Langton Capital – 2020-08-25 – PREMIUM – Geography, September, commuters, coffee, JDW, KFC etc.:
Geography, September, commuters, coffee, JDW, KFC etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, yesterday, as we do our bit for the staycation economy, it was Flamingoland and the North York Moors.
And, as always, it reminded me that there are two areas where Yorkshiremen (and women, of course) meet their Geordie peers: there’s Northallerton, Ripon, Middleton etc where the racing and yachtie set park their Jags to swap stories over their pink gins and truffles and then there’s Scarborough, Whitby and Flamingoland, where they don’t.
Probably enough said on that for just now as we’ll be up in Robin Hood’s Bay and Whitby tomorrow for a return match after a visit to Stamford Bridge today for a subsidised pub lunch and a yomp in the drizzle.
But, if anything, yesterday brought home that a) it’s mentally and physically quite challenging to keep up the Covid-secure lifestyle that the text books recommend whilst trying to have a life and b) there are some very different views out there as to what precautions people should be taking in the first place.
Not that the venues themselves aren’t trying hard.
Because they are, but, with the best will in the world, many people forget what’s going on around them and having a ‘keep left’ and a ‘two metre distancing’ policy is more easy to implement on paper than it is in practise.
Anyway, most people are trying hard so, with that in mind, let’s move on to the news:
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A NUMBER OF COMMENTS:
• Geographical differences in trade:
• Heading for a September crunch?
• There were others but we ran out of time.
GEOGRAPHICAL DIFFERENCES IN TRADE:
It’s remarkable just how quickly one gets used to things. That obscures the fact that it is simply not ‘normal’ for London, particularly Central London, to be suffering more than the rest of the country.
• See also comments on Central London in the general email below.
• First, it’s worth saying that these are not ‘normal’ times. Though they could become ‘normal’, it is perhaps more likely that London will recover.
• Which is great for London on a 100yr view but not so good for operators with quarterly rent bills, monthly payrolls and all the rest to fund.
• There are none of us on familiar ground when it comes to pandemics but it’s worth making a few points. It might then be possible to say what is short term, what is longer term and what might be permanent.
• This isn’t and can’t be an exhaustive list. Comments welcome.
• London, particularly central London, is dependent on international tourists and, right now, there are very few around. Longevity? Peter Backman, see below, estimates overseas spend may be 20% of the total in some districts. Many months, perhaps a couple of years.
• Domestic staycationers are taking up some of the slack at the national level. But they are spending their money in Bournemouth, Bognor and Blackpool – whilst the lack of overseas visitors is being felt in London. There is a lack of symmetry when it comes to the winners and the losers. Longevity as above.
• The after-work trade has been hit as commuters are not returning to their offices. This impacts London, and parts of London such as The City and Docklands, more than it does many other cities. Longevity? Many months, perhaps permanent. See comments in general email below.
• Central London trade is more dependent on the public transport system which, right now, would-be consumers are reluctant to use. The idea of wearing a mask for hours and hours is not appealing. And transport schedules may be reduced, making traveling times less predictable. Social distancing may reduce capacity. Longevity? Months, perhaps longer.
• EOTHO is has more of an impact on low ticket meals. London is not amongst the cheapest places in the UK. £10 off represents half price for most pub meals but it will be a lesser percentage at many London establishments.
• Overbuilding may be more of an issue. This may be debatable but capacity may always have been greater in some London areas than elsewhere. This is wonderful when business is humming along but, in today’s environment, it is a problem.
• It’s dangerous to label anything a conclusion at this stage.
• That said, it would seem reasonable to suggest that 1) London will still be London but that 2) in the short and maybe medium term, many months if not a year or two, the going will be very difficult.
HEADING FOR A SEPTEMBER CRUNCH?
There are several crunch-points out there, a few of which coincide in September. These include EOTHO ending, the kids going back to school, the weather worsening etc. Further out, the furlough scheme will end and, at some point, landlords and banks will need to be paid and VAT on hospitality goods & services (ex-alcohol) will have to quadruple from 5% to 20%.
• We believe that there is a fair chance that the chancellor will extend this scheme. But he’s going to have to get a move on as it only has three trading sessions left, including today.
• Some companies may extend it themselves.
• But, if plans do not change, the scheme ends next Monday and consumers will be back to full price.
• EOTHO has meant that some companies have benefitted from the equivalent of 8 or 9-day weeks in revenue terms with only 7dys of costs. This could change.
The return to school:
• There’s a lot riding on this politically.
• Re hospitality, it could jolt consumers back into a more ‘normal’ pattern of behaviour. It will certainly remove one of the factors persuading some commuters not to return to work.
• Staycations will decline sharply.
• But it usually puts a dampener on family spending and that could remain the case. Typically, singletons and the grey market become a more important part of the mix.
• The latter are still somewhat wary when it comes to going out. This remains an argument in favour of extending EOTHO, namely, it would be targeting a different market
• This is a known unknown.
• But it is usually fair to say that the use of beer gardens and al fresco dining in general will be on a declining trend until perhaps April next year.
Landlords and other:
• As the law stands, landlords will be able to evict commercial tenants by the end of next month.
• Proceedings will take longer than that, of course. But the point remains that some of the ‘debts’ (to banks, government, landlords etc) will need to start to be repaid.
• We’ll have to cross the quadrupling VAT bridge when we get to it.
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?
• Dead men walking? Many companies were in a poor state last year. Covid will have made this worse. It’s hard to see them surviving.
PUB & RESTAURANT NEWS:
Regional differences in trade.
• Where a company’s pubs are could be an accident of birth. But it makes a big difference. Most restaurant operators are of a more recent vintage and they (that is to say this generation of management) have chosen their locations. Either way, it makes a major difference to trade.
• New West End has reported that West End footfall rose by 15% week on week last week – but that it stood down to only 41% of the level that it was in the same week last year. Year to date footfall is down 57% (and stands at 43% of last year’s level).
• Springboard separately reports that last week retail footfall across all retail locations in the country was 68% of its level last year. The week seems to be the same but, if the country is at 68% and the West End is at only 41%, there is something going on here. See Premium email.
• Springboard reports that retail parks have seen the strongest recovery and are now at 85% of last year’s footfall. High Streets are at 60%. Retail parks could find social distancing less of a problem. Certainly many High Street shops seem to be adopting a one-in, one-out policy or are restricting numbers to a handful of people.
Returning to the office:
• The Manpower Group carried out research (albeit in June) as to the attitudes of office workers. It found that staff in the US and UK were more negative about returning to their offices than were staff in Germany, France, Italy, Mexico, Singapore and Spain.
• The FT reports that office owners could have to spend millions of pounds on making their workplaces ‘pandemic-proof’. This could delay the re-staffing of offices. Analysts Genesis estimate that the measures it is proposing, e.g. automatic, no-touch oors, could add around 2% to the build cost of an office.
• The FT reports that City of London employers are making plans to allow more staff to work from home more regularly. Some employers, such as NatWest Group and Standard Life Aberdeen, do not anticipate a major return to the office until early next year. Other employers may well be going further.
Other Covid news:
• Licensed premises in Aberdeen will reopen their doors tomorrow, Wednesday, August 26, once an environmental health check has been completed.
• In order to track the health of employees, Bizimply has launched a new Attendance Questionnaire, which will allow operators to design their own questionnaire which automatically appears on-screen as staff members log on to Bizimply’s clock in app at the start of their shift. The company suggests that, by asking a few questions about known COVID symptoms, employers can be kept informed of any team members who might have the virus and take appropriate action.
• North American alcohol eCommerce platform Drizly has secured $50 million in funding. The company increased revenue by 350% in 2020. The company says ‘we’ve spent years methodically building the three-tier compliant ecommerce foundation for the alcohol category.’
• Foodservice analyst Peter Backman has updated on the sector saying that most attention, at the moment, is on the supply side (that is hospitality companies). He says that the consumer (the demand side) will ultimately be what really matters.
• Backman suggests that consumers will be somewhat poorer and that some of them may have lost their jobs. In addition, he says, they ‘are likely to be significantly more aware of the need for cleanliness, safe distancing and other factors with a social dimension.’ London is quiet at the moment but Backman says the city in general is an ‘essential way of the world, and London, like all other major cities will be back.’
• Backman says ‘looking at the total hospitality numbers I am struck by the share that depends on overseas visitors – they accounted for almost 20% last year. This year they are gone – well almost. And another striking feature is the startling different ways that visitors from overseas spend their money on hospitality – compared with how Brits spend their hospitality pounds, at least in this country.’ UK consumers are spending in Bournemouth and Bognor whilst overseas visitors are not spending in London.
• Allegra’s World Coffee Portal has suggested that ‘after visiting family and friends, going to a café or coffee shop was the most popular outing made since the national lockdown was eased on 4 July 2020.’
• Some 55% of respondents said they had visited a café or coffee shop since the national lockdown was eased, second only to the 69% who visited family and friends. Allegra says ‘UK cafés proved even more popular than pubs, and bars & restaurants, which attracted 28% of respondents. Of those who ventured to a café or coffee shop since lockdown restrictions were eased, 43% purchased take-away only, 22% opted exclusively to sit-in, and 35% did both.’
• Allegra Group CEO and Founder, Jeffrey Young said: “Cafés and coffee shops should be heartened by the wave of public support they have received since national lockdown restrictions were eased in July 2020. “Nevertheless, this study indicates there are difficult times ahead for many businesses, and the extension of government support is likely needed to ensure the medium-term viability of the UK hospitality industry.”
• JD Wetherspoon shares slipped by 3% in a rising market yesterday as traders digested the suggestion that the group will make a loss this year (as will many if not most operators) and that its LfL sales were perhaps below the management’s expectation at the time of its equity placing.
• Since then (April), the chancellor’s Eat Out to Help Out scheme has boosted trade. Although the group’s financial year ended just before the scheme began, the company updated yesterday on sales to 16 August, meaning that there were some hopes that expectations could have been beaten. JDW’s shares finished yesterday down by 30p or 3.1%.
• KFC has paused the use of its ‘Finger Lickin’ Good’ slogan in light of the Covid-19 pandemic. KFC says ‘we find ourselves in a unique situation—having an iconic slogan that doesn’t quite fit in the current environment. While we are pausing the use of It’s Finger Lickin’ Good, rest assured the food craved by so many people around the world isn’t changing one bit.’
• Domino’s Pizza in the US has just released the company’s first new pizzas in eight years. It is introducing two new pizzas, chicken taco and cheeseburger pizzas, which are both designed ‘with delivery solutions for the COVID-19 era in mind.’ Domino’s says ‘consumers are now getting more food delivered than ever before and they are looking for variety.’ It says ‘every time we see an opportunity to make the consumer’s pizza experience better, we home in on that.’
• Tesco is to create 16,000 new permanent jobs. It has seen an ‘exceptional growth’ in its online business.
HOLIDAYS & LEISURE TRAVEL:
• TUI’s Marella Cruises has extended its pause in operations until November 15. It blames the ‘ongoing uncertainty’ re quarantine requirements and travel bans.
• The Business Travel Association has warned that corporate travel faces a “bleak” autumn and winter. It says talk of a restart in September has been pushed into Q1 next year by many corporate travel buyers.
• UK Inbound has said that the inbound travel sector has had a “disastrous” summer. It says that a boom in domestic tourism will not be sufficient to rescue the sector on its own. UK Inbound says ‘VisitBritain predicted a 60% fall by the end of the year, but that was based on a very short quarantine period.’
• IATA has warned that travellers risk penalties for refusing to wear face masks on flights. It says ‘the vast majority of travellers understand the importance of a face covering for themselves as well as for their fellow passengers. But a small minority create problems.’
• Elsewhere, Lufthansa Group airlines is to allow passengers with health conditions to fly mask-free with a negative Covid-19 test and a medical certificate from next week.
• Eurostar is to start a direct London-Amsterdam services from October 26. The Netherlands is currently on the list of countries that travellers will have to self-isolate for 14dys when they come back from.
• STR has said that the week ended 16 August was the first week since hotels were reopened in the UK on 4 July that occupancy has not risen sequentially. STR says ‘staycations remain the story, with rural locations doing very well.’ STR mentions ‘Cumbria, the Lake District, North Wales, Norfolk, Suffolk, Devon, Cornwall and Dorset.’
• STR reports that London is still ‘suffering’. Central London is underperforming most other London postcodes.
• STR says that, worldwide, a total of 3.5m hotel rooms were temporarily closed at the height of the global lockdown. STR says ‘rooms were slow to reopen throughout the month of May, but hundreds of thousands of rooms re-entered the active supply pool on the first of both June and July, and throughout each of those months. At present, about 70% of the rooms that were closed at peak have since reopened, leaving just over 1 million rooms still locked down.’
• STR says the US hotel industry made a gross operating profit per available room in July, for the first time since February.
• Microsoft is reported to be supporting Epic Games, the company behind Fortnite, in its legal tussle with Apple.
FINANCE & ECONOMICS:
• The Telegraph reports that the UK Treasury has denied that its planned digital services tax could be scrapped in the search for a trade deal with the US.
• Facebook, meanwhile, is to pay the French government €106m in back taxes to settle a dispute over where revenues were generated.
• Sterling up v dollar at $1.3108 but level with the Euro at €1.1095. Oil higher at $45.15 and the UK 10yr gilt yield was steady at 0.21%. World markets mostly better yesterday with the Far East mixed in Tuesday trade. London set to open up by around 23pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
Nick is back after the Bank Holiday.