Langton Capital – 2020-09-29 – PREMIUM – 10pm curfew, U-turns, Gregg’s, Hotel Choc, Escape Hunt & other:
10pm curfew, U-turns, Gregg’s, Hotel Choc, Escape Hunt & other:
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A DAY IN THE LIFE:
Bit busy with RNSs today so we’d better move on to the news. Good weather today and then it’s back to autumn again. Follow us for real time developments on Twitter at @brumbymark:
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10pm CLOSING. THE EARLY EVIDENCE: Identifying cause and effect may be difficult, even impossible. But here a few comments. 29 Sept 2020:
• The 10pm curfew, which was not modelled or bounced off the scientists (apparently), has caught people’s attention.
• It has a number of direct impacts (earlier and very defined closing, crowded tube stations, bus and taxi queues, an upturn in home drinking, an earlier start to the night out etc.) and some indirect ones (reduced confidence – in hospitality and perhaps in the regulations – etc.)
• The weather has been very autumnal over the last few days. It contrasts with last week and with last year
• The ending of the EOTHO scheme makes month on month comparisons difficult and consumer confidence has been dented meaning that disaggregating the various impacts could be difficult, even impossible.
A few impacts:
• It may have led to earlier and faster drinking. It has certainly crowded streets and transport hubs shortly after 10pm and it may have encouraged after-pub, home drinking
• Early closing has moved the cost / benefit of going into town for the night. Although disaggregation is hard, there are some suggestions that the suburbs have benefited at the expense of city centres
• Central London, already a net loser, has probably been negatively impacted
• Some feedback suggests that wet sales have been more impacted than food sales.
• We haven’t had much feedback on the impact of sport – specifically the fact that some kick-off times mean that matches can’t be watched in pubs to their final whistle. This could encourage home-drinking
• It’s early days, the weather is different etc.
• But some suggestions that trade, already down perhaps 15% from pre-Covid levels, has taken another 10% hit.
• This does not seem unreasonable. It perhaps isn’t worth disaggregating the drop any further, but the 10% drop could be 50:50, 10pm closing and sentiment
• Operators acknowledge that the impact will not be equally spread.
• Late night, city centre bars, already in a tight spot, will have been most heavily impacted. See Revolution Bars’ comment on a possible CVA last week
• Suburban, food-led units, already relative (though perhaps not absolute) winners, should have been less adversely impacted
Where to from here?
• There are some hopes that the 10pm curfew will be dropped. It wasn’t modelled in the first place and, if crowds are gathering at 10.05pm, it might be deemed counter-productive
• Any U-turn might be influenced by politics. Can we sneak another one in, have we used up our U-turn quota for this week etc.
• For many operators, simply remaining open is key. At least some money is coming in. Self-help is vital.
• Avoiding becoming collateral damage is key. For some (both companies and industries) this is easier than it is for others.
• Companies are likely to conserve cash. They are unlikely to pass VAT cuts on to customers, they will cut back on capex and there will be no dividends
• Tough times but, for most, it is about a) staying open and in business for the moment and then b) possibly prospering later
PUBS & RESTAURANTS:
10pm curfew & other restrictions:
• U-turn of sorts as the House of Commons decides that the exemption to the 10pm closing time that it had granted its own bars will be rescinded. The Times had reported that bars in the House of Commons were not subject to the same curfew rules for hospitality venues as they are designated “workplace canteens”.
• The exemption had led to obvious claims that it was one rule for them and one rule for us and that we weren’t all in it together etc.
• James Watt of Brew Dog tweeted ‘after Barnard Castle I thought the leadership of this country could not become any more hypocritical. Unfortunately I was wrong.’
• Night time economy adviser in Manchester Sacha Lord said ‘I’d like to say I’m surprised…but I’m really not.’
• Further restrictions in the North East.
Trade organisation comments:
• Practical concerns ahead of a potential ‘circuit breaker’ or ‘fire-break’ lockdown.
• Commenting on the latest Covid-19 restrictions, SIBA CEO James Calder says ‘Monday should be a busy day for brewery orders, but publicans today are in a state of despair. They are not ordering beer because they are anticipating an imminent ‘circuit breaker’ lockdown that will close their pubs not just for another fortnight, but potentially for good.’
• Operators will not want to be overstocked with time-sensitive products if sales are at risk of being prevented by a lockdown.
• SIBA says ‘we know from the first lockdown that you cannot simply switch on or switch off a pub or a brewery. A ‘social lockdown’ will deal a huge financial blow to hundreds, if not thousands of businesses. If Government go down this route they need to provide the evidence, in advance, that a shutdown of pubs and breweries will help tackle the virus. If they can, then Government also need to provide a full furlough extension, business rate support, rent support, cuts to VAT on beer and reverse the planned tax changes for small breweries. Parliament should be allowed to debate any new restrictions, not simply enacted through emergency powers.’
• Comments on proposed rules re maximum volume at which music can be played.
• The BBPA says ‘the cumulative impact of layering restriction upon restriction is making it harder for pubs to survive. We have already seen a total ban on music in pubs in Scotland, which has seen trade plummet there.’ It says ‘the sector has not been consulted on the evidence base for these extra restrictions on music. We are acutely aware of our responsibilities as businesses, but the Government is in danger of cutting off any chance of a recovery. Instead of placing further restrictions on pubs, we need the Government to focus on putting a proper support package in place to help our sector survive the winter.’
• The Society of Independent Brewers has produced research suggesting that independent breweries are struggling to cope with a fall in beer sales, just as the Government is threatening them with increased taxes SIBA says the ‘fall in sales comes just as the Government is set to slash the Small Breweries’ Relief, which was introduced to take account of small brewers’ relatively high cost of production and allow them to compete with global brewers.’
• CAMRA CEO Tom Stainer says the report ‘highlight the fragile situation that our brewing industry is in following lockdown, and why the Government’s proposed tax increase for some of the smallest brewers poses a real threat to competition and consumer choice.’
Footfall & city centres:
• New West End reports that West End footfall was down 7% week-on-week in Week 39 as a whole.’ It says ‘footfall in the West End & Mayfair has grown by 69% since non-essential retail stores have reopened in Week 25 (w/c 15 June)’ but it says that, ‘compared to the same week last year, footfall was down 56%.’
• New West End is saying that footfall dropped by around three quarters and that it has since recovered around a quarter of that lost ground. Bad but better. Sounds about right.
Other Covid-19 considerations:
• Pragma Consulting says that ‘social media is now a major shopping channel.’ It says a study conducted by Argos showed that one in four Brits are now “practically addicted” to online shopping, thanks to lockdown.
• In the early days, consumers may have been unable to access the physical store, but the online marketplace has remained open. These changes, if permanent, will have an impact on city centre footfall.
• Foodservice analyst Peter Backman has said that the Covid second wave ‘has arrived just as the restaurant sector was achieving some stability after a boost in August from summer and EOtHO.’ Backman says ‘for the last few weeks it has been operating at something above 60% of pre-covid levels.’
• This is now coming under downward pressure.
• Q4 rents were due yesterday. Many demands will be sitting at the reception desks of unmanned offices but others will be actively pursued by landlords, keen to redirect some of the EOTHO cash into their own pockets before it is spent on something else.
• Colliers told The Guardian ‘the restrictions imposed this week represent a step back in economic recovery and will negatively affect businesses in most sectors. While we feel the restrictions are fairly minor, we do think they will cause a reduction in the amount of rent we are able to collect.’
• Melanie Leech of the British Property Federation has said that rising debt levels are now “too high a mountain for businesses and property owners to climb on their own”.
• Pizza Hut’s proposed CVA has been approved by creditors. Some 29 restaurants will close and 450 job will be lost. Pizza Hut’s deal will secure employment for around 5,000 other employees.
• Pizza Hut says ‘we are delighted to have reached such a constructive position in partnership with our landlords and creditors.’ It says ‘our focus is now ‘business as usual’ supporting all of our team members and continuing to provide a Covid-safe restaurant experience for our guests.’
• Gregg’s has updated on Q3 sales saying that its sales recovery is improving. It says September company-managed shop like-for-like sales improved to 76.1% of 2019 level in the four weeks to 26 September 2020. These are ‘higher levels of activity seen following slower August.’ The group is restarting its shop opening programme, and now expects c.20 net openings in 2020.
• Good from Gregg’s but possible job losses.
• Gregg’s says ‘these results have been achieved despite a number of headwinds.’ The company says ‘in response to increasing demand we have progressively reintroduced products into our range and have now reopened all of our manufacturing operations.’ It says ‘we are taking steps to ensure that our employment costs reflect the estimated level of demand from November onwards.’
• Gregg’s says ‘the outlook for trading remains uncertain, with rising COVID-19 infection rates leading to increasing risks of supply chain interruption and further restrictions on customer activities out of the home. In these challenging conditions our teams continue to work hard and have proven our ability to operate with social distancing and adapt to new digital channels.’
• Hotel Chocolat has reported full year numbers to 28 June 2020 saying that revenue rose by 3% to £136.3m with H1 up 14% and H2 down 14%. The company made underlying EBITDA for the year of £9.4m vs £20.7m last year.
• Hotel Chocolat reports an underlying profit of £2.4m against £14.1m last year. It says this is ‘slightly ahead of expectations’. Angus Thirlwell, Co-founder and Chief Executive Officer says ‘the events of 2020 have challenged all of us’ and says this has ‘pushed us to accelerate many of our existing plans and strategic initiatives.’ Thirlwell says ‘whilst uncertainty will continue for all of us in the coming year, our pipeline of potential growth opportunities has never been stronger.’ He concludes ‘I am confident that the strategic progress we have achieved over the past year will build a stronger business in the medium-term with greater growth, profitability and brand appeal.’
• London Union boss Jonathan Downey has announced the closure of his Milk & Honey outlet. He says ‘Soho has been dead these past six months but we were part of it coming back to life. The streets were quiet but we were doing okay and it felt like we’d make it. And then this curfew killed us. With last orders around 9.15pm, even opening an hour or so earlier won’t help. After 18 years, we are done. Milk & Honey London, the first recorded case of a bar dying of curfew.’
• Cote Restaurants has been purchased out of administration by investment manager Partners Group. The new owners say they have ‘ambitious plans’ for the business. Partners Group says ‘we see a strong brand with a good following, great quality food and a differentiated operating setup. While the mandatory closure of all Côte’s restaurants due to COVID-19 resulted in a significant loss of revenue and earnings, the brand remains as well-regarded as ever and uniquely positioned in the UK restaurant scene.’
• Greece has banned the sale of alcohol from midnight to 5am in 10 regions
• Aldi aims to create 4,000 jobs in the UK next year
• EG Group and TDR are preferred bidders for ASDA
HOTELS & LEISURE TRAVEL:
• Hot stats has reported that ‘Europe’s hotels finally posted positive GOPPAR in August. At €6.37, it was a 282% increase over the -€3.50 recorded in July, but still a decrease of 90% YOY.’
• Occupancy was up 10pps over July with a €8 rise in room rates.
• Uber has had its license to operate in London reinstated
• Monarch’s administrator, KPMG, is reported to have billed £8.2m over the three years that it has been running the company
• TUI Cruises’ ship Mein Schiff 6 is continuing with its Greek cruise after 12 crew members tested positive for Covid-19. TUI says ‘there is no reason for guests and crew to worry’. But it’s not a very good look.
• Heathrow Airport CEO John Holland-Kaye has told Travel Weekly ‘if we have to wait for a vaccine before we get people flying again, I suspect not only will Heathrow be Britain’s only hub airport, it will be Britain’s only airport and we may not have any UK airlines. That would be a catastrophic outcome for the UK.’
• Escape Hunt has reported H1 numbers to 30 June saying that revenue fell from £2.2m to £1.3m and that the company made a loss per share of 11.5p against a loss in the prior year of 14.6p. The group has raised £4.1m since its H1 end and had cash balances of £4.2m at the end of August.
• ESC CEO Richard Harpham says ‘the six months ended 30 June may well have been the toughest period on record for leisure businesses’. He adds ‘our sites have not been open for sufficiently long since lockdown to draw any firm conclusions, however, the evidence to date is encouraging, we are continuing to enjoy very positive consumer ratings, and as a result we are continuing with our strategic priorities in earnest. We are, however, aware of the growing rate of COVID-19 infections and the possibility of further restrictions being imposed which may impact our progress.’
FINANCE & MARKETS:
• Sterling higher at $1.2864 & €1.1011. Oil up at $42.20. UK 10yr gilt yield 1bp higher at 0.20%. World markets better yesterday. London set to open virtually unchanged.
RETAIL WITH NICK BUBB:
Today’s News: On top of all the scheduled news today, B&M (which is now a FTSE 100 stock, of course) has come out with a first half trading update, flagging that trading momentum at B&M UK stores was maintained in Q2 (ie calendar Q3), with 19.1% LFL sales growth in the quarter and an exit rate at a similar level, so first half group adjusted EBITDA is now expected to be above the previously guided range (£250m to £270m announced on 28 July) at c£285m. Simon Arora, the B&M CEO, says: “Our business model is proving well-attuned to the evolving needs of customers, given our combination of everyday value across a broad range of product categories being sold at convenient out-of-town locations”. The embattled Motor dealer Pendragon has also announced its delayed interims and flagged that September trading has been strong. The Greggs Q3 update also flags that September trading has