Langton Capital – 2020-08-19 – PREMIUM – WFH, landlords, EOTHO, track & trace, closures & other:
WFH, landlords, EOTHO, track & trace, closures & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Why do dogs insist on drinking random fluids from any receptacle other than the clean water bowls that they’ve been provided with?
Because it seems that the dead leaves, live insects, mosquito eggs and random detritus that float in drip trays or buckets left in the rain do something for them.
Or maybe it’s their ‘get it down your gullet, let your stomach decide’ instinct coming through?
But even then, if there’s the choice of drinking from a mud spattered plant pot or a gleaming stainless steel bowl….?
Which reminds me of the book Client Nine. Rich man, politician, been places and going higher and yet brought down by similar, unseemly habits.
Worth a read but we must move on. Will try to take advantage of EOTHO today. We hear that sales are still very strong. We’ll ring a few pubs & see if they’ve got space. Millington, Pocklington or Stamford Bridge areas, maybe eastern York.
Anyway, time to move on to the news. Follow us on Twitter at @brumbymark.
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DEVELOPING TRENDS: A bit of a catch-all comment but times (re Working From Home, city centres vs suburbs, discounting, staycations etc), they are a changing. 19 Aug 2020:
WORKING FROM HOME:
• Twitter is full of photos of empty commuter train stations and deserted city centre streets.
• This may abate but, over the medium term, it seems likely that community pubs will outperform bars, nightclubs may remain shut and restaurants in residential areas will outperform those in cities, in travel hubs and in retail centres.
• A few points – but see also earlier emails.
• Alix Partners comments on ‘London’s reliance on office workers and tourists for a large proportion of its trade—both of which are in short supply at the moment.’
o This doesn’t bode very well. Overheads are high in Central London and income is low. The jaws are widening in the wrong direction.
o Alix Partners says ‘as some people return to workplaces over the next couple of months and use of public transport increases, we can expect to see London’s numbers pick up, though progress is likely to be slow.’
o Operators will need to be able to hold their breath underwater – and they can’t do so indefinitely.
• Young & Co. CEO Patrick Dardis has criticised ‘mixed messaging’ and ‘scaremongering’ from Ministers.
o Dardis also says that London Mayor Sadiq Khan ‘has got to get off the fence’. To be fair, Khan has recently begun to urge commuters to return to work – though some may suggest that that is too little, too late.
o Dardis says the ‘brutal reality’ of the Covid-19 recession will be felt in the New Year. He says that some of its smaller, central London pubs, may not reopen.
• Accountancy body the ICAEW says ‘COVID-19 may transform our workplaces and reconfigure our cities.’
o This could be good for new entrants. But it is less good news for companies that may have hundreds of millions of pounds of bricks & mortar ‘in the wrong places’ or have dozens of (now-over-rented) central city leases.
o The ICAEW points out that some vulnerable employees – or employees with vulnerable relatives that they care for – may never return to the workplace. This is not an option for a brickie – but WFH could be an option for many office workers.
o The ICAEW says ‘what is certainly here to stay is the idea of remote working.’ It quotes consultancy Advanced Workplace Associates as saying ‘there was already plenty of pent-up interest before the pandemic.’
• Shifting the economy from one point of equilibrium to another is one of those tasks that looks easy on a spreadsheet. On the ground, it could lead to major job losses, company busts and shifts in asset values.
o The ICAEW quotes observers as saying ‘legislators and employers must simultaneously adjust to a new way of working while thinking hard about its implications.’
o Sounds easy when you say it fast. It concludes ‘the decisions we make about work in the coming years could shape society for a lifetime. This gives us all a duty to get them right.’
RELATIONSHIPS WITH LANDLORDS:
• It’s hard to see the fallout from Covid-19 being correlated with a rise in asset prices. If asset prices fall, then so to, should rents.
• The FT reports that the balance of power between landlords and tenants appears to be shifting. It writes ‘commercial leases in the UK are becoming shorter and more flexible as property owners are forced to make concessions to hard-hit tenants, underlining how the coronavirus crisis has upended the industry.’
• The FT suggests ‘a growing number of landlords are exploring the option of turnover leases, which link the level of rent to the sales that retail tenants generate from their stores.’
• It adds ‘today, the CVA is being increasingly used as a weapon.’
• Landlords are currently barred from evicting corporate tenants (till the end of next month), but debts are rolling up rather than being forgiven.
• There will come a crunch point when landlords, who have their own bills to pay, will stamp their feet and the result, at the moment, is anybody’s guess.
• Most likely, they will be hit by a wave of keys coming back. They may then have to take legal action to recover debts whilst the tenants will lose their deposits, their F&F and, if there are PGs in place (personal guarantees), then perhaps much more.
• Landlords can’t run restaurants and, if hundreds or thousands are taken back by the property owners, then nor will they be able to buy in sufficient expertise to do so.
• Hence, the plywood boarding up companies will likely do a brisk trade.
• There may then be an iteration process whereby the market tries to clear.
• Landlords will offer cheap or free F&F (paid for by previous tenants). Then they may have to offer reverse premia. Then the above and contributions towards capex. They will also chuck fluff around, like moving to monthly payments etc and lastly, because it most directly impacts asset values, they may have to offer lower rents.
• Unless there is a horrendous recession and nobody eats out for a decade, this should clear the market – but it will not be instantaneous.
• Consumers may be poorer. They may be worried and they may have got used to eating at home (and to saving money).
• Hence, the disruption, and the time taken to clear boarded up restaurants could be considerable. Landlords may consider this unacceptable and go for alternative uses. In which case the £500k plus of F&E would be worthless.
OTHER THEMES TO BE PICKED UP ON WHEN WE HAVE TIME:
• Re-closures could be a thing. Most operators of scale will have considered closing one or two units that they opened in haste. Tasty yesterday said that the ending of EOTHO could be the catalyst that causes this.
• When is a failed restaurant not a failed restaurant? Perhaps when it has changing hands and reopened post a rent reduction & various other inducements from the landlords but, in all honesty, it’s failed really, hasn’t it?
PUB & RESTAURANT NEWS:
Eat Out to Help Out:
• Just four days left after today. Unless there’s an extension…
• The Treasury has reported that diners (and coffee, cake & snack consumers) used the Eat Out to Help Out scheme more than 35 million times in its first two weeks.
• More than 85,000 restaurants have now registered for the scheme and, as Tasty mentioned yesterday, more restaurants have reopened to take advantage of the taxpayer funded discounts. See Premium Email.
• Chancellor Rishi Sunak says the scheme is ‘supporting local jobs in the hospitality sector.’ He adds ‘to build back better we must protect as many jobs as possible, that is why I am urging all registered businesses to make the most of this by claiming back today – it’s free, simple and pays out within five working days.’
• The government has set aside £500m to cover the scheme. Take-up, though tracking upwards, is currently running below that level. See comments in today’s and earlier Premium Emails re the scheme and possible developments at month-end.
Track & Trace.
• The Morning Advertiser reports that 85% of Brits think that pubs are meeting or exceeding the requirements for safe distancing and Covid-secure trading. Streetbees found that consumers ‘have seen their expectations on Covid-secure guidance met, 82% of those quizzed also stated they would be put off visiting a pub if they thought it wasn’t following safety measures.’
• Streetbees reports that 59% of respondents would be put off going to a restaurant in the event that local measures were put in place as a result of a Covid-19 cluster such as those seen in Leicester and Aberdeen.
• The Guardian has reported previously on ‘concerns that JD Wetherspoon is failing to prevent overcrowding in pubs in its 900-strong chain.’ See yesterday’s email.
• Elsewhere, there are now reports that pub operator & brewer Samuel Smith’s is not taking customer details. This is currently voluntary although it is deemed best practise and is to become mandatory in Scotland.
• Sam Smith’s says customers would only give false names and numbers and stalkers could use information to pester women. This does not seem realistic. Having dined and lunched in half a dozen pubs & restaurants in the last month, Langton has seen no evidence of Mickey Mouse Tel 999 type entries in Track & Trace documents. The numbers all looked to be genuine although a few, doubtless were false. Nor have we been stalked.
• The BII, BBPA and UK Hospitality have jointly written an open letter to the hospitality sector reiterating the vital importance of accurate and robust Test & Trace data collection as a critical part of Covid secure measures.
• The bodies say ‘we recognise that the industry has a collective responsibility for ensuring the safety and confidence of customers visiting our venues. Extensive customer research has shown how essential the consistent operation of Covid secure measures is to re-building sustainable trade through confident customers returning to our venues.’
• It seems that they, the trade bodies, are concerned that the apparent ‘it’s not my game, I won’t play by these rules’ attitude could reflect on the whole industry and be seen as churlish or even dangerous. By consumers or government or both.
• From the customer’s point of view, nobody wants to receive a phone call telling them that they must isolate for fourteen days. But you’re not really striking a blow for freedom if you call yourself Sherlock Holmes on Whitehall 1212 and most consumers are surely willing to play their part?
• The trade bodies say ‘we know that the majority of pubs and restaurants are managing their Test & Trace processes well, despite the challenging times they are operating in.’
• They are ‘making customers aware that they can only book tables for a maximum of 2 households when seated inside.’
• The trade bodies mentioned above say ‘report data taken from the Yumpingo and CGA campaign “We hear you”, reveals that nearly 80% of consumers make their choice about which venue they will visit, based on the precautionary COVID-19 measures those businesses have put in place. Not so much EOTHO, then?
• Elements of the grey market may still be hesitant when it comes to eating out and confidence may only be as good as its weakest link.
• The survey above suggests ‘initial nervousness about venturing out to eat and drink is decreasing, with also 40% of customers visiting venues completely new to them.’
• UKH says ‘we must come together as a sector to show how committed we are to ensuring the continued safety of our customers and teams, at a time where we are seeing a huge surge in customer numbers with customers taking advantage of the “Enjoy Summer Safely” campaign.’
• Pizza Express plans to close around a fifth of its UK restaurants under a CVA that puts 1,100 jobs at risk. The company aims to cut its rent bill at sites that do not close. Some 73 of the group’s 470 UK stores will close.
• Pizza Express is also reported to have been put up for sale by owner, Chinese investment firm Hony Capital. CEO Zoe Bowley says that it has taken ‘incredibly tough decisions to safeguard Pizza Express for the long term’ and adds that ‘in most cases, there is another Pizza Express nearby, either already open or reopening soon, to welcome our customers.’
• We’ve not seen any estimates recently as to how many restaurants will never reopen. Or will reopen and then close. Or change hands via a bankruptcy or distressed sale but perhaps 10% to never open and another 10% to reopen but only after they have changed hands and new operators have been bribed by landlords to take on leases doesn’t seem like a crazy suggestion.
• With the end of support looming, Jonathan Downey of London Union tweets ‘we’re re-opening Dinerama on Fri/Sat from 17:00-00:00 and then very weekend until 26 Sep when it looks like we’ll be closing the doors for good. We haven’t agreed a deal with our landlord but plan to make the most of our time left. Be great to see you.’
• Downey says ‘yesterday I wrote to 54 of our Street Feast team to confirm that, after the August furlough payment next week, that’s it. We’ve got nothing left for them. 60% of our people gone, another 30% still at risk. We may only be able to save just 10 of our full-time 90.’ He adds ‘these numbers don’t include the 250+ additional, part-time/seasonal jobs working on spring/summer events and Winterville. We won’t provide any of that experience and extra cash for young people in 2020.’
• Oldham, Greater Manchester council leaders have been told that they are 48hrs away from a Leicester-style shutdown. Council leaders have said that a full lockdown would be devastating for the town’s economy. Oldham council leader Sean Fielding says ‘the impact of a local lockdown economically on Oldham would be catastrophic and we desperately want to avoid that.’
• Hedge fund and activist investor Starboard Value, which has stakes in Papa John’s International and Darden Restaurants in the US, is reportedly set to raise around $300m to go public as a ‘blank check or special purpose acquisition company’ that will look to make acquisitions across distressed businesses post the Covid-19 lockdown.
• Re a potential second spike, The Telegraph quotes food retailers as saying they are better-prepared than they were in March. Tesco boss Dave Lewis says that ministers’ messaging will be key to avoiding chaos if the worst happens.
• Shoppers are reported to have made two million fewer trips to the supermarket than expected in the week after face mask rules came into force per Kantar.
• The government has made funding available to support green innovation in whisky and spirit distilleries across the UK.
• M&S yesterday said that it is to make 7,000 staff redundant.
• The Champagne region in France has reportedly agreed to a material yield reduction for the current harvest. The industry has agreed on 230m bottles.
• Redchurch Brewery has announced the appointment of a voluntary liquidator.
HOLIDAYS & LEISURE TRAVEL:
• The Telegraph reports that short let prices, typically on Airbnb, have fallen sharply, particularly in London. This may impact hotel room rates over time.
• Property agent Hampton’s says that the supply of rental properties across central London is up 42% year on year.
• Although maintaining the it wishes to move assets off its balance sheet, tour operator TUI has said there will be ‘no forced sales’ of assets.
• Aviation services companies at Southend and Stansted airports have confirmed that they will be making staff redundant after EasyJet said that it will be reducing service levels.
• Transport Focus has said that rail fares will have to fall if consumers are to be encouraged to travel.
• Accor reports that it has signed 14 new northern European hotels during first half of 2020
• Camping gear sales are reported to have increased sharply as a result of the boom in staycations (per ASDA, John Lewis & Halfords).
• Chinese media giant Tencent has taken a minority share in French mobile game company Voodoo. Voodoo has around 300 million monthly active users from its suite of mobile games.
• There has been confusion north of the border as to whether escape rooms may or may not operate. The largest operator in Scotland, Escape, has shut its venues but there are reports that these will be allowed to immediately reopen. Premises had reopened for the first time on 1 August.
• US President Donald Trump has suggested that Oracle would be ‘a great company’ to take over TikTok’s US operations.
FINANCE & ECONOMICS:
• Sterling up at $1.3238 and €1.1093. Oil lower at $45.10. UK 10yr gilt yield unchanged at 0.22%. Markets down in Europe yesterday but mixed elsewhere. London set to open up around 15pts 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:
• Grocery Market Share Watch: The latest monthly Kantar and Nielsen grocery market share figures (for the 4/12 weeks to Aug 8th 9th) came out yesterday morning and the Kantar overview was headlined “Grocery growth slows as market eases out of lockdown”, flagging, inter alia, that take-home Grocery sales increased by 14.4% in the last 12 weeks and that food price inflation rate has dipped from 3.6% to 2.9%. The rival Nielsen survey was headlined, rather inelegantly “British ‘staycations’ help to fuel UK grocery spend this summer, as 97% of growth in supermarket sales comes from online”, flagging that supermarket sales slowed to +7% over the last 4 weeks, as shoppers settled into new shopping routines post-lockdown, with store sales broadly flat and Online sales up 117%.
• News Flow This Week: The much-delayed final results from the hapless Frasers Group (aka Sports Direct) come out tomorrow, along with the AO.com AGM. First thing on Friday we then get the widely followed GFK Consumer Confidence index for August, as well as the ONS Retail Sales figures for July…