Langton Capital – 2020-06-18 – PREMIUM – Consumer behaviour, wages, pub reopening, jobs, cruise lines etc.:
Consumer behaviour, wages, pub reopening, jobs, cruise lines etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Langton received an email from a head-hunter yesterday telling us just how special we were to be offered the chance to employ some mystery person.
Now that’s not unusual but, as the email was addressed to ‘Dear [person.First.Name},’ we thought that something must have changed in the head-hunting industry such that all it was ironically tipping its hat to reality and that all pretences as to individuality were being dropped.
Or, perhaps, the person sending the email forgot to hit the ‘merge’ button. Probably one or the other.
Technical point. The open rate for yesterday’s email was down, suggesting that we used a word or phrase that triggered firewalls. We can’t find what it was so may do it again. Hence, if you don’t get an email daily from time to time, please let us know and we’ll try to track down what happened.
The daily email will always be available for the next 24hrs on our website.
Anyway, we’re covered in scratches and bites today as we cut the grass and ploughed through a patch of brambles on one of the borders of the ‘lawn’. Wearing shorts was therefore more than just the fashion disaster that it usually is. Follow us on Twitter at @brumbymark. On to the news:
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CAMBRIDGE ECONOMICS DEPARTMENT & COVID-19: Cambridge Uni has been hosting lectures on the economic impact of Covid-19: 18 Jun 20:
• We commented a couple of weeks ago on spending trends in Spain. We’re hoping for an update at some point as some guidance as to what to expect coming out of lockdown would be interesting.
• Here we look at the maths behind some of the epidemiological predictions (not as boring as it sounds) and why we have a pretty good idea of what to expect.
• And we look at human behaviour in a pandemic. How it is misleading to consider a disease will pass through a population of human beings as if they were rabbits or mice or any other animal.
• The impact on different ‘types’ of people.
Epidemiology, maths & what to expect:
• Most agree this will be a chi-square distribution (steeper on the way up than on the way down). The gradient (both up and down) will be driven by the R rate – and by the nature of the lockdowns (if any)
• Professor Oliver Linton (Trinity) says ‘the UK and most European countries are past their peaks and close to the endgame.
• Curves are similar in many European countries including Switzerland, Germany & Italy.
• The down-curve is less steep in the UK and is flatter still in the US and Sweden. It’s not altogether clear why this is as the virus does not know or care which country it is in.
• Slack lockdowns, no lockdown (Sweden) or a reluctance to obey the rules may solve for some of the difference. There is also some correlation with a poorer performance and obesity
• Professor Linton describes the ‘endgame’ as the (fairly lengthy) period when infections and deaths are running at a tenth or less of peak levels
• Linton says the danger of infection now is around 1/10 what it was at end-March.
• Some other countries have yet to hit the peak. These include very populous countries such as Brazil, India, Mexico, Nigeria, Bangladesh, Egypt, Pakistan.
• Linton says short term forecasting has been good but models have ‘consistently underestimated the likely total number of cases and deaths for the UK and US’.
Human behavioural interventions:
• Dr Flavio Toxvaerd points out that human beings will take certain actions into their own hands. There are three main courses of action.
• One. Epidemics can be prevented by vaccines. With Covid-19, we don’t have one.
• Two. Sick people can be cured. But we have no cure.
• Three. That only leaves ‘behavioural interventions.’ In 2020 it’s a lockdown. In the middle ages, it meant locking the gates to the town (after certain citizens had fled).
• Imperial College’s infamous 510,000 deaths was heavily caveated. It said the number would only be accurate if no mitigating actions were taken.
• It was a reasonable ‘worst case’ scenario – and the caveats have been forgotten. Imperial has, perhaps, been a convenient whipping boy
• Re behavioural interventions. Some are mandated by law but others would happen whether or not the State got involved. People will spend less time at travel hubs, transit points and recreational areas and more time at home.
• The epidemic has been broadly similar in Denmark and Sweden despite the one having a lockdown and the other passing on it
• Hence mathematical models will work for animals but not for humans
Human character & the susceptibility to infection:
• Dr Weilong Zhang says that, if the major character types are overlaid, the disease (indeed any disease) is most likely to infect people who are extraverts rather than introverts and those who are open to new experiences rather than the innately conservative
• This may account for some differences across countries.
• Zhang says that the susceptible people mentioned above simply can’t socially distance themselves.
WILL ENDING LOCKDOWN REALLY END LOCKDOWN? As suggested above, there is a limit to what you need to (or can) tell people to do. 18 June 2020:
Big on-switch, small off-switch:
• Many people were locking themselves down even before they were ordered to lock themselves down.
• Meetings were being cancelled, presentations were moving to webinars, after work beers were being postponed and Langton itself legged it back up to Yorkshire on the Tuesday before lockdown because ‘things just felt a bit weird’
• Then lockdown happened.
• And now, it might be about to unhappen but, if things still ‘feel a bit weird’ (face-masks, quarantines, 2m distancing, hand gels, disinfectant sprays, queues to get in shops etc), will consumers revert back to their normal behaviour or will they take things rather slowly?
It’s a numbers game.
• Some will return to ‘normal’ as rapidly as possible. These might comprise people who have previously tested positive, some younger people, the defiant types etc. Their spending will return to 2019 levels in July. Say 20% of the population.
• Some may not leave their houses again for months. Data from BBVA in Spain suggested that spending halved for the locked down. People maintained spending on food but spending on travel, petrol, socialising etc fell to almost zero. We assume that these ‘shut in’ people remain in lock-down mode for 6mths. Say 10% of the population.
• But, in the middle, there may be a large chunk of the population, say 70%, that take things easy, wait to see what happens etc. If their spending halved in lockdown, we assume that a half of the shortfall is made up when lockdown ends, and another quarter of the shortfall is made up after 3mths, the rest, 3mths after that.
• Simplistic though it is, the above allows us to suggest that spending could 1) fall 50% during lockdown, 2) remain 22.5% below normal for 3mths after lockdown ends, 3) be 13.75% down LfL for the next 3mths and return to ‘normal’ thereafter
Other points worth making.
• We have mentioned convoy theory before
• If a group or a family comprises a person in each of the above groups, spending is more likely to tend towards that of the most timid rather than the most outgoing person
• The above measures the desire to spend, rather than the ability
• If any of the people above are unlucky enough to lose their income as a result of Covid-19, then spending ability will be depressed, whatever happens to the desire to do so
RESTAURANT GROUP, WAGAMAMA BONDHOLDER UPDATE, Q1 – 2020:
• Restaurant Group has published its Wagamama report for bondholders for Q1 this year, being the period to 29 March, saying that ‘UK turnover decreased 1.2% to £80.3 million in Q1 2020 with Covid-19 significantly impacting trading in the last 5 weeks of the quarter, ultimately resulting in the temporary closure of our restaurants.’
• Wagamama says ‘UK sales growth in the first 8 weeks of the quarter was 17.6% driven by the continued expansion of our restaurants (1 new restaurant and 2 delivery kitchens opening in the quarter) and 8.4% UK like for like sales.’
• Sales in the US fell by 63% as, from the commencement of the group’s JV (see below), the US figure was no longer included in group sales.
• In Q1, the company saw adjusted EBITDA fall by 7.5% to £11.5 million from £12.4 million in Q4. It says ‘strong growth of 40.7% in the first 8 weeks of the quarter [was] offset by the impact of Covid-19 in the latter weeks.’
• Features for the period include that completion of the group’s US Joint Venture, which became effective from 31 January 2020. It says there were synergy savings as part of the wider TRG Group. CEO Emma Woods says ‘I am extremely proud of the Wagamama team for such strong Q1 results and the cost effective way we temporarily closed the business. We are now looking forward to the safe reopening of our restaurants and welcoming our guests back to enjoy some noodles.’
PUB & RESTAURANT NEWS:
• A number of brewing and pub CEOs have written to the Prime Minister telling him that he needs to let them know by this Friday whether or not pubs will be allowed to open on 4 July. Beer needs to be brewed, pubs cleaned and tidied, staff brought back etc.
• The leaders say ‘without this certainty by the end of this week, many businesses in the sector will be forced to cut costs to ensure their survival through the extended period of financial uncertainty. This could result in hundreds of thousands of job losses and permanent pub closures.’
• The BBPA says that pub & brewery businesses are burning £100m a month at present. It says ‘we need a date now to give us confidence and clarity on when we will reopen.’
• Greene King says ‘despite our best efforts to work with Government and our significant investment to ensure the safety of our customers and team members, with under three weeks to go until the reopening date outlined in the Government’s roadmap, we have neither the finalised safety guidelines or confirmation of the definitive reopening date.’
• Marston’s adds ‘we started brewing fresh draught beer again for pubs last week.’ It must decide this week ‘whether we bring staff back from furlough and invest in the new safety protocols our pubs will require, as the safety of our guests and employees is paramount.’ Marston’s CEO Ralph Findlay says ‘I will not reopen our pubs before those protocols are in place. Without an immediate and definitive confirmation from Government on timing, I can’t afford to bring our staff back to work to do that.’
• The British Institute of Innkeeping has written to Chancellor Rishi Sunak saying ‘many of our members’ businesses are on the brink of collapse’. It says ‘they entered this lockdown period after a cyclical period of low trading with little or no reserves. The measures you have put in place have supported many of our pubs, however, as we enter a further period of closure and uncertainty, many now face business failure.’
• The BII says pubs support ‘over 500,000 direct jobs in pubs and the average pub generates around £140,000 of taxation per annum to the Treasury. For many they are family livelihoods and homes. Your support is now needed to safeguard the future of people at the heart of our nation’s pubs.’
• The BII calls for grants for pubs with rateable values over £51,000, for an extension of the furlough period, for easier loans and for a further extension of the business rates holiday to April 2022.
• A YouGov poll has found that 51% of businesses that currently have staff on furlough expect to lay some off once government aid stops. Some 9.1m are currently furloughed. The scale of the layoffs was not quantified but a fifth of respondents said they may have to lay off 30% or more of their staff. Feedback from restaurants suggests cuts of perhaps 30% to 40% although some of these roles will be part-time. The furlough is currently scheduled to be in place until October.
• Sky has reported a poll by Crossland Employment Solicitors as suggesting that a third of workers currently furloughed have been asked to carry out some work by their employer.
• Camden Town MD Adam Keary has told the MA that said the UK on-trade could shrink ‘by up to 20%’ in the wake of Covid-19. In addition, CGA has said a third of restaurants will not reopen all of their sites and a further third have yet to make up their minds.
• Keary says the industry needs to know as a matter of some urgency whether the 2m rule will be kept in place and whether staff will have to wear PPE. He believes Camden Town’s off-trade customers could swing from 15% of total sales pre-Covid to nearer 30%.
• Westminster Council is planning to temporarily close roads and create al fresco dining spaces in order to help the hospitality industry. This is in sharp contrast to the City of London which, last seen, had suspended pavement licenses.
• The MA quotes Britvic’s GB foodservice and licensed director, Adam Russell, as saying that soft drink sales in the foodservice and licensed channel should grow in value terms in 2020, despite a drop in volumes. Presumably this is ex- the closure period.
• Accountants BDO report that medium sized businesses in the UK were likely to make permanent job cuts post Covid. Around 42% of businesses it contacted expected revenues to rebound within a year. Another c40% said it would take three years.
• KPMG, the administrators to Jamie’s Italian Ltd 04814000, have produced another progress report to provide an update on the administration of the Company. The report covers the period from 21 November 2019 to 20 May 2020. KPMG says ‘secured creditors will likely suffer a significant shortfall in respect of the funding provided to the Company and the wider Group.’
• KPMG has paid £1.75 million during the period to secured creditor JOHL towards repayment of the Super Senior £2.45m loan provided to support the restaurant sale process in early 2019.’ KPMG says ‘we anticipate that the preferential creditors will be paid in full’ and it says ‘based on current estimates, we anticipate that a distribution will be made to the unsecured creditors however we are not yet able to confirm the quantum or timing.’
• Domino’s Pizza yesterday highlighted that, in addition to basket sizes rising, the fact that more side dishes had been ordered during lockdown had had a negative impact on margins.
• Pret is trialling click & collect from five London sites.
• Remy Cointreau is to acquire a majority stake in Champagne de Telmont. The distiller had been active in the champagne category previously, but it sold its Piper-Heidsieck and Charles Heidsieck brands in 2011.
• The UK Supreme Court has ruled that Visa and Mastercard breached competition laws. The damages sought by retailers over a near-30yr period could run into the billions of pounds. Mastercard said this ‘is not a final ruling and there will be further court hearings to determine the key issues raised.’
• Costa Coffee, owned by Coca Cola, has said that it will have 1,100 of its branches open over the next two weeks.
HOLIDAYS & LEISURE TRAVEL:
• The former CEO of one of RCL’s cruise operations has told Travel Weekly that a swing towards nationalism and the firming up of borders that it implies, could make the recovery of the cruise industry problematic.
• HVS has hosted a webinar in which listeners were told starkly ‘there is no point opening and making more of a loss than you do when you are shut.’ The webinar heard there would be job cuts across the industry with a greater use of technology and perhaps fewer services if demand does not bounce back quickly.
• Panellists at the webinar agreed that the 14-day quarantine for visitors to the UK and elsewhere was unworkable.
• Hilton is to cut 2,100 corporate roles worldwide.
• TUI is to sell or close all of its high street travel agencies in France.
• Travel Weekly has quoted inspiremyholiday.com as saying that Spain, Italy and Greece are top of the wish-list for UK holidaymakers. Most respondents expected travel corridors to be put in place.
• Sky reports Cruise and Maritime Voyages is looking for emergency funding, possibly by the end of this week. Travel Weekly says the firm ‘has insisted it is confident of finalising talks.’
• Gambling. The NHS, which is clearly on the front foot at the moment, has warned betting companies not to exploit the return of televised football with “reckless” advertising campaigns that could cause more problem gambling.
• Its head of mental health for England, Claire Murdoch, says the NHS would struggle to cope with “avoidable harm” caused by gambling marketing.
• Yorkshire video game company Team17 says it has experienced “above expected demand” during lockdown.
FINANCE & ECONOMICS:
• The UK CPI fell to 0.5% in the year to May. Fuel prices were down by 16.7% on the month. The ONS said on Tuesday ‘we estimate that nominal earnings growth including bonuses will be negative at -1.1 per cent in the second quarter of 2020 as the downward trend on earnings growth persists in May and June 2020.’
• Sterling little changed at $1.2551 and €1.1153. Oil higher at $40.53. UK 10yr gilt yield down 1bp at 0.19%. World markets. UK & Europe higher yesterday but US lower and Far East down in Thursday trade. London set to open down around 50pts (as at 7am).
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB: