Langton Capital – 2020-06-08 – PREMIUM – Restaurant Group, Wasabi, Revolution, re-opening etc.:
Restaurant Group, Wasabi, Revolution, re-opening etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, with global warming taking a few days off, it was nine degrees and pouring with rain in our corner of the North of England over the weekend and cutting the grass never got a look in.
Indeed, it was a weekend for putting sport on the telly or for popping out, heaven help us, to a shopping centre but, as none of the above was an option, we had to fall back on plan B, which was moping around and generally starting, half-finishing and making worse all those niggly little jobs that had been accumulating around the house.
Which is not very satisfying. Indeed it left us keen on a pub, a roaring log fire and a bit of real ale in the evening but…
Anyway, it’s all about the future. Eleven degrees and less rain today, whoopee. On to the news:
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• Pubs and unemployment, the elephant in the room. All eyes are on the virus, the lockdown and plans to reopen. But is looming unemployment the elephant in the room?
THE UPCOMING RECESSION. If two quarters of negative GDP growth equals a recession, then it is very likely the UK will be in a technical recession by the end of Q3. 8 Jun 20:
• Understandably, all eyes were, mid-March, on the footfall damage caused by Covid-19 concerns.
• This moved on to the lockdown, fundraising, protecting liquidity and the like.
• The focus is now on reopening. How to deal with a 2m or 1m rule, how to get your staff back, how to restock etc.
• At some point, the focus may move to the overall shape of the economy for the rest of this year and into next because, let’s face it, hospitality spend doesn’t tend to fare well in a recession.
Where we are:
• The government has been accused of making up policy on the hoof.
• There may be something to this but, with the furlough, loans for business and the like, there have been some notable achievements.
• Messrs Sharma and Sunak have had a good crisis. Sharma is expected to make a major statement on the economy in July.
• In the meantime, the press is reporting that Boris Johnson is a convert to reopening pubs and restaurants more rapidly and to dropping the 2m rule.
• Sky and other sources say he will make a key speech on rebuilding Britain’s economy in the wake of the coronavirus crisis at some point in the coming weeks
• No real insights here but high-profile projects are likely to be at the fore and the proportion of the workforce employed (either directly or indirectly) by the government is likely to rise.
• In the meantime, industry has to secure today in order to make sure that a tomorrow is possible
• This will be possible for some, but not all businesses
• The dilemma is and always will be that the fortunes of the nation’s health and its wealth could, in the short term, be negatively correlated
• Best not go get both wrong (as we have Tweeted). Indeed, as Germany has, if you can, it’s best to get both right
The UK economy:
• Unemployment affects those laid off directly but it impacts many others indirectly
• Not just family members, who may also have to tighten their belts, but the businesses where those people would have spent their money, if they had still had a job
• And, although a bad recession may impact 10% of the workforce directly, it impacts much of the other 90% indirectly in that it can depress their propensity to spend
• In English, that means that fears of job losses extend to a larger number of people than those impacted directly
• This will dampen spending and, however well the crisis had been handled, this may be inescapable in the short run
Any silver lining?
• The government has been softened up to provide more help. Whether it puts its hand in its pocket when it is asked to do so, however, still remains to be seen
• Sites will be available for those willing and able to expand and, perhaps more importantly, supply will be reduced
• CGA says a third of operators will cut unit numbers and another third have yet to make up their minds
• Today we mention Wasabi and Restaurant Group’s leisure division but there are many other operators who are with advisors
• Landlords are expecting keys back and they will likely get them. This means that the cake of hospitality spend should be sliced between fewer operators (or at least between a fewer number of sites)
• Demand itself will be lower. Never look a gift horse in the mouth, of course, but it will be critical as to which economic impact outweighs the other
• Yes, there will be winners.
• Some operators will have been very pleasantly surprised by just how much revenue their delivery and click and collect offers have generated, for example
• True, not all rival units are open yet but this is helpful and, as not all rival units will ever reopen, at least a bit of it should stick
• Having a low cost base will help. Having a low fixed to variable cost base will also allow flexibility and the old staples, good product, good units, good service, good people etc., will still count for something
Running out of time again but we will write tomorrow on the below. Please ping us any thoughts or suggestions:
1. Convoy theory. Consumers will only come out (in groups) at the speed of the most nervous amongst them.
2. Young people. They may be the most willing and able to come out but, unfortunately, their ‘intentionally crowded’ units may be amongst the last to reopen.
PUB & RESTAURANT NEWS:
• Business Secretary Alok Sharma is reported to have told PM Boris Johnson that, unless the economy is opened up more rapidly, some 3.5m jobs could be lost. He is reported to have replied ‘Christ.’
• Ministers are now reported to have set 22 June as the date when pubs and restaurants may be allowed to serve customers outdoors. There are problems here as 1) you wouldn’t be able to order, brew and deliver any beers quickly enough to get them into cellars and 2) what do you do about toilets?
• The FT says that six ministers, calling themselves the ‘save summer six’, are calling for earlier relaxation. No10 has said that no firm date has yet been set. Staff will need to be brought back from furlough, units will need to be cleaned and, well, the grass will need to be cut, the tables and chairs scrubbed down and the like. There is some lack of certainty here.
• Scientists, meanwhile, are worried that the lockdown, which Professor John Edmonds told Andrew Marr yesterday was imposed too late (after Cheltenham etc.), is being taken off too early. Hindsight is a wonderful thing but, if it had been imposed earlier, it may have been lifted a couple of weeks ago with tens of thousands of fewer deaths. The R rate in the North West of England is reported to have crept above one as people have begun mixing again due to good weather (now passed) and in the wake of the Dominic Cummings saga.
• Boris Johnson is reported to be a convert to cutting the 2m rule.
• Wahaca boss Mark Selby has told the BBC that ‘starting up, it’s going to be hell.’ He says ‘a lot of people are going be nervous about coming out. We’ve all got to do our jobs in making people feel confident, making them feel safe, but also giving them that experience that hospitality is.’ It is likely that consumer confidence doesn’t ‘return overnight’.
• Wahaca is expecting to be down about 60% in the early weeks after the removal of lockdown. Young & Co has mentioned 50% – though it is not planning to open until 3 August.
• Selby tells the BBC ‘I don’t see how anyone makes money on two-metre guidance, it becomes an impossible situation to work to.’ For one thing, the entrance to most units won’t be large enough to let two people pass each other, loos will be an issue, aisles will have to be wider, the kitchen won’t be workable. And the latter, for a restaurant, is a bit of an issue.
• UKH’s Kate Nicholls tells the BBC ‘if we’re operating at such a loss and furlough is going to be withdrawn, then it’s vital that these businesses which have been cash-starved since March have additional funding to help with rents in particular, which is the second biggest overhead they’re facing.’
• The Telegraph says ‘landlords are braced for carnage later this month as retailers and hospitality firms withhold rent on an unprecedented scale.’ It says ‘at most 15pc of the £2.5bn owed by businesses in their June 24 quarterly rent bill will be collected, the British Property Federation (BPF) estimates – potentially sending major property owners to the wall and triggering bitter legal battles when coronavirus restrictions are lifted.’
• We have suggested previously that bad stuff (insert your own word there) rolls downhill. Landlords are below operators, the banks behind them. Then comes the government – and that means you and I, the taxpayer.
• The British Institute of Innkeeping has released the results of a survey of its c8,500-strong membership regarding reopening. Only around one in four of its members believe that they will reopen if customers have to be kept 2m apart. Some may simply not be able to function. The BII says that the businesses of many of many of their members are ‘teetering on the edge of survival.’ Some 97% of respondents believe that they will lose a quarter of their turnover or more.
• The BII’s CEO Steven Alton says ‘many pubs will struggle to open at all, having traditional pub environments not designed for social distancing. Whilst a number of other pubs have been able to diversify their businesses and offer takeaways, deliveries and other services to local customers, the majority have made very little money through these activities.’
• The BII says ‘18% of our members have had no access to grants as they have rateable values of £51k and over. These pubs, whilst slightly larger venues, are often your locals, who are really struggling to make ends meet during this lockdown.’ The larger units will have benefited from the suspension of business rates and the ability to furlough staff.
• The BII’s members need ‘clarity and support’. The group says the 2m rule would mean many operators would need to limit their food operations.
• KAM Media has undertaken a survey in association with the BII and has found that as many as 1 in 3 of those aged between 18 and 34-year ‘say they expect to visit pubs more often after lockdown than they did before.’ Around 52% of respondents aged between 18-34-years ‘say they plan to visit a pub at least once a week when lockdown measures lift.’
• However, KAM finds that, when aggregating all customer responses across age-groups, there could by 12% fewer pub visits when lockdown lifts. KAM says ‘pubs will obviously be impacted very differently depending on their customer base, location and whether they are food or drink-focussed. Unfortunately, the types of pubs which may suffer the most initially are food-led and city centre locations – 48% of respondents say they intend to visit city centre pubs less often.’
• KAM says that, where the frequency of pub visits is to be reduced, health issue most impact older customers whilst, for younger pub-goers, it is a lack of money. The BII adds that pubs will need to adapt. It says publicans face ‘the very real issues of the initial trading being unprofitable and significant concerns over how confident customers will be in returning to the pub.’
• Draft House founder Charlie McVeigh has launched Project Pint, a movement aimed at persuading the government to open up pubs as soon as possible when it is safe to do so. Project Pint will ‘aim to combat FOGO, or the Fear of Going Out, which pub operators say is one the key threats to the sustainable relaunch of our community venues.’ McVeigh says ‘with the forced closure of our community pubs, bars, restaurants and clubs we have lost something incalculable from British daily life. It is essential that we get them back open absolutely as soon as it is safe, to start to repair the immense social and economic damage caused by CV-19 and lockdown.’
• The Institute of Economic Affairs has said that the economic consequences of the lockdown will be negative and extensive. It says ‘as we prepare to enter its twelfth week, millions of people seem blissfully unaware of the economic asteroid that is about to strike. Temporarily insulated from reality by furloughs, grants and loans, a majority of the public supports the lockdown and is resistant to even modest relaxations of the rules.’
• We have commented previously that the ‘success’ of the lockdown and the health of the economy are inextricably but negatively correlated.
• A survey by restaurateur Marcus Wareing has suggested that restaurant margins will be reduced when units reopen. There could be fewer customers and increased costs. Wareing found 34% of consumers saying they would spend less in restaurants compared with only 11% who said they would spend more.
• The Daily Mail says that a ‘Great Recovery Bill’ to cut red tape and get the economy moving again is planned at some point. Sky, which has also been briefed, says the Recovery Bill may be several weeks ago. The Times says pavement licenses may be speeded up or granted more readily. The Mail says ‘al fresco Britannia’ something or other. Some other newspapers are a bit grumpier saying it’s policy on the hoof and none of this has been worked out. A mini-budget could come in July. There is talk of easing Sunday trading restrictions, though Labour and some retailers say this would serve no purpose.
• The Caterer says ‘a wave of redundancies has begun across the hospitality sector as operators grapple with the prospect of social distancing, inflexible landlords and the winding down of the furlough scheme.’ See our earlier comments on Walking Dead, Your Unemployed and You Don’t Know It and similar.
• A YouGov poll suggests most Brits are drinking about the same as they did prior to lockdown. Stats last week from the BBPA show that beer sales overall are sharply down. Though sales in the off-trade have risen sharply, those in the on-trade have fallen by around 100%.
• CGA’s latest BrandTrack survey shows that 85% of consumers are worried about the long-term financial implications of COVID-19. It finds 33% of consumers still expect to be spending less on eating and drinking out in six months’ time.
• Sky News quotes The City UK’s Recapitalisation Group as saying that up to £36bn of recently-made emergency loans may go bad. The taxpayer, ultimately, could end up footing the bill. Arguably the purpose of the loans was to keep wheels turning and, for a while at least, they have succeeded in that aim.
• Accountant PwC has predicted a boom in corporate deals as private equity and foreign wealth funds hunt for bargains
• Datassential in the US says that consumers are very keen to return to restaurants. It says ‘eating at a restaurant is right up there with seeing family. That’s remarkable. The mental benefit and the psychological benefit we get from restaurants and this feeling of normalcy that we derive from those sit-down restaurant experiences cannot be overstated.’
• Restaurants in parts of New York State (though not New York City have been given the go-ahead to provide outside meals.
• The Restaurant Group has confirmed that it is in discussions with its landlords regarding a possible restructuring of its Leisure Division. RTN says ‘as is widely understood our industry is facing exceptional challenges in what is an unprecedented operating environment. The casual dining sector was already facing significant challenges prior to the onset of Covid-19, with overcapacity and significant cost pressures.’
• RTN goes on to say ‘in order to meet both the immediate challenges and to build a post-lockdown business with a sustainable future, we are in discussions with our landlords regarding potential restructuring options for our Leisure estate. Our Wagamama, Airport Concessions and Pub operations are not affected by these discussions.’
• RTN says ‘a further announcement will be made as and when appropriate.’ There had been speculation recently that the group was considering a CVA for its leisure assets.
• The Times reports Sushi chain Wasabi has hired KPMG to negotiate rent cuts. The group, with 51 stores, wants landlords to link rents to turnover.
• Wagamama, the noodle-chain owned by Restaurant Group, has said that it is ‘not in a race’ with its rivals to reopen restaurants as rapidly as possible. Young & Co intimated the same thing last week.
• Revolution Bars Group on Friday confirmed that it was to issue 75.0m new shares at 20p after a book-building process to ascertain demand. The directors have taken 660k shares. CEO Rob Pitcher says ‘the fundraising will ensure that Revolution Bars Group has a more appropriate capital structure as we emerge from this uncertain period and will allow the Group to resume its successful refurbishment programme and take advantage of potential opportunities which may arise in the near term.’
• Reuters reports that Casual Dining Group (Bella Italia, Cafe Rouge and Las Iguanas) could close around 30% of its outlets ‘as their owner pushes ahead with talks to sell the businesses stricken by the COVID-19 crisis.’ It quotes ‘sources’ as suggesting CDG is in negotiations with potential buyers for its entire estate.
• Greene King is reported to be expanding its ‘pub grub’ delivery and takeaway service
• Cider maker Thatchers is offering every one of its free-trade customers in Great Britain a free 50 litre keg of Thatchers cider in what it says is a £1million pledge. The company says ‘we want to help the pub industry get back to business after this immensely tough period. There’s no doubt pubs and bars will need all the help and support they can get, with the new normal being just as challenging.’
• Crussh is reopened its Notting Hill store last Friday
• Intu is reported to have ‘put administrators on standby’. KPMG has been lined up. The company is reported to be entering a crucial fortnight which will determine if it can survive COVID-19 without major surgery.
• Intu has 17 UK shopping centre assets owned by separate special purpose vehicles against which the listed parent company borrows money to fund its operations.
• The UK arm of Victoria’s Secret has fallen into administration
HOLIDAYS & LEISURE TRAVEL:
• The UK’s quarantine scheme comes into force today. The implementation will be closely scrutinised.
• AITO has suggested that older travellers do not feel deterred from taking holidays once travel restrictions are lifted. In a survey carried out by Spike Insights, some 75% of respondents believed travel within the UK will restart in the next three months; 78% think short-haul European travel will resume within six months and 71% that long-haul trips can take place in the next nine months.
• Matt Hancock has said he “really hopes” Britons will be able to take overseas this summer. That’s a relief.
• A Travel Weekly webinar has heard from industry players suggesting that holiday trends could be changed in the short term with fewer people comfortable in crowded resorts or on cruise ships
• Airbnb could restart next month.
• Sabre is to cut 800 jobs.
• Stobart Group, which owns Southend Airport, has raised £100 million in a share issue
• Gym Group has announced ‘it has signed an extended bank facility with incremental commitments of £30 million from its existing lenders HSBC, Natwest and Banco de Sabadell.’ It says ‘this agreement formalises the deal which was agreed in principle and outlined within documentation relating to the Company’s equity placing announced on 16 April 2020.’
• Gym Group says ‘the New Facility has an 18 months term and is an amendment to the Company’s existing £70 million Revolving Credit Facility signed with the same three banks in October 2019. From September 2020 until June 2021 the covenant tests of the RCF will be replaced by new covenant tests primarily relating to the performance of the Company against agreed EBITDA targets that reflect a period of gym closure (relating to Covid-19) and phased recovery thereafter. Upon termination or early cancellation of the New Facility the covenants and all other terms of the original RCF will apply until the maturity of the RCF in October 2023.’
FINANCE & ECONOMICS:
• World Bank President David Malpass has said that the coronavirus pandemic is a “devastating blow” for the world economy. You think? The World Bank says that 60m people could be pushed to extreme poverty. He told Radio Four that the disease and the associated shutdowns ‘has meant billions of people whose livelihoods have been disrupted. That’s concerning.’
• The Recruitment and Employment Confederation says that the jobs market is bad, at a reading of 19.3, but it is up on April’s record low of 9.3. A number of anything below 50.0 implies contraction.
• The Halifax Building society has said that UK house prices fell 0.2% in May. Prices are still up by 2.6% on May last year.
• The U.S. added jobs in May with the jobless rate falling to 13.3% from 14.7% in April. President Trump said ‘today is probably, if you think of it, the greatest comeback in American history.’
• Exports from China contracted in May by around 3.3%. Imports were down by 16.7%.
• Tentative moves towards normality, on financial markets at least. Sterling stronger at $1.2706 and €1.1252. Oil higher at $43.16. UK 10yr gilt yield up 5bps at 0.36%. World markets stronger Friday but London set to open down by around 35pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): There were some rather contradictory headlines on the front pages of the Saturday papers: the Daily Mail trumpeted “Boris Budget to fire up the UK” (flagging that a “Great Recovery Bill” is being planned by the Government, alongside a mini-Budget next month) but the FT played it all down (“No sign of summer Budget as Sunak delays his stimulus plan until autumn”). The Guardian went with “WHO advises over-60’s to wear medical masks”, but the Daily Telegraph, bizarrely, ran with “Green light for no-fault “quickie” divorces”, whilst the Times highlighted “Plans to open shops all day on Sundays” (and noted that some scientists are against reopening non-essential shops on June 15th…). In terms of Business stories, with global stockmarkets rallying strongly, the main FT front-page headline was “US jobs surge fuels recovery hopes” and the Telegraph Business
• Saturday’s Press and News (2): In terms of Retail news, both the Times and the Daily Mail stockmarket reports led with the news that the JD Sports boss, Peter Cowgill, had cashed in £13m of stock on Friday, on the back of the recent share price rally. The news that the 25 strong Victoria’s Secret store chain in the UK had gone into administration provided a welcome fashion model photo opportunity for the Telegraph, whilst the huge quarterly loss reported by the Gap clothing chain in the US provided a fashion model photo opportunity for the Guardian. On its News pages, the Guardian flagged that plans to reopen shops are in chaos over the guidelines on social distancing and it also had an accompanying feature on how some High Streets see “a chance to reimagine the retail landscape”. The Times had a feature on “lockdown winners”, highlighting the recent boom for corner shops and bike
• Saturday’s Press and News (3): In terms of comment columns, the FT had three interesting articles. The stockmarket reporter of the FT, Bryce Elder, penned a column about the indiscriminate rally in the stockmarket (“Broad rally sends signal to take the money and run”). And the “Long View” investment column on the back page of the FT was headlined “Investors swept up in optimism need to ask hard questions”. And Lex column in the FT looked at the entry of the DIY businesses Homeserve and Kingfisher into the FTSE 100 index in Wednesday’s quarterly review (“Homeliness wins out”) and thundered that it is debatable whether Kingfisher can retain its status, but concluded that Homeserve should remain at home in the FTSE 100 for some time…
• Sunday’s Press and News (1): There were more mixed messages on the front pages of the Sunday papers: the Observer went with the news that senior NHS figures are urging the PM to plan for a second wave of coronavirus infections (“PM told: dump the rhetoric and plan for a new wave of Covid”), but the Sunday Telegraph, loyally, highlighted that Boris has ordered ministers to speed up the construction of new hospitals (“PM speeds up hospital building to aid economy”) and the Sunday Times flagged that the PM is continuing to ease the coronavirus lockdown, in order to avoid the possible loss of over 3m jobs (“Jobs bloodbath triggers swifter lockdown easing”)…
• Sunday’s Press and News (2): In terms of Retail news, the Mail on Sunday, the Sunday Times and the Sunday Telegraph all flagged the Sky News scoop that the embattled shopping centre operator Intu Properties has put KPMG on standby to act as administrators, ahead of the key quarterly rent day on June 24th and the June 26th deadline to reach agreement with the banks over debt covenants and interest payments. The Sunday Times also had an article focusing on the problems facing even the once mighty Westfield London (“Mightiest malls laid low by virus sweeping the High Street”) and it separately flagged that Primark is gagging landlords from talking about the secret rent deals it has agreed. In other news, the Sunday Telegraph found a fashion model photo opportunity for the front page of its Business section from the news that Laura Ashley collapsed owing creditors £162m, whilst the
• Sunday’s Press and News (3): In terms of all the comment columns in the Sunday papers, we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“Groggy recovery is under way, but the real test comes later”), in which he said that “a VAT cut is not particularly needed now, because plenty of pent-up demand will be coming through”. We would also give a shout out to the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“No way out, as Covid’s incoming tide of debt sweeps all before it”), in which he looked at the debate about how to approach the huge £100bn+ debt bill for dealing with the economic impact of the pandemic.
• Today’s News: The pharma sector is alive with rumours that AstraZeneca has been plotting a mega-merger with the US giant Gilead Sciences, but the company has not issued any comment on the speculation…On a more mundane level, the struggling motor dealer Lookers has enlivened a quiet day by revealing that its final results are going to have been delayed yet again, because of the need for “additional procedures” and that because they won’t be published by June 30th, the FCA six month deadline, the shares will have to be suspended from July 1st! And after all that, Deloitte, the auditors, have said they want to resign…
• News Flow This Week: First thing tomorrow we get the BRC-KPMG Retail Sales survey for May, followed later in the day by the Signet Q1 results in the US. Wednesday brings the interims from the West End landlord Shaftesbury, whilst on Thursday we get the B&M finals, as well as the Morrisons AGM and the Dignity AGM.