Langton Capital – 2019-11-11 – PREMIUM – October Tracker, Deliveroo, Gregg’s, food prices etc.:
October Tracker, Deliveroo, Gregg’s, food prices etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
It’s dawned on me recently that we’ve been fortunate enough to have lived in some beautiful cities (York, Cambridge, London, Geneva, Hull) but have rarely taken the time to open our eyes and wander around them as a tourist might.
And that’s a shame because, when visiting Oxford or wherever as a tourist, it’ s easy to ooh! and ah! without stopping to consider that Cambridge is very similar but just, well better and that Rome, Milan and Turin have simply got nothing on Hull.
At least that’s the way that we’ve chosen to interpret our view of reality in this post-truth, fragmented news world.
Others may differ though, whilst we would deny that we live in a bubble, we don’t see how they could. Anyway, after a three match winning streak, the mighty Hull City managed to come second in a two horse race on Saturday so we’d better get back to the day job. On to the news:
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OCTOBER PUB & RESTAURANT SPENDING TRACKER: Coffer Peach Business Tracker says the Rugby wasn’t enough to stabilise spending. 11 Nov 2019:
o The Coffer Peach Tracker says the Rugby failed ‘to ignite pub and restaurant sales in October’.
o Slightly worse than that, it couldn’t stop spending on a LfL basis from falling by 0.6% on the month
o London underperformed the UK’s provinces.
o Pubs and restaurants performed broadly in line with each other although drink sales rose marginally and food sales fell
• The Tracker says ‘Britain’s managed pub and restaurant groups saw trading take a dip in October, with the Rugby World Cup providing little if any extra boost for bar sales.’
• The fact is, surely, that although the Rugby did provide a boost, there was more going on in the other direction
• LfL spending across the UK’s pubs, bars and restaurants – or at least across those being tracked – was down by an average 0.6% compared to the same month last year.
Regional performances (not a lot of variation):
• London pubs and restaurants saw sales fall by 0.9%
• Sales in the UK’s regions fell by around 0.5%
Pubs v restaurants, wet sales versus food:
• Restaurant chains’ LfL sales fell by 0.7%, with managed pub and bar groups down a very similar 0.6%.
• However, drink sales did hold up better. Within pubs & bars, drink-led pubs did saw sales rise by 0.3% over the month – they perhaps could have expected to better still given the Rugby World Cup
• CGA says ‘there was no big boost coming from customers wanting to watch the rugby on TV in the bar – probably due to the early morning kick-offs.’
CGA comment etc.:
• CGA says ‘October is usually a quiet month in the eating and drinking out world – the lull before the Christmas rush – and so it has proved.’
• October is a bit early to be saving for Christmas. November and January / February should and will be rather more challenging
• CGA says ‘we are continuing to see a flat market. People are still going out, but there is no real growth.’
• RSM says against a backdrop of ongoing political and economic uncertainty, together with a wet and windy start to the autumn, operators will be quietly satisfied with like-for-likes that broadly match last year’s numbers.’
• We’re not so sure about that.
• Coffer Corporate Leisure says ‘the strength of the London market is being driven by independents not captured by the stats, rather than branded concepts.’ There may be some truth in this but property landlords would rather deal 50 units with one tenant rather than deal with 50 tenants who have one unit each.
• There is also a big difference in the quality of the covenants.
• CCL says ‘the eating and drinking-out market is relatively stable despite dampened consumer confidence. This is reflecting the combined political and economic uncertainty not seen since the middle of the last century.’
The impact of new openings:
• Total sales across the companies supplying data (including the impact of new openings) rose by 2.3%.
• Given that LfLs were down 0.6%, this implies around 3% capacity growth
• Restaurant Group recently said that, whilst c25% had been added to capacity over the last 5yrs or so, only c1% had come out due to closures & CVAs
• The 12mth rolling totals are up c1.7% for the 12mths to end-October. This is slightly below the rate of increase in the CPI and possibly around half the rate needed to hold margins stable
• Looking at the 12mth increase of 1.7%, we would suggest that, as prices to the customer have risen by more than that, volumes must be in decline
• There is no split given here between dine-in and delivery. We believe the latter will have risen. This will be negative for margins.
• October’s number of minus 0.6% therefore looks especially poor because, though we have no precise numbers, if you split out an increased delivery element, physical footfall in restaurants themselves must be markedly down
• This is what it is. However, the risk is that customers on the margin (or perhaps just the marginal customer) get out of the habit of personally visiting pubs, bars and restaurants & become even more firmly stuck to the sofa than they already are
GENERAL NEWS – PUBS & RESTAURANTS:
• The latest CGA Prestige Foodservice Price Index shows that eight of the ten food and drink categories covered registered price falls in September 2019. The index says ‘foodservice prices may be stabilising after three years of steady inflation.’
• The CGA Prestige Foodservice Price Index says that prices have resumed their slide after ‘a slight rise over the summer due to poor conditions for seasonal fruit and vegetables.’
• Fish prices are still reported to be rising, up 13.3% in the year to September. Soft beverages were down 10.6% month on month but prices here are still some 26.5% higher than they were a year ago. CGA Prestige says ‘pricing is now expected to level out before rising again going into the Christmas period.’
• Prestige Purchasing says ‘we are still seeing issues occurring across multiple categories as we head into the winter months. However, the continued drop in month-on-month inflation across the Index is a good sign for buyers. After a couple of tough inflationary years, the recent trend of negative month-on-month numbers across numerous categories will be helping to relieve pressure on operators.’
• TGI Fridays is to become a listed company once again, after its parent company, TGIF Holdings, agreed a sale to Allegro Merger Corp in a deal worth $380m.
• In a further blurring of the lines between tasks, Deliveroo has introduced a new click and collect service where customers can pick up their own meals without paying riders to deliver them. The service provided to the restaurants presumably amounts to little more in this case than an order wholesaling function.
• Deliveroo’s Pickup service will expand to cover around 10,000 restaurants in the UK within a year, around half the delivery company’s current total of restaurants in the UK. The company’s vice President of New Businesses Ajay Lakhwani comments ‘Deliveroo’s new Pickup service will give customers…even more opportunities to order amazing food from their favourite restaurants.’
• Deliveroo adds ‘gone are the days of standing in a queue waiting to take-away your food. Pickup customers can collect their meal exactly when they want. This service opens up even more choice and selection for consumers, while providing a new revenue stream for restaurants. This is another move towards Deliveroo being the definitive food company, offering the widest selection of foods for all occasions.’
• Greggs has updated on trading saying that it is seeing ‘strong trading momentum maintained despite strengthening comparators.’ It reports total sales up 12.4% for the six weeks to 9 November 2019 with company-managed shop like-for-like sales up 8.3% for the six weeks to 9 November 2019.’
• Greggs reports ‘like-for-like performance has held up well against strengthening prior year sales.’ It says it ‘now anticipate 2019 full year profit before tax (excluding exceptional charges) to be higher than our previous expectations.’
• Greggs says ‘sales growth continues to be driven by increased customer visits and has been stronger than we had expected given the improving comparative sales pattern that we saw in the fourth quarter last year.’ It adds ‘operational costs remain well controlled and, whilst the comparative sales become stronger still in the balance of the year, the Board now anticipates that full year underlying profit before tax (excluding exceptional charges) will be higher than our previous expectations.’
• Brakspear reports that it has taken its managed estate to 15 units with a Maidenhead pub purchase. The company has purchased the Golden Ball near Maidenhead. CEO Tom Davies says ‘we’re delighted to be adding the Golden Ball to our managed division. It’s a popular pub serving its local community with a great range of food and drink and we think it has great potential within the Brakspear family.’
• AB InBev has launched a hard seltzer version of Bud Light. Bud Light Seltzer is AB InBev’s latest entry into the hard seltzer category, and will launch in the US early next year.
• Alibaba has extended its investment banking syndicate as it works towards a $10bn to $15bn listing on the Hong Kong stock exchange.
• Wagamama is reported set to shut down its at-table ordering and payments app some 18mths after its launch. It had said that the app was an ‘Uber for diners’.
• The BBPA has responded to the Conservative Party pledge for a point-based immigration system, with Andy Tighe, Policy Director of the association stating: ‘The pub sector is working hard to attract more UK nationals to work in our industry, which the Tourism Sector Deal helps to achieve. However, our members across the UK employ 17% of their workforce from overseas, rising to 40% in metropolitan areas. For chefs and kitchen staff, 80% are from abroad’.
• UKHospitality has welcomed the Conservative Party’s commitment to a review of alcohol taxation, with Kate Nicholls, Chief Executive of the organisation stating: ‘This is a positive first step. The duty system has been a barrier to growth for some time and a review is long-overdue. This is a measure we have been pushing for at UKHospitality. If the Conservatives are successful at the General Election, we hope they push forward with this as a matter of urgency’.
• Research from CGA has found that food to go meals now account for over a third of all out of home meal visits.
• Research from Matchpint has found that more sport fans wanted to watch England’s Rugby World Cup final against South Africa in a pub than England’s Russia 2018 World Cup football semi-final against Croatia.
• Research from CGA has found that 23% of consumers are now following a specific diet that restricts certain food groups.
• Casual Dining Group has been given the Springboard’s Best Career Progression award.
• The Telegraph reports that Pizza Express’s external lenders are demanding that Hony Capital, its Chinese owners, put in a further £100m of equity despite the latter’s recent moves to buy back debt in the capital markets. Lenders are owed more than £650m in addition to the debt owed by Pizza Express to its shareholders (on top of the equity already put in). The lenders want Hony to put the money directly into the company rather than buy back bonds.
• The BRC has said that footfall on the UK’s high streets fell by 3.2% in October compared with the same month a year ago. Shopping centre footfall was reported to be 2.4% lower with footfall on retail parks down by only 0.5%. Lack of volume is in line with our comments on the Coffer Peach Tracker above. Wet weather is being partly blamed by the BRC.
• Alibaba has reported that it took in $14bn worth of business in the first hour of trading on its annual ‘Singles’ Day’ shopping event. Sales hit $1bn in the first minute.
• Airbnb has reported that its guest spent an estimated US$25bn in restaurants and cafes worldwide in 2018. The company estimates guests spent US$11bn in Europe including US1.3bn in the UK. In Europe, the Spanish and French markets are notably larger than they are in the UK. The company’s largest market remains the USA with its guests spending an estimated US$7.6bn in restaurants and cafes in the group’s home market.
• Crussh has teamed up with London food charity, The Felix Project, as part of its Christmas 2019 campaign.
• A report by the OECD warns that many Brits are indulging in ‘unhealthy lifestyles’, with both alcohol consumption and obesity rates in Britain being above the OECD average. Adults in Britain consume an average of 9.7 litres of alcohol a year – the equivalent of 108 bottles of wine or 427 pints of 4% ABV beer.
• In the US, McDonald’s is investing in two Texas-based startup companies that are generating renewable energy equal to taking 140,000 cars off the road for one year. Francesca DeBiase, chief supply chain and sustainability officer, said ‘These renewable energy commitments will generate green energy equivalent to over 2,500 McDonald’s restaurants-worth of electricity’.
• The greeting cards group, Clintons aims to close 20% of its shops and is requesting cuts in rent on most of their estate.
HOLIDAYS & LEISURE TRAVEL:
• The Telegraph reports that McDonald’s Hotels has ‘just weeks’ to find new owners or to refinance some £200m of loans after the sale of 27 of its 45 sites to an unnamed private equity buyer fell through. The Telegraph reports the hotel company has now decided to sell two hotels that will ‘substantially reduce the group’s borrowings’. McDonald has not named either the hotels involved or the prospective buyer.
• London Crossrail has admitted (again) that costs will overrun increased budgets and that the line should begin operating between end-2020 and March 2021. Trains should have been running from December last year.
• Amadeus has reported a 15% increase in revenue to €4.2bn for the 9mths to end-September. Adjusted profits for the period are up almost 12% at €1bn.
• Sky News reports that Cox & Kings UK appoints KPMG to identify buyers for a stake in the business.
• Walt Disney Company saw revenues in its parks, experiences and products division rise 8% to $6.7bn in Q3, with operating income up 17% to $1.4bn.
• Iata warns that the global airline sector faces serious headwinds against a triple challenge of economic decline, punitive taxes and regulation. September demand growth figures were below average for the eight consecutive month, with European carriers suffering the weakest performance this year.
• Accor has partnered with Alibaba to develop a series of digital loyalty programmes in a bid to bring more Chinese travellers to Accor’s hotels.
• Thomas Cook Germany is set to shut down on Dec 1 with administrators having failed to find a buyer.
• EasyJet has acquired Thomas Cook’s take-off and landing slots at London Gatwick and Bristol airports for £36m. Another illustration that it’s less than clear whether or not capacity has really ‘been taken out of the market’.
FINANCE & ECONOMICS:
• Moody’s has signalled that it is likely to downgrade the credit rating on UK government debt. It will change the outlook on UK debt from stable to negative. Moody’s says ‘no matter what the outcome is of the general election Moody’s sees widespread political pressures for higher expenditures with no clear plan to increase revenues to finance this spending’.
• Sterling down vs dollar at $1.2796 but up vs Euro at €1.1604. Oil down a little at $61.90 and UK 10yr gilt yield up 2bps at 0.79%. World markets largely lower on Friday with Far East down in Monday trade.
• Brexit & politics:
o Sajid Javid has said that Labour’s spending proposals would put the UK ‘on the brink of bankruptcy’. His own spending plans have not yet been totalled or costed. Kwasi Kwarteng told Sophie Ridge on Sky that Labour was set to spend hundreds of billions. When challenged that he didn’t know what Tory spending plans added up to, he replied that he did but that he ‘didn’t want to bandy figures about’.
START THE DAY WITH A SONG:
Last Friday’s song was She’s a Rainbow by The Rolling Stones. Today who sang:
“We’re so wonderfully wonderfully, wonderfully,
Oh you know that I’d do anything for you
We should have each other to tea huh?”
RETAIL WITH NICK BUBB:
• Greggs: Weak footfall may be a problem for many High Street retailers (as per today’s BRC-Springboard footfall survey for October), but Greggs is having no problem in pulling in customers and today’s unscheduled update flags that the business is still on a roll: Greggs have flagged that the last 6 weeks have seen surprisingly strong LFL sales growth of 8.3%, despite a tough comp of +4.0% for the same period, and that it now expects full-year profits to be higher than it had been forecasting.
• Dignity: It had been expected that today’s very detailed Q3 update from the embattled funerals operator Dignity would flag a pick-up in the death rate, after a notably weak Q1, and that is indeed the case, with the Q3 death-rate up by 1%, but the main feature is that “operating performance in the third quarter was in line with the Board’s expectations, driven by robust funeral market share”. There are a number of uncertainties, including the ongoing CMA review and the news that the new Chairman Clive Whiley wants another strategic review, but Mike McCollum, the Chief Executive, says “the Transformation Plan remains on track and our journey to build a more modern technologically enabled business that offers clients a high-quality service at a variety of price points remains firmly intact”.
• Saturday’s Press and News (1): The profit upgrade from Games Workshop on Friday drove its share price up by 19% and that was the lead story in the stockmarket reports in both the Telegraph and the Daily Mail. The Times article about Games Workshop (“Warhammer creator on top of its game”) flagged that the company began in 1978 with one store in Hammersmith and the Business Editorial in the Times noted that the company is now capitalised at a heady £1.7bn and that although it’s hard to fathom the appeal of the Warhammer fantasy game, “fans, who include Ed Sheeran, happily shell out hundreds of pounds to build their legions”. The other big story in the Saturday papers (as noted by the Guardian and the Telegraph) was that the Mamas and Papas chain has followed Mothercare into administration, via a “pre-pack” cooked up by its private equity owner, with 6 stores closed.
• Saturday’s Press and News (2): The FT flagged that Tesco has relaunched its Clubcard loyalty scheme, with a subscription option called Clubcard Plus (costing £7.99 a month) and also profiled the veteran deal-maker Stefano Pessano after his plan to take Walgreens Boots Alliance empire private for $70bn (“Italian alchemist works on formula for largest ever buyout”) . The Daily Mail’s “Zero of the Week” was Mothercare Chairman Clive Whiley, whilst the Daily Mail also featured the pressures on Burberry in its “Popular Shares” column (ahead of next week’s interims) and also noted the £1.4m share incentive package given to the new WH Smith boss Carl Cowling in its “Director’s Deals” column. The Times had a feature profile of James Daunt, the Waterstones boss who is trying to turn around Barnes & Noble in the US by reviving the art of bookselling (“You don’t have to do everything by
• Sunday’s Press and News (1): There were again plenty of Retail stories in the Sunday Times, which led its Business section with the news that the embattled, American-owned Clintons card chain is preparing for a CVA by warning landlords that it needs to close 66 of its 332 stores and slash rents to avoid going into administration (again), with the loss of 2500 jobs. In passing, the Sunday Times also noted that Monsoon Accessorize has told its suppliers that it is on the road to recovery after its recent CVA, but also flagged that the recent CVA of the Seventy Three Retail group (which operates franchised Timberland stores, inter alia) is likely to be challenged by landlords. The Sunday Telegraph also picked up on the Clintons restructuring plans, but also noted that the Chinese Online giant Alibaba (which launches its annual discount jamboree Singles Day today) is planning a move
• Sunday’s Press and News (2): In terms of feature articles in the Sunday papers, the Sunday Times profiled Jo Jenkins, the ex-M&S Clothing boss who is now trying to turn round the White Stuff fashion chain (“I’m not scared by the retail bloodbath”). The Sunday Times also highlighted that the problems of Boots in the UK are unlikely to be eased by the leveraged buyout plan of its US parent Walgreens. The Sunday Telegraph focused on the continuing problems of Dixons Carphone under the new CEO Alex Baldock, particularly in the mobile phone market (“Heavy lifting still to do at Dixons after finding itself boxed in”). And the Observer had a feature on the potential problems of Primark from the growing eco awareness amongst its younger shoppers (“How low, low prices keep Primark tills ringing”). The Mail on Sunday highlighted that Marks & Spencer has quietly dropped its
• News Flow This Week: Tomorrow brings the B&M interims, the Land Secs interims and the latest Kantar/Nielsen grocery sales figures. On Wednesday we get the British Land interims. Then Thursday brings the Burberry interims, the Card Factory trading update, the ONS Retail Sales for October, the DFS AGM and the Walmart/Asda Q3 results.