Langton Capital – 2020-02-28 – PREMIUM – Redundant space, GfK confidence, EI Group, Papa John’s etc.:
Redundant space, GfK confidence, EI Group, Papa John’s etc.:
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A DAY IN THE LIFE:
I think it’s time for Langton to conduct another pavement survey as, though we have no statistical evidence at present, it appears that the pedestrians that annoy us in the morning are behaving differently to those that get in our face in the evenings.
Because, whilst the morning crowd seem to be dawdling and carrying cups of coffee, listening to music or reading newspapers, the ones in the evening, who seem to walk a bit faster, are often reading something on their phones whilst stumbling into traffic, hitting lampposts or catching a well-aimed one in the ribs from a cans-of-beer-filled Langton backpack.
And, whilst the morning lot look angry, tired and miserable, the evening crowd and angry, tired and conflicted. They seem to want be happy but it can never quite break the surface and, rub two of them together and you’ll often get sparks. Oh, to work in London. On to the news:
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Here, we have curated a large number of those articles in order to logically sequence the major issues that are currently impacting the hospitality subsector or the wider leisure sector. The piece is available now. Please drop us a line.
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IF YOU BUILT IT, THEY WOULDN’T NECESSARILY COME: The internet and changing trends have meant, perhaps, that there is simply too much space’ out three. 28 Feb 2020.
Fashion and tech can change quicker than it takes a building to ‘wear out’:
• A simple question is: ‘if they didn’t exist, would you build them now?’
• This applied to stables and steam engine workshops in the past and it could be said to apply to department stores now
• But department stores are not alone. When did consumers last have difficulty finding a coffee shop or a casual dining restaurant, for example? And when was the last time you bought a phone or a laptop from a bricks and mortar shop?
The evidence of our own eyes:
• Just this week, Lloyds has said that it will cut 780 jobs as it closes branches and Virgin Money will cut 900 jobs and close 52 branches
• In restaurants, Frankie & Benny owner Restaurant Group has said that it would like to sell, close or otherwise exit some 90 of its leisure division restaurants
• Workspace and Regus have made a business model out of short-term offices and trendy Shoreditch operators are taking hot-desking to a new level. The coronavirus outbreak is further encouraging people to work from home
• Beales closed all of its department stores in two goes earlier this month, Mothercare shuttered 79 shops on 7 Jan and Links of London has, literally, shut up shop
The fallacy of equivalence:
• And to say tattoo parlours, charity shops, cash for gold and payday loan outlets will fill the void is both unattractive and wrong
• Because there is a question of equivalence. We don’t need 100m square feet of body piercing capacity coming onto the market
• And even experiential, which is a more genuine ‘thing’, can’t really fill the void. All of the axe-throwing bars, escape game sites, darts and mini-golf bars etc. in the whole of York, for example, would fit into one shuttered BHS site.
• And that leaves the Homebase (two, one gone to B&M, the other to Go Outdoors), Mothercare and bank sites to fill
• And the Go Outdoors could easily operate in a space a quarter the size of what it has. One can only imagine that there’s a ferocious rental contribution being made by the prior tenants or the landlord has taken a hit
• Bingo could fill a larger hole but 1) that took care of high street cinemas 60yrs ago and 2) the concept (other than some much smaller, pub-based versions) is a bit yesterday
• There probably are some quangos with names similar to that above but, when our transport strategy is in disarray and the high street is emptying in a move that could see city centres getting hollowed out, where are they when you need them?
• The UK is not a command economy but, as the operators pressure their landlords, the landlords whine to their banks (and shareholders), the banks go with their begging bowls to the government and HMG then turns to the taxpayer, we all have an interest in getting this right.
• The scale of the withdrawal from bricks & mortar is arguably so large that only residential can fill the gap
Specific leisure issues:
• What makes sense on the micro level (let’s expand our coffee estate from 10 to 12 units) may not make sense at the macro level, where the number of outlets could rise by thousands
• But there is no mechanism to stop this
• A sensible question equity and debt providers should ask, therefore, is ‘does the market need more sites?’
• And, without the benefit of hindsight, this is an extremely difficult question to answer
• If the operator does not dance while the music is playing, he could lose out. If he does, he could go bust.
• There is comfort in a crowd but, another path to growth could be picking up the pieces in the aftermath of rival busts. Or simply (and more realistically) slowing opening programmes into the froth and stepping them up when competitors are struggling
• Worth observing that Marston’s and Wetherspoon have slowed or cut openings and Franco Manca did so a couple of years ago but is picking up cheaper sites now
PUBS & RESTAURANTS:
• The closely-followed GfK Consumer Confidence Index is out this morning showing an increase of two points to minus 7 for February. The UK is still ‘net miserable’ but a little bit less so than it was in January.
• GfK says ‘against a February backdrop of rising wages and house prices, low unemployment and stable inflation, we report another healthy uptick in consumer confidence this month – the third monthly increase in a row.’
• The Boris Bounce is somewhat feeble but GfK says ‘the rise in the Overall Index Score is driven by our increasingly positive view on the state of the UK’s general economy for both the past and the next 12 months. And, despite the fact that consumers have shown some concern about their day-to-day personal finances this month, a big five-point jump in the Major Purchase Index reflects the recent rebound in retail sales, as widely reported.’
• GfK says net depression is still a feature but adds ‘the trajectory remains upwards.’ It says ‘the only ‘known unknown’ is the potential impact of coronavirus on behaviour, confidence and spending patterns.’ Actually that isn’t true as the EU trade talks, the US trade talks etc are also unknown.
• Misery rolls downhill. It’s tempting to say ‘not my problem, Guv’nor’ until one meets an unfortunate person, company or government that can no longer shuffle off the problem. Understandable yes. Unavoidable, probably. But not always attractive.
• JD Wetherspoon has said staff will be subject to regular statutory sick pay rules if they self-isolate owing to coronavirus.
• UKHospitality urges the Government to act swiftly on business rates and has welcomed its intention to fundamentally reform the rates system.
• The BBPA claims British beer drinkers have paid as much in Beer Duty so far this year as those in Germany will pay all year.
• Starbucks CEO Kevin Johnson has confirmed that 85% of 4,290 Starbucks stores in China are now open. The company had closed more than half its stores in China in January in response to the coronavirus outbreak.
• In the US, DoorDash has taken early steps towards an IPO with the company saying ‘The number of shares to be offered and the price range for the proposed offering have not yet been determined.’
• EI Group has announced that the High Court has sanctioned the scheme of arrangement under which the company will be bought by Stonegate. The effective date for the completion of the acquisition will by 3 March. EIG says that trading in its shares will be suspended from the opening of business on 2 March.
• Panera Bread in the US has introduced a ‘free’ coffee and tea offer for a subscription price of $8.99 per month. The subscription will pay for itself in four visits. Subscribers can only have one drink (rather than buy them for their whole office) every two hours.
• Panera could potentially lose money on the deal but, given the high mark up on coffee and the fact that coffee sales currently account for only 3% of Panera’s total revenue, the operator is more likely to cause problems for its competitors than it is for itself.
• As National Restaurant News in the US says, these are ‘uncharted waters for the coffee sector: no other major chain has come up with a similar unlimited coffee subscription program.’ Panera says ‘our research shows that consumers are enthusiastic about coffee, but they are conflicted because of the cost. You might spend $1,100 a year on coffee and that is staggering.’
• The company says ‘we believe by providing this service, it will help get customers into our cafes.’ If a proportion of coffee drinkers can be poached from other players and persuaded to spend money on other products, it may well be right.
• A report published by the All-Party Parliamentary Beer Group has urged policy makers to understand pubs’ potential ‘in spearheading high street revival and delivering wide-ranging policy initiatives.’
• The night-time economy can be a valuable addition and the report calls for a fundamental review of business rates and a reduction in beer duty to release this potential for the sake of jobs, tourism and the cultural and social enrichment of Britons. Mike Wood MP says ‘as government charts a new course for national wellbeing, it’s time to wake up to the widespread initiatives pubs can help deliver.’
• Union Unite has announced the first strike dates for its Greene King members. The union called a ballot in January when members voted for industrial action after rejecting a 2% pay rise.
• Unite says ‘these pay negotiations have dragged on for months with a hard-line management being blinkered as to the ever-rising cost of living that our members have endured for several years.’
• Global Brands, which owns VK and Hooch, has launched a spirits division to be known as Inspirit. The operation will market and distribute a number of products including Rock Rose Gin, Mistral Gin, Didsbury Gin, Holy Grass Vodka and Bonanto Aperitivo brands.
• Celebrity chef Hugh Fearnley-Whittingstall is to close his River Cottage Kitchen restaurant in Bristol after 7yrs of trading.
• Papa John’s in the US has said that same store sales internationally rose by 2.4% in Q4 with sales in North America up by 3.5%. This is the second quarter of LfL growth. CEO Rob Lynch said the numbers owed much to strong marketing campaigns and product innovation. Mr Lynch says ‘since arriving at the company, my mandate for Papa John’s product and marketing team has been simple: innovate and build on Papa John’s premium differentiated brand.’
• Papa John’s says the changes ‘are delivering, fending off competitive value platforms without us having to deeply discount.’
• Birmingham’s first ever axe throwing venue, Whistle Punks, is to open a fifth lane as a result of strong demand.
• Market Halls has told an industry gathering that there are ‘around 300’ food traders who are keen to open in its sites.
• Discounts still prevalent with Bella Italia and Café Rouge offering 30% and 25% off mains respectively and Prezzo offering two for one on main dishes.
HOLIDAYS & LEISURE TRAVEL:
• Whitbread has announced the completion of the Foremost acquisition in Germany comprising 19 hotels, taking the total German open network and committed pipeline to 52 hotels for an undisclosed sum.
• WTB says ‘the completion of the Foremost acquisition marks an important milestone as we execute our ambitious growth plan for the Premier Inn brand in Germany. The acquired hotels are all in proven prime locations, are of high quality and will appeal to both business and leisure customers. This acquisition significantly increases our scale in Germany, taking our presence to 19 open hotels and a pipeline of 33 more across the largest cities in Germany.’
• WTB goes on to say ‘we believe the German market has many of the structural growth drivers that have underpinned the success of Premier Inn in the UK, and is a market that will deliver strong returns in the future. We will continue to look for opportunities to further accelerate the growth of our business.’
• Online travel company eDreams ODIGEO has reported a 12% fall in bookings across the group since the coronavirus outbreak. It has cut profit estimates for the year to end March to around €130m from a range of €130m to €134n previously.
• CEO Dana Dunne says ‘while the impact of the coronavirus has brought a slowdown to the industry, the underlying fundamentals of online travel are strong, and once the virus is contained, a return to normal trading patterns will resume.’
• Saudi Arabia is to halt visits to the holy cities of Mecca and Medina in an attempt to control the spread of the coronavirus.
• TUI has said that it will pay compensation to holidaymakers who had to spend a night in Las Palmas airport in the wake of the weekend sandstorm.
• Dozens of Jet2holidays and TUI holidaymakers are amongst the c1,000 guests currently facing two weeks’ quarantine at a Tenerife hotel after a guest from Italy tested positive for the Covid-10 coronavirus.
• Per HVS, the latest European Hotel Valuation Index (HVI) shows hotel values across Europe gained a further 3% last year.
• STR reports US hotel occupancy down 2.1% to 63.2% for the week ending 22 February, with ADR up 0.7% to $130.55 and RevPAR down 1.4% to $82.55.
• Europcar has reported revenue of €3,022 million for 2019, up 0.9 per cent on the previous year. The company says ‘the second half of 2019 was challenging, with the European economic slowdown and the Brexit both impacting our corporate and leisure businesses.’ It says ‘this led us to accelerate the roll-out of our efficiency and standardization programs, so as to adapt our cost-base.’
• The Court of Appeal has ruled the decision to build a third runway at Heathrow unlawful. Heathrow is thought likely to appeal the verdict. The government, on the other hand, has said that it will not appeal.
• Long-stay hotel company Extended Stay America has reported Q4 numbers saying that REVPAR fell by 0.8% in the quarter but outperformed the market.
• The FT reports that companies are cancelling business travel across Asia and Europe as the coronavirus spreads rapidly around the world. The GBTA, a business travel association, says the coronavirus is having a “significant” and “potentially very costly” effect on the business travel industry.
• Uber is set to appeal its London ban on 6 July.
• Facebook has announced that it has acquired Bay Area VR studio Sanzaru Games. The terms of the deal were not disclosed.
• Plans are being progressed to build a £350m arena next to the stadium of Manchester City football club. California-based Oak View Group told the FT it wishes to build a 23,500 capacity music and entertainment venue.
• Flutter yesterday warned that UK gaming taxes and increased investment in the US are holding back profits. Profitability fell by 38% to £136m. EPS were down 24% at 183.2p. The dividend was held at 200p per share.
FINANCE & ECONOMICS:
• Mark Carney has cautioned that the coronavirus outbreak could lead to growth prospects for the UK being downgraded. He says ‘there’s less tourism – as you can see on our streets here in the UK…We would expect world growth would be lower than it otherwise would be, and that has a knock-on effect on the UK.’
• The Dow Jones fell by almost 1,200 points yesterday, the largest drop in its history. The Far East looks to be 3% to 4% lower.
• Sterling lower at £1.2885 and €1.1709. Oil lower at $50.90. UK 10yr gilt yield down 2bps at 0.49%. World markets lower yesterday and Far East down today. UK FTSE100 set to open down around 260pts.
• Brexit & politics:
o The UK government has said that it may walk away from EU trade talks in June if not enough progress has been made.
o Despite red lines not working too well for Mrs May, the UK has set more down ahead of the commencement of talks next week saying it will not allow access to UK waters for EU fisherman, will not stick to EU rules on subsidies and employment rights etc and will not allow the European courts to adjudicate in disputes.
START THE DAY WITH A SONG:
Back next week.
RETAIL WITH NICK BUBB:
• Consumer Confidence Watch: With the stockmarkets now in full panic mode about the impact of the coronavirus on economic activity, the month is ending on a gloomy note and we warned yesterday that today’s widely followed monthly GFK Consumer Confidence survey shouldn’t be interpreted as an up-to-date reading on the coronavirus worries, as polling is always done in the first half of the month (Feb 3rd-14th to be precise, this month). Next week’s polling, for March, will be more interesting…but, for what it’s worth, the February survey shows a useful improvement in the overall index from -9 to -7, thanks, ironically, to better vibes about the general economic outlook and major spending intentions.
• BDO High Street Sales Tracker: We highlighted on Wednesday the rumoured better trend for recent John Lewis sales figures, helped by very weak comps and improved Online growth, and 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 also OK, despite continued poor High Street footfall figures…In w/e Sunday Feb 23rd, Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were up by 0.4% (down 0.7% in Store sales and up by 12.8% in Online sales).
• Trade Press: We haven’t seen Drapers magazine yet, but the front cover of Retail Week magazine today is a map of the UK and Europe, with the headline “Retail’s red line”, to flag up the main feature article on the new immigration rules (“Will the new immigration rules trigger a people crisis?”). RW also have feature articles about the Coronavirus Crisis (“Supply chain in jeopardy; Chinese etailer’s response”), Too Many Cooks? (“Why chief executives are drafting in strategy directors”) and Secret Sauce (“McDonald’s UK boss Paul Pomroy on his recipe for success”). And in his leader column, the Editor of RW looks at the recent death of “Love Island” host Caroline Flack and thunders that “To beat the trolls, retailers must act on mental health”.
• News Flow Next Week: There is again plenty of UK company news scheduled for next week, as we move into March, kicking off on Tuesday with the Travis Perkins finals (and an update on the Wickes DIY demerger), the Greggs finals and the latest monthly Kantar/Nielsen grocery sales figures. Wednesday evening brings the latest quarterly FTSE index review (with Kingfisher and Morrisons both said to be at risk of ejection from the FTSE 100 index). Thursday is then “D-Day” for the embattled Intu Properties (in the form of their finals and news on the rescue rights issue) and the John Lewis Partnership (in the form of their finals and Bonus announcement).