Delivery, Pernod, TCG, Elegant Hotels, EZH, IHG etc.:

A DAY IN THE LIFE:

Well on the one hand, it’s raining, but on the other, it’s Friday.

Raining, Friday. Raining, Friday but, whilst the rain might stop by this afternoon, it’ll still be Friday so let’s put a positive spin on things and look forward to the weekend.

Indeed, by the time the rain stops it could be beer o’clock and tomorrow’s a big Saturday for our MPs and for the hundreds of thousands of voters being bussed into the Capital to shout at them, so let’s hope that it stays dry and that the acoustics remain good.

Anyway, time to recharge one’s batteries. On to the news:

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DELIVERY: The recent boycott of Wagamama outlets in Bristol by Deliveroo riders illustrates that, the more moving parts there are in a process, there more there is that can go wrong. 18 Oct 2019:

Introduction.

• Introducing delivery into the casual dining equation 1) introduces a new level of service. It lengthens the value chain and ensures that more money leaves the customers’ pockets. But 2) it also means that more can go wrong. See Premium Email.

GENERAL NEWS – PUBS & RESTAURANTS:

• Pernod Ricard has stated it may increase prices on spirits to counter US trade tariffs. The tariffs, approved by the World Trade Organization, include 25% duties on goods ranging from French wine to Scotch whisky.

• Pernod Ricard has seen demand growth in key markets like China and India decelerate. JP Morgan reported in a note: ‘Sales growth was 6% in China, compared to 27% in the year-ago quarter, with a notable decline in Chivas whisky sales due to challenging market conditions including the closure of some night clubs’.

• Pernod Ricard UK is hosting three ‘bartender dinners’ across the country on Christmas Day to allow those who work in the industry, but whose families may be abroad , to enjoy the day.

• The BrewDog Distilling Co has launched its first rum entitled Five Hundred Cuts Botanical Rum.

• The EU has cleared the CKA’s purchase of Greene King.

• The UK restaurant Market is set to decline by 3.1% to £18.8bn in 2019, the MCA has reported. Independents are expected to bear the brunt of this fall due to rising costs, strong competition and weakening consumer demand.

• Ego has opened its 20th site off Malvern Rd in Worcester.

• Stonegate, whose bid for Enterprise Inns is being investigated by the Competition & Markets Authority, has updated on its debt financing arrangements saying that Bidco has ‘entered into a second lien facilities agreement’ with a series of banks including Barclays, Deutsche Bank, Goldman Sachs & Lloyds amongst other lenders.

• The CMA has invited comment on the proposed purchase of EI Group to be submitted by 25 October.

• Pret A Manger has given many of its most popular sandwiches a vegan do-over, as the group reacts to the fast-growing demand for plant-based food.

• Big Mamma restaurant group plans to open its third London site in Covent Garden.

• Amber Taverns is converting a former Farmfoods retail outlet in Dumfries in what will be its third pub to open in Scotland.

• French group Danone has started to replace some plastic bottles with aluminium cans for local water brands in Britain, Poland and Denmark. However, by increasing recycling via cans, companies could fall back in efforts to reduce their carbon footprints.

• The Food & Drink Federation (FDF) has sent a letter to Theresa Villiers, the environment secretary, in which it called for the UK to maintain regulatory equivalence with the EU. The move comes over concerns that the government will ‘sacrifice’ British standards in order to secure post-Brexit trade deals.    

HOLIDAYS & LEISURE TRAVEL: 

• About 600 ex-Thomas Cook staff attended 25 open days by Tui, showcasing job vacancies.

• Jet2 adds 450,000 seats from Manchester airport for summer 2020 and 160,000 seats from Birmingham, taking the total number of seats from each airport to 3.3m and over 2m respectively. This additional capacity comes of the back of the Thomas Cook collapse.

• The above two stories provide further proof, if it were ever needed, that capacity is unlikely to come out of the holiday market for long. The planes, hotels, staff, shops etc. all still exist. The demand for holidays is still there too, meaning that any super-normal profits are likely to be fleeting rather than permanent.

• Intercontinental Hotels has reported Q3 numbers saying that it had increased the number of rooms in its estate by 4.7% this year so far – and it remains on track to grow by 5% over the year as a whole.

• IHG CEO Keith Barr reports ‘our continued strategic focus on driving net rooms growth enabled us to deliver a 4.7% increase in net system size despite a strong comparable. This will accelerate in the coming quarter and we are on track to deliver industry leading net system growth over the medium term. Third quarter Group RevPAR was down 0.8%, impacted by tougher trading conditions in the US and China, and ongoing unrest in the Hong Kong SAR.’

• Mr Barr concludes ‘despite the weaker RevPAR environment, and the challenges some of our markets are currently experiencing, we remain confident in our financial outcome for the rest of the year. Our broad geographical spread combined with the resilience of our asset-light, cash generative model, our disciplined approach to cost management and the continued execution against our strategic initiatives, positions us well for the future.’

• Geographically, REVPAR was down 0.6% in the Americas with REVPAR up by 0.2% in Europe, Middle East & Africa. The group says that London REVPAR was up 3% ‘driven by international inbound demand and the Provinces flat.’

• Elegant Hotels has announced that it is to be purchased by Marriott International in an agreed deal that values the group at $199m inclusive of debt or 110p per share. Although Elegant is not a large company, it becomes the latest in a sizeable line of leisure companies (GNK, EIG, MLC etc.) to be taken private of be purchased by competitors in the last year or so.

• EasyHotel, which is now majority-owned by shareholder ICAMAP (with easyGroup also a major holder) has updated on trading to the end of its September year saying that ‘despite the ongoing political and economic uncertainty facing the UK, the Group’s owned hotels have continued to outperform the UK Hotel Market on a like-for-like basis’.

• EasyHotel reports system sales +28% with revenue up 56% to £17.6m. Owned hotels’ REVPAR is up by 7.7% with franchised REVPAR down by 1.6%.

• EasyHotel reports ‘the UK Mid-scale and economy segment of the hotel market has continued to be impacted by the ongoing political and economic uncertainty.’ It says that ‘European markets have on the whole continued to outperform the UK [but] performance has been mixed on a country-by-country basis.’

• Re its Dividend Policy, EasyHotel says ‘the Board expects that the Group’s current dividend policy will be reviewed prior to the publication of the Company’s results for the year ended 30 September 2019. As part of that review the Board will consider whether it is appropriate to continue to pay a dividend whilst the Group’s activities and capital allocation priorities remain focussed on investing in and growing its hotel estate.’

• EZH CEO Guy Parsons says ‘the hotel markets have remained challenging in the second half of the financial year, particularly in the UK where we are seeing dampened consumer confidence.’ He adds ‘we don’t foresee any improvement to the trading environment in the medium term’ but says the company believes ‘the current economic uncertainties will present attractive investment opportunities to continue to expand our development pipeline in our target destinations, underpinning the long-term growth of the brand.’

• EZH now has less than 20% of its shares in public hands with ICAMAP at over 60% and EasyGroup at over 25%. The latter can prevent both a delisting and a compulsory purchase of shares not already owned by ICAMAP. It has indicated that it will do so.

• STR has reported that the US hotel industry saw occupancy fall 1.4% to 70.8%, ADR decline 1.2% to $131.38 and RevPAR decrease 2.6% to $92.99 for the week of 6-12 October.

• The latest figures from the ONS have shown that consumer spending in September fell 0.2%.

• Walmart has offloaded nearly £4bn of its Asda pension liabilities, removing a hurdle to a standalone stock market listing.

• Holiday Extras has acquired airport hotel and parking specialist City Hotel Reservations, alongside other recent acquisitions this move takes Holiday Extras over the £100m valuation mark.

• Marriott International has purchased the W New York – Union Square for $206m. Arne Sorenson, President and CEO, Marriott International commented: ‘There’s no better place than New York City to reveal to the world the future of our W Hotels brand, so we’re tremendously excited about this acquisition and the unique opportunity that it presents for our reinvention strategy’.

• Owner of the Savoy in London, Breezeroad Ltd, reports losses of £10.4m in the year to 31 December 2018, saying that overall performance during 2018 was ‘robust’, following a weak first half from the ‘fallout’ of four attacks during 2017. Revenue per available room (RevPAR) was £326, and occupancy for the year increased to 68%.

FINANCE & ECONOMICS:

• The Chinese economy slowed in Q3 in the face of the US-led trade war and softer domestic demand. The economy nonetheless expanded by 6% year on year.

• Sterling mixed at $1.2846 and €1.1548. Story was really about Euro strength and dollar weakness with Sterling in the middle. Oil up at £59.60. UK 10yr gilt yield down 2bps at 0.69%. World markets mixed.

• Brexit & politics:

o PM Boris Johnson yesterday claimed that a ‘great new deal’ had been struck with the EU re the UK’s departure.

o The DUP has said that it cannot support the deal in its current format. Johnson says ‘we’ve got a great new deal that takes back control – now Parliament should get Brexit done on Saturday.’

o The deal needs the support of around 19 Labour MPs if the Tory Party is unable to secure DUP support.

o Michel Barnier has said that much of the agreement thrashed out with Boris Johnson’s Brexit team is the same as it was a year ago.

o New IMF boss Kristalina Georgieva has suggested that the EU and UK parliaments should ratify the most recent Brexit agreement. She said ‘my hope for the next days is that the deal will holds in all quarters. So, let’s see whether that happens.’

o PM Boris Johnson has said he is confident that the deal will pass in the Commons on Saturday.

o The FT says ‘a second referendum on Brexit is unlikely, but still possible.’ It says most polls have Remain on 53% or so with Leave on 47%.

START THE DAY WITH A SONG:

Yesterday’s song was Otis Redding with Try a Little Tenderness, today who sang:

One step back you’re leaving it,

Now it’s moving on

Why won’t you believe in it

Till it’s gone?

RETAIL WITH NICK BUBB:

• Planet ONS Watch: We flagged yesterday that in the real world, as per the overall BRC-KPMG figures for September (the 5 weeks to September 28th), Retail Sales were disappointing last month, but “seasonally adjusted” life was OK on the High Street on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics in sunny Newport), via yesterday’s official Retail Sales figures for September…As usual, City economists (who still treat the very dubious ONS figures as the gospel truth) swallowed the flat month-on-month seasonally adjusted sales volume (up 0.2% ex-petrol), which was a tad better than expected, without digging any further. We focused, as normal, on the year-on-year non-seasonally adjusted sales value figures, plus the controversial split between Large and Small Businesses and the overall September +3.6% outcome (slightly up on the +2.8% in August) would
have looked rather worse for the surprisingly strong sales for Small Businesses (up by 7.6%, versus only +2.4% for Large Businesses). The rosy Small Businesses outcome was heavily skewed by implausible +10.6% growth for Small Food Businesses and +22.9% growth for Small Clothing Businesses…Unaccountably, but as usual, the wretched ONS did not think the contrast between Large and Small businesses worthy of any comment, but it did highlight the dull Online Non-Food sales growth of 4.0%, albeit Non-Store Retailers were up by 13.3% (the BRC-KPMG survey does not include the likes of Amazon). For an independent view of what Retail Sales were like last month overall, we await the verdict of the Retail Sales experts, Retail Economics, early next week.

• WH Smith: We also flagged yesterday that, given the strong final results and the exciting US acquisition, the £155m share placing would be well absorbed and we are pleased to report that WH Smith’s hard-working brokers were indeed able to place the shares at a 3% premium to the previous night’s close (and that the shares closed 6% up, having been 10% up at one point). WH Smith focused a lot on the agreed acquisition of the Marshall Retail Group in the analyst’s presentation. Art Marshall and Herb Rousso founded the gift and souvenir shop business in Las Vegas in 1955 and it was bought by the private equity firm Brentwood Associates in August 2014. WH Smith has been courting Marshall’s for 3 years and won an auction process to buy it from Brentwood. Marshall’s takes the fast-growing US business of WH Smith/InMotion into new markets like clothing/footwear and luxury brands and it fits
very well. And the mooted acquisition multiple of 10x EBITDA after synergies does not allow for all the recent airport store contract wins by Marshall’s (with 24 due to open next year alone).

• Grocery Market Share Watch Part 2: We highlighted on Tuesday that the latest Nielsen grocery sales figures (for the 4 weeks to Oct 5th) showed that overall supermarket industry sales growth slowed to +1.7%. However, the rival Kantar survey on the same day reported a slightly worse outcome of +1.0% for a similar 4 week period (to Oct 6th), on a “Till Roll” basis, with food price inflation drifting down. And on a pure “Grocery” basis (ex-Non Food) overall sales were only 0.8% up, according to Kantar, despite Aldi/Lidl growth of 7.9% combined. Tesco was the best of the “Big 4” on this basis, with gross sales 0.1% up, whilst Asda was 1.8% down gross, Sainsbury was down by 0.8% gross and Morrisons was down by 2.0% gross, but M&S Food was up by 2.4% gross.

• BDO High Street Sales Tracker: We noted on Wednesday that the John Lewis sales figures for last week were good again, because of extended Sale promotions, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting suspiciously good progress in recent months and could be over-weighting Online sales) is also good, helped by weak comps…In w/e Sunday Oct 13th, BDO Fashion sales were up by 5.6% LFL (including Online), vs -2.6% a year ago. And total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion) were up by 5.3% last week (up 4.0% in Store sales and up by 15.7% in Online sales).

• Trade Press: Retail Week magazine has not been published this week, but Drapers magazine is out today and the front cover is a graphic with the headline “Cutting Out Fashion’s Carbon Impact: In The Race To Clean Up, The Industry is in Danger of “Greenwashing””, to flag up the main feature on carbon offsetting in the fashion industry. Drapers also interview Mark Dransfield, the owner of Sandersons Boutique Store, which he believes has ‘returned a sense of pride’ to its hometown of Stocksbridge, in Sheffield. And Drapers have articles about the impact of a potential no-deal Brexit on fashion pricing and the key findings of last week’s Drapers Fashion Forum. In terms of News stories, Drapers lead with the news that independent retailers are feeling the pressure as struggling High Street chains further slash prices, marking the “deepest mid-season Sale in history”.

• News Flow Next Week:  The pace of company news slows down next week, but the Travis Perkins Q3 update on Tuesday will be interesting, given the warning yesterday from the Irish-based builder’s merchant Grafton about a recent trading slowdown. And Thursday brings the Shoe Zone pre-close update.

TRADING STATEMENTS & EVENTS:

Upcoming results are set out below:

• 17 Oct 19 Domino’s Q3 trading update

• 18 Oct 19 Intercontinental Hotels Q3 trading update

• 18 Oct 19 Coca Cola Q3 numbers

• 21 Oct 19 Gfinity FY numbers

• 22 Oct 19 Whitbread H1 numbers

• 22 Oct 19 G4M H1 update

• 22 Oct 19 On the Beach FY update

• 23 Oct 19 Texas Roadhouse Q3 numbers

• 24 Oct 19 C&C H1 numbers

• 31 Oct 19 Carlsberg Q3 update

• 5 Nov 19 Marriott Q3 numbers

• 6 Nov 19 Sajid Javid’s maiden Budget

• Est 7 Nov 19 JD Wetherspoon H1 update

• 7 Nov 19 Bank of England MPC interest rate decision

• 12 Nov 19 G4M H1 numbers

• 13 Nov 19 Coca Cola HBC Q3 update

• 14 Nov 19 Young & Co H1 numbers

• 20 Nov 19 SSP FY numbers

• 21 Nov 19 William Hill Q3 update

• 21 Nov 19 DART Group H1 numbers

• 21 Nov 19 Hotel Chocolat AGM

• 27 Nov 19 Marston’s FY numbers

• 27 Nov 19 Britvic FY numbers

• 27 Nov 19 On the Beach FY numbers

• 28 Nov 19 Greene King H1 numbers

• 4 Dec 19 Loungers H1 numbers

• 4 Dec 19 Stock Spirits FY numbers

• Est 6 Dec 19 EasyHotel FY numbers

• 12 Dec 19 TUI Group FY numbers

• Est 12 Dec 19 Fulham Shore H1 numbers

• 12 Dec 19 Fuller’s H1 numbers

• 13 Dec 19 Hollywood Bowl FY numbers

• 19 Dec 19 Bank of England MPC interest rate decision

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