Langton Capital – 2020-02-17 – PREMIUM – Nudging consumers, the weather, EI Group, Saga & other:
Nudging consumers, the weather, EI Group, Saga & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
If you’re taking your laptop with you when you have to dash to catch a train or you’re simply leaving work for the evening, arguably one of the last things you need to be told is that the machine is configuring updates and that it’s 1% and then some minutes later only 2% of the way to having completed its task.
Hence the temptation is to just shut the thing down and hope for the best but, life being what it is, you may well be storing up problems for the next time you turn it on as the chagrined machine will be hurt, might throw a sulk and will be take an age to turn on, lose a chunk of your data and mix up all of your Google passwords as it will be sure that you don’t care for it anymore.
Still, a sullen laptop is probably less of an issue than a missed train as the ticket collector on the next one is hardly likely to think that massaging the ego of an inanimate object is a valid reason to be travelling without the appropriate ticket. Particularly as said ticket inspector may be on a 5% kickback and, if they can sting you for another hundred quid ticket, they will be sorely tempted to do so. On to the news:
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BOOK REVIEW: NUDGE. RICHARD THALER & CASS SUNSTEIN. Published in 2008, Nudge suggests that politically driven change can be gradual. 17 Feb 2020:
• Nudge was said to have been influential in forming government thinking under former PM David Cameron
• The idea being that people didn’t need to be bossed around, they could be gently encouraged to behave in certain ways for (a subjective issue) the greater social or economic good.
• The book says that legislators could be ‘choice architects’. They could behave as ‘libertarian paternalists’ and influence behaviour, as it were, on the sly
The basic premise:
• The book suggests that people are not ‘econs’. Rather they are people and they will behave as such.
• Some people get fat. Others smoke and others refuse to take exercise. They will be influenced by inertia, peer pressure and fashion.
• The ‘status quo’ will always have a big influence on people. Hence if they are asked to opt out of organ donation rather than opt in, participation will rocket.
• The book goes through a number of systemic biases that we have covered in earlier emails such as anchoring, the availability bias, optimism, over-confidence etc. Less than 5% of people, for example, believe that they are ‘below average’
• People will make vastly different decisions when they are in a ‘hot’ or a ‘cold’ state. That 6th drink sounds like a good idea when we are ‘hot’ (i.e. full of five drinks already) but we wouldn’t have recommended it when we were ‘cold’
• People have a system of ‘mental accounting’. Sometimes things, places or people ‘owe them one’.
The desire to conform:
• We have been social animals for millennia longer than we have been ‘civilised’
• We do like to conform and, when we don’t, the hammer seeks out the proud nail.
• Groupthink can be hard to shift. There may be ‘pluralistic ignorance’. A sort of wilful blindness.
It’s the little things:
• A good slogan helps. The authors give the example ‘don’t mess with Texas’. A more recent example could be ‘take back control’.
• They say small interventions can push people in a certain direction & then peer-pressure does the rest.
• Successful pop stars are not much ‘better’ than those who failed to make a mark.
• People eat 35% more when they are with 1 other person. Women eat less on dates & men eat more.
• Peer pressure works. High tax compliance breeds compliance.
• People can be ‘primed’ to make certain decisions.
• Framing a question is vitally important. E.g. when a question is asked or how it is asked will influence the reply
• The authors suggest you (the politician) should try to nudge when it will either do the best or at least the least harm.
• It is hard for people to make decisions when the benefits are now and the costs later (such as smoking or investing in a bridge)
• People are not good with long term decisions, e.g. regarding credit, mortgages etc.
• Auto-enrolment will boost enrolment. Arguably, this is removing choice.
• People are ‘crowd followers’ when it comes to healthcare. Ditto when it comes to environmental issues.
• The authors look at a number of issues specific to the US such as improving the choice of schools, waiving the right to sue medics, privatising marriage etc.
• Nudging could be seen as a slippery slope towards mind control.
• But that happens anyway. It’s just a question of degree.
• There can be bad nudges. E.g. the path towards dictatorship may be freely taken.
• Subliminal messages may be anathema to some. The authors say that nudges can be constrained by the ‘light of day’ principle. How would the nudge look if it was debated on prime time TV, in a church or a public meeting?
• The authors argue that choice architecture is unavoidable. It is a matter of degree. They say Libertarian paternalism is not an oxymoron.
• However, it is hard to get one size to fit all, meaning that choice (and nudges) are likely to remain a contentious issue going forward.
PUBS & RESTAURANTS:
• Bad weather has hurt the on trade for the second weekend in a row as Storm Dennis followed hard on the heals of Storm Ciara. Anecdotally, whilst people still ventured out to buy food and some retail parks (and their ancillary coffee shops & cinemas) remained busy, town centres saw reduced footfall.
• EI Group on Friday reported that it had noted the announcement by the Competition and Markets Authority that the latter has accepted undertakings offered by Stonegate Pub Company in lieu of referring the Acquisition for an in-depth Phase 2 investigation.
• The company says ‘as such, the CMA Condition to the Scheme…has now been satisfied’ and the purchase will go ahead. EIG says that there will be a court hearing to sanction the scheme via which the company will be taken over on 27 February and the last day of dealings in EI Group shares will be Friday 28 Febuary.
• EI Group shares will be delisted from 4 March and cash should be remitted to EIG shareholders on 17 March.
• The MCA reports that Gregg’s grew its sales by 14% last year and, in so doing, increased its share of the UK food to go market by 40bps to 4.0%. The MCA says ‘Greggs had an impressive year, with consistent physical expansion and continued menu development, including its highly acclaimed vegan sausage roll.’ The MCA says that Tesco is still the largest player in the food to go market with a share of 6.3% (down 20bps on the year).
• Camden Town Brewery has announced its intentions to open a ‘food and drink destination’ on the site of its original North London home in Kentish Town.
• Bacardi UK’s marketing manager Marie Peyto has claimed that operators should focus on making the of gin’s nearest challenger, rum.
• Exports of Georgian wine to the UK have increased 60% in the last year.
• Tesco have been told that it is illegal for them to block rival supermarkets from buying its land or leasing nearby sites.
• Amazon’s UK division has recorded a 23% increase in revenues to £13.4bn in 2019
• The Telegraph has reported that shopping centre landlord, Intu Properties is under threat from Sir Philip Green’s high street retreat, with dozens of store closures yet to impact it.
• UKHospitality has urged the new chancellor, Rishi Sunak, to recognise the importance of the hospitality industry and the High Street by supporting the industry in his upcoming Budget. Grant Shapps has said that the Budget, which would have been the first since October 2018, could be delayed.
• The FT reports that Mexican consumers will ‘soon be confronted with ominous black labels on food and beverages warning that they contain “too much sugar”, “too much fat” or “too many calories”’ in an attempt to tackle the country’s obesity and diabetes epidemics.
• Lux Rewards has raised £277k of an intended £100k on Crowdcube. The money is being raised off a pre-new money valuation of £1.5m.
• Chief Executive of the Restaurant Group, Andy Hornby has hired former GVC colleague, Mark Chambers as the group’s head of its leisure division. Existing CEO Ollie Humphreys will leave the company after just over a year in the role.
• Research from British Retail Consortium has found that four-fifths of the UK’s food imports come from the EU, leading BRC to warn about reduced availability if a deal is not met with the bloc.
• The pub & hotel, the Judge’s Lodging on Lendal in central York has reopened after a £500k investment.
HOLIDAYS & LEISURE TRAVEL:
• The position of tourism minister for the UK is currently vacant after prior minister Helen Whately was appointed as the new minister of state at the Department of Health.
• Gillian Keegan, Tory MP for Chichester, has reassured corporate travel buyers of a ‘ sensible outcome’ to negotiations on an EU-UK trade deal.
• ForwardKeys travel data shows outbound travel bookings for March and April – which includes the Easter period – are down by more than half from China and 10.5% from other countries in the area, excluding trips to and from China and Hong Kong.
• ACI Europe reports passenger numbers up 3.2% for airports in Europe in 2019, the slowest growth in passenger traffic in five years.
• Per STR, Wyndham Hotels & Resorts President and CEO Geoff Ballotti said ‘The 60 government-mandated hotel closures we saw in the first week of the outbreak peaked last weekend at a 1,000 of our (hotels in) China.’
• Following Chinese government guidance about the coronavirus Airbnb has blocked bookings in Beijing through April.
• Transport Secretary Grant Shapps has denied that the UK government is in talks with Chinese companies regarding the building of the HS2 rail link. A review has warned that costs could reach over £100bn, against a budget of £62bn. The BBC had earlier reported that ‘the UK and China have held “preliminary discussions” over giving Beijing’s state-owned railway firm a role in building the HS2 high-speed rail line.’
• Saga has announced that it has reached agreement for the sale of Bennetts, an insurance broker for motorcycles, for an enterprise value of £26m. CEO Euan Sutherland says ‘as Saga seeks to focus on our core branded business, I am pleased to announce we have agreed the sale of Bennetts. This is a good outcome for Saga shareholders and Bennetts customers who will find a good home in The Ardonagh Group.’
• Flights from the UK to Sharm el Sheikh have begun operating again following the lifting of restrictions.
• An IT crash at Heathrow yesterday resulted in travel chaos. BA warned that a knock-on impact was expected today, with the airline commenting: ‘We have brought in extra colleagues to help our customers. But we are sorry for the disruption that the airport’s systems have had on many of your journeys’.
• The BBC could sell off most of its radio stations in a ‘massive pruning back’ of its activities.
• William Hill has announced the appointment of Adrian Marsh as William Hill’s next Chief Financial Officer. Mr Marsh will join the Company and be appointed as an Executive Director to the William Hill Board later in the year. He joins from DS Smith.
FINANCE & ECONOMICS:
• Economic growth across the Eurozone has fallen to 0.1% for the three months to December last year.
• Cabinet Minister Grant Shapps has suggested that the Budget due next month, the first in around 18mths, may be delayed.
• Outgoing Bank of England governor Mark Carney has said the present environment is on ‘where everything is getting a fresh look, it’s fertile ground for taking a step back and making bigger changes than otherwise might have been made.’ He says ‘the budget will be telling.’
• The Japanese economy shrank by a higher than expected annualised 6.3% in Q4. This is the sharpest downturn since 2014.
• Sterling little changed at $1.3046 and €1.2035. Oil up a little at $57.35. UK 10yr gilt yield down 2bps at 0.63%. World markets broadly lower on Friday with Far East mixed in Monday trade.
• Brexit & politics:
o France’s foreign minister has said that the UK and the EU face bitter negotiations over their future relationship. Jean-Yves le Drian said ‘I think that on trade issues and the mechanism for future relations, which we are going to start on, we are going to rip each other apart.’
START THE DAY WITH A SONG:
Last Friday’s song was 505 by the Arctic Monkeys. Today who sang:
Me and some guys from school,
Had a band and we tried real hard
Jimmy quit, Jody got married
I should’ve known we’d never get far
RETAIL WITH NICK BUBB:
• Laura Ashley: In response to the Sunday Times story that the Malaysian owners of Laura Ashley are scrambling to save the struggling chain with an emergency cash injection, after a dispute with its lender over funding, the company has rushed out a statement to say that trading is challenging (first half sales slumped by c11%) and that working capital is under pressure, but denying that the funding discussions with Wells Fargo Bank involve a cash injection by the Malaysian parent. The company goes on to say that it is optimistic that it can turn the business around and that sales over the last 7 weeks have been flat. There will be more news on Thursday, via the interim results for the 26 weeks to Dec 31st.
• Saturday’s Press and News (1): The shock news that Manchester City are being kicked out of the Champions League by UEFA knocked the shock resignation of the Chancellor, Sajid Javid, off the front pages of most of the Saturday papers, although the Telegraph ran with “Johnson could rip up Javid rules to cut taxes” (the intriguing FT front page headline “China offers to build HS2 in 5 years” was a bit less predictable). In terms of Retail stories, the news that Frasers Group/#MadMike has joined the call for the Government to reform Business Rates was highlighted by the Guardian, inter alia, whilst the Times went big on the subject in general, flagging that the discount shoe chain Shoe Zone is threatening to walk away from 100 stores if nothing is done about onerous Business Rates and limited transitional relief and the Times also had an excellent double-page feature on Business Rates
• Saturday’s Press and News (2): The other big Retail story on Friday was that the wretched CMA has found the time to get worked up about the way in which Tesco appears to have blocked its rivals from opening stores in the past and has asked for the power to fine companies like Tesco for the practice: this was the main Business story in the Guardian and was also highlighted in the FT. The FT also found room to flag a dispute between WH Smith and the Telegraph, which has ended up with the Telegraph being displayed with current affairs magazines rather than with other newspapers (!). The FT Money supplement picked up the Investors Chronicle magazine story on Friday about the Director share selling in Games Workshop last week. The Times had a profile interview with the CEO of Halfords, Graham Stapleton, who plans to bring some stability to the company after the “revolving door” of
• Sunday’s Press and News (1): The rather surprising main Business story in the Sunday Times was that the Malaysian owners of Laura Ashley are scrambling to save the chain with an emergency cash injection, after a dispute with its lender led to a funding crunch. Otherwise, the problems of the beleaguered shopping centre landlord Intu Properties were the main focus in the Sunday papers, with the Sunday Times flagging that shareholders are unhappy about plans to boost the share option incentive plan for CEO Matthew Roberts, whilst the Sunday Telegraph noted that short sellers have increased their bets against Intu on the view that its debt covenants haven’t fully accounted for the future store closures of the embattled Arcadia fashion group. The Sunday Times had a separate article about Intu that focused on the fact that major shareholder John Whittaker (the former owner of the Trafford
• Sunday’s Press and News (2): Moving on, a little, from the problems of Intu, the Sunday Times also flagged that M&S is threatening landlords with even more store closures. The Mail on Sunday also had an M&S story: that small shareholders are angry to lose their shopping voucher perks and have branded M&S “Mean & Stingy”. On a different note, the Business Leader column in the Observer raged at the size of the £54m share option pot for Ocado CEO Tim Steiner and said that shoppers should take their business to Waitrose.com instead. The Sunday Times had a snippet that Mike Ashley/Sports Direct/Frasers Group face a £3.5m bill for funding the legal challenge to the Debenhams CVA and also flagged that the UK franchisee of Timberland has gone into administration (following a successful legal challenge to its CVA). And the “Inside the City” investment column in the Sunday Times
• News Flow This Week: The UK company news cupboard is pretty bare this week, although tomorrow lunchtime the Asda Q4 results will be out on the back of the WalMart final results in the US and the Laura Ashley interims are on Thursday, along with the ONS Retail Sales figures for January.