Langton Capital – 2020-03-05 – PREMIUM – Delivery, Domino’s, industry optimism, LfL sales etc.:
Delivery, Domino’s, industry optimism, LfL sales etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Language, fluid as it is, is fascinating in the way that it evolves.
I mean ‘decimate’ has taken on a much stronger meaning than its literal source intended and centimate, which should mean ‘just a tiny bit ghastly,’ isn’t even a word.
And ‘to disgust’ is much worse in English than it is in its native French where it more often means ‘to be put off by…’ Or at least that’s what I was told by a Francophone colleague who told me I disgusted her to do something or other.
And sticking to French the word ‘quelle’ (‘what’), adds strength to the following noun meaning that, if it is attached to ‘bovine animal’, ‘lady of the night’, ‘illegitimate person’ or ‘poo’, it makes the insult much, much worse.
Anyway, thinking about York, the Shambles literally means the place where animals are slaughtered and butchered, Whip-ma-whop-ma-Gate means beggar all street and Grape Lane has been shortened from something considerably more graphic (check it out on Wiki) and is best not walked alone at night. On to the news:
LANGTON 240-PAGE PREMIUM COMPENDIUM, £300 PLUS VAT:
Langton’s Premium Email launched around 12mths ago and, during its first year in operation, it has comprised a body of research & published opinion on a wide range of topics.
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.
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
DELIVERY – ANOTHER VIEW: It’s big, but is it profitable? Here analyst Peter Backman gives his views. 5 Mar 2020.
• Delivery is 1) here, it is 2) big but it is also 3) often unprofitable.
• The phenomenon is hardly likely to disappear but will it make sufficient profits to justify its existence over the longer term?
• Here industry analyst Peter Backman gives some of his views.
Setting the scene:
• Peter Backman says ‘delivery has become recognised as the number one disruptor of the restaurant industry. This worldwide phenomenon is already worth well over £100 billion in sales to the consumer and is expanding rapidly.’
• Delivery is complicating the market, offering more choice to consumers and it represents a ‘catch-22 for restaurant operators. If they don’t do delivery, they risk losing business and when they do it…they lose out on profit margin.’
• There can be reputational damage ‘because the restaurant doesn’t know who the customer is, let alone have any opportunity to engage’.
• Furthermore, ‘there is no control over the condition of the dish that’s ‘served’ to the customer, by the deliverer, a third party.’
How the industry could develop:
• Backman suggests that ‘there are elements [of delivery] which are profitable, such as the commission for capturing the order in an online marketplace’.
• however, the physical delivery can lose money, suggesting that, over time, delivery companies may attempt ‘to offload the unprofitable, namely the last mile delivery, to someone else.’
• Customer capture can be cheap and efficient. Physical delivery involves bicycles, human beings and other messy stuff
• Backman suggests that discounting commissions may continue to be a feature. But this may take time to generate profits via higher revenues.
• And cutting costs (getting the restaurants to do their own delivery and simply supply the software) could be finite.
• Backman says ‘there is a limit to the number of restaurants that are prepared, and able, to do their own delivery.’
Delivery – the profitable companies:
• Food delivery isn’t ‘new’ as such.
• Domino’s has fully integrated discovery, production and last mile delivery system and it makes money.
• Backman says ‘for the outsider at least, it’s not possible to identify the profit or loss of each of the individual elements.’
Further developments & operational hiccups:
• There is some consolidating of customer ‘discovery’
• Some of the ‘last mile’ delivery is being outsourced
• Some delivery companies are operating kitchens
• Waste is an issue – be it plastic or uneaten food
• The ‘aggregator deliverer’ owns the customer – and they will use this to their advantage over time. They may seek to cut the restaurant out of the equation
• App loyalty could be one of the key battlegrounds going forward
• There is likely to be (and there is already) some consolidation
• There will be sustained attempts to increase price
• This will, over time, determine what demand is ‘real’ and what is being purchased by the delivery companies by under-pricing their product
PUBS & RESTAURANTS:
• Domino’s Pizza Group has reported full year numbers to 29 December saying that system sales rose by 4.8% to £1.21bn with underlying LfL sales up by 3.7% (ex-splits). The group says that underlying EBIT rose by 1.7% to ~£105.3m with underlying PBT down by 1.2% at £98.8m.
• DOM says that underlying EPS rose by 1.1% to 17.6p and the dividend per share is up by 2.7% at 9.76p. Net debt is up by 14.4% at £232.6m.
• DOM says its performance in the UK & Ireland was ‘solid’ with LfL sales in the UK up 3.7% (ex-splits) and in Ireland up 3.0%. The group opened 32 stores in the UK & Ireland, of which 29 were franchised, by 23 different franchisees.
• CEO David Wild says ‘our core UK & Ireland business continues to deliver a solid trading result, with UK like-for-like sales up 3.7%. Our digital capabilities continue to fuel this growth, with online sales up 8.8%. Collection also saw a good performance, up 5.3%, and this remains a significant opportunity for us going forward.’
• Wild adds ‘in February we were pleased to announce a disposal of our Norwegian business which is subject to shareholder approval, and we expect this to complete by the end of May. We continue to prioritise transactions for our remaining International businesses, although expect that these may take some time as we ensure that we find the best owners for these businesses.’
• Interim Chairman Ian Bull adds ‘the Board is encouraged by the performance in the UK and Ireland, in an uncertain environment. We have four key priorities: recruiting a new Chair, CEO and CFO, reinforcing our core business, rebuilding our franchisee relationship and finding the right owners for our International businesses. We are giving these priorities considerable time and focus and are confident in the long-term prospects for the Group.’
• Re the prospects & the outlook DOM says ‘the external environment hasn’t been easy and, whilst parts of the UK and Ireland may become less cautious having formally left the EU, much remains uncertain as we go through the transition year.’
• DOM adds ‘the potential impact from COVID-19 is difficult to determine, with the situation continuing to evolve.’ It says ‘this year ahead is a crucial one for us, across our four priorities around a stable UK and Ireland core business with ambitious plans to be the best franchisor in the system, recruiting a Chair, CEO and CFO and managing Board succession, rebuilding relationships with our very important franchisee partners, and finding the right owners for our International territories.’
• The latest Business Leaders’ Survey conducted by CGA and Fourth has revealed a rising level of optimism among business leaders in the out-of-home eating and drinking. The absolute level was at a nearly-four-year high at the time the survey was conducted in early February.
• CGA says that 60% of senior executives were optimistic about prospects for the sector in February – a RISE OF 16 percentage points on the last confidence reading in November. Some 83% of respondents were optimistic about the prospects for their own company (as at early last month).
• Confidence could clearly have taken a bit of a hammering both from Storms Ciara and Dennis and from the gathering worries concerning the coronavirus outbreak and its impact on discretionary travel and leisure.
• CGA says that the early February spike in optimism ‘reflects greater clarity around Brexit and renewed optimism about consumer spending.’ Most leaders four weeks ago were less concerned about consumer confidence than had been the case in November (at 53% versus 34%).
• CGA points to areas of concern such as access to labour following changes to immigration as well as other cost pressures such as the increase in the National Living Wage.
• CGA says ‘the effect of more recent worries, like coronavirus, on business sentiment is yet to be gauged. Our monthly sector sales figures for February from the Coffer Peach Business Tracker, which we will be releasing next week, will give us a better idea of the immediate impact coronavirus as well as the recent flooding in the country has had to the eating and drinking out market. We will also watch with interest if sentiment changes amongst hospitality leaders in our next quarterly confidence survey in May.’
• CGA cautions ‘cost pressures are squeezing margins from all directions, and the new immigration proposals are a reminder that the next big challenge for this sector is never far away, be it policy, or indeed volatile consumer confidence in the face of coronavirus or changeable weather.’
• C&C has reported that it has expanded its existing multi-year partnership with AB InBev, to include exclusive distribution of Budweiser and Bud Light on the island of Ireland. C&C says ‘with the addition of Budweiser and Bud Light, from 01 July 2020, C&C will have responsibility for the sale and distribution of Budweiser Brewing Group’s complete beer brand portfolio across Ireland. C&C and Budweiser Brewing Group will collaborate on the marketing of the portfolio which also includes Stella Artois, Beck’s, Corona, Leffe and Hoegaarden. This will mean an end to Budweiser Brewing Group’s relationship with Diageo in Ireland.’
• C&C MD Tom McCusker says ‘this agreement marks an exciting new phase in our partnership with Budweiser Brewing Group. With a portfolio of some of the world’s most iconic beer brands, we look forward to optimising the portfolio and distribution strengths of our two businesses for the benefit of our mutual customers across Ireland’. For its part Budweiser Brewing president Paula Lindenberg says ‘we are happy to announce today that we’re strengthening our relationship with C&C Group, who is already a close, strategic partner for us.’
• S4Labour has reported ‘overall like for like sales were up 4.4% in February 2020, compared with the same month in 2019′ across c1,500 sites using S4Labour software.
• S4Labour says ‘in February 2020, it was the sales of drinks that bolstered the strongest like for like growth, up 6.1% on February 2019, which contrasted with the 1.3% increase in sales of food. This however should be put into context, where 2019 saw reasonably strong growth in sales of food and very modest increase in drinks of sales. The service provider says ‘like last month, it was sites outside of London that saw the strongest sales growth, with a 4.5% uplift of sales outside the capital and a 3.3% rise in London.’
• Diageo has increased its stake in United Spirits to 55.9% as part of its long-term premiumisation strategy in the Indian market.
• Per FT, the $1tn global events industry is at risk of a downward spiral due to the coronavirus outbreak.
• Austria’s 2019 grape harvest produced 2.3 million hectolitres of wine ‘despite heat and drought’, yet warm weather meant producers struggled to make any icewine.
• Vinitaly has been postponed until June due to the ongoing coronavirus outbreak.
• German meal-kit delivery company HelloFresh has confirmed 2019 turned out better than had been expected and has raised its growth forecast for 2020 revenues and core profit.
• HelloFresh expects 2020 revenue growth of 22% to 27% on a constant currency basis on the back of US market strength. The United States accounted for 57% of HelloFresh’s annual sales in 2019.
• Journal NRN suggests that ‘Papa John’s might finally be seeing the light at the end of the tunnel’ after a year in which it has had to rebuild credibility. The group has pointed out that same-store sales were up 2.4% internationally and 3.5% in North America for the fourth quarter, ended December 29, 2019.
• NRN says ‘although much of their strategy moving forward in 2020 and beyond involves food and marketing innovation, Papa John’s is dipping its toes into technology updates.’
• A letter requesting Chancellor Sunak to cut business rates by 10% in next week’s budget has been sent by more than 50 hospitality chiefs.
• Workers self-isolating due to the COVID-19 outbreak will now be eligible for sick pay from the first day they are off. The Government has further made clear that, if workers self-isolate, this will count as being sick for sick pay purposes.
• Per Nielsen, public concerns over COVID-19 has led to consumers around the world stockpiling resources. They’re also starting to think beyond emergency items, such as basic foodstuffs, including canned goods, flour, sugar and bottled water.
• High volume Wagamama sites will install bespoke delivery stations as delivery sales rose to around 12% of turnover last year.
• UKHospitality has welcomed the Government’s decision to register Covid-19 as ‘notifiable’, allowing businesses to seek compensation if they are affected by the coronavirus.
• A number of trade bodies have voiced concerns regarding the possible (or likely) increase in alcohol duties in next week’s Budget. The BBPA, for example, credits the 1.1% increase in beer consumption last year to the reduction in beer duty. Any move in the opposite direction, it implies, could be received negatively.
• The Restaurant Spaces conference in California has been hearing that the spread of the coronavirus may speed the growth of delivery. One speaker said that ‘confining people to their homes’ meant ‘we are going to see a massive change toward delivery in the next probably six to eight weeks. It’s not going anywhere.’
• EI group has announced that its shares will no longer be listed on the London Stock Exchange.
• Shares in Intu Properties fell by 41% to 6p yesterday after the group said that ‘extreme’ market conditions meant that it had been unable to raise a target of £1.3bn from nervous investors. Intu’s shares were over £9 in late 2006. They were almost £3 only three years ago.
• Intu says it ‘has concluded it is unable to proceed with an equity raise at this point.’ The company says ‘there is a risk that, depending on the performance of Intu’s business and movements in valuations, it could be in breach of certain covenants at their scheduled testing date in July 2020.’
• Intu is looking at ‘a number of alternative options.’
HOLIDAYS & LEISURE TRAVEL:
• Per Travel Weekly, the travel industry’s summer performance will be determined by the next six weeks of trading as the coronavirus threat looms over consumer sentiment. Miles Morgan Travel chairman Miles Morgan said forward bookings were ‘noticeably down’. John Hays, MD of Hays Travel, said ‘We could potentially be facing a major challenge.’
• A poll by Holiday Extras claims three out of four UK travellers still plan to taking their next holiday despite the c oronavirus outbreak. Only 10% of UK travellers say they have decided against all international travel during the outbreak.
• A British woman has been diagnosed with coronavirus while staying at the H10 Costa Adeje Palace hotel in Tenerife.
• London Book Fair has been called off due to concerns over the coronavirus outbreak.
• The US Travel Association forecasts the number of travellers to the US to fall by 6% over the next three months due to the fallout from the global coronavirus outbreak. Hotel News Now points out that the predicted 6.0% three-month drop compared to the same period in 2019 is the sharpest in the five-year history of the TTI, and would be the largest decline in international inbound travel since the 2007-2008 financial crisis.’
• NATS managed a record 2,580,214 flights in UK airspace last year, up 0.9% on 2018. Between 2009 and 2019, air traffic increased by 13.3%. These stats are, of course, backward looking. Journey volumes could be dented by the coronavirus for most of the rest of 2020.
• Flybe has cancelled all flights after entering into administration. The company failed to secure a £100m government loan.
• Uber has said it is willing to use technology from competitors in the self-driving car industry.
• Sonatic, a specialist in artificial voices for the gaming industry, has secured €2.3m in a funding round led by EQT Ventures.
• Lego plans to open 150 shops globally in 2020, despite estimating that the global toy market shrank by 3% in 2019.
FINANCE & ECONOMICS:
• The UK Services PMI fell to 53.2 in February from 53.9 in January. The Composite PMI for February was 53.0. IHS Markit says ‘the post-election rebound in service sector growth lost some of its bounce in February, in part due to coronavirus related disruptions to sectors such as travel and tourism, but continued to expand at an encouragingly robust pace.’
• China has seen its largest monthly drop in car sales ever, with volumes down 80% y-o-y in February.
• The IMF has said that the spread of the coronavirus means that hopes for stronger growth in 2020 will not be fulfilled. The IMF now expects 2020 world growth to be below the 2.9% rate for 2019.
• The IMF has also announced some $50bn of support for countries hit by the coronavirus.
• Sterling stronger at $1.2875 and €1.1561. Oil lower at $51.94. UK 10yr gilt yield down 2bps at 0.37% on rate cut hopes / fears. World markets all higher yesterday with the Far East up in Thursday trade.
START THE DAY WITH A SONG:
Yesterday’s song was The Who with Substitute. Today, sticking more or less in the same era, who sang?
Wear a tall hat like a druid in the old days,
Wear a tall hat and a tattooed gown
RETAIL WITH NICK BUBB:
John Lewis Partnership: The JLP finals will be announced at 8.15am. We are expecting JLP pre-exceptional PBT to be down from £160m to £95m for y/e Jan (albeit that includes a £13m property profit from the first half, mostly at Waitrose), but there will be heavy exceptional write-offs on top of that, eg for the John Lewis store portfolio. We are not sure how much JLP will focus on the divisional split, as they will no longer break it down in the new year, but the damage was obviously done at John Lewis: we expect operating profits there to be down from £115m to £30m (on ex-VAT sales of £3.82bn). Waitrose should be solid at £210m/£220m vs £203m in the previous year (on ex-VAT sales of £6.37bn). As for what the rumoured Strategic Review may be looking at, the new unified management structure of the 2 Divisions makes it hard to separate one of them off, if that’s thought to be a good idea in
FTSE 100 Watch: The organisation that produces the FT All-Share index series in the UK, FTSE Russell, does not exactly make it easy to access its announcements, with the information only available to registered users, but the latest quarterly FTSE index review last night did, as expected, see Kingfisher ejected from the FTSE 100 index (Morrisons survived, for the time being).