Langton Capital – 2020-08-20 – PREMIUM – Industry polarisation, Greene King, London trade, Diageo etc.:
Industry polarisation, Greene King, London trade, Diageo etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Langton tried to go out ‘in trade’ (i.e. to a pub) yesterday but it couldn’t get in.
That because the EOTHO scheme seems to have energized a nation of penny pinchers, which is good as far as it goes, but it would be nice to see it extended (see below) and it meant that we had to go for a walk and scoff some fish and chips out of doors instead.
And very enjoyable that was too and, for any out there who don’t know the countryside around Millington, Thixendale and Leavening, the dry valleys of the Yorkshire Wolds remain as beautiful (and as steep) as they ever were – though why some of the pubs where shut and others couldn’t put on extra capacity beats me.
Today, it’s up to Thornton Dale, Dalby Forest and then Beck Hole, the latter home to what must be one of the nicest little ‘James Herriot throwback’ pubs in the country together with splendid beer, plentiful Victoriana, serving hatch and a creepy dummy that permanently inhabits the decommissioned phone-box outside (check Google Streetview).
Since it was bucketing down here last night, the weirdly-named Murk Esk will be full of water and the Mallyan Spout will be chucking it out and, as the discounts are off, I think we’ll have no problem getting a meal in a pub.
Anyway, time to move on to the news. Follow us on Twitter at @brumbymark.
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EAT OUT TO HELP OUT – A FEW OBSERVATIONS: EOTHO is now in its third week. FOMO got the better of us and here is our story. 20 Aug 2020:
• 35m Britons have taken advantage of the EOTHO scheme and I’m not one of them.
• Familiar feeling? Perhaps. Certainly, FOMO made Week 2 a bigger deal than Week 1 and, if our experience is anything to go by, Week 3 could be bigger still.
A few other introductory points:
• There must have been a lot of multiple users. No single person has used the scheme 35m times but there will be many who have eaten out at lunch or in the evening or maybe just had a sit-down coffee, multiple times.
• And the maths looks a bit dodge. The government says 10m people used it week one and, by the end of week two, the number had risen to 35m.
• There must have been a lot of week one claims put in during week two but, however 2 x 10m ended up being 35m, the scheme will cost more than it first seemed
• Fearful that we might miss out altogether and with absolutely zero planning we set out at around 12.00 yesterday (after a walk in the Wolds) to use the scheme over lunch.
• Fat chance, as it turned out, but the reasons for our failure were quite interesting.
• Having a bit of an exam crisis around 20 minutes before we wanted to eat, I hit the phones and rang six or seven pubs (and popped into one sit-down chip shop) in the space of the same number of minutes.
• Pub 1, a large, tenanted unit, was simply sold out for lunch. For some unknown reason (but true to form), I seemed to have irritated the person who answered the phone.
• Pub 2, a managed pub, major company, couldn’t fit anybody in during the next two hours. It was an automated answering machine. It didn’t say when they did have space. Only when they didn’t. Hunger meant we couldn’t continue typing in potential time slots indefinitely.
• Pub 3, a smaller tenancy, was ‘not doing food till 3pm.’
• Pub 4, a large tenancy, had had its telephone disconnected. A drive-by showed us that ‘You Could Run This Pub’. Our opportunity, presumably, would be coming at the expense of the previous tenant.
• Pub 5, a smaller tenancy, told us that it ‘only did lunchtime food at the weekends’.
• Pub 6, another smaller tenancy, scolded that it ‘didn’t open at all until 6pm on weekdays.’ The implication, not necessarily ill-founded, was that I was an idiot for not having known this, even from 5 miles distant.
• Pub 7 was a chip shop. They couldn’t sit walk-ins for another two hours.
What we can take from the above:
• You can lead horses to water, but only some of them will drink.
• Pub 1. We know about social distancing, kitchen bottlenecks and staffing problems. But we also know you should make hay while the sun shines, we know about outside seating, canopies, space heaters, menu simplification (two veg, four proteins, potatoes, rice and pizzas – forget the 48-line menu) and all the rest.
• Pub 2. Good to tell customers when you have got a slot as well as when you haven’t. See also above.
• Pub 3 may have a death-wish. Have you got an email list of regulars, can you tempt them out, how do you know there’s no demand if you don’t open to find out, haven’t you seen the queues early evenings outside competitors’ doors?
• Pub 4. Nice pub. Shame. First pub our daughter went in when she was two days old. She has no recollection.
• Pub 5. Death-wish.
• Pub 6 ditto.
• Chippie. Fair shout from their point of view. They sold us the same product at twice the price in a paper bag and didn’t have to wash any plates afterwards.
EAT OUT TO HELP OUT AND INDUSTRY POLARISATION: EOTHO has pitted wet led operators against food-heavy outlets and city centres against the suburbs. But other divisions have come to the fore. 20 Aug 2020:
• We would suggest that not all players have got their head in the game.
• Drink-led units, commuter bars & Docklands coffee shops may have an excuse, but many other operators do not.
• The above range from the shut, through the shut-when-it-mattered through to the rammed (or at least as rammed as they could be given distancing)
• It’s hard to fathom why you would not open for EOTHO. Indeed, Tasty said that it might re-close units after EOTHO. But at least it did open them.
• EOTHO has certainly got a certain type of price sensitive customer out of the house. Hopefully, this interaction will persist
• That’s good but the success may put off walk-ins. Hopefully this will not last.
• There may be some polarisation between active and inactive (or reactive) operators
• The cake is being shared between a smaller-than-need-be number of participants
• This may encourage some of the current winners to continue the scheme at their own cost into September
• For operators with high margins and with the potential to make incremental sales, this must be very tempting
PUB & RESTAURANT NEWS:
Eat Out to Help Out:
• Looking very busy out there. See Premium email.
• Greene King has reported accounts to 26 April to Companies’ House showing that revenues fell by 13.4% in the year to £1.9bn with underlying profits down by 15% at £412m. The period for which the group was reporting was impacted towards the end by Covid-19. The current financial period will be more heavily affected.
• GNK has called on the government to extend its ‘Eat Out To Help Out’. The scheme has been widely credited with driving trade in recent weeks. GNK also say that sales in London are “significantly” lower than expected – they are also lower than elsewhere in the country.
• Greene King is now owned by interests controlled by Hong Kong’s richest man Li Ka-shing in a £2.7 billion takeover deal. CEO Nick Mackenzie has said that ‘trading since we reopened in the UK has been better than expected. But London has been significantly worse.’ The CEO says that sales in the capital are running some 60% down on the same time a year ago.
• McKenzie praises the government’s August Eat Out To Help Out scheme, saying that it has been ‘really fantastic’. He says that he would like to see the scheme extended to tempt more customers back into pubs.
• UK Hospitality has voiced a similar view saying ‘it is increasingly clear that the crisis is far from over for London’s hospitality businesses and that the city will be affected more deeply and for longer than other parts of the country.’ See earlier Langton comment on the cost versus the material benefits of the scheme – and today’s Premium Email on how the scheme is further polarising the industry.
• Wireless Social has reported that ‘people are still avoiding central London and the tourists appear to be absent (due to travel restrictions) to take up the slack and drive footfall.’ It adds ‘London Villages [the areas in which people actually live] has seen a drop off in footfall, and this is likely down to Londoners heading away on holidays whether it’s a staycation or abroad.’
• Wireless Social goes on to say that ‘Canary Wharf, City and West End areas are remaining pretty stationary, recovery has stalled.’ It says ‘the static recovery figures are then replicated across the UK, apart from a couple of areas that saw dips: Leeds and Birmingham.’
• The latest Barclaycard Payments SME barometer has shown that optimism among firms rose during Q2 in the wake of re-openings. Small UK firms said that revenues in Q2 were ahead of expectations. Barclays Payments says ‘SMEs are once again proving their resilience and securing their role at the heart of the UK economy, especially in the face of the challenges posed by coronavirus.’ It adds ‘despite uncertainty and business disruption, SMEs are outperforming their own revenue expectations and beginning to look to the future by returning to work and thinking about investment.’
• On a gloomier note, UKH says that around 20% of hospitality companies will not reopen some of their sites they had to shut for the Covid-19 lockdown. It says sites will be permanently closed. Re London, UKH CEO Kate Nicholls says ‘these figures show the urgent need for an action plan by the Mayor and Government that delivers support and clear, strong messaging that London is open.’
PPE, Track & Trace etc.
• Interesting comment that some operators are interpreting the rules more literally than others. Some others, a very small number we believe, aren’t interpreting them at all. This does mean the playing field is not altogether level.
Other Covid news:
• New West End reports that West End footfall is back in growth with Tuesday footfall up 13% week on week on Tuesday. Footfall is still down 59%, y-o-y.
• Fuller’s has reported that it is to bring back Shakespeare in the Garden this year with customers able to attend one of 21 performances of The Tempest across 14 Fuller’s pubs from 1 September to 30 September 2020.
• Brand Finance has reported that Corona, despite having a disease of the same name hit the headlines, remains the world’s most valuable beer brand.
• Moody’s has reported that Diageo’s acquisition of super-premium gin brand Aviation American Gin is credit negative. It says ‘Diageo will fund the acquisition through existing cash and expects it to close before year-end, pending regulatory clearances.’ Moody’s says ‘although leverage will remain unchanged given the acquisition’s small size relative to Diageo’s operations, the acquisition is credit negative because it occurs while leverage remains relatively high as debt metrics have substantially weakened as lockdown measures dampened global spirits consumption, thus lowering the company’s sales and profits.’
• Morrison’s customers will be able to order food and have it delivered for free if they are Amazon Prime subscribers.
• Waitrose has reported that 77% of UK consumers now doe at least some of their grocery shopping online. The number compares with 61% last year. The biggest shift has come in the over-55 age group.
• Gordon Ramsay Restaurants has announced that it plans to open a number of new sites in the wake of the Covid-19 crisis.
• Trade show European Coffee, Tea & Soft Drinks Expo is to co-locate alongside Hotel, Restaurant and Catering (HRC), International Food & Drink Event (IFE) at ExCeL London in March 2021.
• Diageo has taken a minority stake in German gin producer, Rheinland Distillers. The company created Germany’s first non-alcoholic ‘spirit’ alternative.
HOLIDAYS & LEISURE TRAVEL:
• The Times reports that Travelodge is attempting to dissuade disgruntled landlords from moving their hotels to rival operators by threatening to remove all the carpets, kettles and beds from its hotels. Travelodge warned property owners they were likely to face conversion costs of “many thousands of pounds” per room if they switched to another brand.
• The Times reports ‘relations between landlords and Travelodge are at a low ebb after acrimonious talks over rent payments. The hotel group, owned by Goldman Sachs, Avenue Capital and Goldentree Asset Management, refused to pay its quarterly rent in March after it was forced to close its hotels during the lockdown. It later agreed to reduce its overall rent obligation by 38 per cent for 18 months.’
• A number of hotels at Disneyland Paris are to remain closed until calendar 2021.
• STR reports that the US hotel industry registered a 36% drop in occupancy in the month of July versus the same month last year. Average room rate was down 25% with REVPAR some 52% lower.
• Rail costs are to rise 1.6% next year. About half of rail fares are linked to the Retail Price Index in July which, as we note below, was a little above expectations.
• The CEO of Heathrow airport has told PM Boris Johnson to “get a grip of our border policy” or risk thousands of jobs in the travel industry. Health secretary Matt Hancock has confirmed that the government is discussing whether a testing system could be introduced directly into airports. Hancock told Sky ‘we are working with Heathrow and other airports on this project. I hope this project can bear fruit.’
• Airbnb has announced plans to list on the stock market.
• The Guardian comments on a legal case being brought by a disabled gambler against Ladbrokes Coral and Paddy Power alleging that the two bookmakers helped the gambler to fill out betting slips as he spent his compensation from a botched operation.
• The valuation of tech giant Apple has exceeded $2tn.
• Microsoft is to remove its Internet Explorer search engine next year.
• A new Harry Potter theme park is to open in Tokyo in 2023.
FINANCE & ECONOMICS:
• The ONS reported yesterday that prices rose more rapidly than expected in July taking the annual inflation rate to 1% in July, up from 0.6% in June. Clothing and footwear prices, which had not be cut sharply this year as they were last, were a major factor in the rise.
• The NIESR reports that ‘inflation is set to increase as the pandemic raises costs in many parts of the economy. This is unlikely to happen in 2020 as demand will remain low as unemployment and bankruptcies increase in the coming months.’
• It says ‘whilst 2.5% is a reasonable forecast for inflation in 2021, the outturn will partly depend on how the Government and the Bank of England balance the demands of stabilising the economy and keeping public finances sustainable into the future.’
• Sterling lower at $1.3103 and €1.1056. Oil lower at $45.02. UK 10yr gilt yield up 1bp at 0.23%. World markets: UK & Europe better yesterday but US down and Far East lower in Thursday trade. London set to open down around 80pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
Mad Mike Watch: Ahead of today’s much-delayed final results (for y/e April) from the hapless Frasers Group (aka Sports Direct), the share price was squeezed up by 8% yesterday, as if the bears were scared that the Chairman’s recent share buying blunder in “close season” meant that management knew something the City didn’t…and the underlying EBITDA outcome of £302m (up 6%) certainly doesn’t look too bad, given the impact of the lockdown in March/April, albeit it was boosted by acquisitions. The group has also announced that it will invest £100m in its “digital elevation” strategy and that, given strong Online sales, it is confident, even at this stage, of growing underlying EBITDA by between 10% and 30% in the new financial year. We can’t see much detail about the performance of House of Fraser (which is buried in the Premium Lifestyle Division with Flannels etc), but there is a reference
News Flow This Week: The AO.com AGM is being held at 8am today at their HQ in Bolton, with the main focus on the resolution to approve the controversial “Value Creation Plan” and ahead of that the company has issued a bullish trading update, flagging that trading momentum has been maintained. First thing tomorrow we then get the widely followed GFK Consumer Confidence index for August, quickly followed at 7am by the ONS Retail Sales figures for July…