Langton Capital – 2020-10-12 – PREMIUM – Marston’s, N of England, support packages, footfall & other:
Marston’s, N of England, support packages, footfall & other:
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A DAY IN THE LIFE:
A bit busy today.
Because, unless Boris Johnson gets his skates on and locks us down in the next half hour or so, we’re coming down to London for the first time in seven months later this morning.
Our last two planned trips were scuppered by a) our brush with Covid-19 and then b) the Track & Trace Bot’s insistence that we not leave home for a period of time.
But this time we really mean it, we’re coming down. We are going to pass Go, we are going to collect £200 and, less pleasantly, we’ll open the post in the office, rent demands no doubt and, more interestingly, we’re reprise our three-mile walk (St Paul’s to Holborn to Aldwych to St Paul’s) and see how many addition F&B units have opened in the last 4yrs and, most important of all, how many of them are currently open.
Anyway, time to move on to the news & follow us for real time developments on Twitter at @brumbymark:
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WHY THE NORTH OF ENGLAND? Localised outbreaks were likely. But outbreaks covering entire regions are more statistically significant. 12 Oct 2020:
• The rate of infection across the North West, the North East and Yorkshire are considerably above the national average.
• Some cities are at 500 per 100k. York was 219 last Tuesday (the last day for which figures are available).
• This compares with an average for England of around 100 per 100k and compares unfavourably with the 20 per 100,000 level of infection in countries at which point the government insisted on a 14dy quarantine in recent weeks
• Large swathes of the South of England are at 10-50 per 100,000 – see https://www.bbc.co.uk/news/uk-51768274
But why the regional differences? No answers here.
• EOTHO was nationwide, so regional disparities should not be down to that.
• It can’t be student populations – as there are large student populations in many cities in the south, not least Oxford, Cambridge, Bristol and London
• It isn’t simply urbanised areas as there are plenty of those in the South.
• Similarly, BAME communities exist in most cities, North or South.
• Poor housing and / or multi-generational families are common, North and South.
Going back to basics:
• As we don’t have much contact with pangolins or fruit bats in the North of England these days, the disease is likely to be spread by human-to-human contact
• But that, presumably, also happens in the South – so no easy answers here
• Does it really matter in the very short term how the differences arose? Don’t we just have to deal with it and analyse later?
• Yes, probably and, with that in mind, it seems as though there will be further restrictions imposed on the hospitality industry in the North of England later today
If you can’t shoot the culprit, at least shoot somebody…
• Demands for scientific evidence seem reasonable
• The government is not behaving as though only 3-4% of infections are coming from hospitality
• If secret slides exist saying that hospitality is responsible for 41% of transmissions in younger people, then at least let us see the detail
• Hospitality usually involves putting food, drink, forks, spoons, and glasses and cups into or onto our mouths
• We know, intuitively, that many observers will look at that and, not unreasonably perhaps, say ‘Aha….!’
• But the case isn’t proven and, if the industry is to be shut down in part, then a bit more evidence should surely be produced?
RESTAURANTS TO STAY OPEN, PUBS TO SHUT? If this is the case, then there could be some problems re definition. 12 Oct 2020:
Leaks, leaks and more leaks:
• Policy seems to be bounced off the Press, reshaped, bounced again and then announced.
• But, be that as it may, we could have a situation later today when pubs are asked to close but restaurants are told that they can stay open.
• So, what makes a pub a pub and a restaurant a restaurant?
Proportion of food in total revenue
• There won’t be a problem sorting a Wagamama from a wet-led boozer.
• But what about Vintage Inns, Harvester, Beefeater, Crown Carveries, Sizzling Pubs, Hungry Horses and all the rest?
• Many ‘pubs’ will be 40% food and, if you take drinks sold with food (as they would be in a restaurant, the percentage could be 60-70% plus).
Vertical drinking & ordering from the bar:
• Yes, normally. But vertical drinking isn’t allowed now and nor is ordering from the bar.
Other ‘differences’ aren’t really substantive differences at all:
• A pub may have the name Duck, Swan, Horse, King or Head in its name – but this is immaterial
• Restaurants may be ethnic or themed. But again, this is not a substantive difference
• They may be listed in a different part of what used to be the Yellow Pages. But again, this is not a material difference
• This will not be an easy puzzle to solve. Operators will have an incentive to classify themselves as restaurants and, in many cases, ‘pubs’ would be perfectly justified in doing so
PUBS & RESTAURANTS:
Manoeuvres ahead of local lockdowns?
• The pieces of the jigsaw are falling into place in that a) a support package has been announced and b) various policies have been floated in the press ahead of their announcement (presumably later today) in order to see what sort of reaction they will get.
• Chancellor Rishi Sunak has announced that employees working for firms that are forced to shut by law will have two-thirds of their wages paid for by the government. Sunak says this is an “expansion” of the Job Support Scheme, which begins on 1 November and will be available for six months.
• The BBC quotes a ‘Treasury source’ as saying it will cost hundreds of millions a month. There is a big difference between £200m and £900m but not further guidance was offered. There will be additional cash grants of up to £3,000 per month for affected companies.
• The hospitality industry and Northern leaders who believe that regional closures will impact the North first, have called for more support.
• Sunak had said previously that he did not see the point in supporting jobs that no longer existed. He says ‘I hope that this provides reassurance and a safety net for people and businesses in advance of what may be a difficult winter.’
• Companies will only be eligible to claim the support of they are obliged by law to close. Further details of which companies, in which regions, are affected will be announced later today.
• The British Beer & Pub Association has welcomed the package, though it maintains its view that allowing pubs to stay open would be the best option and it urges the Government to commit to regular reviews of any future local lockdowns, as well as the 10pm curfew on pubs already in place across the UK.
• Emma McClarkin, Chief Executive of the British Beer & Pub Association, says the scheme ‘will help save some jobs in areas facing local lockdowns. The fact remains though that for other pubs across the UK struggling with the 10pm curfew and rule of six – which is decimating their sales – the standard Job Support Scheme is no way near adequate.’ The BBPA continues to question whether pubs are the source of many infections.
• The Food & Drink Federation says the scheme is very welcome but says ‘it does not, however, address the difficulties for those suppliers to businesses which are forced to close. These – including many food manufacturers which provide meals, drinks and other products – are equally vulnerable to the impacts of Government measures. Through no fault of their own, they face being shut with no income. Without additional support for the supply chain throughout lockdown, many of these ‘squeezed middle’ suppliers will simply not survive.’
• And permanent damage to the supply chain would damage the ability of the hospitality industry to bounce back.
• Former MP Greg Mulholland says ‘the level of support announced by the Chancellor is nowhere enough to compensate pubs being forced to close.’ He adds ‘many publicans will be forced into even more debt just to survive. There is real anger when pubs have been working hard to operate safely.’
Leaked policy suggestions to date:
• Downing Street sources have been briefing journalists that pubs in the North of England (either parts thereof or the whole) will be told today that they will have to close (from a certain date).
• There is talk that restaurants will be allowed to reopen. The Daily Mail says that landlords are ‘furious’.
• There will be problems of definition, here. There may be little doubt that a Wagamama is a restaurant and a 100% wet-led pub is a pub – but what about pubs that generate 30% or 40% of their revenues from food? Including drinks served with food could take the percentage up to 60% or so.
• See premium email
• The Mail seems to be suggesting that the regulations will impact certain cities rather than the whole of the Yorkshire, North East and North West regions.
• The Mail says the regulations will be reviewed ‘in a month’. With Christmas around the corner, some cities have found enhanced regulation to be a bit like the Hotel California. Easy to get into but impossible to leave.
Other, non-pub related leaks:
• There will be three-tier, traffic light system. This appears too blunt. Green isn’t green at all and what happens at red if things get worse?
• Much of this remains deniable & may not make it onto the statute book.
• However, some journalists appear to have been told that individuals in areas under enhanced measures will not be able to leave the affected area.
• Households will not be able to mix, either inside or out.
• Face masks may become compulsory in offices, even outside.
• The Great Barrington declaration, which calls for an opening up of the economy alongside an attempt to protect the vulnerable.
• The declaration says that it has been signed by 15,000 scientists. The number is rapidly rising.
• Signatories include Dr Johnny Bananas, Dr Harold Shipman, Dr I P Freely and Prof Cominic Dummings and the perhaps-related Dominic Cummings of Durham Univer City. Some of these names may be fake.
• Sky News has reported that the list include homeopaths, and 100 therapists in areas such as massage, hypnotherapy and Mongolian khoomii singing. Any list of 12,000 names is likely to have a number of fruitcakes.
• The Sun, perhaps off its specialism here, says the lockdown measures were useful in March but ‘since then, they have achieved little or nothing. Current policies have obviously failed to stop the spread of the virus. All they have done is extend the crisis.’
• The Sun asks: ‘why are Johnson and his crew doubling down on failure?’ They answer the question saying the government doesn’t ‘want to admit that knocking more than 20 per cent off our gross national product, destroying millions of jobs and boosting deaths from other causes such as cancer, dementia and cardiovascular disease may all have been for nothing.’
• The Institute of Economic Affairs says ‘the hospitality sector is Britain’s third biggest employer and the social benefits of pubs and restaurants are immense. The government should only consider shutting them down again if the evidence is overwhelming. In fact, the evidence that pubs are a significant source of Covid-19 transmission is very weak.’
• The IEA says ‘the curfew has been counter-productive. Pubs and restaurants are highly regulated environments. Shutting them down again is likely to make the situation worse.’
Other industry trends:
• CGA has reported that ‘the vast majority of consumers have been satisfied with pub, bar and restaurant operators’ safety precautions and communications in the three months since lockdown was lifted.’
• A ‘We Hear You’ campaign, steered by CGA, Yumpingo and UK Hospitality, says that 92% of consumers ‘think the safety measures they have found in venues are clear, and nearly as many (86%) have been satisfied with the precautions they have encountered.’
• Yumpingo says: ‘it is encouraging to see that the consumer confidence in the hospitality industry as a whole remains so high after three months. It really goes to show that the industry is working relentlessly and consistently to keep both consumers and staff safe, while providing a positive and memorable guest experience.’
• The ONS reports that the number of people socialising in pubs and restaurants has fallen in recent weeks. It reports that 43% of adults reported meeting with others less often when asked about changes in rules and their behaviour.
• The government has announced that pre pack sales to connected parties will be scrutinised independently.
• Christie & Co has reported that pub valuations in Scotland have ‘been negatively impacted by the Covid restrictions.’ It says ‘the closures and restricted trading means income is down in pubs and that affects the valuation. They will be valued at less because their profit is down.’
• The latest Market Recovery Monitor from CGA and AlixPartners reveals that Britain now has nearly 25,000 fewer licensed premises open than before the COVID-19 lockdown.
• It’s not clear how many of these units will never reopen. Some, at travel hubs such as airports, are likely to trade again (perhaps some way in the future), but others may be gone for good.
• The Market Recovery Monitor shows that pubs have reopened more rapidly than restaurants and it says that ‘one area expected to fall under these new restrictions, the North East, is the UK region with the highest percentage of pubs, bars and restaurants trading again, according to the report. The region is nearest to pre-pandemic capacity with 83.8% of sites now reopened.’
• Only 56.2% of nightclubs have reopened and 63.0% of sports and social clubs.
• Some 75.6% of licensed outlets have reopened in London. This compares with Manchester, Liverpool & Edinburgh at 83.6%, 85.6% and 82.3% respectively.
• CGA says ‘Britain now has around 25,000 fewer licensed premises than it did before the pandemic, and the big question is how much of that shortfall will ever be recovered.’
• It says ‘while there are encouraging signs in some parts of the market, it is clear that capacity is closely following the pattern of suppressed consumer demand. August was a strong month of recovery for hospitality in both site numbers and trading, but these figures show that momentum has stalled. Very damaging new restrictions in Scotland and areas of England will undoubtedly weaken the market further, and sustained government support is urgently needed if the industry is to protect sites and jobs over the autumn.’
• KAM Media & Orderpay have reported that 90% of hospitality customers want to see contactless ordering and payment offered in venues and 80% want to see communication on apps or websites about safety measures.
• CGA reports that ‘the 10pm curfew contributed to another drop in out-of-home drink and food sales last week, with spirits hit hardest by the ban on late-night visits.’ It says that total drinks sales in the seven days to last Saturday (3 October) were 37% lower than the same week in 2019.’ It says ‘after a steady rise in sales over August, it means trading is now back to July levels, when operators and consumers were tentatively emerging from lockdown.’
• CGA says ‘a tough September for pubs and bars ended with another sharp drop in drinks sales, and the pause on late-night drinking has had an immediate impact on spirits.’ Food sales were slightly stronger over the week. CGA says ‘ongoing early-week promotions by many restaurants and pubs meant sales were down by only 3% to 8% from last Monday to Wednesday (28 to 30 September). But they fell away sharply later in the week and sat 25% to 33% down year-year from Thursday to Sunday (1 to 4 October).’
• New West End says West End & Mayfair footfall was down 55% in September 2020 compared with the same month last year. Footfall had risen by 75% in July, by 13% in August and by 8% in September. West End footfall was down 8% week-on-week on Thursday, 8 October to give a 61% reduction on last year.
• Microsoft has joined Facebook & Twitter in saying that staff will be allowed to work from home permanently if their managers agree.
• The CMA cleared the Marston’s / Carlsberg brewery JV on Friday saying that it found ‘that independent brewers would continue to have sufficient access to pubs after the merger, allowing them to compete effectively’ and it said it ‘found that brewers will continue to have sufficient alternative wholesalers to choose from after the merger.’
• The CMA says it ‘found that Carlsberg and Marston’s have different areas of focus, meaning competition between the 2 businesses is generally limited at present, with Carlsberg largely focusing on the production of lager and Marston’s focusing on ale. They also face several competitors in all of the product categories where they are both active.’ It concludes ‘that the deal does not give rise to competition concerns.’
• The creation of the JV will ensure that Marston’s receives the £239m cash from Carlsberg as planned later this month. Debt will consequently fall and the NAV per share rises to between 3x and 4x the group’s current share price depending upon what happens with asset valuations. Marston’s is due to update on full year trading perhaps as soon as this week.
• Greene King has extended its rental discount to tenants saying that ‘all its tied pub tenants will receive at least a 40% rent discount up until Christmas, with pubs that are closed under government measures receiving a 90% rent discount.’ Greene King says this ‘brings its estimated financial support for its 975 tied tenants to more than £25m since the Covid-19 pandemic closed the UK’s pubs.’
• Domino’s Pizza in the US has reported Q3 LfL sales up 17.5%. Quarterly revenues were up by 17.9% but earnings were a little shy of expectations.
• Star Pubs & Bars has said it will continue to extend rent support to its tenants throughout November. It says the extension will see its pubs receive the same reduction as they did in October – either 30%, 35% or 50% depending on their individual circumstances
• Next Frontier Brands has acquired UK-based Bottomley Distillers
• Edinburgh Woollen Mill plans to appoint administrators. Some 24,000 jobs are at risk
HOTELS & LEISURE TRAVEL:
• Ryanair is calling on European Union governments to do more to restore traveller confidence
• Travel Weekly reports an increase in searches for ‘safe’ Greek islands following the announcement that five have been added to the government’s ‘air corridors’ list.
• IATA has said there have been just 44 cases of Covid-19 in which transmission is thought to have been associated with a flight.
• Credit Suisse predicts that international business travel will be 65% down this year on last
• Go Travel is reported to have closed after 21 years in business.
• Spanish authorities have ordered a 15-day state of emergency in Madrid
• Vue is reported to have called in advisers. Sky says Deloitte will ‘work on options to shore up its balance sheet, days after rival Cineworld saw its shares crash after announcing the temporary closure of its multiplexes in the UK and US.’
• GVC Holdings PLC has announced that it has been awarded four sports-betting licences in Germany.
FINANCE & MARKETS:
• The EY Item Club reports that the UK economy may have grown by up to 17% in the three months to the end of September, albeit from the low-point seen during lockdown. EY says ‘consumer spending has bounced back strongly, while housing sector activity has also seen a pick-up, in part thanks to the stamp duty holiday.’ On a less buoyant note, EY reports ‘the latest forecast also notes that, even if further virus outbreaks are contained and major restrictions on economic activity are avoided, consumers and businesses could remain cautious in their behaviour for an extended period.’
• Sterling up at $1.3041 and €1.1032. Oil higher at $42.51. UK 10yr gilt yield down 1bp at 0.28%. World markets broadly better on Friday with London set to open up fractionally.
• Commenting on the ONS’s GDP figures on Friday, the NIESR says the ‘estimates suggest that GDP grew by 8 per cent in the three months to August. Although the latest estimates also signal a fourth consecutive monthly increase, with growth of 2.1 per cent in August itself, output is still about 9 per cent below the levels seen in February.’
• The NIESR says ‘these numbers would suggest that the UK could grow by about 15 per cent in the third quarter of 2020. However, there is further cause for concern ahead with the likely re-imposition of lockdown measures, the winding down of government support measures, and Brexit uncertainty. We expect the economy at the end of this year to be some 8.5 per cent below its level at the end of 2019.’
RETAIL WITH NICK BUBB:
• Today’s News: The Retail news cupboard is bare today, but the West End landlord Great Portland has issued an update, to flag that 73% of September rent has been collected, even though trading conditions are clearly “challenging” (no footfall or sales figures have been provided by the company, although it has said that office occupancy is only 27% of capacity). And poor old Heathrow Airport has said that passenger traffic in September was 82% down on last year…
• Saturday’s Press and News (1): The front page headlines of the Saturday papers were split between the Chancellor’s new job support package and the delayed Queen’s Birthday Honours List: the Times headline was “”Unsung heroes” honoured” and the Daily Mail went with “Salute to the Covid Heroes”, but the Telegraph flagged “Furlough returns as lockdown looms again”, the Guardian ran with “Hospitality wage bailout move branded “an insult”” and the FT noted “Sunak forced into new furlough plan”.
• Saturday’s Press and News (2): In terms of Retailing stories, if you’re at all interested in the much-discredited Honours system, notwithstanding the well-publicised awards to Mary Berry and Marcus Rashford, the Retail veteran Richard Pennycook and the Issa brothers (of EG/Asda fame) were all awarded CBE’s in the Queen’s Birthday Honours List. Otherwise, the big focus was on Friday’s news about the apparent collapse of the embattled Edinburgh Woollen Mill fashion retailing group, “with over 21,000 jobs at risk”, although the Business editorial in the Telegraph noted that the controversial owner of EWM, Philip Day, is “the undisputed pre-pack king” and that “it must be short odds on a slimmed-down business rising from the ashes still under the control of its founder”. Talking of embattled entrepreneurs…the disgraced bankrupt Dominic Chappell was in the papers again, as the court case on
• Saturday’s Press and News (3): In other news, the Times flagged that Poundland has cemented its move into frozen food by buying its Yorkshire-based partner, the Fulton Foods chain, for a modest £25m. The Times also noted that the bosses of Harvey Nichols and Selfridges have joined the battle against the Chancellor’s decision to scrap VAT rebates for Overseas shoppers. ASOS featured in the “Popular Shares” column in the Daily Mail ahead of its interims on Wednesday and the main Business story in the Daily Mail was that the recently floated The Hut Group still hasn’t lived up to its promise to appoint independent non-exec Directors. And the FT had a feature on Amazon’s ambitions to enter the luxury market (“Amazon hopes to join luxury’s exclusive club”), whilst the Guardian had an interesting article about the lengthy order times for UK-manufactured sofas after the recent post-lockdown
• Sunday’s Press and News (1): The headlines on most of the front pages of the Sunday papers were again about the Government’s handling of the “second wave” of the coronavirus: the Sunday Times ran with “Town halls to take control of war on virus”, whilst the Sunday Telegraph went with “Millions will be ordered not to leave local areas” and the Observer flagged that “PM “betraying his red wall voters” over lockdown cash”. The Mail on Sunday, however, focused on the revelation that the Health Minister broke the 10pm curfew in the House of Commons bar (“Hancock’s tasteless Covid test joke in bar”).
• Sunday’s Press and News (2): In terms of Retail stories, the embattled Edinburgh Woollen Mill group remained in the spotlight, with the Sunday Times flagging that the controversial Philip Day is in the thick of “pre-pack” negotiations that will leave suppliers and landlords in the lurch (“Woollen Mill’s unravelling leaves creditors torn”), quoting the founder of EWM as saying that “When a company’s shareholder, lender, security holder and the person appointing the administrator are all connected to the same individual it raises concerns about the interests of creditors”. And the Mail on Sunday highlighted that Philip Day somehow hopes to sell a stake in his struggling Peacocks discount fashion chain to a US hedge fund, Davidson Kempner. The main Business story in the Sunday Times, however, was that the “auction” of the beleaguered Debenhams has hit a crunch moment, after the Indian
• Sunday’s Press and News (3): In terms of all the Economics and comment columns in the Sunday papers, we would, as usual, highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“There’s no quick fix for our deep productivity problem”), in which he noted that although many hospitality jobs are at risk, we need those jobs right now. There was a similar column by the Economics correspondent of the Observer (“Debt may be cheap, but productivity failings will cost us dear”). We would also flag the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“For how long can we keep locking down before there is nothing left?”), in which he noted that “some way of segregating and protecting the old and the vulnerable must urgently be found”, and we would also give a “shout-out” to our old chum Stuart Rose (the former M&S boss who is now
• News Flow This Week: A busy week kicks off first thing tomorrow with the BRC-KPMG Retail Sales survey for September (which is likely to report further surprisingly good growth), quickly followed by the French Connection interims and the latest monthly Kantar/Nielsen grocery sales figures (for the 4 weeks to Oct 3rd/4th). Wednesday brings the ASOS finals, the Just Eat Q3 update and the Watches of Switzerland AGM. The Dunelm Q1 update is on Thursday and we then get the much-awaited John Lewis Partnership Strategy review on Friday. Over in the US, the big events are the start of the 2-day Amazon Prime discount promotion tomorrow and the preview by Apple of iPhone 12 tomorrow, whilst the Walgreen Boots Q4 results (for y/e August) are out on Thursday.