Langton Capital – 2019-12-11 – PREMIUM – Street food, JDW, Chilango, strikes, Saga & other:
Street food, JDW, Chilango, strikes, Saga & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
More serious research last night, including end of exam celebrations, mean that things are moving a little slowly this morning.
Still, after paying £24.00 for rounds of (four) drinks regularly last night, it was refreshing to find that, if you look hard enough towards the top end of Brick Lane, you can still get four beers and four pizzas for the same price – albeit with a £5 off voucher that one of the team found in his pocket.
However, it’s with regret that we have to confirm that the £100 night out is alive and well and living in London. You could buy a house for that back home. On to the news:
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STREET FOOD – AN END IN ITSELF OR A PATH TO BRICKS & MORTAR? Some of the UK’s most dynamic operators, Meat Liquor amongst others, have started as street food operators – but should this always be a route to permanent restaurants? 11 Dec 2019:
• Street food operators can be nimble, trendy and cheap. If their revenues are below £85,000 p.a., then they don’t have to register for VAT – and that can make a big difference.
• And they may cut a few corners when it comes to recording revenues, they may pay staff in cash and their record keeping in general may be somewhat sloppy.
• Which is what it is but it does give such operators certain advantages when it comes to pricing, choice, availability etc.
• Yet many (though certainly not all) operators see street food as a way through to a traditional, bricks and mortar operator.
• Here we ask a couple of questions – 1) need that be the case and 2) if you were to invest in street food, should you try to back an operator (or operators) or should you finance the venues themselves?
The move to bricks & mortar:
• A bird in the hand may be worth two in the bush but many operators seem to believe that they have to ‘go legit’ and put down permanent roots.
• This can be traumatic and, in many cases, fatal.
• Langton has seen business plans suggesting that restaurants can be fitted out for £25,000 or less (the real cost could be 5-25x that amount) and, in at least one case, the would-be operator had forgotten to plan for toilets
• And the ongoing cost structure will be completely different. No bricks & mortar restaurant could survive below the VAT threshold meaning that operators will have to increase prices by 20% immediately.
• And none of that will go into product or service. All of it will go to the government.
• Furthermore, HM Inspector of Taxes knows what revenues should look like. It has 50 or 60,000 other restaurants to model the new operator against and, over time, there will be little chance of avoiding (worse still evading) taxes.
• Wages will be higher, hygiene inspections necessary and all the rest.
• But, on the positive side, the profile of the operator could be raised and trade should increase – but perhaps not by as much as hoped.
• Nonetheless, the London street food revolution, that had been in full swing since 2010, has seen the likes of Pizza Pilgrims and Meat Wagon open successful sites
• Others have followed such as Patty and Bun and Bleecker Burger have followed suit. Operators that have tried to make the move and have failed are 1) less visible by virtue of the fact that they are no longer around and 2) almost certainly more numerous
Street markets – A halfway house?
• Food court operators such as Kerb and London Union are providing many traders with semi-permanent sites
• Street food courts are seen as an early stage in the gentrification of an area, Kerb- Kings Cross, Boxpark-Croydon, London Union-Canada Water etc. etc.
• They can be a temporary solution for land-owners in the same way that 5-a-side football pitches may spring up but then leave when land is redeveloped
• We would suggest that food court operators have greater security in income than street traders – but they will have suffered from a step up in costs
Markets – Back the operators or the venues?
• We’ve all heard the suggestion that, in a gold rush, you should back the trader selling shovels and, to some extent, the food market owners fill that role
• But some do it more successfully than others. Those losing money may suggest that they are looking at profits longer term but, as many concept companies have found out, investors’ patience will only last so long
• London Union operates Dinerama and other Street Feast markets in Shoreditch, Canada Water, Canary Wharf (Giant Robot) & Lewisham.
• The company says: ‘across the markets, revenue was up 4% whilst market profitability before central charge grew significantly to £2.6m (2017: £1.5m)’.
• However, London Union reports revenues of £12.5m, down from £12.8m last year and the loss before tax was £1.44m against a loss of £1.51m last year and the company has retained losses of £5.1m of from £3.7m in 2017.
• Time Out Group has lost £41m since incorporation and it reported a £12m loss in its H1 to June this year. It recently raised money at 127p (the shares are now 122p) but it says it will be profitable ‘in 2020.’
• Kerb, which only has to lodge truncated accounts to Companies’ House, looks to be profitable. Its retained earnings increased by around £75k in the (now very historic) year to March 2018.
• Flat Iron Square looks to be very profitable – at least in its year to March 2018 – as retained profits rose by £554k. There is no detail so it is not possible to see if this was a profit from normal trading or some sort of one-off
• As always, story-stocks have to be treated with a degree of caution.
• Because being busy and trendy doesn’t always equate to being profitable
• Investing in street vendors is akin to a rifle-shot (high risk, potential high reward) whilst a street market has more of a scatter-gun approach
PUBS & RESTAURANTS:
• JD Wetherspoon yesterday announced that it is to spend £200 million on its pub estate over the next four years. The company says ‘it will invest the money developing new pubs and hotels as well as enlarging its existing pubs across the UK and Republic of Ireland.’
• JDW says that it ‘anticipates that the investment will result in approximately 10,000 new jobs.’ The company says ‘the majority of the investment will be channelled into developments in small and medium sized towns, but will also include larger towns and cities.’
• JDW chairman Tim Martin comments ‘we are looking forward to opening many more new pubs as well as investing in existing pubs over the next four years. We are especially pleased that a large proportion of the investment will be in smaller towns and cities which have seen a decline in investment in recent years.’
• Chilango has confirmed a proposed CVA that would see it exit four leases and cut rents by 40% at some of its remaining sites. The fate of the group’s c1,500 bondholders, some of whom were sold to on the street beneath Langton’s London HQ, remains unclear as they are to be offered either 10p in the pound to cash out their investment, or shares in the company. The bondholders and creditors have until 3 January to mull over the deal.
• US burger operator Fatburger is reported to have put its first UK restaurant on the market. The unit is located in Camden Market.
• The MA reports that railway strikes in the run up to Christmas could have a negative impact on London’s pubs as customers may be leaving earlier in the evenings in order to get make their way home. UK Hospitality says ‘this is all happening at the busiest time of the year for hospitality, when many pubs, bars and restaurants are full of people going out for Christmas. Businesses are going to feel the impact of customers and staff members cannot travel.’
• Greene King has reported that sales have been boosted by its decision to show Amazon Premier League football matches in its pubs. GNK says ‘we are delighted to report positive sales growth from the first set of Premier League matches on Amazon, which were screened across all of our sports pubs.’
• The Food and Drink Federation says that UK food & drink exports have increased by 8.3% to £6.2bn in the third quarter of 2019. It says ‘this has been driven by growth in sales to non-EU countries (+13.1%).’
• The FDF says that ‘food and drink exports to the UK’s seventh largest trading partner, China, have seen a significant increase since Q3 2018, rising by £64.6m.’ The FDF says that only 17% of UK food and drink exports to China were branded products.
• FDF president Gavin Darby comments ‘there remains significant untapped growth potential for UK food and drink exports. If we are to build on recent successes, the next Government must ensure we have a dedicated future trade policy for food and drink which recognises our industry’s unique ability to deliver jobs and growth in every UK community. They should also co-invest in the FDF’s proposals for a genuinely business-led approach to specialist exports support.’
• Savanta has reported that Chick-fil-A is the US’s No. 1 operator in terms of customer reviews when it comes to fast food. No.2 was Starbucks, followed by Olive Garden, Krispy Kreme and Texas Roadhouse, in that order.
• Savanta says that McDonald’s is No.15. The Top 100 is based on 60,000 interviews with diners.
• Coca-Cola European Partners has announced that it will open a new £20 million line at its Edmonton factory in north London to increase production, particularly of its most sustainable products.
• Hogs Back Brewery is to run another ‘Support Your Local, Go TEA Total’ campaign in January.
• Fourth Enterprises, the parent company of management solutions company Fourth, has announced the appointment of Clinton Anderson as its new CEO.
• Just Drinks has reported certain analysts’ views that the gin boom may be over. Manufacturer Diageo has said that there is further growth in the product with supporting evidence from Nielsen, which says that growth last year in value terms was as high as 45%. Maybe there is a big difference between the end of growth on the one hand and the mere slowing of growth on the other.
• Las Iguanas has won the Glassdoor Employees’ Choice Award as the best place to work. The company says it is ‘thrilled to have been recognised as the UK’s top hospitality company to work for and it is even more special that the recognition has come directly from our own team, based on their Glassdoor reviews.’
• The NIESR reports that ‘the UK minimum wage has been a great success story since its introduction in 1999.’ However, it says that it is ‘at risk of becoming overly politicised in a growing arms race between the two main parties, both eager to claim the credit for boosting the earnings of millions of low-paid workers across Britain.’
HOLIDAYS & LEISURE TRAVEL:
• Saga reports that Euan Sutherland has been appointed group CEO. Chairman Patrick O’Sullivan says ‘I am very pleased that Euan is joining Saga at this important time in the development of the business. He has substantial experience across several consumer-facing businesses that will be invaluable as we continue the Saga transformation, with our customers at the heart of our strategy.’
• Holiday company Minoan reports that ‘the Board is now considering a number of different types of commercial transactions with a view to entering into more formal arrangements.’ It says ‘the interest outlined has arisen against a steadily improving background to the business climate in Greece and the efforts of the Government to promote development in the tourism sector with particular reference to strategic projects, of which the Company’s project in Crete is one.’
• Manchester Airport Group has said that the collapse of Thomas Cook had only a ‘limited impact’ on trading.
• The company says that total passenger numbers rose by 2% to 36.4 million in the six months to September 30. It should be said that Thomas Cool only failed on 23 September. Any impact will be more keenly felt in the group’s H2.
• Airbnb has taken a strategic investment in Zeus Living, which generates around $100m of revenues annually redecorating landlords’ homes and renting them to relocated workers.
• UK Hospitality has condemned Highland Council’s decision to progress its proposed tourist tax. UKH says ‘additional taxes will only undermine Scotland’s, and the Highlands’, tourism offer and pile more costs on businesses.’
FINANCE & ECONOMICS:
• The ONS has reported that UK GDP rose by 0.0% in October. Not good but better than both August and September, which registered declines. The three months taken together represent a decline and the worst period of growth since early 2009. Manufacturing and Construction were in decline whilst Services registered a small increase.
• The NIESR says ‘the latest data confirm that economic growth in the United Kingdom is petering out at the end of the year. GDP was flat in the three months to October, and the latest surveys point to further stagnation in November and December. The economy is being held back by weak productivity growth and low investment due to chronic levels of uncertainty. While some uncertainty could be resolved by the outcome of the general election, it is doubtful that this will provide businesses with the clarity needed to invest with confidence.’
• A survey by recruitment company Manpower suggests that UK employers have ‘hit the pause button’ when it comes to hiring.
• Sterling down a shade at $1.3144 and €1.851. Oil lower at $63.93. UK 10yr gilt yield up 3bps at 0.80%. World markets lower yesterday with Far East mixed in Wednesday trade.
• Brexit & politics:
o PM Johnson has said that he will ‘rip up’ the EU rule book after next month. His spinners are attempting to distance him from accusations that he is callous re the NHS and has used London Bridge terrorism for political purposes.
o Polls still pointing to an overall Tory majority large enough for the party to push through its policies. Some evidence that the lead may be narrowing somewhat.
o FT suggests that the Tory Party into a party defined by anti-EU feeling and says that it is predominantly nationalist, male, white, relatively elderly and English.
START THE DAY WITH A SONG:
• Taking a break due to exam commitments. Back middle of next week.
RETAIL WITH NICK BUBB:
• John Lewis Trading Watch: The John Lewis sales figures for last week were boosted by the last 2 days of the extended Black Friday promotional period (ie Cyber Sunday/Monday) and overall gross sales in w/e Dec 6th were up by 14.8%, according to yesterday morning’s JLP weekly overview, although gross margins will have been under pressure…In terms of sales mix, for what it’s worth, Fashion/Beauty sales were up by 12.5% gross last week and Electricals were up by as much as 34.8% gross, but Home sales were down by 2.3% gross. The commentary flagged that sales for the whole Black Friday period were up by 10.2% on last year, albeit the promotion was a week nearer to Christmas this year and covered 11 days versus only 8 days last year…Over the last 45 weeks, overall gross sales are now running down by only 0.9% cumulatively (the H1 LFL sales fall was 2.3%, with gross sales 1.8% down), but
• Waitrose Watch: After the poor sales (-3.9% gross) reported by Waitrose for “Black Friday” week, w/e Nov 30th, Nielsen said yesterday that the whole industry was weak as well, with total supermarket sales down by 0.7% in that week, despite the growth of Lidl and Aldi. But it is disappointing that last week, w/e Dec 6th, also saw a big fall in gross ex-petrol sales at Waitrose, of 2.5%…even though the Christmas calendar has yet to unwind. That left the last 45 weeks still down by 0.8% gross cumulatively, but although, unaccountably, Waitrose do not think it useful to provide a weekly LFL sales figure, we think that store space is at least 1% down (after the sale of five Waitrose stores in June and more disposals in October), so it is safe to say that the LFL sales picture does not look so bad (the LFL sales dip was 0.4% in H1, with gross sales down by 0.8%).
• Grocery Market Share Watch: The latest Nielsen grocery sales figures yesterday (for the 4 weeks to Nov 30th) showed that overall supermarket industry sales growth slowed to only +0.2% (from +1.1% in the previous 4 weeks). And the rival Kantar survey yesterday reported a very similar outcome of only +0.1% for a similar 4 week period (to Dec 1st), on a “Till Roll” basis, well below the 0.8% level of food price inflation. However, on a pure “Grocery” basis (ex-Non Food) overall sales were 0.5% up, according to Kantar, boosted by Aldi/Lidl growth of 8.1% combined. Morrisons was the worst of the “Big 4” on this basis, with gross sales 4.8% down, whilst Asda was 2.2% down gross, Sainsbury was down by 0.8% gross and Tesco was down by 0.9% gross. M&S Food was still up, by 1.3% gross (albeit that was a lot lower than the decent 3.5% growth in the previous 4 weeks).
• News Flow This Week: Tomorrow brings the Superdry interims, the Dixons Carphone interims, the Ocado Q4 update and…the General Election.