Langton Capital – 2020-06-16 – PREMIUM – Gregg’s, Cineworld, calls for re-opening clarity, job losses etc.:
Gregg’s, Cineworld, calls for re-opening clarity, job losses etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Having once again failed to cut the grass yesterday, I’m looking for a self-justificatory distraction so here are a couple of questions for you (answers at the bottom of this Day in the Life, below the pointless waffle about Monday’s shopping volumes):
Which of the following birds hop and which walk, and which fruit and veg sink, and which float:
• Hoppers vs walkers: Sparrows, robins, pigeons, magpies, pheasants, starlings.
• Floaters vs sinkers: Apples, oranges, red peppers, potatoes, carrots, plums, peaches.
Anyway, listening to the BBC, Sky, Channel Four and others, you’d be forgiven for thinking that the UK consumer had flocked to the shops yesterday as if the ending of the retail lockdown meant some random Monday in June was equivalent to Black Friday, Christmas Eve for the errant boyfriends out there and the Boxing Day sales all rolled into one when, in fact, it almost certainly wasn’t.
Because many consumers out there will have discovered the ‘Buy Now’ button on Amazon and they may never visit bricks & mortar stores as frequently in the future as they did in the past. The stats will be out in due course & we’ll have a think about it then.
Anyway, small birds hop, and big birds walk. It’s physics but there are some quirks. Magpies are at the cut-off size and they do both. Pigeons should hop but they don’t, they walk because they are such fat, unhealthy creatures and starlings actually walk when they have no right to do so because they should hop. They haven’t read the script and don’t bring up kangaroos, because they’re not birds.
And, for floaters vs sinkers, just try bouncing a potato and a red pepper off a work colleagues head, asking them which they disliked the most, and you’ll get the drift. Basically, potatoes and carrots sink. And so too, I think, do turnips and parsnips. The others float. On to the news:
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THE PACE OF CHANGE: Wars are said to speed technological change. Can the same be said of pandemics? 15 Jun 20:
• It’s often said that wars (or at least military research) speed technological progress. And we posit, the same may be true of pandemics.
• Wars have brought forward (or accelerated the introduction of) products such as Satnavs, radar, the Internet, microwaves, superglues, duct tape, canned food, freeze drying techniques, drones, computers and jets
• And, re services, we have bloodshed to thank for blood transfusions, plastic surgery, medical expertise in trauma and the like (as well as dead end, we hope, research into psychic abilities, killing goats by staring at them etc.)
• The major ‘product’ that we’re all hoping for is a vaccine.
• But, in the meantime, Covid-19 has done wonders for the face-mask industry, for rubber gloves, soap, alcohol-rubs etc.
• And its perhaps longer lasting social impacts have been (or are being) many and varied.
The death of cash:
• Cash may be like paper (of paperless office fame) but, as many shops (including Langton’s local chippie) will only take plastic, it’s on the back foot now
• And it’s worth considering ‘when did you last spend a penny?’ No, not spend a penny, but spend a real penny because, for Langton or anybody currently living chez Langton, it’s got to be the teens of March, i.e. more than three months ago
• That may not be atypical. Card companies will be doing well. Shops will pay the charges (and save a bit on cash handling) and we, the consumer, will ned up paying the bill
• Online shopping has boomed worldwide. See our earlier comments on Cambridge University’s study of spending in Spain
• It is very likely that some, at least, of this spend will stick once lockdown ends properly – indeed even after fears have abated
• This overlaps with online shopping but here we’re thinking of food as the delivery companies have had a good pandemic.
• A bit of this at least is likely to have become habit-forming and, as the consumer, for understandable reasons at the moment, has put another layer of service between the farm and his fork, there will be costs to pay.
• The consumer, ultimately, will end up shouldering these
Click & Collect:
• A kind of half-way house between the restaurant (which is closed at the moment) and delivery.
• The margins are much better for the operator as the consumer does a lot of the work.
• The industry would love this to stick and some of it may.
• Decisions will then need to be made about separate entrances, parking and the like. There might be nothing the operators can do to re-shape their existing units but, with new sites, they may have different requirements
Working from home:
• Many people are working from home and admin managers must be looking at office space requirements for their companies going forward.
• Hot-desking (less space than you have people) is a half-way house and meeting rooms, admin etc may need to be centrally located
• But the office market may not recover in the short term. Or the long term. This has implications for the grab n go sandwich shops, coffee shops and after work bars that rely on office trade
• This is similar to the above & has similar implications.
• It does mean that the supermarkets might be selling office workers their bread and cheese (which can be combined, apparently, to make a sand which) rather than Pret
• The ex-commuter could save £50 a week on commuting (much more in London), £30 on lunchtime snacks, £20 on coffee and perhaps £20 if they stretched to a 3-pint London drink once a week
• This adds up. The consumer might save it, or in the real world, they may buy a PS5 and spend the rest in a suburban pub or a residential restaurant
• There are green implications, mental health implications etc. indeed there has never, ever been a person who, on their death-bed, has said that they wished they had commuted more
• Without getting too deep about it, the fragility of human life has been brought to the fore.
• We are only ever a 1) novel virus, 2) with an R much greater than one and 3) a substantial mortality rate from deep trouble
• Thankfully, bad though it is, Covid-19 isn’t it. However, whilst memories do tend to be short, for some time at least, the consumer may remain more cautious than they otherwise would have been
PUB & RESTAURANT NEWS:
• The BBPA has once again called for clarity on when pubs can open. It says ‘the UK Government must give a clear, definitive date for when pubs can reopen to give the sector the confidence and certainty it needs to get ready for reopening. This includes releasing staff from furlough, agreeing the significant investment required in pubs to ensure they can reopen with new safety protocols in place and getting the brewing of draught beer underway again and delivered to pubs in time.’
• It’s all so easy when it’s spreadsheets, spin and sound bites. The devil, for operators, is nearly always in the execution.
• The BBPA says ‘without an immediate announcement of a definitive date for reopening and the issue of the promised final safety guidelines today…thousands of Britain’s pubs, despite their best efforts, wouldn’t be able to reopen.’ It says ‘we have consistently and clearly asked Government for at least three weeks’ notice to ensure our pubs can bring staff out of furlough, prepare and reconfigure themselves to adhere to safety guidelines, and ensure they have fresh draught beer ready to serve customers. The deadline for notice the Government needed to give us to be ready to reopen on 4th July, as referenced in its own roadmap, passed on Saturday. As of today, we have no finalised safety guidelines and no definitive date for reopening – we need both today if pubs are to reopen on 4th July.’
• The government is saying that its ‘review’ into the 2m rule will report before 4 July. Unfortunately, any date beyond last Saturday is leaving operators guessing.
• Fuller’s CEO Simon Emeny says ‘to ensure our pubs can reopen on 4th July I have to decide by Wednesday morning whether we bring staff back from furlough and invest in the new safety protocols our pubs require to reopen safely in early July.’
• Young & Co is not holding out too much hope regarding any certainty by this week and it has said it will not open until early August.
• Opining on the same theme, UKH says ‘we need confirmation of the reopening date for hospitality businesses without any further delay. Businesses need time to prepare and the first step in giving them some much-needed clarity is confirmation of when they can open their doors again.’ Hymn sheet, same, singing.
• UKH says ‘this is particularly important for hotels and tourism, where 60% of bookings are made more than two weeks in advance. If the sector is to reopen on 4 July, that only gives us two weeks from this weekend, so time is of the essence. Friday’s GDP figures – with hospitality and tourism representing a quarter of the total decline – illustrated the powerful economic might of the sectors, so the country can ill afford delaying their return to trading.’
• UKH calls for cuts in VAT on tourism sales and for a cut in Air Passenger Duty as well as for protection against landlords and an extra bank holiday in the Autumn.
• The FT reports that ‘Boris Johnson on Monday missed his own deadline for reviewing Britain’s controversial two metre social distancing rule with Downing Street now promising only that a new inquiry would conclude “in the coming weeks”.
• A number of restaurant bosses including those at Wagamama and Pizza Hut have warned prime minister Johnson that the sector faces mass job cuts without more help. Deliveroo is reported to have organised the letter, which has been signed by a number of its partner restaurants including Itsu and Pret A Manger.
• A date of 3 July in reported to have been set for pubs, bars and cafes to open in Northern Ireland.
• As operators have been left in the dark, many are having to make their own plans. One restaurant has written to customers saying ‘week beginning 15th June we will be bringing some of our key staff back to the restaurant for yet more thorough cleaning and adapting of the entire place, along with essential training tutorials.’ It says ‘from 22nd June, weather permitting, we will be undertaking ‘dress rehearsals’ at lunchtimes.’ It then says ‘finally, during the week commencing 29th June, we will be trialling a full service. By Saturday 4th July we will be very much up to speed and safe for our customers and staff with a reassuring two metre spacing (not one) between the tables, restoring some stability and common sense to what will have been an insane four months out there.’ This is not without material cost.
• The Telegraph says pubs may be allowed to open later into the evening in an attempt to reduce crowding and bolster trade. Pubs, at this very moment, are not crowded at all.
• Industry analyst Peter Backman has pulled out a few (and there really are not that many) positives from the current situation and says that previous recessions in the foodservice industry led to bursts of evolutionary activity. He says that this time around, the food supply chain could change in the UK and that companies in the food-supply business have pivoted, where they could, away from restaurants and towards food retail outlets. He suggests that they may be reluctant to replace too many eggs in the restaurant basket.
• As regards re-openings, Mr Backman says that, as of the end of last week, around 4,600 units had been re-opened for delivery, takeaway and click-and-collect by 81 brands. He says this represents around 30% of the total number of restaurants across the segment. Some have yet to reopen stores (or they are running trials) and this group includes majors such as Frankie & Benny’s, Pizza Express and Greggs.
• In calling once again for the government to get involved and to help the sector with rents (and with relationships with landlords), London Union boss Jonathan Downey says that some landlords are dipping into rent deposits to pay overdue rent from March this year. June rents (for calendar Q3) are due in just over a week’s time.
• Mr Downey says ‘there must be billions of pounds of hospitality deposit cash sloshing around that landlords have been grabbing at to cover the loss of March quarter rent. Getting their 100% rent despite our 100% loss of revenue.’
Jobs and JRS II:
• MPs have said that around 1m workers are not benefitting from either the JRS or measures brought in to help the self-employed. There have been calls for protected workers to have tips included within calculations of their pay prior to lockdown.
• UKH says that 0.5m workers in hospitality may be missing out on the JRS payments because their job start date meant they were ineligible for support.
• The CJRS is to evolve on 1 July such that part time working will be allowed. The new scheme will only be available for employees that were registered under CJRS I. The ICAEW reminds us that ‘employees can be flexibly furloughed, enabling part-time working’ and that there will shortly be no minimum furlough period.
• Sky says 2m distancing has not ‘put off the swarms of shoppers lining England’s high streets.’ It says shoppers were queueing to enter familiar shops and it interviews a number of them saying they were keen to get out of their houses (and maybe away from the people in them).
• The real numbers will come through over time. All shops will be busier than they have been for three months. None of them are likely to be busier than they were last year. The BBC says ‘shoppers in England rushed back to the High Street.’
• Job losses this week. Travis Perkins is to cut 2,500 jobs in the UK and shut 165 stores. Jaguar Land Rover is to shed up to 1,100 agency staff. Kuoni has started a consultancy period ahead of job cuts (it employs around 500 people in the UK) and accountant Grant Thornton is to lay off 70 staff. Heathrow is to cut 500 jobs per union Unite.
• Gregg’s has updated on its financing and its shop opening plans saying that it has accessed the Covid Corporate Financing Facility and has been working on ways to reopen its units.
• Gregg’s says ‘in recent weeks we have successfully operated a small number of shops and tested various operational changes, including new workwear, equipment and social distancing measures, that will support the safety of our teams and customers when we open shops at scale.’ It says this has been ‘well received’ by both staff and customers. Gregg’s says it will roll out this trial to a larger number of units in early May.
• Gregg’s then says that, following ‘a larger scale opening of selected shops with new procedures and equipment’ in Mid-June, it has taken the decision to open all of its shops in early-July. Moving towards this goal, it intends to open around 800 shops to takeaway customers later this week, on Thursday.
• Gregg’s says ‘we are not able to predict the impact of social distancing on our ability to trade or on customer demand. However, our capacity to operate will be restricted by size of shop and we must anticipate that sales may be lower than normal for some time.’ It says some staff will remain on furlough ‘either fully or partially, until sales levels begin returning to normal.’ Gregg’s says its product range will be restricted ‘until demand reaches a level that justifies the addition of remaining product lines.’
• Gregg’s has suspended its new shop opening programme and is ‘approaching landlords making a variety of proposals in return for rent reductions.’ It says ‘all landlords have been informed of our plan to move to monthly rent payments from June.’ Gregg’s made its full quarterly rent payment in March as usual. Gregg’s is accelerating its delivery and click and collect service provision. CEO Roger Whiteside OBE says ‘looking forward, although great uncertainty remains, we are excited to be resuming our service for many customers this week. We are confident of our ability to adapt to market conditions in the short term while continuing to invest in the long-term growth of our business.’
• Le Caprice will not reopen. The restaurant has been in operation for 38 years. The Ledbury, which has two Michelin stars, will also not reopen.
• Lancashire pub chain The Seafood Pub Company has called in administrators after failing to secure funding in the wake of the coronavirus lockdown. Founder Jocelyn Neve writes ‘as we were not granted a coronavirus business interruption loan the next step was for us to try and raise funding from the bank and our investors. Whilst both were supportive, the investor fundraise failed, as did my subsequent management buyout attempt.’
HOLIDAYS & LEISURE TRAVEL:
• The Times reports that landlords to the hotel chain Travelodge ‘have warned they may reject its restructuring plan this week if they do not get clarity about a £40 million investment by its owners.’
• Travelodge has said that if its CVA is rejected, the company could go into administration or liquidation. The company has around 11,000 staff, some 8,000 of whom are thought to have been furloughed. Travelodge is owned by Goldman Sachs, Avenue Capital and Golden Tree.
• The Quash Quarantine group has called upon home secretary Priti Patel to resign if she loses a court case over the UK’s one-week-old quarantine rules.
• Fleurets has said that some hotel owners may be looking for alternative uses for their assets. The property agent says ‘hotel owners, operators and investors face a multitude of challenges over coming months. Pre-opening plans will be made and implemented, marketing strategies for the ‘new world’ are being devised and most businesses will aim to reopen in alignment with anticipated guest demand as businesses strive to revive their dormant hotels and return to profitability.’
• It says ‘the biggest challenges are a direct consequence of the Covid-19 virus. However, some [challenges] existed prior to the crisis’ and it adds ‘the biggest of these pre-existing hurdles was, and is, new hotel competition, both in the form of rooms that had recently entered the market prior to the crisis and also new rooms under construction that will add to room stock in the near future. At the forefront of course are the budget hotel brands.’
• Fleurets says it expects to see a ‘process of natural selection, leading to the survival of the better equipped properties and businesses in stronger locations, which in turn improved the quality of the sector as a whole.’
• It says that, when the pub market saw a shakeout, many units went for alternative use. It says that freeholders selling sites, it is ‘essential that marketing fully captures both purchasers that might be contemplating continued use as hotels and, equally importantly, those seeking alternative uses.’
• Sky reports that two investment firms, Elliott and Greybull Capital, are in talks to combine in order to put in a joint offer to provide new funding for Virgin Atlantic. Greybull is the former owner of Monarch Airlines.
• Kuoni has begun to consult on UK staff redundancies.
• Travel Weekly reports the cruise industry as saying that it could bounce back next year very rapidly. Ultimately, its capacity to do so will rest in the hands of its customers.
• EasyJet aircraft flew for the first time in three months yesterday.
• Travel Weekly reports travel agents, always an optimistic bunch, as saying they ‘have enjoyed a “positive” first day back on the high street for the first time since the UK lockdown was imposed.’ No hard numbers at this stage.
• Cineworld has announced that it is to reopen its cinemas in July. The group says some, where the law permits, will reopen at the end of this month. Dates provided are the Czech Republic & Slovakia on 26 June, Poland & Bulgaria on 3 July, Israel on 9 July and the UK & US on 10 July. Hungary and Romania are yet to be confirmed. Cineworld CEO Mooky Greidinger says ‘the entire Cineworld team remains committed to being ‘the best place to watch a movie’’.
• Some 50 MPs have called for a ban on all gambling advertising and a cut to £2 in the maximum stake allowed online. The All Party Parliamentary Group for Gambling Related Harm said today that UK gambling regulation needed a “complete overhaul” and added that Covid-19 had exacerbated the need for better protection for vulnerable people. The report says ‘we cannot continue with the current lack of regulation for the online industry. We have an industry that is profiteering from vulnerable people gambling more than they can afford.’ Iain Duncan Smith is the vice chair.
• Cineworld is now said to be facing legal action from rival and would-be suitor Cineplex after the latter pulled out of a deal to buy the former.
FINANCE & ECONOMICS:
• The EY Item Club says that the British economy will shrink by 8% this year and it may not make up the ground lost until 2023. This is a less pessimistic suggestion than that from the OECD, which is looking for an 11% contraction.
• EY says ‘many people have lost their jobs despite the government’s supportive measures. This will inevitably have some limiting effect on the economy’s recovery.’
• Inflationary expectations have fallen, says the Bank of England.
• Sterling up at $1.2666 and €1.1172. Oil higher at $39.68. UK 10yr gilt yield unchanged at 0.21%. World markets. UK and Europe lower yesterday but US up and Far East higher in Tuesday trade on the back of US spending and stimulus announcements. London set to open up 155pts (as at 6.30am).
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: The pre-close update from the fashion chain Joules confirms that, in line with current market expectations, group underlying PBT for y/e May will be in the range of -£2m/-£3m, despite a 40% jump in Online sales during the pandemic over the last 3 months. There is no guidance on the outlook, having only re-opened 12 stores yesterday, but Joules notes that cash flow has been stronger than expected and the CEO Nick Jones trumpets that “As we move out of lockdown and into a ‘new normal’ for retail, I am confident that Joules is exceptionally well positioned to continue to react to changing consumer behaviours and that our brand – which brightens our customers’ lives – is more relevant than ever to consumers”. The update from Greggs today is more cautious in tone, noting that although it intends to re-open around 800 shops to takeaway customers on Thursday, the product range
• News Flow This Week: Royal Ascot begins today (behind closed doors) and “Honest Nick” hasn’t had much time to research the card to bring you his Tips, but Hold Fast looks worth an e/w punt in the 2.25pm and the Irish horse Mogul looks the banker of the day in the 3pm. Otherwise, tomorrow brings the Boohoo Q1 and the Kingfisher finals. On Thursday we get the finals from New River (the community shopping centre and pub landlord) and the Ted Baker EGM (to approve the recent rescue deal), with the ONS Retail Sales figures for May and the Boohoo AGM following on Friday.