Langton Capital – 2019-10-16 – PREMIUM – Loungers, Pizza Express, Mexican units, Deliveroo etc.:
Loungers, Pizza Express, Mexican units, Deliveroo etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I’m sure we could do something to simplify spelling.
I mean double letters, for one thing, can be included in some words and not in others. That could be done away with whilst the letters C and Q could be replaced by K (or S), by Kw.
And Y could be replaced by either Ee or the dipthong Eu (at the beginning of a word – like ‘Europe or Eulogy rather than Youth) and X could be replaced by either Ks at the end of a word or Z at the beginning, Ph could be dropped altogether and all those Es at the end of words could be dropped if we stuck an umlaut over long vowels and left them unchanged when short.
I can’t get an umlaut on the letter E but these suggestions cum from sumwon hü lernt tö reed via ITA in the 60s. But we’d have an alphabet of 22 letters that were used consistently. Just a thought. Anyway, with our politicians watching their minions slaving away through the Brussels’ night – it’s almost as though this is being choreographed to prove how hard they are working – let’s get on to the news:
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Part I (of II) on MEXICAN RESTAURANTS: The Guardian reported in 2015 that it was ‘burritos with everything as Britain falls for Mexican food’. A no-brainer? Or a no-brainer for exactly the opposite reason to that implied? 16 Oct 2019:
• Chicken, pizza and burgers. Chicken, pizza and burgers. Chicken, pizza and burgers etc. etc. but operators get bored of the tried and tested scalable concepts.
• They perceive the opportunity for a major new niche and that’s how the we end up with the odd Madagascan halal vegan tapas bar setting up.
• But that’s a bit trite.
• Indian and Chinese concepts could scale. But it’s always been challenging. Ditto with Spanish tapas but Mexican restaurants scale successfully in the US – so why not here?
• Putting aside the fact that there is a large Hispanic population in the US, that’s still a fair question: why not?
• Certainly, that must have been the question that many operators were asking themselves five years ago because, as the Guardian wrote, in 2015, the ‘UK is riding a Mexican culinary wave with burrito outlets now the fastest growing type of eatery on the high street.’
• It said that ‘in the last year alone, the number of Mexican restaurants, led by brands such as Wahaca and Barburrito, has risen by 71%.’
• Other operators included then or include now Tortilla, Chiquito’s, Chipotle, Chilango and Wrapchic alongside smaller operators such as Benito’s Hat and The Burrito Kitchen Ltd
• Mexican outlets beat ‘better burgers’ into second place in terms of scale but the question that perhaps should have been asked was ‘is this growth demand led or supply driven’?
• CBRE said in 2015 that grab n go outlets had grown even more rapidly. It said that burrito outlets had expanded by 57% per annum in the five years to 2015.
And more expansion…
• Perhaps the gloss was beginning to rub off by 2019.
• However, the latest (2019) CGA and AlixPartners Market Growth Monitor reports that the number of Mexican restaurants is up by 49% since 2013 ‘thanks to the expansion of chains including Tortilla, Wahaca and Barburrito.’
• The report says: ‘the rise of branded Mexican restaurants shows the appeal of bold, spicy flavours.’ It doesn’t speak to the profitability or otherwise of the chains concerned.
• The Growth Monitor says: ‘many Mexican brands have also benefited from factors of convenience and location, which CGA data consistently shows to be big drivers of restaurant choice.’
• Conveniently located sites are expensive. Five Guys, MOD and others have been busily bidding up the price of some venues.
• Away from the Mexico theme, the Growth Monitor says that the number of Thai chain restaurants has more than doubled since 2013. It adds ‘another big winner are US-themed restaurants, whose number jumped 73% between 2013 and 2018, with barbeque and burger concepts among the biggest drivers.’
• Langton’s three-mile walk (St Paul’s to Holborn to Aldwych to St Pauls) compared the number and type of outlets in 2006 with the position in 2016. The number of units had risen by c80% with East Asian grab n go showing the fastest expansion.
• If anyone would like a copy of that note, we could dig one out from the attic for the price of a case of beers.
Tears before bedtime?
• When a market becomes saturated, we’d question just who the ‘big winners’ – as the fast-expanding operators were labelled in the CGA report – are.
• Certainly, the operators might win a gong for ‘best break-neck expansion of 2019’ or whatever but are the winners the customers, who have to walk 100yds less to access a coffee shop, pizzeria or Mexican restaurant?
• Because we would suggest that the ‘winners’ should not include investors that have funded the units and the creditors that take a bath in any subsequent CVA.
• Perhaps the CVA accountants and lawyers are winners. But busted chains reflect the failure of the market to supply what customers want at a price they are prepared to pay (with an acceptable cost structure).
• The characteristics of a failure to do the above would be low LfL sales, discounting, CVAs and ultimately administration and liquidation.
• Tomorrow, we’ll brave the red ink and will have a quick look at just how the nine Mexican chains mentioned above have been getting on.
GENERAL NEWS – PUBS & RESTAURANTS:
• Loungers has updated on trading for the 24 weeks ended 6 October 2019 saying that both its brands ‘have traded well throughout the period’ and its units are ‘continuing to resonate with customers.’
• Loungers reports ‘total revenue for the period was £79.8 million, representing total revenue growth of 22.0% over the prior year, and the Group delivered like for like sales growth of 5.4%.’ The group’s estate is maturing. It delivered LfL sales growth of 6.0% in FY18 and 6.9% in FY19.
• The group has opened 10 new sites in H1 (comprising eight Lounges and two Cosy Clubs) taking the portfolio to 156 sites as at 6 October 2019. Loungers should have four more units open by the end of October. It says ‘the Group is on track to open 25 new sites in the financial year and the pipeline remains strong.’
• Loungers’ CEO Nick Collins reports ‘both Lounge and Cosy Club have continued to perform well, reflecting the growing appeal of our customer offer in the communities in which we serve.’ Mr Collins says ‘our broad, value for money proposition across multiple occasions underpins the resilience of our trading and leaves us well placed to continue to outperform the market.’ He concludes ‘we remain confident of delivering another year of positive progress for the Group and are encouraged by the performance of our new openings.’
• Pizza Express has denied that it is planning to close restaurants over debt fears and has reiterated that the majority of its branches are profitable. The Telegraph reported that the group was considering a CVA in order to close stores that aren’t making money.
• Pizza Express has suggested that only 5% or so of its stores are actually losing money. That would represent a very small tail by ‘normal’ standards as we understand them. This would be a particularly low number for a chain that had been in existence for as long as PE has.
• It is virtually impossible not to make mistakes. And good units one year can become bad over time as pedestrian flows evolve etc. With 25yr (or even 15yr leases), many of these failed units will stick with the operator (unless they can be passed on to a bigger fool) and having a few on the books, certainly more than 5%, is not necessarily an indicator of a ‘failed’ operation as a whole.
• Some 80 Deliveroo riders have staged a boycott of Bristol’s Wagamama restaurants, due to anger over the length of time Wagamama staff allegedly take to prepare food for delivery.
• The Food and Drink Federation has responded to the Queen’s speech, commenting: ‘In the event of a no-deal Brexit, it is essential that the Government’s immediate post-Brexit EU immigration plans are not changed again as they are important transitionary measures, and businesses and EU citizens have been planning on this basis. We welcome the strengthened commitment to EU citizens resident pre-Brexit, having the right to remain in the UK’.
• AB InBev’s Budweiser Brewing Group UK & Ireland subsidiary has announced that it will introduce its Mexican beer brand Corona on draught across its pubs and bars from this month.
• D&D London is reportedly looking overseas for future growth, in order to make the group less reliant on the UK market. In a financial statement the group reported a disappointing early summer in 2019 and remained cautious as uncertainty continues with Brexit. Des Gunewardena, chairman and chief executive of D&D London said: ‘Despite the highly competitive trading environment and cost pressures we had another successful year growing both revenues and earnings. 20 Stories in Manchester had a stellar first year. We were also pleased with our New York openings, particularly Queensyard at Hudson Yards which is already established as one of our busiest restaurants’.
• The government has committed to bring new legislation to ban employer deductions from tips.
• Research from online review specialists, Feed It Back has found that consumer expectations around food quality in pubs bars has soared between February and September 2019. The group discovered that bad reviews left around food quality increased by 10% in the last seven months.
• Slapfish, the US based seafood shack brand, has opened its first UK store in Kentish Town, London.
• Leon launches its 14-strong grocery range into Sainsbury’s, with plans to launch more products ‘in 2020 and beyond’. Leon branded items will include: Aioli; The Original Mayonnaise; Ketchup; Chilli Sauce and others.
• Cake Box reports sales will by up 6% in H1 to £8.8m after opening nine new stores in the period. LFL sales were up 6.9% yoy, but shares fell 2.9% as the update showed a slowdown in new store openings, down from 10 openings in H1 last year.
• Zonal appoints Emma Causer, formerly Group Sales Director at BT Sport, as Group Sales and Marketing Director.
HOLIDAYS & LEISURE TRAVEL:
• The European Commission approves a €380m rescue loan to keep Condor, Thomas Cook’s German airline, flying. The Commission said it ‘found that the measure will help ensure the orderly continuation of flight services, in the interest of air passengers.’
• Bolt, a ride-hailing app, will introduce an XL category to cater for larger families and groups travelling in London. Bolt, formerly known as Taxify, is an on-demand transportation platform with over 25m users in 30 countries.
• NYC & Company is collaborating with operators and airlines to deliver a $20m promotional campaign, offering packages and flight-only deals in a bid to boost arrivals in the first quarter of 2020.
• UK airports are aiming to expand nearly three times faster than the government’s climate change advisers say is sustainable.
• MGM Resorts has divested property valued at $5bn, which will see the iconic Las Vegas properties pass to the Blackstone Group.
FINANCE & ECONOMICS:
• The ONS has reported that the UK unemployment rate rose unexpectedly to 3.9% in the quarter to end-August from 3.8%. The ONS says employment growth has ‘cooled noticeably’. It says ‘the UK labour market showed signs of slowing in the three months to August 2019.’
• The ONS has reported that average weekly earnings rose by 3.8% y-o-y in the three months to end-August. This is slightly below the 4.0% expected but well above the inflation rate of 1.9%.
• The NIESR says its ‘Wage Tracker indicates that regular earnings growth will have stabilised at an annual rate of 3.8 per cent in the third quarter and is expected to remain largely unchanged in the fourth quarter.’ It says ‘while sectors engaging in international trade increasingly face difficulties, also affecting hiring and pay, domestically active service sectors are so far withstanding the economic challenges.’
• The SMMT says that the car industry in the UK has ‘wasted’ more than £500m in preparations for Brexit. Honda and Ford have insisted that it isn’t Brexit that has led them to shut factories in Swindon and Bridgend respectively.
• The IMF has cautioned that the global economy is growing at its slowest pace since the financial crisis. Global growth should be 3% this year, down from the July forecast of 3.2%. The IMF blamed the slowdown on trade disputes, Brexit & geopolitical concerns. It expects the UK to grow at 1.2%.
• Sterling up on Brexit deal hopes at $1.2755 and €1.1564. Oil unchanged at $58.90. UK 10yr gilt yield up 5bps at 0.70%. World markets up yesterday with UK unchanged. Far East up in Wednesday trade.
• Brexit & politics:
o Brexit talks continuing. Customs’ Union possible down the middle of the Irish Sea, a deal that Mrs May said no British prime minister could accept. Guardian quotes a ‘diplomatic source’ as saying ‘Northern Ireland would de jure be in the UK’s customs territory but de facto in the European Union’s.’
o Michel Barnier has said that an agreement is possible this week ‘but increasingly difficult’.
o Jacob Rees Mogg has said that he cannot confirm whether or not Saturday’s Commons sitting for MPs will go ahead or not.
o The National Audit Office has reported that the flow of goods across the UK-EU border could be cut by more than half in the event of a no-deal Brexit. As things stand, a no-deal Brexit is rendered impossible, at least until January next year, by the Benn Act.
o The FT suggests ‘the EU will be most reluctant to sign a zero-tariff trade accord with the UK, if London continues to demand the right to diverge in this way from EU standards.’ Such discussions could take many years.
o EU criticising ‘cherry-picking’ again in all but name.
START THE DAY WITH A SONG:
Yesterday’s song was the still-wonderful Fools Gold by the Stone Roses. Today who sang:
I’m a boy,
And she’s a girl
With more charm than most movie stars
RETAIL WITH NICK BUBB:
ASOS: Ahead of the ASOS finals today (for y/e August), the shares were down a bit yesterday, despite the very firm uptrend elsewhere in the sector, as if something might be amiss, but there is no new bad news, on the face of it. The PBT outcome of only £33m is in line with the profit warning back on July 19th, after heavy “transition costs” and management talk of a “solid” finish to trading last year and the start to the new year. There is no specific guidance on profits in the outlook statement, but Nick Beighton, the embattled CEO, says “Having identified the root causes of our operational issues, we have made substantial progress over the last few months in resolving them. Whilst there remains lots of work to be done to get the business back on track, we are now in a more positive position to start the new financial year”. It’s hard to see the shares rallying too much first thing on
Waitrose Watch: Trading at Waitrose picked up last week, as yesterday morning’s JLP weekly overview, for w/e Oct 12th, revealed that Waitrose saw a rise of 1.6% in gross ex-petrol sales, perhaps due to the more autumnal weather, after a weak start to H2…That left the last 37 weeks still down, by 0.7% gross cumulatively, but store space is fractionally down (after the sale of five Waitrose stores in June and more disposals this month), so that the LFL sales picture won’t look as bad (the LFL sales dip was only 0.4% in H1).
John Lewis Trading Watch: The autumnal weather also helped John Lewis again last week, but it was more discounting that really pushed overall gross sales in w/e Oct 12th up by 11.9%, as the recent “20% off Sale” promotion in Home was extended to Fashion…In terms of sales mix, Home sales were up by 13.8% gross, Fashion/Beauty sales were up by 13.7% gross and Electricals were up by 9.5% gross. The new Cheltenham store opened last October is now nearly LFL, so there is little new space in the figures, but overall John Lewis LFL sales, however, are down by c1.5% over the last 37 weeks, despite the jump in the last two weeks: gross sales are now running down by 0.9% cumulatively (the H1 LFL sales fall was 2.3%, with Online sales “broadly flat”).
Grocery Market Share Watch: The latest monthly Kantar/Nielsen grocery market share figures (for the 4/12 weeks to Oct 5th/6th) came out at c8am yesterday morning and the Kantar survey was headlined “Supermarket sales growth accelerates”, flagging, inter alia, that Sainsbury’s has returned to growth and that the food price inflation rate has edged down from 1.0% to 0.8%. However, the rival Nielsen survey was headlined “UK supermarkets need to increase advertising and promotions to encourage consumers to spend”, highlighting that industry growth slowed to +1.7% in the last 4 weeks, after 2.2% growth in the previous 4 weeks. The Kantar survey focuses on the last 12 weeks and we hope to bring you the separately disclosed 4 week figures (which the City focuses on) tomorrow.
News Flow This Week: Tomorrow brings WH Smith finals are on Thursday, along with the ONS Retail Sales figures for September and the Watches of Switzerland AGM.