Langton Capital – 2020-08-21 – PREMIUM – Patty & Bun, discounting, EOTHO, FUL, London, quarantines etc.
Patty & Bun, discounting, EOTHO, FUL, London, quarantines etc.
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
More trade visits yesterday (i.e. we went for a drive and to a pub for lunch) leading us to conclude that it is much, much easier to find a table on a Thursday lunch than it is on a Wednesday.
Discounts have driven trade, but they can be hard to eradicate.
Conversation between two sweet, old-lady diners over lunchtime in a pub in Thornton Dale, chocolate box village on the edge of the NY Moors. Apologies for any inaccuracies re accents:
‘T’deals are off today, aren’t they Betty?’
‘Aye, aye. Those uns are but it’s pensioners’ special t’day, Marge.’
‘Oh, aye. Pensioners’ special. Don’t atta book an’ there’s deals at t’Plough tomorrow.’
‘Aye, Marge, deals.’
And later, helping make the point that no slippage in quality or quantity is to be allowed or expected.
‘Nice bit o chutney that, Marge.’
‘Aye, nice. But tiny little pots.’
‘Aye, tiny little pots. Not like t’Plough.’
‘Deal there t’morrow, Bettie.’
Small sample but not altogether misleading. The current environment, and particularly the prospect of stronger operators extending discounting into September and beyond, could put the cat amungt pigeons.
Anyway, time to move on to the news. Follow us on Twitter at @brumbymark.
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PRIVATE COMPANY ACCOUNTS – PATTY & BUN HOLDINGS LTD (no. 09747302) : The company has reported full year numbers to 28 Nov 2019 to Companies’ House. 21 Aug 2020:
• The period under review does not include any of the impact of Covid-19 but, as the accounts were signed only on 6 August this year, the company was able to make reference to the pandemic in its directors’ comments.
• The company reports that revenues declined year on year from £11.6m to £10.9m (down 6.7%). The group’s Liverpool St site was temporarily closed during the year ‘for building refurbishment by the landlord’.
• Gross margins were almost unchanged (at 65.1% in both years) and the group incurred a loss before tax of £500k (2018: loss £532k).
• The loss retained since incorporation rose to £2.2m and total equity fell from £6.1m to £5.6m as at 28 November last year. Within net equity is a figure of £2.9m for goodwill. Net tangible assets at the end of the year were £2.7m, down from £3.1m.
• The group had £167k of cash in November 2019 compared with £708k a year earlier.
• Unsurprisingly, as the accounts were signed only a couple of weeks ago, the directors comment on Covid-19 and its impact on the business. There are few figures given.
• Director Joe Grossman says ‘the COVID-19 pandemic has had a significant impact on trading post year-end.’ He says ‘the directors remain very cautious.’
• The company closed its units in line with guidance.
• Mr Grossman comments on the impact of travel bans and other social distancing measures, saying that they are unknown at this stage and will impact trade.
• Grossman says the shape of the economic recovery will have an impact as will the occurrence or otherwise of a second wave.
• Patty & Bun accessed government furlough and grant schemes and took out a CBIL with Barclays.
• The company says ‘the directors have been negotiating with Landlords on various concessions that include rent free periods, rent deferments and a move to pay rents monthly in arrears.’
• The group ‘remained open for delivery for the majority of lockdown on some of our sites’ and also ‘launched the Lockdown DIY Patty kits within the M25.’
• Patty and Bun concludes ‘by the end of July 2020 all sites are open fully, apart from two – Goodge Street and Kingly Street. It was great to welcome customers back on the first weekend of full opening, post lockdown restriction easing.’
• The company applies the Going Concern principle and auditors Mare Keraston Smith LLP concurs.
• The company does not comment on the Eat Out to Help Out scheme, which had only just commenced when the group’s accounts were signed.
• It would perhaps be unfair to single out Patty and Bun for comment. We will make a number of points tomorrow re private companies post lockdown.
• There are no returns at Companies’ House to suggest that Patty & Bun has raised more equity.
• The size of the CBIL loan from Barclays is not disclosed. The discussions with landlords re rent reductions are not detailed (or obviously concluded).
• There are some big questions to be asked post-Covid re many, many private companies.
• The government approach in the early days was to stop the ship from sinking. We are now moving onto specific issues regarding specific companies and the prognosis is challenged, to say the very least.
TO DISCOUNT OR NOT TO DISCOUNT? Discounting in good times may be a sign of weakness. That may not be the case in the near term. 21 Aug 2020:
• We are beginning to think that some stronger operators will discount in September. Below an expanded version of an email crossed with a subscriber yesterday.
• Langton re discounts: I’m tempted to say they’re toxic and cheapen brands, but nothing’s ever that simple.
• Discounting may be seen as a sign of weakness and linked with declining reputations but low prices (and discounting) have also been associated with major success stories such as Aldi / Walmart / JDW.
• Offering the better or same products at lower prices should and does go down well with consumers
• Arguably meal deals on certain days are better than straight discounting
• If discounts are imposed from outside, e.g. EOTHO, you should be able to protect the brand. But when it stops, there could be a cold turkey.
• That’s why there will be a temptation to extend.
• However, the normal discounters here, who often engage from a position of weakness, are in tatters and may not be able to do so.
• If they try to compete on price, they may fail on service and / or provenance. Consumers care about this sort of thing
• But if the winners keep early week discounts in place, they could take a lot of market share and drive some other operators out of business.
• Chancellor Rishi Sunak has fed a bunch of hyenas. He has kept them alive. Problem is, they will revert to fighting. The scheme may be extended to help zombie companies and problem areas such as the West End
• However, in the end, there may be no alternative but to put a bunch of healthy companies back in the fight with others that have been kept alive but are fundamentally not up to the job, and the inevitable will happen.
• As one subscriber comments, you only have to be 10% better than the other gladiator, and will win every fight
• The operators with high margin product, e.g. pizza with a low protein mix & therefore low material cost will likely be the winners.
• Particularly if discounting pushes purchases of drink. As Fulham Shore said yesterday, it has been hitting its highest ever sales figures this month, despite the continued closure of three sites.
• Some restaurants are having the equivalent of eight or nine day weeks – with costs for only seven
• The taxpayer has been paying the lower of £10 per head or half the cost of food and non-alcoholic drinks.
• If this subsidy, perhaps 12% to 15% of total sales, had to be paid themselves by stronger companies with gross margins of 75pps plus to play with, they would take this every day of the week – particularly if property costs fall.
• Companies that could not keep up, would go to the wall. There are too many plates spinning and management may not be able to cope
• CVAs may be a temporary prop, but they are terrible for reputations and the CVAs (and the associated talk of failure in the Press) damage staff morale
• Furthermore, if we have learned anything from the CVAs of 2018, it’s that they don’t go deep enough and represent an Elastoplast when a more serious injury needs treating
PUB & RESTAURANT NEWS:
Eat Out to Help Out:
• Just four days of the scheme left. Some pressure on the government to extend it into September. And some indications that a number of operators will fund early-week discounts out of their own pockets if the government does not.
• Fuller’s CEO Simon Emeny has tweeted ‘on a wet, windy and wild Wednesday in South West London it has been wonderful to see so many safely busy pubs and restaurants. Well done to Rishi Sunak for providing the stimulus to protect jobs and get customers back out, safely.
• Fulham Shore, owner of the Franco Manca and The Real Greek chains of restaurants, has announced ‘the UK Government’s ‘Eat Out to Help Out’ scheme has proved to be beneficial both for UK diners and Fulham Shore. Trade in the first full fortnight in August was markedly up on the same period in the previous year, with the Group achieving one of its highest weekly turnover figures in the second week of ‘Eat Out to Help Out’, despite some of its restaurants still remaining closed.’
• FUL reports ‘almost all of the Group’s employees are back off furlough and the Company is recruiting and training more restaurant staff at all levels.’ This must surely have been what chancellor Rishi Sunak was aiming for. See our comments yesterday on companies that have not taken part in the scheme.
• The Telegraph has reported that ‘hundreds of restaurants pull out of Eat Out to Help Out as staff suffer ‘physical and mental stress’. It says ‘a combination of hot temperatures and the promise of half-price restaurant bills on Mondays to Wednesday in August saw venues across the country besieged.’ Nobody should want to overstress their staff, but some other operators might say that if staff did not want to work in busy restaurants then they were in the wrong industry.
• HMRC data shows that nearly 700 businesses have already contacted the Government to request they are removed from the scheme. The Telegraph reports that ‘the true number of restaurants opting out is thought to be higher because they can choose to stop offering the discount at any time without formally deregistering.’
• See our earlier comments on companies that missing the boat.
• Fulham Shore updates on its recent share placing saying it has completed its £2.25m equity fund raising. It says ‘as a result of the Directors’ participation in the Fundraise, the Company’s new £25.75 million bank facilities have become unconditional in all respects.’
• FUL, which comments on EOTHO above, says ‘since 6 August 2020, the Company has re-opened two more The Real Greek restaurants and is planning to reopen another Franco Manca next week, next to the new Harrods store in Westfield London.’
• The company says ‘this will take the Group restaurant numbers that have re-opened for trading up to 50 (out of 51) Franco Manca and 16 (out of 18) The Real Greek. This will leave the Company with three unopened sites in the City and West End of London, which will re-open when office tenants and theatre-goers return. The Company also remains on track to open a new Franco Manca on The Cut, near to the Old Vic theatre and Waterloo Station in London, in mid-September.’
• FUL reports on the changed property environment saying ‘the Group is pleased to report that it has reached agreement with more than 40% of its landlords to waive, defer and/or reduce the rent on the properties it leases from them. The Company remains in discussions over similar arrangements with its other landlords. The Board is grateful to those landlords who have engaged with the Company and been supportive of the business in these difficult times.’
• Patty & Bun founder Joe Grossman has said that he believes his business is ‘well placed to tackle future challenges’, with national expansion still key to the company’s strategy.’ See Premium Email.
• The Telegraph reports that a number of private equity firms are lining up in an attempt to buy ASDA from Walmart.
The new normal – not so good for central London / big cities:
• GfK has released its UK consumer confidence survey for the month of August saying that ‘circumspect consumers report they are more confident about their personal financial situation over the next year but the uptick from zero up to +1 does not amount to much.’
• It says ‘this can change quickly when furlough ends and the inevitable redundancies start. Employment is now the big issue because the pandemic has ended years of job security.’
• GfK says ‘yes, discounted dinners have proved a winner with hungry consumers across the country this month, but it’s difficult to see any increased appetite for other types of spending for now. While our Major Purchase Index managed to increase by one point in August, the economic headwinds are not favourable as we enter the key retailing months at the end of the year.’
• GfK reports the overall index score for consumer confidence has remained at minus 27 for August with three measures down and two up against the July 24th announcement. The Personal Financial Situation is down one point to minus five and confidence in the General Economic Situation has fallen one point to minus 62pts.
• The Guardian reports that ‘nightclub owners have warned they face a looming “financial Armageddon” that could put three quarters of a million people in the struggling night-time economy out of work within weeks.’
• The Night Time Industries Association says that more than a half of its members ‘fear they will collapse within the next two months unless they receive increased government support to see them through the coronavirus crisis.’
• The Guardian quotes Peter Marks, CEO of Deltic, as saying ‘we will be looking at a redundancy round as early as the next two or three weeks [unless something changes], which could involve several hundred, mainly young, people.’
• Sky reports that worker footfall in cities was just 17% of pre-lockdown levels in the first two weeks of August. Sky says ‘companies and staff ignored government pleas to return, leaving economic activity deeply depressed and placing thousands of small businesses at risk of collapse.’
• Citizens’ Advice has reported that unpaid household bills built up during lockdown could lead to problems for many consumers. It says one in nine people have reported being unable to keep up with household bills – the equivalent of six million individuals across the UK.
• Greene King has separately said that central London remains depressed in terms of trade. Young & Co CEO Patrick has made similar comments.
• Sky says ‘office attendance flatlined despite the government abandoning its “work from home” guidance on 1 August. Since then, PM Boris Johnson has personally asked staff to return to work. The furlough is now tapering and it will stop altogether in October.
• Of the staff currently not coming into their offices, some may lose their jobs but the majority will either return or strike a deal whereby they work from home either some or all of the time. Where this balance is struck will be of critical importance to landlords, transport providers, sandwich and coffee shops and any hospitality businesses serving the after work trade.
• Rather disappointingly, Sky reports that ‘in central London and Manchester, early August weekday footfall rose by just one percentage point compared to early July.’ Total average footfall for all cities including shoppers, workers and after-work revellers, was at 56% of pre-lockdown levels in August, a 5% increase on July.
• The ONS reports that 12% of employees are still furloughed. Some 67% of staff that are on furlough are receiving top up payments from their employers. Employers have to pay NIC and pension contributions and the government will only contribute 70% of wages from the beginning of this month. This falls to 60% next month and the scheme ends altogether in October.
• Employers have been promised a £1,000 bonus for each worker they bring back from furlough and employ through to January next year.
• The trickle of job losses continues with Estee Lauder set to cut up to 2,000 jobs as lockdowns hit makeup demand
HOLIDAYS & LEISURE TRAVEL:
• Croatia and Austria have been added to the list of countries that travellers will be obliged to self-isolate for 14dys when they return from. Portugal has been taken off and added to a safe list.
• Jet2holidays has extended the suspension of its flights and holidays programme to mainland Spain and the Balearic Islands to 30 August
• EasyJet Holidays has cut 30% of its staff in line with the airline’s company-wide level of cuts. Many staff had joined the operator recently as it had commenced a build up phase in its development.
• Several teams had joined from Thomas Cook and they are now losing their jobs for the second time.
• The BBC reports that quarantine measures could be imposed on people travelling to the UK from Croatia. Similar decisions have been made re holiday destinations Spain, France and Malta. The Netherlands is also included.
• The Times reports Le Figaro as saying that Accor has been considering a possible move on IHG but is keeping its powder dry for now. Reporter Dom Walsh tweets ‘I’d heard the same suggestion but couldn’t nail it. Will be interesting to see if either side makes statement.’ IHG said nothing yesterday. Its shares were up fractionally, less than one percent, albeit in a falling market.
• STR reports that US hotel occupancy was down 30% in the week to 15 August. Occupancy in absolute terms was 50.2%, the first time it has moved past 50% since mid-March.
• Room rates are down 23% with the resulting REVPAR some 46% lower than in the same week last year.
FINANCE & ECONOMICS:
• The US Labour Dept has reported that the number of new claims for unemployment benefits climbed back above the one million mark last week at 1.1m. , official figures show.
• The Telegraph reports the UK is ‘racing ahead of the world as reopening fires up the economy’. It says ‘almost every industry in Britain is growing faster than its competitors around the world, further raising hopes of a ‘v-shaped’ recovery.’
• Sterling higher at $1.324 and $1.1146. Oil a shade up at $45.07. UK 10yr gilt yield unchanged at 0.23%. World markets down in London and Europe but higher in US. Far East up in Friday trade. London set to open around unchanged.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
Consumer Confidence Watch: After today’s latest report from the widely followed monthly GFK Consumer Confidence index, it’s again worth noting that the record -39 index low seen in July 2008 has still not been tested so far in the current crisis…The overall index has held at the -27 level seen in the report for last month (versus the -36 low seen in the early June “flash” report), with only marginal changes in the sub-sectors of the index. Polling was done between 1st and 13th August. GfK’s Client Strategy Director Joe Staton says: “Employment is now the big issue because the pandemic has ended years of job security. Yes, discounted dinners have proved a winner with hungry consumers across the country this month, but it’s difficult to see significantly increased appetite for other types of spending for now”.
Planet ONS Watch: In the so-called real world, as per the BRC-KPMG figures for July (the 4 weeks to Aug 1st), underlying Retail Sales were surprisingly good last month overall, given the continuing boost to Non-Food sales from pent up demand and the boost to Food sales from the collapse in “eating out”. And “seasonally adjusted” life looks to have been similar on the High Street on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via the official Retail Sales figures for July, which were released at 7am this morning…City economists (who still treat the ONS figures as the gospel truth) may be impressed with the 3.6% improvement in month-on-month seasonally adjusted sales volume (inc-fuel), but the ONS reports that seasonally adjusted value sales (ex-fuel) were 3.7% up on July last year. For an independent view of what Retail Sales were really
News Flow Next Week: As we move even further on into the “dog days” of August, there is not a lot going on next week, although Monday brings the Studio Retail finals and the Motorpoint AGM. The week after is also very quiet, after the Bank Holiday Monday, although Tues Sept 1st brings the Applegreen AGM and the much-awaited launch of the Ocado/M&S joint venture.