Langton Capital – 2019-12-20 – PREMIUM – Amazon & Deliveroo, Just Eat, JAB coffee, legislation etc.:
Amazon & Deliveroo, Just Eat, JAB coffee, legislation etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Thanks for the replies on ‘dadsplaining’, it would appear to be endemic.
And there is, of course, an opposite to the above. It’s when your five, six or seven-year-old comes home and says ‘teacher says…’ and then outlines something that you’ve been saying for years but which, apparently, has never been absorbed by the self-righteous little article standing before you.
Anyway, Christmas is virtually upon us and the email open rate and the number of out-of-office replies that we’re getting seem to be moving in opposite directions. We’ll put a shortened email out next week and probably in the rump of the week after New Year’s. Back properly on Monday 6 Jan.
That just leave us to wish readers near and far a peaceful, restful and enjoyable Christmas and New Year’s break. On to the news:
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THE NEAR-TERM FUTURE OF DELIVERY – AMAZON’S INVESTMENT IN DELIVEROO. Amazon has made an investment in Deliveroo but the CMA has concerns. 20 Dec 2019:
• Amazon led the $575 million funding round in May in Roofoods Ltd (Deliveroo) in exchange for a minority shareholding and certain other rights, which may give Amazon the ability to exercise material influence over Deliveroo.
• This followed an attempt by Amazon to enter the delivery market itself in 2016.
The CMAs involvement:
• The CMA has decided to get involved as it believes Deliveroo and Amazon will cease to be distinct entities as a result of the investment.
• As a result, the CMA has now posted its ‘Summary of phase 1’ decision.
The CMA’s Interim Findings:
• The CMA’s decision seems to be based primarily around 2 concerns which are summarised below:
• (1) The lessening of competition in the online restaurant food delivery market;
• The CMA found internal documents at Amazon that suggest it might have re-entered the UK delivery market in the future (pre-deliveroo investment)
• (2) The lessening of competition in the online grocery delivery market:
• Amazon and Deliveroo are two of the strongest players in the ‘ultrafast’ grocery delivery market (delivery of groceries to your door within hours instead of next day)
• The CMA says internal business plans and strategy at each company suggests they were on a path to direct competition in this market.
What does this mean?
• By now a deadline will have passed for the companies to submit legally-binding proposals to address the competition concerns identified by the CMA.
• Should the CMA not find these proposals adequate, the merger will likely face a phase-two investigation.
• According to the CMA, a phase-2 investigation could take up to 24 weeks to complete, and even then, could be extended by a further 8 weeks.
• The CMA is showing its intent to regulate early-phase industries, with the FT reporting a lawyer close to the deal as saying ‘[The CMA] clearly feels it needs to show they leave no stone unturned when it comes to big tech’.
The implications for the industry:
• Some observers believe that Amazon’s stake in Deliveroo could have led, ultimately, to it making a bid for the company.
• The CMA would appear to share this view – at least in part.
• The CMA has shown that it is willing to consider ‘what might have been’ – that is, would Amazon have re-entered the food delivery market if it had not invested in Deliveroo
• Whilst Amazon may think that this is intrusive, the CMA would appear to believe that the future path of the delivery market in the UK will be changed if Amazon and Deliveroo merge some of their operations
• The market is not privy to the proposals put forward by Amazon and Deliveroo (if any) and these may take some time to surface
• Depending upon the conditions (again, if any) set out in Amazon’s investment in Deliveroo, the latter could be in the unfortunate position of having to pay Amazon its money back
• Alternatively, Amazon may be obliged to either freeze or dispose of its investment
• Of course, the proposals to ensure competition may satisfy the CMA but, either way, the combined entity will not be the one that investors thought they were putting money into back in the summer
PUBS & RESTAURANTS:
• Both Naspers & Takeaway.com have tabled full and final offers for Just Eat. Naspers has increased its bid to a cash price of 800p which gives ‘outstanding and certain value.’ Takeaway.com, whose offer is in the form of its own shares, tabled a final offer valuing Just Eat at 916p (expressed in terms of Takeaway.com’s own share price. It says that Just Eat shareholders would also benefit from merger benefits going forward.
• Takeaway.com says ‘this offer is a full offer, and on top of that we believe it provides Just Eat shareholders with tremendous upside.’ It continues ‘the all-share combination establishes the largest global platform in online food delivery outside China and allows shareholders of both Just Eat and Takeaway.com to benefit from significant long-term value creation.’
• Just Eat’s shares finished yesterday at 812p, above the Naspers cash offer but below the see-through price being offered by Takeaway.com. Shareholders in Just Eat have until 10 January to decide between the offers.
• Coffee giant JAB Holding Company is putting together two of its coffee brands, Jacobs Douwe Egberts and Berkeley, Calif.-based Peet’s Coffee & Tea, and is reported to be considering an IPO on a market yet to be specified. The holding company says ‘JDE Peet’s is an exceptional business with some of the most beloved coffee brands in the world, and I am excited to lead the company in its next phase of growth. With our leading positions in many important markets, supported by all the great people in our organization, we are well-positioned to continue achieving strong long-term growth.’
• The BBPA has responded to the Queen’s Speech, saying ‘ Reducing rates for pubs is an important step in the right direction. Such reliefs are vital until the fundamentally unfair system is completely overhauled…We await the detail on the proposed points-based immigration system but pubs are facing a serious skills shortage’.
• In the US, Darden Restaurants reported a 2% increase in same-store sales, with good performance from LongHorn Steakhouse but a shaky start from Olive Garden.
• Britvic partners with other businesses to promote BP Infinia, a recycling technology that can recycle PET plastic waste into new plastic. BP is investing $25m in the technology.
• Amazon plans to open a new fulfillment centre in Darlington creating more than 1,000 jobs. Amazon currently has 21 centres across the UK and has created 29,500 jobs in the UK since 2010.
• STR reports US hotel occupancy was up 5.6% to 60.5% in the week ending 14 December, with ADR up 5.3% to $125.37 and RevPAR up 11.2% to $75.87.
• The former Whiteleys department store in London’s Bayswater will be developed into the UK’s first Six Senses hotel by 2023. The 110-room hotel will also feature 14 branded residences available to buy.
• The CBRE has reported that as consumer confidence rises to its highest level in a decade, multi-dimensional leisure hibs that go beyond food and drink are set to benefit.
• UKHospitality has welcomed the Government’s announcement to a fundamental review of the UK business rates system. Chief Executive of the association, Kate Nicholls commented: ‘Improving the business rates system is paramount and the Government commitment to a review is very welcome. Rates have arguably been the single biggest barrier to growth for hospitality and a shake-up of the whole business tax system is overdue. UKHospitality has been pushing for a review vocally and persistently for years so it is great to see the Government listening to our message’.
• CEO of the BII, Mike Clist has also remarked on the Government’s proposed rates review, commenting: ‘We are delighted that the new Government has recognised the importance of supporting high street businesses, and in particular those in hospitality who provide so much help to their local communities’.
• Hush Brasseries Ltd has reported delayed numbers to end-December 2018 to Companies’ House saying that the company ‘performed well in 2018 benefitting from good summer weather’ and decent trading. Summer 2018 seems like a long time ago.
• Hush reports that, for calendar 2018, LfL sales rose by 3.7% to £8.5m with EBITDA down by a little under 30% at £169k. This fed through to a loss before tax of £651k (prior year loss £993k). Retained losses since incorporation (as at around a year ago) stood at £4.8m. The group has positive shareholders’ funds (or it did have in December last year) of £1.5m.
• Hush says ‘2019 has to date [the accounts were signed on 4 December, some two weeks ago] been impactful and challenging in equal measure.’ It says the weather was not helpful. In January, the company acquired a former Cau site in Kingston for a nil premium, its auditors, RSM, resigned in March and it was announced that shares were allotted in September and November.
• Hush acquired five Cabana restaurants in August and the company says ‘these restaurants are currently being integrated into the group with an expectation that EBITDA generated from these restaurants may contribute toward the group’s profitability without requiring a material increase in overhead.’
• Hush concluded ‘the difficult trading conditions in the sector continue to present opportunities and we are looking at these opportunities carefully and cautiously.’ Blick Rothenberg LLP is now the auditor and it has signed off the company as a going concern.
• Craft ale brewer The London Beer Factory has lodged accounts to 31 March with Companies’ House. The company needs only supply a balance sheet. This shows that accumulated losses in the year rose by some £325k. The group now has accumulated losses since incorporation of some £552k.
• Brewer Innis & Gunn has announced that it will open its first major brewery in 150 years in Heriot-Watt University’s research park in Edinburgh.
• Zonal has reported a 30% sales increase for its liveRES online bookings and table management solution.
• Russell Crowe is set to play Marco Pierre White in a biopic, as well as writing and directing the film.
• The Guinness Gatehouse has opened in Shanghai, introducing locals and visitors to the world’s most iconic stout.
• The ONS reports retail sales down 0.6% in November as Black Friday fell outside of the ONS reporting period for the month. However, sales adjusted for Black Friday discounting were up 1%, lower than the 2.1% rate economists had predicted.
• Fleurets has put the Well Street Pizza site in Peckham on the market, saying ‘This unit would be suited to a bar/restaurant and…enjoys superb outside trading space.’
• Zachys, a US fine wine merchant and auctioneer, is appealing to its customers to write to senators and representatives and appeal to them not to support 100% tariffs on EU wines. It claims that the increase in tariffs will cause prices on fine wines to ‘skyrocket’.
HOLIDAYS & LEISURE TRAVEL:
• Travel firms anticipate a ‘big Boris bounce’ in 2020 peak season sales following last week’s general election result, with Kuoni UK managing director Derek Jones saying ‘There is pent-up demand and we are hoping for a good result; the mood of the nation has lifted.’
• IAG has demanded that the new government commission an independent assessment of Heathrow’s expansion costs. IAG argues that estimates of costs have increased by more than 250% in the last two years.
• The Court of Justice of the European Union has ruled that Airbnb does not need an estate agent’s licence to operate in France. The ruling comes after the French tourism association had complained that Airbnb did not comply with French property laws.
• PlayGiga, a Madrid-based cloud gaming startup, has been acquired by Facebook for around €70m. This follows on from Facebook’s acquisition of Beat Games last month.
FINANCE & ECONOMICS:
• An audio feed of the Bank of England’s press conferences has been leaked to hedge funds ahead of their being broadcast reports the Bank itself.
• Sterling lower at $1.3018 and €1.1707. Oil higher at $66.67. UK 10yr gilt yield up 1bp at 0.80%. World markets mixed.
• The Bank of England has kept interest rates on hold at 0.75%. It suggests it may cut them if global economic growth continues to falter.
• The FT reports that head of the FCA Andrew Bailey has been selected as the new governor of the Bank of England. It says the appointment could be announced today.
• Donald Trump saying it’s wrong to impeach him because his Twitter numbers are high. UK thought by some to be working hard in parliament to self-harm. Do you remember when the craziest thing in politics was that the Americans had elected an actor to the White House.
• Brexit & politics:
o Queen’s Speech promises busy legislative session.
o FT reports ministers making it known that they would prefer a ‘clean break’ from Europe.
START THE DAY WITH A SONG:
Yesterday’s song was Comfortably Numb by Pink Floyd. Today, who sang:
“In a world of illusion,
That’s covering your mind?
I’ll show you something good
Oh I’ll show you something good.”
RETAIL WITH NICK BUBB:
• Consumer Confidence Watch: We flagged yesterday that most of the polling for the widely followed GFK Consumer Confidence survey for “December” will have been done before the Election, given Christmas deadlines, and the overnight survey reveals, in fact, that polling finished on Dec 11th…Nevertheless, the overall index has picked up from -14 to -11 and Joe Staton, Client Strategy Director at GfK, says: “There’s a clear sense of a change in consumer sentiment this month…We haven’t seen such a robust increase in confidence about our economic future since the summer of 2016…A great many people will be gazing into their crystal balls right now; ours indicates a rebound in confidence in 2020 based on renewed optimism and energy for a post-Brexit Britain”.
• BDO High Street Sales Tracker: We highlighted on Wednesday that the John Lewis sales figures for last week were predictably bad, given the pull-forward of trade by Black Friday promos, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting surprisingly/suspiciously good progress in recent months) is not too bad…In w/e Sunday Dec 8th, BDO Fashion sales were down by 3.7% LFL, but Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were up by 0.3% last week (down 2.9% in Store sales and up by 5.9% in Online sales).
• Trade Press: The front cover of Retail Week magazine today is a cartoon montage of some of the leading Retail characters of the last 10 years (including Philip Green, Jeff Bezos, Dave Lewis and Mike Ashley) to illustrate the main feature on “Review of the decade” (“A look back at retail’s most disruptive 10 years”). In his column, the Editor looked back at the last year, noting, inter alia, that “2019 was a year when some of the mighty were humbled”, but that “JD Sports’ strong supplier relationships and in-store excellence meant it continued to score with shoppers – it is the Ronaldo of retail”. Drapers magazine has not been published this week, but Online it has plenty of fresh content, including interviews with the bosses of some activewear brands, a look inside the new Flannels store in Belfast and lots of round-ups of the year.
• News Flow Next Week: There is no company news expected next week, as retailers will be far too busy dealing with the last-minute Christmas spending rush and preparing for the New Year Sales, with the first update scheduled to be Next on Friday Jan 3rd.