Langton Capital – 2019-04-25 – PREMIUM – Competitive socialising, CDG, Fuller’s, minimum pricing etc.
Competitive socialising, CDG, Fuller’s, minimum pricing etc.
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Easter is still upon us & bits of Langton are scattered across Europe. The email this week could be a little shorter than normal. On to the news:
COMPETITIVE SOCIALISING: We may have reached ‘peak stuff’. Also, younger consumers are drinking less. The search is on for alternate sources of income: does competitive socialising fit the bill? 25th April 2019:
• We may have enough physical clobber. We might want to drink less but is competitive axe-throwing down the pub the answer? Skittles, darts & dominoes (a.k.a. pub games – the clue is in the name) have been around for decades, what do ping pong, golf, hi-tech darts & the rest bring to the party?
How did we get here?
• People have reached ‘peak stuff’. In addition, it is unrealistic for young people to save for a house in central London or a car therefore they are spending this money on experiences
• It’s arguably easier to charge premium prices for experiences as they are inherently difficult to value
Where are we now?
• Competitive socialising venues have popped up all over the UK. People drink, eat and play games
• Darts – Flight Club, bowling – All Star Lanes, Mini Golf – Swingers, Board Games – Draught Cafe…
• These groups may be touching upon the zeitgeist, but are they making money? Not according to Companies’ House
What does it mean?
• Venues are turning to events to differentiate themselves. Laines Pub Co has introduced VR games & escape rooms into its pubs
• Young people are drinking less. They are turning to night out activities as an excuse to socialise with mates
• Social media one-upmanship is another driver for novel experiences. Venues need to make sure their events are instagrammable
• But the excitement around any particular event may be short lived or faddy
• Meaning that investing long term capital is tricky. We will remain vigilant for opportunities
A bit of lateral thinking:
• Competitive socialising does have some of the hallmarks identified in Craft Brewers earlier in the week and in Casual Diners for some time now
• Capital is flooding in, profits are not being generated
• There will be losers as well as winners. Indeed, at the micro level, there could easily be more of the former than the latter
• But the whole area does highlight the flexibility and adaptability of pubs
• They can offer accommodation, games, a place to chill out etc. whilst restaurants, as mentioned before, do not
GENERAL NEWS – PUBS & RESTAURANTS:
• Casual Dining Group has announced that current chief operating officer, James Spragg has become the group’s CEO. Rooney Anand, chairman, said: ‘I am delighted to announce this appointment and to welcome James to the board. We conducted an extensive search and selection process that left us in no doubt that James is the right leader for this company’.
• Fullers yesterday announced that the resolutions approving the sale of the Company’s entire beer business to Asahi Europe Ltd were approved at the necessary shareholders’ meeting by way of a show of hands.
• The Institute of Economic Affairs has suggested that minimum pricing per unit of alcohol is ‘paternalistic, regressive & seemingly ineffective’.
• The IEA reports on minimum pricing a year after it was introduced in Scotland at a rate of 50p per unit and ahead of its likely imposition in Wales. The academics dismiss other academic research saying ‘since no country had previously introduced Scottish-style MUP, a computer model devised by researchers at Sheffield University has been used to give the idea the veneer of “evidence-based policy”.’
• Whilst apparently expressing an opinion rather than quoting evidence, the IEA ridicules claims that a ‘50p unit price would lead to exactly 58 fewer alcohol-related deaths, 1,299 fewer alcohol-related hospital admissions, and a 3.5 per cent decline in alcohol consumption — all in the first year.’
• The IEA says that, whilst some problem drinkers may ‘sober up’, it is ‘more likely that heavy drinkers will switch to different beverage categories, drink less in the on-trade (where alcohol is even more expensive), cut down on other outgoings, and/or switch to illegal intoxicants.’
• Claims that a minimum price for alcohol is regressive is hard to refute. Almost all flat-rate taxes are regressive. But, as the problem is related to consumption rather than income, this is perhaps not a convincing reason to abandon minimum pricing.
• Sainsbury / ASDA merger off. Sainsbury says ‘the specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1 billion out of customers’ pockets.’ The company concludes ‘Sainsbury’s is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible.’
• Technomic has reported that ‘emerging channels’ of delivery continue to cause problems for bricks & mortar restaurants. Technomic reports ‘while usage of emerging channels is still low overall compared to traditional foodservice segments, strong appeal among younger consumers and continued nationwide expansion by these channels means increased competition for restaurants moving forward.
• Technomic says ‘restaurant operators will have to pick and choose how to compete as variety and uniqueness are currently competitive advantages for emerging channels.’ It says ‘moving forward, watch for restaurants to turn the tables by utilizing certain emerging channels to expand their own brands, which some have already done by offering meal kits and creating their own branded food trucks.’
• Technomic reports 78% of survey respondents saying that they ‘at least somewhat agree that food halls often introduce them to dishes they’ve never tried before.’
• More chatter that Majestic could sell all of its retail outlets. The group has indicated that its bricks & mortar presence is under review.
• The founders of Real Food Festivals are set to open a new independent market at Battersea Power Station, named River Walk Market.
• Comedian Joe Lycett has forced Uber Eats to review it’s after demonstrating how easy it is to set up and serve food on the app. Joe’s new show ‘Got Your Back’ has accused delivery apps of listing restaurants with zero hygiene ratings. An Uber spokeswoman said: ‘Uber Eats takes food safety very seriously. All restaurants who partner with Uber Eats must comply with UK food safety laws and regulations, which includes being registered with their local authority’.
• The Irish whiskey distiller Bushmills has been granted planning permission to expand its production capacity with a second distillery at its current site in |County Antrim.
• A study from the University of Michigan has found that meal kits are greener than supermarkets, as it offsets extra packaging and reduced food waste.
• Ei Group has invested £3m into refurbishing and maintaining its pubs across the West Midlands over the last six months.
• Domino’s Pizza Inc in the US has reported Q1 LfL growth of 3.9%. The results are the 32nd consecutive quarter of same-store sales growth. Revenues rose by 6.4% to $836 million, from $785.4 million the same quarter the year prior. Net income was $92.7 million, or $2.20 per share, up 11.1%.
• Domino’s Inc CEO Ritch Allison says, however ‘I am not happy with recent international comps performance. One area we plan to step up is in the use of and reliance on customer insights and data.’
• Dominmo’s Inc has 16,114 stores globally, though many of these are franchised to regional brand operators.
• Chipotle Mexican Grill has reported LfL sales +9.9% in Q1. CEO Brian Niccol reports ‘we had a lot of things working in unison that are building nicely on top of each other.’ Q1 sales rose 13.9% to $1.3bn.
• NRN in the US reports that ‘the tight labour pool is forcing chains to find creative ways to fill jobs including McDonald’s, which launched an unprecedented collaboration Wednesday with AARP [a pensioners’ organisation] aimed at filling 250,000 summer jobs with adults over the age of 50.’ McDonald’s reports ‘young adults typically prefer not to work that 5 a.m. shift.’
• Moody’s reports that Constellation Brands’ agreement with Canopy Growth Corporation to modify certain warrants and other rights is credit positive
HOLIDAYS & LEISURE TRAVEL:
• UKHospitality has shown its support for the home-sharing registration scheme to tackle rogue landlords. UKHospitality Chief Executive Kate Nicholls said: ‘A registration scheme to ensure fair letting of residential property is exactly what we need to tackle rogue businesses and provide fairness. UKHospitality has been calling on the Government to do more to provide transparency in the home-sharing sector, including introducing such a scheme’.
• Research from C&M Travel Recruitment has found that the travel sector has been struggling to recruit new staff due to a shortage of available candidates. The number of new job seekers in March dipped year-on-year despite the average new hire pay in the sector increasing 4.15% to £27,579.
• Fewer than half a million Brits are expected to sign up to Amazon Prime this year, as the tech giant competes for customers with Netflix.
• Wages across the English Premier League rose by £400m last season to £4.8bn.
• Tesla has reported a Q1 loss of $702m. It has $2.2bn in cash. The group plans to deliver between 360k and 400k cars this year.
• eBay has beaten expectations with net revenue increasing 2.4% to $2.64bn in Q1 ending 31 March.
FINANCE & ECONOMICS:
• NIESR reports that investment is being deferred across the UK and the outlook remains uncertain. The body is looking for GDP growth of around 1.5% both this year and next.
• NIESR expects CPI to remain at around 2%.
• Sterling little changed at $1.2905 and €1.1568. Oil $74.69. UK 10yr gilt yield down 4bps at 1.18%. World markets mixed. London set to open about 10pts higher.
• Government borrowing in the last financial year was at its lowest level in 17yrs per the ONS. The amount of borrowing, some £24.7bn, was £17.2bn down on last year but still slightly above OBR forecasts. Borrowing was 1.2% of GDP, down from nearer 10% during the financial crisis.
• The government has begun the search for a new Governor for the Bank of England to take over when Mark Carney steps down in January next year.
START THE DAY WITH A SONG:
Yesterday’s song was ‘Girls and Boys’ by Blur, today who sang:
I wish I had a bottle,
Right here in my dirty face to wear the scars
To show from where I came
RETAIL NEWS WITH NICK BUBB:
Sainsbury/Asda: And the CMA’s final verdict on the Sainsbury/Asda deal (after provisionally giving it a massive thumbs-down back on Feb 20th) is that…it should be blocked completely: “we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers. We have concluded that there is no effective way of addressing our concerns, other than to block the merger”. In response, Sainsbury’s, Walmart and Asda have “mutually agreed to terminate the transaction” (rather than appeal) and the statement from Sainsbury’s CEO, Mike Coupe, is reasonably dignified: “The specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking
Carpetright: The embattled Carpetright is now running up against very soft comps from the CVA disruption last year (this time a year ago it announced a 10.5% slump in UK LFL sales in the final quarter), so in today’s pre-close update it has been able to say that the downtrend has improved significantly. Wilf Walsh, Chief Executive, says: “This has been a transitional year for Carpetright and we remain on track both with our recovery plan and our strategic initiatives”.
John Lewis Trading Watch: After a rough time with the Easter comps against last year (Easter Day was April 21st, compared to April 1st last year), the calendar shift is still unwinding and trading at John Lewis looked good last week, as sales in w/e April 20th, according to yesterday morning’s JLP weekly overview, were 10.6% up gross (over 10% up on a “LFL” basis), but the outcome would have been better but for the very hot weather at the end of the week . In terms of sales mix, Fashion/Beauty sales were up by 9.3% gross last week, Electricals were 10.2% up gross and Home sales were up by 11.6% gross. John Lewis LFL sales are still, however, running over 4% down over the first 12 weeks of H1 (down 2.9% gross).
Waitrose Watch: Trading at Waitrose was clearly boosted last week by the later fall of Easter and the hot weather, as they reported a 20.0% bounce in gross ex-petrol sales in w/e April 20th. The first 12 weeks of H1 are now running flat gross (broadly flat LFL).