Langton Capital – 2021-02-08 – PREMIUM – Delivery, meal kits, online taxes, FUL, MARS, quarantine etc.:
Delivery, meal kits, online taxes, FUL, MARS, quarantine etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, after all that rain recently, our garden had begun to look like a Louisiana swamp.
And now that temperatures have fallen, it looks like a Louisiana swamp would do if it had a coating of ice and a dusting of snow which, if anything, is even worse.
Not least because, if it snows much more on water-logged and then frozen ground, there’s likely to be a problem when it melts, probably around Friday afternoon, as a billion gallons (or at least a lot) of water will then make a concerted effort to exit our garden all at once.
Which will no doubt lead to accusing glares from our neighbour who’s six inches fewer above sea level at that point makes itself very obvious & who seas whatever was in our garden shortly after it leaves our property.
But anyway, that’s a Friday problem. We need to get though the week first so, without further ado, let’s move on to the news:
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PUBS & RESTAURANTS:
Thoughts re un-lockdown:
• The government has said that it will update on its plans for lifting the current lockdown on 22 Feb. The Times reports that the announcement will include details on when and how pubs can reopen. But various ideas are beginning to emerge.
• It is thought possible that schools will reopen on 8 March with pubs perhaps allowed to open but not sell alcohol in April (although this is disputed by other ‘sources’) with an unrestricted reopening pencilled in of early May.
• At that rate, Lockdown 3.0 will have been almost a month longer than the first lockdown, which ran from 23 March to 4 July.
End of tiers?
• PM Boris Johnson has said that he would like to see pubs open under national rather than regional restrictions. He says that the virus is impacting the whole country more similarly now than it was last year.
• Johnson says ‘it may be a national approach, going down the tiers in a national way might be better this time round, given the disease is behaving much more nationally. “If you look at the way the new variant has taken off across the country, it’s a pretty national phenomenon.’ It is not clear if this is a reference to the Kent or the South African variants or both.
• The PM says ‘the charts I see, we are all sort of moving pretty much in the same sort of way, I mean there are a few discrepancies, a few differences, so it may be we will go for a national approach but there may be an advantage still in some regional differentiation as well.’
• Confusingly, communities minister Robert Jenrick has said the UK would return to the tiered system. He said: ‘it is sensible we target restrictions on those places where the virus is most prevalent.’
Proposal to drop ‘substantial meal’ requirement:
• No10 has said that PM Boris Johnson wants to drop the requirement for a substantial meal to be served with drink in pubs. Customers will be urged to meet, eat & drink outdoors if possible. The plans are still said to be ‘tentative’.
Other Covid news:
• Commenting on the news that 87m pints of beer had been wasted during the pandemic to date, Emma McClarkin, Chief Executive of the British Beer & Pub Association, says ‘our sector is in limbo. And at several points in the last 12 months pubs and breweries have effectively had to pour their revenues down the drain.’
• She says ‘we have no idea or clarity from Government on when we can re-open again. What we do know is if we cannot reopen in the near future, without further Government grant support and extensions to the job retention scheme, pubs and brewers will no longer have the cash left to survive and a wave of closures will be inevitable with jobs lost.’
• Ms McClarkin says more help will be needed if pubs are required to stay shut ‘beyond March’. She makes the point that ‘the VAT cut for hospitality, whilst welcome, has not been used as the sector has been closed. It must be extended. Likewise, the Business Rates holiday must be extended as pubs do not have the cash to pay it now because they have been closed.’
• A survey of over 100 nightclubs carried out by the Night-Time Industries Association has suggested that this year will see the “extinction of nightclubs” in the absence of urgent action to help the industry. Some 86% of those surveyed had made redundancies. NTIA boss Michael Kill says ‘we are a world leader in electronic music and clubs and have been a breeding ground for contemporary music talent, events and DJs for decades. Nightclubs have made a huge contribution to our culture sector and are renowned globally.’
• However, Kill says ‘as they [nightclubs] continue to be excluded from the narrative of press announcements and planning, and through misconceptions and misguided understanding of the sector, from age old stereotyping the sector has been given little or no opportunity to re-engage even with very clear ability to open spaces safely.’ Kill is asking the government ‘to support nightclubs and late-night venues with a robust financial package and which is tailored to support businesses that have been closed since March and a roadmap giving a clear indication of the timelines for reopening against the backdrop of the vaccination rollout, to give hope to many who are overburdened with debt.’
Delivery & meal kits:
• CGA reports that food delivery ‘has become habitual for consumers in Britain’s latest lockdown, while rising take-up of cook-at-home meal kits has given restaurants a welcome new side-line.’ Franco Manca amongst others is advertising its meal kits ahead of Valentine’s Day. CGA says ‘the wave of lockdowns over the last year has engrained delivery into the everyday habits of consumers. As the market has grown, space has also emerged for innovations like meal kits, and further evolution will undoubtedly follow, even after venues can welcome people back inside.’
• CGA says ‘27% of consumers ordered hot food delivery over the festive period, while nearly one in five (18%) took advantage of drive-thru facilities and one in ten (10%) ordered pick-up or click-and-collect.’
• Langton Comment: The big question will be how much of the above sticks post Covid. If delivery is seen as a treat or a convenience, then this may suffer if the economy is sluggish. Operators could also be trying to move customers back to dine-in. Deliveroo, which is attempting to IPO off the back of increased demand and a maiden period of profitability, will be doing the opposite.
• CGA says ‘consumers’ appetite for delivery peaked on Christmas Eve, the research shows, with New Year’s Day and Christmas Day just behind. Orders were driven by a desire for treats and relaxation, which were cited as motivations for 36% and 27% of consumers.’
• CGA says 18% of respondents ‘said they were seeking to replace their typical meals out—another sign that consumers are missing their favourite restaurants, pubs & bars.’ It’s not completely certain here that the conclusion is altogether certain. Consumers may be missing not cooking themselves etc but, whether or not they will flood back to restaurants when they are able to remains to be seen.
• KAM Media (see below) says ‘we’ve been asked frequently by our clients whether we think that the ‘hospitality at home’ trend is here to stay’ and it concludes that the figures it has produced ‘clearly show it is.’ KAM says ‘we know that customers are desperate to be back in our physical outlets, but that doesn’t mean that they won’t still want a piece of our wonderful hospitality industry in their homes- there’s room for both offerings to co-exist and smart operators and suppliers are busy right now planning for just that.’
Meal kits on the up.
• Concerning meal kits, CGA says ‘while still a relatively small part of the market, restaurants’ meal kits have also become a welcome alternative for people missing eating out, with one in 20 (5%) of consumers buying one over the festive period.’
• Langton Comment: This could be a welcome source of additional revenue post Covid. But that will depend very much on 1) the level of cannibalisation (if any) associated with the sales and 2) how much of this change in behaviour sticks post Covid. CGA addresses this when it says ‘deliveries and kits have been boosted by the closure of hospitality, but there are signs that consumers’ new habits will last well beyond lockdown. Seven in ten (69%) of those who ordered deliveries or collections over the festive period say they will continue to do so throughout 2021.’
• It might be rude to say that talk is cheap.
• But it may be accurate to say that people are in a lockdown mindset at the moment and may not even be clear in their own minds what they will spend and how they will spend it post lockdown. CGA is certainly right when it says ‘operators and suppliers will have to stay closely tuned to changing habits and be ready to pivot to give consumers what they want as the market moves towards its next phase of recovery.’
• Budget ideas are leaking out with Chancellor Rishi Sunak saying that small firms are to be given more time to repay state-backed loans taken out to get through the coronavirus lockdown. This will be termed a “pay-as-you-grow” scheme.
• Around £45bn has been borrowed by more than 1.4 million small firms under the Bounce Back Loan scheme. Some suggestion that up to half of the money has been fraudulently or mistakenly allocated. Chancellor Sunak says ‘businesses are continuing to feel the impact of extended disruption from Covid-19, and we’re determined to give them the backing and confidence they need to get through the pandemic. That’s why we’re giving Bounce Back Loan borrowers breathing space to get back on their feet, through greater flexibility and time to repay their loans on their terms.’
• Langton Comment: The cliff edge coming up at the end of March features the end of the 5% VAT on food & soft drinks in pubs & restaurants and the end of the suspension of business rates. The end of April sees the furlough scheme finish and, in addition to this, loans will have to be repaid.
• The Chancellor is under pressure to extend the VAT reduction and the suspension of business rates and to offer even mor support until the end of calendar 2021 at least. He is also under some pressure to balance the books and to begin making plans to repay some government debt – or at least to stop issuing quite so much of it.
• These desires are inconsistent and postponing the repayment of Bounce Back Loans could be an easy short term fix in that it will be a capital item rather than a P&L item in the government’s book. HMG will simply not be getting loans repaid as rapidly as previously thought and, if observers squint hard enough, this should not impact the current account deficit.
• There does look to be some sort of concerted push (see below) to have Amazon and the online retailers pay more tax in order for bricks and mortar retailers (and hopefully hospitality) to pay less.
• In the short term, were Amazon etc., to be taxed more, the Chancellor could have room to extend UK business rates relief until the end of the year. The policy, if successful, could even see business rates removed altogether.
• Amazon and other online retailers would appear to be in the firing line when it comes to raising additional taxes going forward.
• Whilst the Telegraph goes with ‘top retail bosses demand permanent business rates cut’, there are other press calls today for specific taxes to be raised on the online retailers. Bricks & mortar shops are calling on the Chancellor (ahead of his budget) to scrap business rates altogether (saying ‘while we recognise the importance of business rates to the public finances, the current system is not sustainable in the long-term and without reform shops at the heart of communities will be at risk) there are calls for taxes to be raised elsewhere.
• Sky says ‘Amazon and other major internet retailers could be hit with a new online sales tax to help the UK pay its debts after extensive borrowing during the pandemic.’ It quotes ‘Treasury sources’ saying they have ‘confirmed Chancellor Rishi Sunak is considering targeting companies that have done well out of the pandemic to help pay back UK government debts built up supporting industries through the Covid-19 crisis.’
• The BBC says that ‘Amazon has been criticised for paying less in business rates than British bricks and mortar retailers.’ It says specifically that Tesco has renewed its call for a 1% online sales tax on the large online retailers.
• See staycations below. A more active staycations market this year will benefit domestic pubs, restaurants & accommodation providers.
• KAM media comments on meal kits saying that 40% have either bought or would consider buying a cook at home meal kit. It says 44% have bought or would consider a finish at home meal kit. In addition, 38% are interested in cocktails at home with 35% interested in mini kegs from a pub.
• South Africa has lifted its ban on the sale of alcohol in both the on and off-trades.
• Marston’s announced on Friday that the transaction to operate the SA Brain pub estate had completed. It said ‘Marston’s today [Friday] announces the completion of the transaction with SA Brain to operate its portfolio of 156 pubs in Wales, on a combination of leased and management contract arrangements.’
• Fulham Shore has this morning updated on trading saying that ‘throughout the current third lockdown and tier 4, which began on 20 December 2020, the Group has been trading through delivery and take out services at 48 Franco Manca and 10 The Real Greek.’ It says ‘each restaurant requires fewer people to operate a delivery and takeaway only service, so much of the Group’s workforce is on the UK Government’s Coronavirus Job Retention Scheme.’
• FUL says ‘the Group’s revenues are currently running at around 46% of what the Board estimates to be normal trading levels, whilst we operate under these limited conditions. The Directors are confident that when the UK Government removes trading and “stay at home” restrictions, trading will return to previous levels.’
• The company says it has drawn down its full CLBIL loan facility of £10.75m under the UK Government’s scheme. The maturity date of our existing £14.75m HSBC RCF loan facility is March 2022. We are in negotiations with HSBC with a view to extending this facility.’
• FUL reports that its net debt before lease liabilities as at 5 February 2021 was £5.7m vs £9.5m as at 29 March 2020. It says ‘the Group therefore has financial headroom within its loan agreements of circa £20m.’
• On an optimistic note, FUL says ‘the well-publicised difficulties in the property and restaurant sectors are providing the Group with opportunities to acquire new sites at much reduced rents and lower capital costs per site. We are negotiating for many sites throughout the UK to re-start our expansion programme as soon as full restaurant trading resumes.’
• Specifically, in the short term, the group will open a new Franco Manca in Glasgow this summer and ‘the Group is in final negotiations to secure two more sites over the next few weeks, one for Franco Manca and another for The Real Greek. Subject to concluding these negotiations as anticipated, both these restaurants would be ready to start trading in the summer.’
• Restaurant company Vinoteca has reported full year numbers to end-March 2020 to Companies House. The shortened accounts show that accumulated losses for the year increased by £641k to a total of negative £657k.
• Hawksmoor’s steaks are to be sold online by Ocado as well as by the company itself direct from its website.
• Meat alternative company Jack & Bry has raised £1.25m in seed funding in a round led by SFC Capital, with participation from KM Capital, Rubix Ventures and several private investors.
• HUN, which produces canned wine in London, has raised £400k in a crowd-funded campaign.
HOTELS & LEISURE TRAVEL:
• Nadhim Zahawi has told the BBC that the government will not issue “vaccine passports” to allow people who have been inoculated to travel overseas.
• Welsh first minister Mark Drakeford has criticised the UK government’s hotel quarantine plan, saying it is not going far enough.
• Moody’s reports that Uber’s plans to acquire booze distributor Drizzly is credit positive as more than 90% of the consideration consists of Uber common stock. It says the move will ‘expand Uber’s addressable delivery markets and drive higher user engagement of its online platforms.’
• The latest ClearSight report by the BVA-BDRC suggests the national mood has taken ‘a turn for the better,’ though it remains negative in absolute terms. It says that ‘business leaders expect gradual re-engagement with corporate travel…but not to pre-COVID levels until 2022 or later.’
• The Telegraph says it will be a strong staycation season in the UK this year. No surprises there.
• Travel agents in Ireland have reported that they may be owed in total up to €20m by Ryanair. Specialist UK tour operator Simpson Travel complained to the CAA in its own action in pursuit of refunds to the total of £46,000 from Ryanair. Simpson’s operations director Ed Pyke says ‘in some cases, it has been ten months since we received notification that Ryanair flights were cancelled, and although we have been through all the processes of rejecting vouchers that have been issued to us and using the forms on the Ryanair website to apply for cash refunds, we are still no further forward in getting the money owing back. I have also written to Ryanair and have not received a response.’
• IATA says governments worldwide have given $200 billion in financial aid to airlines but it says that another $80 billion is needed. UK transport secretary Grant Shapps says the UK government has made some £7.2 billion available.
• IATA says 2021 air traffic numbers could be only around 38% of the 2019 level.
• The UK government does not plan to help in the bail out of Eurostar. Grant Shapps says ‘Eurostar is a majority state-owned French company, with some Belgian and some French Canadian ownership.’ He says ‘we’ll look to be helpful but we don’t own the company. We sold our shares. It’s a French issue. Eurostar has SNCF, the French state railway, behind it.’
FINANCE & MARKETS:
• Halifax reported on Friday that UK house prices ‘slipped by -0.3% in January, the biggest monthly fall since April last year.’ It says prices are up by around 5.4% on the same month last year.
• The volume of UK exports to the EU fell by 68% in January compared with the same month in 2020.
• The US added only 49k jobs in January, fewer than hoped.
• Sterling up vs dollar at $1.3731 but down vs Euro at €1.1404. Oil higher at $59.82 and UK 10yr gilt yield up 5bps at 0.50%. World markets heading better on Friday & London set to open up around 38pts.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were very mixed: the Guardian went with “Students could return to university next month”, whilst the Telegraph ran with “Pubs may open in April (with no alcohol)”, but the Times flagged, bizarrely, that “Ministers to seize control of NHS” and the Daily Mail thundered “Exposed: Shocking state of UK Army”. The FT’s main headline was “Sunak moves to stem business failures by extending loan terms”, but it also had this disturbing front-page story: “Parents fear post-Brexit immigration system will spell au revoir for au pairs”.
• Saturday’s Press and News (2): In terms of Retail news, the main story (as noted by all the papers) was that the embattled French Connection has received two separate bid approaches, from two new US scavenger funds: Spotlight Brands (backed by Gordon Brothers, who took over the Laura Ashley brand last year) and Go Global Retail, sending its share price soaring by 64% (albeit even that meant that the market cap of the business is only £25m). In other news, the Times flagged that the Online retailer of second-hand phones Music Magpie is looking at an IPO, with a valuation of as much as £200m-£250m. The Business editorial column in the Times looked at the surprisingly cautious forecast from the Bank of England of how much of the £125bn of enforced savings will be spent by consumers after the end of the pandemic, noting that “for most of us, thrift is a clifftop flower, not a philosophy:
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were also pretty varied: the Observer went with “Fury at Gove as exports to EU slashed by 68% since Brexit” and the Sunday Telegraph ran with “Vaccines at work for under-50s from spring”, whilst the Sunday Times warned that the Government is planning a tax raid on Online retailers: “Online giants face tax raid on booming sales”.
• Sunday’s Press and News (2): In terms of Retail stories, the lead story in the Sunday Times Business section was that restaurateurs and retailers are warning of a cliff-edge in the spring if landlords are allowed to evict tenants once more and Business Rates relief is stopped (“Landlords call time on rent rebels”). The Sunday Times also highlighted that Amazon UK is so hungry for warehouse workers that it has been parking advertising trailers outside sites at Magna Park operated by rivals John Lewis and River Island, offering people slightly more to work at its facility nearby, despite the harsh working conditions (“Warehouse workers are monitored, then given doughnuts”). The Sunday Times also looked at the challenges facing the new boss of Amazon back in the US: “Andy Jassy needs to delight shoppers and ward off watchdogs- while dealing with the most powerful back-seat driver in
• Sunday’s Press and News (3): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the columns by the Sunday Times Economics correspondent David Smith (“Negative rates? No: the Bank must think of when to raise”) and the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Higher interest rates, not negative ones, may soon be the bigger worry”), in which both flagged that interest rates are more likely to go up than down, to ward off inflation. There were also a couple of articles about the savings mountain: eg in the Sunday Telegraph (“Households in the driving seat as savings glut stokes recovery hopes”), whilst the Editorial in the Sunday Times followed up on the Online sales tax story by thundering that “Clobbering business will not fill the £400bn black hole”.
Today’s News: It has taken a bit of time for mighty Boohoo to finish its discussions with the administrators of Arcadia over the acquisition of the Dorothy Perkins, Wallis and Burton Online brands, but it has announced this morning that agreement has been reached (with completion expected tomorrow) and the price is very much as expected, at a modest £25m (for brands which did £179m of revenue in y/e August 2020). The statement highlights how Burton will strengthen the menswear portfolio of the group and Mahmud Kamani, the Executive Chairman of Boohoo, says: “This is a great acquisition for the group as we extend our market share across a broader demographic”. The only other news out today is that #MadMike, after missing out completely on the carve up of Debenhams and Arcadia, took advantage of Friday’s jump in the French Connection share price to sell out, with Frasers announcing that it
This Week’s News: Tomorrow brings the BRC-KPMG Retail Sales for January, the Ocado finals and the latest Nielsen grocery sales figures. The Dunelm interims are on Wednesday, along with the Mothercare EGM (to approve the move to AIM etc). Thursday brings the Ted Baker Q4 update, along with the Tesco EGM (to approve the special dividend etc).