Langton Capital – 2020-09-04 – PREMIUM – EOTHO, LfL sales, Pret, Costa, Portugal & other:
EOTHO, LfL sales, Pret, Costa, Portugal & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, whilst it’s only September, I think there’s never been a more obvious front-runner for the title ‘word of the year’.
Because it must be ‘unprecedented’, mustn’t it?
Not many arguments there but there are a few three word slogans and lazy phrases – such as ‘take back control’, ‘stay home’, the short-lived ‘hands, face, space’, ‘world -beating’ and ‘let me be clear’ etc, which show that message discipline has been largely maintained and have added 30, 40 seconds or more to the time that politicians can bluster aimlessly whilst trying to gather their thoughts.
Any other suggestions gratefully received. On to the news:
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TO REOPEN OR NOT TO REOPEN, THAT IS THE QUESTION: It might have seemed like a no-brainer, reopening to take advantage of EOTHO. So why did so many units remain closed? 4 Sept 2020:
• EOTHO was a Godsend for many in the industry. The ‘better’ operators, and those that could afford to, accelerated the reopening of sites where units were not already trading.
• But, as well as some operators, such as Tasty, saying that they may re-close units that they were opening for August, some sites did not open at all.
• This is understandable at travel hubs and in hardcore commuter areas, but it is less understandable elsewhere.
• We can only imagine that it was a) a lack of finance, b) a dispute with the landlord where the balance of power would shift if the unit recommenced trading, or c) a loss of the will to live (or all three)
A worked example – pluck & spirit tempered by inertia, laziness, lack of capital:
• As a part of our selfless staycation programme, Langton spent a couple of days in Robin Hood’s Bay.
• It’s a great little place. For those that don’t know it, a murderous hill splits the lower village from the top.
• The lower village has (or had) three pubs and two wine bar-type outlets. The top has two pubs with accommodation.
• Only one of the pubs in the lower village is open. The same licensee has all three. She opened one, which was busy, temporarily shut another (but left its guest rooms in operation and left staff, who all know each other’s business, saying ‘the bar was too small’) and shuttered the third & made the staff redundant.
• The open unit seemed to be doing all the Covid stuff. The temporarily shut pub is baffling and the permanently closed unit is, perhaps, a dispute with the freeholder. We’re guessing rent holidays & capex contributions & refurbs are the points of contention
• In the upper village, one of the pubs wasn’t doing EOTHO. Location is everything, it is well-positioned, and it was busy enough. We ate there and can confirm that customers were less than happy. At the very least, Langton was incensed.
• It’s enraging to think that admin and inertia stopped an operator from giving a gift of government money to a customer. I mean, why…?
• We went in the other pub in the upper village, hung around being ignored for ten minutes or so, sat down and were ignored for a bit longer and then we left
Some take-aways from the above:
• Without knowing the ins and outs of specific situations, it’s unfair to draw definitive conclusions
• But we would hazard, some operators may not deserve to survive.
• And that’s a real shame. Because it means that, to date, capital has been misallocated and units that could have performed strongly may be seriously and sometimes permanently damaged
• If three-storey pubs become accommodation blocks, there is likely no going back
• In a hands-on sense, Langton has never run a pub. But we’ve worked with and observed people who have and do and would make a number of points.
• A) Look around you. Find ‘best practise’ and, if possible, emulate it.
• B) Do the little things well and consistently well.
• C) Don’t be greedy, don’t take success for granted and, if you begin to feel that you are free-wheeling (and even if you are not), frequently go back to A)
The micro-reasons why a unit might not reopen:
• Lack of demand might be the first & most obvious one. If a unit is in an airport with no passengers, there may be little point in reopening, whether or not you can give a discount to your customers.
• No money. We have seen estimates of perhaps £30,000 as the cost of reopening a closed unit. This will vary widely. But some units will have been physically boarded up, they will need a thorough clean, staff will need rebooting and stock will need reordering. These sound like little things but, to a demoralised and cash-strapped operator, there may be a straw that breaks the camel’s back.
• Relationship with suppliers irreparable. There will have been a negative working capital impact on closure. Money will have stopped coming in but suppliers, who often supply on credit, would still have needed paying. If this was a source of contention, restocking may be difficult.
• Landlord negotiations. Many operators have not been paying their rents. They may have used the fact(s) that first ‘we can’t trade’ and latterly ‘it’s not worth trading’ as arguments. If operators then trade, the landlord may be straight on the phone.
• Others. There are many issues. We’ve heard of one pub with huge plumbing issues. Closing for three months plus caused problems to solidify (literally) and the operator can’t face the financial cost of repairs.
PUB & RESTAURANT NEWS:
• The Treasury has reported that the EOTHO scheme was used around 130 million times during August. It says the claims have been worth £522m, suggesting that the average discount, ranging across full meals to simple coffees, was a little over £4.
• Chancellor Rishi Sunak says ‘from the get-go our mission has been to protect jobs, and to do this we needed to be creative, brave and try things that no government has ever done before. Today’s figures continue to show Eat Out to Help Out has been a success. I want to thank everyone, from restaurant owners to waiters, chefs and diners, for embracing it and helping drive our economic recovery.’
• OpenTable recently reported that restaurant reservations rose by 53% compared with the Monday-to-Wednesday period in August 2019. Many operators have hailed the scheme as a great success. Open Table reported that the final day of the scheme, Bank Holiday Monday, saw bookings rise by 216% against last year.
• S4Labour has reported that hospitality LfL sales bounced back in August. Albeit from a major negative number to around flat.
• S4 says its analysis ‘shows that hospitality like for like sales in August were flat, down just 0.4% compared to the same month last year.’ It says ‘the Eat Out To Help Out scheme had the desired effect with those sites that were trading showing like for like growth in food sales of 22.2%, while drinks sales were in decline of 16.2%. The offer of a government supported meal helped to increase consumer confidence and has provided the lifeline that hospitality required. In July we saw like for likes down 30% and at this level many hospitality businesses would have been making a loss.’
• S4 adds ‘outside of London performed better than London, with 4% growth compared to 19.5% decline.’ It says ‘this is a reflection of the impact of people still working from home and it is likely that all urban areas that rely on a population of people working in nearby offices will be suffering. We are starting to see more organisations bring people back to their offices, but this will take time and is unlikely to return to pre-pandemic levels.’
• S4 concludes ‘EOTHO clearly did a job in restoring consumer confidence. There were some great sales and this suggests that the message has got through to consumers that the hospitality sector is very much open and very much safe.’
• Wireless Social has released data that ‘indicates there was a significant uplift in footfall across UK towns and cities over the August Bank Holiday, as people flocked to cafes, pubs and restaurants to make the most of the conclusion of the Eat Out to Help Out scheme.’
• It says ‘despite still being markedly lower than pre-lockdown levels (February 2020), footfall in a number of towns and cities was the highest it has been since March. Visitor traffic in Liverpool on Sunday 30th August (-13% on pre-lockdown levels) had risen by 25% compared to the previous week.’ Many other provincial cities recorded similar improvements.
• Wireless Social says London is lagging. It says ‘in London, footfall climbed steadily throughout August, with figures for Sunday 30th August (-38%) showing an increase of 17% compared to 4th July (-55%). However, much of the increased traffic was driven by the ‘London villages’ (Richmond, Wimbledon etc), where Bank Holiday footfall (-23%) had increased by 36% versus 4th July; compared to the City, Soho and Canary Wharf, where traffic was roughly 65% lower than pre-lockdown averages.’
• Wireless Social concludes ‘it’s really encouraging to see footfall rise all across the nation, but the slower rates of growth in London are very concerning. It’s essential that the Capital gets back to pre-lockdown levels of activity, but the fact that large swathes of London’s workforce will continue to work from home is likely to mean that many restaurants, pubs and cafes will continue to trade at far lower levels for longer than other parts of the country.’
• New West End has said that ‘west End footfall was down 15% week-on-week on Wednesday, 2 September.’ It’s only one day but numbers weren’t meant to be going backwards. The company says ‘compared to the same day last year, footfall was down 56%.’
Returning to the office:
• The Telegraph points out that the cost of commuting may be putting some off when it comes to returning to the office. The Paper says ‘the number of Tube passengers on Tuesday remained 72pc down compared to last year, according to data from Transport for London.’
• The CEBR has said that up to 44% of workers based in London expect to be working from home going forward. The CEBR reckons the average commuter spends £202 per month just getting to and from work.
• Daily Mail columnist Richard Littlejohn is as the centre of a Twitter storm telling Britons that they should return to the office, despite admitting ‘like most people who write for a living, I’ve worked from home for the past 30-odd years.’
• Littlejohn criticises the EOTHO scheme too saying would-be commuters who he says are ‘boasting smugly about their exciting new ‘work/life balance’ and…meanwhile, they’re climbing over each other to fill their faces with state-subsidised chicken and chips at Nando’s, while at the same time pretending to be too frightened to turn up for work.’
• The British Retail Consortium has warned that the disinclination of the British public to return to city centres is having a ‘devastating effect’ on shops in town and city centres. The BRC fears further job losses and store closures. Footfall in retail parks has been more buoyant. The BRC says ‘footfall remained well below normal levels in August. In-store discounting and demand for school wear helped lure some customers back to the shops, but with many office blocks still empty and much of the public avoiding public transport, footfall is not returning to towns and city centres and this is having a devastating effect on the local economies in these areas.’
Other Covid-19 issues:
• Data produced by Springboard suggests that the number of empty shops on UK high streets is now at its highest level in six years. It says city centres, and especially London, are seeing a sharp reduction in visitor numbers.
• Springboard says nearly 11% of shops were vacant in July compared with 9.8% in January. This is not including shuttered shops which have not yet confirmed that they will not be reopening.
• Springboard says ‘the reality of the new normal has already started to bite.’ It adds ‘this result brings into sharp focus the difficulties faced by large cities in attracting customers back and the impact of this on our bricks and mortar retail landscape.’
• Bosses of 80 retail and hospitality companies have signed a letter issuing an urgent plea to PM Boris Johnson to do something to save high street businesses. The letter was organised by UK Hospitality.
• Costa Coffee may make up to 1,650 people redundant as it cuts staffing numbers across its estate. The company has reopened around 2,400 of its 2,700 units nationwide.
• Costa says ‘while trade is returning, helped by the government’s VAT reduction, which Costa passed on to customers in full, and the recent Eat Out To Help Out scheme, there remain high levels of uncertainty as to when trade will recover to pre-Covid levels.’
• Pret a Manger is to introduce a monthly coffee subscription service for customers to drink up to five coffees a day if they sign up to a monthly subscription service at just £20. At around £2 per coffee, the break even from the customer’s point of view would be little more than two coffees a week. Pret recently announced it is to close 30 outlets and lay off a third of its staff. The scheme is to go live next Tuesday.
• Pret says that ‘eligible products’ will include ‘organic coffees, teas, hot chocolates, all iced drinks including iced coffees, cold brew, frappes and smoothies (except Cocoa, Almond Butter & Banana Smoothie, Raspberry, Mango & Ginger Smoothie, and Avocado, Mango and Ginger Smoothie), including any milk alternatives, syrups and extra coffee shots which have been prepared by a barista.’
• Puttshack has said that it will cut the price by 50% of pizzas and kids’ meals, with no £10 cap, from Monday to Thursday. The company says ‘the response we received from the Eat Out to Help out campaign has been incredibly positive and we were really keen to keep the momentum going which is why we have decided to extend the offer into September.’
• Amazon is adding 7,000 jobs in the UK. In the US, its Whole Foods Market subsidiary is opening its first online-only store
HOLIDAYS & LEISURE TRAVEL:
• Transport secretary Grant Shapps has said there will be no changes to the current travel corridors for England ‘today’. This will come as a relief to Portugal – though Wales has introduced a quarantine (see below).
• The Welsh government has put in place quarantine restrictions on travellers returning from mainland Portugal and six Greek islands, Mykonos, Zakynthos, Lesvos, Paros and Antiparos and Crete. Returning visitors will have to self-isolate for 14 days.
• Scotland has joined Wales in removing Portugal from its safe list of countries exempt from quarantine measures. This has led some observers to suggest that the government’s policy is ‘in tatters’ as English flights will still be exempt. Which? says ‘if the government is serious about letting international travel resume while prioritising public health, a major reassessment of its approach is needed.’
• Travelodge is offering 10% off bookings alongside a raft of rooms in London at just £29 per night.
• Virgin Atlantic Airways is to cut an additional 1,000 jobs
• Jet2holidays has cancelled all flights to mainland Spain and Croatia up to and including October 31, 2020.
• University College London has suggested that crowding at airports could lead to an increase in the spread of Covid-19.
• IATA says global air travel demand in July was down 79.8% year over year. Whilst that is better than June, which was down 86.6%, it is still awful.
• IATA says ‘the crisis in demand continued with little respite in July. With essentially four in five air travellers staying home, the industry remains largely paralysed.’ It says ‘governments reopening and then closing borders or removing and then re-imposing quarantines does not give many consumers confidence to make travel plans, nor airlines to rebuild schedules.’
• US hotel occupancy fell week on week last week. Occupancy was down 27.7% on last year with room rates down by 23.2%. REVPAR was some 44.5% lower.
• The Yorkshire Wildlife, in Doncaster, has received a £15m investment that will allow it to double its size and visitor numbers.
FINANCE & ECONOMICS:
• IHS Markit reports that the UK services PMI rose to 58.8 in August from 56.5 in July. It says ‘UK service providers reported another rise in business activity during August, with the rate of expansion accelerating to its fastest for over five years.’
• Markit says ‘higher levels of output were primarily attributed to the reopening of the UK economy after the lockdown period in the second quarter of 2020.’
• It says the Composite PMI index rose to 59.1 in August from 57.0 in July. Markit says ‘a further surge in service sector business activity in August adds to signs that the economy is enjoying a mini boom as business re-opens after the lockdowns, but the concern is that the rebound will fade as quickly as it appeared.’
• Markit adds ‘the current expansion is built on something of a false reality, with the economy temporarily supported by measures including the furlough and Eat Out to Help Out schemes. These props are being removed. “The burning question is how the economy will cope as these supports are withdrawn. Worryingly, many companies are already preparing for tougher times ahead, notably via further fierce job cutting, the rate of which re-accelerated in the service sector in August to a pace exceeding that seen at the height of the global financial crisis.’
• The FT quotes ‘members of the logistics industry’ as saying that there are “significant gaps” in UK border plans for the end of the Brexit transition period on 31 December.
• Sterling lower at $1.3277 and €1.1203. Oil down at $43.71. UK 10yr gilt yield down 1bp at 0.23%. World markets all lower yesterday with London set to open down around 30 pts.
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 news with the Q2 results of the American jewellery chain Signet that August LFL sales had been over 10% up didn’t stop the share price from falling nearly 4% yesterday, given the rout on Wall Street. Q2 LFL sales were as much as 31% down, however, and the UK jewellery chains of H Samuel and Ernest Jones underperformed, with LFL sales down by 38% (despite strong Online growth). In terms of today’s news, the community shopping centre group Capital & Regional (which owns centres in places like Walthamstow and Ilford) has published its interims, putting a brave face on the slump in its rental income and asset value. And little Topps Tiles has announced that it has appointed Stephen Hopson as its new CFO, whilst the embattled Pret A Manger is launching an n-shop coffee subscription called “YourPret Barista”, as part of a big strategic shift in its business model.
BDO High Street Sales Tracker: The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that in w/e Sunday Aug 30th, BDO Fashion LFL sales were actually up by 1.8%, ending a 24 week losing run (with Store Fashion sales down c23% and Online Fashion sales up c52%), whilst Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were up by 5.6% (down c18% in Store sales, but up c85% in Online sales), despite a 25% slump in footfall. However, encouraging though this is, it is still worth bearing in mind that the sales index is constructed from an unweighted adjusted average of percentage changes and that the sample base is not huge, so we still think that the BDO HSST needs to be taken with a pinch of salt.
Retail Sales Watch: The Retail Sales month of August (the 4 weeks to Aug 29th) is now over, but we haven’t seen the final word yet on how good July was on the High Street…The Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported that non-seasonally adjusted total Retail Sales by value were up by 2.7% in July (ex-petrol), which was a bit worse than the BRC-KPMG measure of gross sales, which was up by 3.2% in gross terms. So, who was right? Well, the Retailing consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey), has come out with its own detailed overview of July (the 4 weeks to Aug 1st) and their estimate is that gross Retail sales rose in value by 2.9% last month, year-on-year (non-seasonally adjusted, ex-petrol), which is again almost bang in line with the
Weather Watch: It has turned quite autumnal recently, but memories about “the weather” are always notoriously short-term and often too London-centric…so, ahead of the BRC-KPMG Retail Sales survey for August on Tuesday, we turned to the Retail weather consultants Planalytics to check on how last month’s weather “should” have affected trading on the High Street (and Online) across the country…And their overview for the calendar month of August was headlined “Unusually Stormy” (“A Wet, Windy, but Warm Month”), as, despite the heatwave at the start of the month, it was the 6th wettest August in the past 55+ years. Overall, however, the monthly mean temperature of 17.6C was 1.1C above last year and 1.0C above “normal”. Across the country, in terms of the sales of key seasonal products, Planalytics estimate that the theoretical impact on “weather driven demand” last month was -1% for
News Flow Next Week: As we move further on into September, there is a lot more going on next week, whilst The Hut IPO bubbles away in the background. Monday brings the ABF/Primark pre-close update, whilst Tuesday kicks off with the BRC-KPMG Retail Sales for August, as well as the Halfords update, the JD Sports interims and the Travis Perkins/Wickes interims. Thursday then brings the Morrisons interims, the Dunelm finals, the Dixons Carphone AGM and the N Brown AGM