was the news that the embattled Philip Green is risking the wrath of the Pensions Regulator by planning to halve the annual contribution to the Arcadia pension fund, as flagged by articles in the FT, the Guardian and the Times, inter alia. In terms of the continuing battle between Debenhams and Sports Direct, the FT flagged that #MadMike has made more bizarre legal threats to the Debenhams Board (“Ashley ramps up legal threats as Debenhams deadline looms”). Several papers picked up on the improved Co-op annual results reported on Friday, with even Lex column in the FT having a look at the way in which the Grocery Division has successfully focused on convenience stores and the Banking Division has been revamped. The Times flagged the profit warning from the second-hand car dealer Motorpoint on Friday and also
• Sunday Press and News: Apart from the second successive victory of the awesome Tiger Roll in the Grand National, the continuing battle between Debenhams and Sports Direct again filled plenty of column inches in the Sunday papers, with most of the papers reporting that #MadMike has made a last-ditch attempt to seize control of Debenhams by offering to underwrite a £150m rights issue…if they make him CEO immediately. And the Philip Green/Arcadia CVA story is still running, with the Sunday Telegraph flagging that he is planning to close many International stores as part of the restructuring. After the Superdry/Julian Dunkerton coup on Tuesday, the Mail on Sunday had an interview with the great man (“Days after a stunning coup, store chain founder lets rip…I’M BACK – now I can put right glaring mistakes at Superdry”). And the Sunday Times also had a feature on how the Superdry
• Today’s Press and News: The front pages today are full of photos of the victory of the 46 year old James Cracknell in the University Boat Race, along with the inevitable headlines about the continuing splits in the Tory party over Brexit (eg “Cabinet fury at May grows as long Brexit delay looms” in the Guardian), although City AM runs with the latest extraordinary development in the continuing battle between Debenhams and Sports Direct (“Ashley’s lie detector challenge”), which is also picked up by the Daily Mail (“Row between Sports Direct boss Mike Ashley and Debenhams breaks out over use of lie detector tests”).
• News Flow This Week: The Brexit madness continues this week, with both the main parties badly split on how to avoid the UK’s scheduled departure from the EU on April 12th without a deal, whilst #MadMike will have to make his mind up soon about what to do about supporting the Debenhams refinancing if the Board refuse his offer…Otherwise, we get the BRC-KPMG Retail Sales survey for March first thing tomorrow (with the outcome bound to be significantly depressed by the later fall of Easter). Wednesday brings the Tesco finals, the ASOS interims and the Dunelm Q3, whilst on Thursday we get the WH Smith interims.
• Quote of the Day: Here’s another insight from the English writer Samuel Richardson (1689-1761), which could also be worth dedicating to the Tory and Labour Brexit negotiating teams: “It is better to be thought perverse than insincere”.
• Quiz of the Day: on Friday, with the cricket season about to get underway, we asked another tough question from the recent Pub Quiz at The Counting House in Cornhill in the City (Which all-rounder made his England Test debut in 1999, having previously played for another country? He scored no runs, took no wickets and never played for England again) and another tough question from Monday night’s “University Challenge”: Born in Lubeck in 1646, Godfrey Kneller is known for his paintings of members of which political and literary society founded by bookseller Jacob Tonson? With members including Joseph Addison and Robert Walpole, the group’s name may refer to the mutton pies served at meetings. Answers: Gavin Hamilton and the Kit-Cat Club and well done to Stef B-B, Alexander B, Eric M, Jeremy W, Jack B, Jon H, Ed S, John F and Michael Z.
• Gavin Hamilton was born in Scotland in 1974 and made his first-class cricket debut for Yorkshire in 1994. He played very well for Scotland in the 1999 World Cup, which was hosted primarily by England, and on the back of those performances he was selected for the England tour of South Africa that winter. He played in the first Test at Johannesburg in November 1999, but had a nightmare match as England slumped to an innings defeat: he scored a pair, took 0-63 with the ball and did not hold a catch. He was dropped for the second Test and never played for England again, although he played for Scotland until 2010.
• The Kit-Cat Club was an early 18th-century club in London with strong political and literary associations, committed to the furtherance of Whig objectives. The first meetings were held at a tavern run by an innkeeper called Christopher “Kit” Catt. He gave his name to the mutton pies known as “Kit Cats” from which the name of the club was derived. The artist Sir Godfrey Kneller (1646-1723) was also a member and his 48 portraits in a standard “kit-cat” format of 36 by 28 inches, painted over more than twenty years, form the most complete known members list of the club. Many of these famous portraits currently hang in galleries created in a partnership between the National Portrait Gallery and the National Trust at Beningbrough Hall in Yorkshire. Kneller was knighted by King George I in 1715.
• Nick is currently in the US.