Langton Capital – 2020-08-12 – PREMIUM – More on EOTHO, Hostelworld, Just Eat, pubs, UK recession etc.:
More on EOTHO, Hostelworld, Just Eat, pubs, UK recession etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Though working from home, we had all the usual self-employed back-to-office problems when we applied the defibrillator to the well-oiled Langton machine earlier this week.
Viz nobody, meaning me, had emptied the teapot.
The ink in the printer, though warning that it was ‘very low’ since about 2018, finally ran out. Nobody, meaning me, had reordered any. There was no paper for the printer, the frayed keyboard lead finally snapped, apparently of its own volition and the milk, which had been thoughtfully left in the switched-off fridge, was solid.
The broken coffee percolator hadn’t fixed itself and the new one’s box was wrapped in about half an inch of cellophane and, when freed, had an instruction manual similarly thick. The ‘plug-it-in’ approach seemed to work although, set up for the morning, it did turn itself on in the small hours and boiled a couple of pints of Aldi’s best into a thick stew.
And emptying the bins and all those other hundred-and-one jobs that got put off were still to be done but that’s all done now and, like many returning holidaymakers, I feel as though I need a holiday.
Anyway, sad to report there was mist on the grass this morning. Oh, dear. Still, there were a huge number of out-of-office replies yesterday, so many are still away from their desks. On to the news and follow us on Twitter at @brumbymark.
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EAT OUT TO HELP OUT: Extremely helpful as far as it goes. Here we consider Week Two, the scale of the aid, side-effects, potential extension, the impact on the consumer’s mindset and the reaction of those operators that are missing out. 12 Aug 2020:
• Money is finite and there was always the risk that last week, which was very good, could have been a flash in the pan. Thankfully, that has not proven to be the case.
• If anything, FOMO (the fear of missing out) in the wake of press coverage seems to have boosted demand.
• We only, as at the time of writing, had some patchy data for Monday but some operators are running at three times the level of sales seen on the same Monday last year.
• Caveats. One day will be impacted by weather, sporting events (or the lack of them) etc but, if any operator is offered three times the normal level of revenue, even on the slowest day of the week, they would take it with both hands.
The scale of the aid:
• For all of the publicity, this is not a large scheme. The cost Week One was around £50m.
• The way we are tracking, this could rack up to more than (4 x £50m) for the month as a whole but, even if it comes in around £300m, this is dwarfed by the c£2.8bn per month that the 1.4m furloughed hospitality workers were costing the taxpayer in the depths of lockdown.
• But this is only part of the story.
• First, there’s the other £10 that the customer will have to spend in order to ‘save’ £10. Second, customers may spend over £20 and still only ‘save’ a tenner. Third, alcoholic drinks and service charges are on top and fourth, perhaps most importantly, the scheme is getting people out of their houses.
• How much of this will stick, remains to be seen.
Side effects – intended and otherwise:
• A major positive, as mentioned above, is that the scheme has tempted people out of doors.
• On the supply-side, the scheme has incentivised operators to reopen sites and to take back staff from furlough.
• It has ‘rewarded’ the bolder operators and is withholding funds from operators that have chose to remain closed.
• A potential negative may be that it has raised the profile of discounts in a sector that has struggled recently to return to full price.
• This could be from government (possible but odds against) or from the operators themselves offering discounts early-week.
• The latter is entirely possible. This would put a strain on some operators but allow others to take more share.
• Indeed, since we wrote the above yesterday evening, Glasgow based Scottish restaurant Mharsanta has announced that it will be extending the current ‘Eat Out to Help Out’ scheme until at least the end of September. The company says ‘we have seen a fantastic response from guests to the introduction of the government scheme and will continue to offer exactly the same discount for diners until at least the end of September.’
• It would represent, of course, a step backwards in any return to ‘full price’.
• Ignoring VAT and service charge, if a (rather hungry and thirsty) customer spends a fiver on a starter, twelve quid on a main, three quid on olives (mug), another three quid on coffee and say a tenner on a half-bottle of wine, then they have run up a bill of £33.
• All of the products ex-wine are subject to discount, but the maximum is £10 (on a day when the restaurant is not likely to be full anyway) meaning that the discount is 30%.
• When we bring in the VAT reduction, things get interesting.
• Assuming now that these are all cum-VAT prices, the first four products will now only be chargeable at 5% rather than 20%.
• On the full five products, pre EOTHO and the VAT cut, at £33, the operator would have been left with £27.50.
• Post the VAT cut – and even if the operator gives a £10 discount – he or she is left with £20.23 meaning that the discount from the earlier £27.50 is ‘only’ 26.4%.
• One, possibly unacceptable option, would be to extend the £10 max discount to alcoholic drinks where the both the VAT and margins are likely to be higher.
• Although Covid has shifted the goalposts, we have questioned the road back from discounting on many occasions.
• Amongst consumers, discounts are contagious and habit forming. Customers may feel foolish if they do not take advantage of offers.
• Discounts can damage an industry but, at the micro level, they can allow the strong to take share from the weak
Those who are missing out.
• Delivery and takeaway are the major losers. They may either 1) discount in order to compete or 2) grit their teeth and take a hit for four weeks.
• Arguably, the latter is the most likely move.
• Big ticket, white tablecloth restaurants may also gain less. £10 off a carefully crafted bill for pizza, garlic breads, water & coffee could mean 50% whilst £10 from a £100 bill is less meaningful.
• Monday this week looks to have been busier than Monday last. Early incoming on Tuesday suggests similar.
• Re discounts, one operator says this is ‘where the danger starts – will be hard not to follow suit if others are doing it and no one wants to see a permanent half price Mondays to Wednesdays as eventually it will impact wallets, discount mindsets and sales later in the week.’
• There are early signs that this could be on the cards.
• Operator says ‘we’re in a bubble at the moment but the bounce back won’t last for ever so let’s hope discounts don’t either.’
• Monday vs last week was ‘much stronger than last week as more people seem to become wise to the scheme. Sales yesterday were 3x a normal Monday with some sites delivering almost 5x like for like growth. Bookings for the next two days would suggest the rest of the week will play out in the same way.’
• Danger is we are ‘getting hooked on discounts.’
• Another Mon vs Mon comment was ‘up 60% ahead of last Monday and 200% ahead of a year ago. Word seems to be spreading as main news bulletins kept telling people that they were missing out.’
• Monday this week was equivalent to a ‘great Saturday last year’.
• Monday sales were ‘astonishing’. Up 1.5x last year with some weather-sensitive units +200% helped by the sunshine. Seaside units running perhaps treble last year.
• Many food led operators, probably most, will be ahead of last year on the whole week.
• Some finger-pointing at operators who have not opened. Others are stealing a march. Shuttered units maybe ‘simply don’t have the money to reopen now. And if they don’t now, they never will.’
LATER IN THE WEEK: We’re running out of week but over-renting, yes, it’s a thing. Over time, legacy rents will revert to the spot market. And the latter is well down.
PUB & RESTAURANT NEWS:
Covid-19 – Eat Out to Help Out
• Several suggestions that EOTHO is having at least as good, probably a better, week this week compared with last.
• Press coverage and FOMO appear to be helping trade. Good weather doesn’t hurt. Storms later in the week may dampen weekend trade.
• Glasgow based Scottish restaurant Mharsanta has announced that it will be extending the current ‘Eat Out to Help Out’ scheme until at least the end of September. The company says ‘we have seen a fantastic response from guests to the introduction of the government scheme and will continue to offer exactly the same discount for diners until at least the end of September.’
• Comptoir Group jas ammpimced that CFO Mark Carrick has notified the Board of his intention to resign. The company says ‘Mark will remain at the Company in his current role until 10th November 2020 to ensure an orderly handover of his role and responsibilities. The Board has begun a process to identify a successor and a further announcement will be made in due course.’
• Mharsanta says ‘the discount scheme will offer 50% discount on all food and non alcoholic drinks up to a maximum of £10 per person, all day every Monday, Tuesday and Wednesday in September, just as the current government scheme does in August.’
• See Premium Email for further detail.
Covid – Other news:
• JD Wetherspoon chairman Tim Martin has challenged scientists to prove what evidence they have that Covid-19 is spread in pubs. Mr Martin says that government policy ‘is implicitly based on the assumption that there is a high level of Covid-19 transmission in pubs.’
• He says the fact that ‘pubs can be crowded, behaviour can be uninhibited and the general warmth and conviviality seem, on the surface, to offer a plausible basis for transmission of the virus.’ However, as there is much uncertainty with regard to Covid-19, Mr Martin says ‘people with a high level of general scepticism, or scientific enquiry, will legitimately question these sorts of assumptions.’
• Mr Martin says ‘by lockdown on 20 March only five of our 43,000 staff had tested positive, even though they were working in the busiest pubs in the UK, at the tail end of the winter, when the virus was rampant in the country.’ He continues ‘since pubs have re-opened and the level of testing has dramatically increased, there has been a handful of individual cases of positive tests for the virus in our pubs but nothing, it appears, which could be described as an outbreak and there appears not to have been, up until now, a case of transmission from person to person among staff or from staff to customers- or vice versa.’
• An investigation by Sky News has found that ‘pubs and bars in England are ignoring COVID-19 guidance, potentially putting public health at risk.’ Sky says ‘nine out of 10 venues visited [in one Greater Manchester suburb] were not following government guidance by asking for customer contact details.’
• Langton was recently in the Yorkshire Dales and Lincolnshire where four out of four pubs did ask for contact details and 0 out of 1 restaurant(s) did not. Collecting names is not mandatory though the government says venues “should assist” the test and trace programmes “by keeping a temporary record of your customers and visitors for 21 days”.
• Foodservice analyst Peter Backman has said that the thousands of suppliers to the foodservice sector are facing a major challenge. Looking forward, Mr Backman comments on the likely demand withing the foodservice industry and concludes that large parts of it, namely those supplying food to local and central government, to prisons, education establishments and the armed forces amongst others in the public sector, should be relatively unaffected over the medium term. He says ‘public services are likely to carry on much as before Covid, perhaps on a slightly smaller scale.’
• Analyst Morgan Stanley has suggested that only 34% of UK white collar workers have returned to work compared with over 70% in France. This will have implications for the likes of Pret as well as for pub, bar and restaurant companies servicing the sit-down trade over lunchtimes in heavily-officed districts.
Pub & Restaurant news:
• Amsterdam listed online food ordering company Just Eat Takeaway.com NV has reported revenues and underlying profit for H1 up on last year but a bigger headline loss.
• JE reports adjusted earnings before interest, taxes, depreciation and amortization of €177m (last year €76m) with revenue up 44% at €1.03bn. The net loss was €158m.
• C&C Group has rebranded Irish business Bulmers Ireland. The company says the move is aimed at better aligning its business units in Ireland under one corporate identity.
• A petition calling on the Government to reverse the proposed tax rise for small independent breweries, has attracted over 7,000 signatures in its first 24 hours.
• Debenhams is reported set to cut another 2,500 jobs.
• Red Robin Gourmet Burgers in the US has reported a net loss of $56.3 million forQ2.
• Intu’s Trafford Centre in Manchester is reportedly up for sale. This should not come as a surprise.
HOLIDAYS & LEISURE TRAVEL:
• Hostelworld Group has reported H1 numbers saying the period was ‘in line with expectations [with the] modest increase in bookings in recent weeks in line with the easing of travel restrictions.’ The company reports net revenue of €12.0m (down 69%) with total bookings down 67%. Costs have been reduced. The adjusted EBITDA loss was €8.3m (H1 2019: €8.9m profit). The co adds this is ‘in line with guidance’.
• Hostelworld CEO Gary Morrison comments ‘the COVID-19 pandemic has resulted in significant trading disruption for our business and the global travel industry.’ He adds ‘we entered the year in a strong position, having delivered a return to net bookings growth during Q4 2019, however, COVID-19 drove a sharp reduction in our trading performance.’
• Hostelworld says ‘over the last few months we have taken the opportunity to accelerate our Roadmap for Growth program to strengthen our core platform, completing items planned for H2 2020 and 2021 ahead of schedule.’ The company says ‘while the short-term outlook for the travel industry remains extremely challenging, I remain confident that Hostelworld will emerge from the COVID-19 crisis stronger than before.’
• Hostelworld adds ‘in recent weeks we have seen an increase in demand as travel restrictions have eased, and we are tracking slightly ahead of our Base Case scenario. This recovery started with very modest growth in domestic bookings in June, and more recently has progressed to very modest growth in domestic and short-haul bookings into Europe. Overall, we expect the pace of recovery to mirror changes in travel guidance in individual markets over the coming months, both positive and negative. Elsewhere, source markets in the Americas, Asia and Oceania continue to remain very depressed.’
• Carnival’s Holland America Line has extended the pause in its operations to 15 December. The co says ‘the pause extension affects Caribbean, Mexico, Panama Canal, Pacific Coastal, South America, Antarctica, Hawaii, South Pacific, Australia and Asia itineraries. Guests Automatically Receive Bonus Future Cruise Credit.’
• Holiday company Haven has extended their opening until November 2020 for the first time. It remains to be seen whether the weather and the school authorities will play ball.
• UK Inbound has said that the government should extend the furlough scheme to impacted sectors, including its own. Operators will currently be counting back from the end of furlough as they consider whether to announce redundancies.
• UK Inbound’s latest Business Barometer of members finds ‘a significant number of companies are in a critical state’ and that confidence levels are at ‘a near-record low’. Despite the growth in staycations, only one in five respondents said that the cut in VAT had boosted trade.
• UK Inbound chief executive Joss Croft says ‘many inbound tourism businesses are in critical need of support and the government’s ‘one size fits all approach’ leaves many in the cold.’ He adds ‘our members are hopeful the international market will return from spring 2021, but this leaves a gaping hole in business finances until then and, although the VAT cut and Job Retention Bonus are welcome, they will not help previously profitable businesses stay afloat.’
• Carnival’s Costa Cruises is planning to restart its sailings from Italian ports on a gradual basis from September 6, 2020.
• The Airports Council International Europe has reported on traffic for Q2 saying that airports remain seriously impacted by travel restrictions. Travel has picked up slightly but, in Q2, European airports saw a 96.4% drop in passenger volumes.
• The ACIE reports that UK airports were quieter than those elsewhere in Europe in June. Gatwick was down 99.4% and Heathrow had slipped to number 11 in terms of passenger numbers in Europe.
• Separately, Heathrow has reported that passenger numbers were down 88% in July this year compared with last. CEO John Holland-Kaye comments ‘tens of thousands of jobs are being lost because Britain remains cut off from critical markets such as the US, Canada and Singapore. The government can save jobs by introducing testing to cut quarantine from higher risk countries, while keeping the public safe from a second wave of Covid.’
• Sky reports that the aviation industry is responsible for as many as a quarter of job losses announced since lockdown.
• Walt Disney is to drop the 20th Century Fox brand name.
• Gambling hub Macau has recommenced issuing tourist visas.
FINANCE & ECONOMICS:
• The UK is now officially in recession for the first time in 11 years as the economy shrank by 20.4% between April and June compared with the first three months of the year. This included what officials say was a ‘bounce back’ in the month of June itself.
• Sterling lower at $1.3025 and €1.1115. Oil down at $44.06. UK 10yr gilt yield up 8bps at 0.21%. World markets broadly lower yesterday though UK was up. London set to open up around 8pts as at 6.45am (pre the GDP announcement).
• The ONS has reported that average weekly earnings, excluding bonuses, declined at an annual rate of 0.2 per cent in the three months to June. Including bonuses, which are pretty thin on the ground at the moment, total pay fell by an annualised 1.2%.
• The NIESR says wages ‘will pick up in the short term as workers return from furlough. But pay will weaken again in the second half of the year when unemployment is set to rise sharply.’
• The ONS reports that employment levels fell by 220k in the quarter ended-June. Headline unemployment, held at bay for the present by the furlough scheme, was unchanged at 3.9%.
• The suspension of stamp duty on houses below half a million pounds is reported to have boosted transaction volumes.
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 big news last night was that the delayed final results from the hapless Frasers Group (aka Sports Direct) due tomorrow are being delayed again, by a week, to Aug 20th, to give the auditors and the company time to make sure the Accounts will be able to meet the scrutiny of the press (!) #MadMike #Hopeless. Today Reuters report that the administrators of the now bankrupt shopping centre business Intu have put its flagship asset, the Trafford Centre in Manchester, up for sale. We have also had interims from Intu’s former stable-mate, the Covent Garden landlord CapCo, along with the strong interims from Just Eat Takeaway
ASOS: We flagged the other day that ASOS is now bigger than Boohoo again, after an astonishing rally in its share price has taken the market cap up to the heady levels of £4.2bn, and it is unlikely to come to much harm today after an unscheduled trading update has flagged that sales and profits in y/e Aug are going to be “significantly ahead of expectations”. It is only a month since ASOS issued an update for the 4 months to June 30th, with cumulative sales growth running at 16%, but it now thinks that the full 12 months will be between 17% and 19% up, so July and August so far must have been very strong and ASOS has also flagged the benefit of a continuing decline in the returns rate (driven by sales mix and more deliberate buying behaviour.