Reopening, New River, Vianet, Admiral, costs, Scotland, Deliveroo etc.:

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A DAY IN THE LIFE:

So, the pubs reopened yesterday and, though it snowed in some areas, it didn’t rain. Which has to be a victory of sorts but, with something of a two way pull going on out there, we’ll be watching developments closely.

Because, though Andy Haldane and others suggest that revenge spending will be a big thing, it’s a fact that as near to 100% of would-be pub customers as makes no difference have had to engineer a work-around solution when it comes to getting beered up over the last few months and, in common with most immobile lumps, they will need some sort of reason to budge from the status quo.

But who am I kidding. The pubs reopened yesterday…

On to the news:

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CURRENT TRADING:

A schizophrenic Monday, in a week in which some kids are still off for Easter and others are back at school, when more than half of the industry is still shut, when the comps from 2019 are running up to the Bank Holidays and when the weather is glorious at 4pm and below freezing a couple of hours later and when it snowed heavily and laid in parts of the South of England, is not typical.

That said, at least it didn’t rain. Here are a few thoughts and observations.

• The real, real difference, is between those units that were open (and which may have done anywhere between 40% and 200% of normal – but this is a weird Monday, remember) and those units which are shut (and are still down 100%).

• Wet sales, other than for the very-well-prepared, beat food sales. Drinkers are a hardier bunch and they are making a smaller investment in terms of time and money. if it rains half way through a three pint session, it’s not a disaster. If the heavens open just after the starter has arrived during a forty quid a head meal, it’s a bit more of an issue.

• The weather should be on an admittedly jagged upward curve but some operators may shift to snacks for the period before indoor opening.

• Pubs (and to a lesser extent restaurants) with large outside areas did well. Again, a Monday in April beating the same day last year isn’t the same as saying Christmas this year beat Christmas last or summer this year beat summer last.

• Well-prepared operators (rooved outdoor areas, space heaters etc.) were rewarded for their efforts. Operators who offered regulars the chance to stand next to their dustbins in the rain, less so.

• There are hopes that this weekend will be good. For some hardy drinkers, ten degrees is a heatwave. Again, this has to be taken in context. It’s about breaking even, showing your faces and giving the staff a live practise run rather than about shooting the lights out.

• Suburbs were better than town centres – this is a function of space. There is little feedback as to young customers vs older types (but Revolution hopes younger customers will be more resilient).

• Staff were understandably rusty and some were nervous. This could represent a valuable five weeks in which operators may break even and skill-up rather than make huge windfall gains. It is a little baffling as to why some operators would have chosen not to open (unless they were actually unable to).

• Life isn’t normal but walk-ins are encouraged by some operators. Pubs (less so restaurants) are about spontaneity. This is dampened by table service and having to book, though accepted at this stage, runs against the instincts of some customers.

• Pricing. The 5% VAT on soft drinks & food is helpful. Ditto concessions on business rates (although this is a fixed cost). Drink prices may have edged up a little.

• Concerns. There is almost bound to be some excess. Ambulances and the police were called to riverside pubs in York. Fisticuffs and social distancing don’t work when combined. Elsewhere, some operators may have struggled (or not made great efforts) to ensure distancing.

Company & trade body feedback:

• S4 Labour reports that total hospitality reopening sales were up by 0.5% on the same Monday in 2019. It says ‘the figure of 0.5% represents all hospitality sales including sites unable to re-open where revenue was still confined to take-away only.’ It says that food sales were not as strong as wet. S4L says ‘the figures indicate that the cold weather dampened food sales, with a slight decline of 4.75% on the same Monday in 2019, while drinkers were more prepared to brave the inclement weather, with drink sales up 5.37% on the same Monday in 2019.’ The performance was not evenly spread across sites. S4L CEO Alastair Scott says ‘we really feel for City Centre locations, like London, where there is limited outside space to capitalise on the public’s desire meet up with each other.

• Tim Martin, JDW chairman, has told Talk Radio that, even with its beer gardens open, JD Wetherspoon is losing some £3m per week. He says ‘there is a new definition of snobbery divided into those that go to dinner parties, make laws and write for newspapers, and those that go to pubs’.

• Sacha Lord has told Sky that you can buy as much alcohol, unchallenged, from supermarkets and we are seeing images of people mixing in parks and households. He tweets ‘hospitality has created safe, secure environments, let’s open them up to help proceed with caution.’

PUBS & RESTAURANTS:

Covid & government rules:

• Hospitality tech platform Airship.co.uk has analysed data derived from check-ins across hospitality venues saying that, of the 17,446 hospitality venue check-ins on Monday, 32% were made by people in the South East. This was followed by the North West with 19 per cent of check-ins, and Yorkshire with 13 per cent of check-ins. Airship has over 11,000 venues across the UK on the platform, including Wetherspoons, Costa Coffee, Pret, Greggs and Cafe Nero. Dan Brookman, CEO of Airship, said: “It was an amazing day despite the snow flurries, and the feedback from operators was that customers were delighted to be back and it more resembled a Sunday in July than a Monday in April. Consumers know what to expect this time around and there was far less strain on the venue teams than previously, even with more stringent guidelines to follow.”

• See above for first day’s trade. Elsewhere, the Scottish Beer & Pub Association has commented on the announcement yesterday by First Minister Nicola Sturgeon that her government will delay reopening until a fortnight after England, that is till 26 April, saying ‘this is a positive announcement for our sector but unfortunately falls short of what is required to make licensed premises viable. We desperately need a return to licensing hours indoors, as well as allowing alcohol to be sold indoors from 26 April. The First Minister points to indoor reopening being ahead of England, but without alcohol service it is meaningless to licensed hospitality businesses and little comfort to Scottish brewers and other parts of the supply chain who will see no benefit.’

• The SBPA says ‘whilst many sectors are allowed to return to near normal at Level 3, retaining a curfew makes trading exceptionally difficult for Scotland’s pubs and bars who feel they are being unfairly targeted by these restrictions. Businesses require certainty but unfortunately our sector will have to wait until the Government allows us to fully reopen before the recovery truly begins.’

Costs & passports:

• Operators have commented on downward pressure on rents and property costs but upward pressure n wage bills has also fallen. Fourth reports that ‘the average hourly wage for hospitality workers over the age of 23 sat at £8.98 during March 2021 – only 7p higher than the new National Living Wage (NLW) threshold introduced on 1 April – putting an end to an unprecedented period of wage inflation.’ It says ‘the data also highlights a change in the age profile of the industry, with a reduction in the number of younger workers.’ It says that, whilst still young overall, 82% of workers are now over the age of 23.

• Putting this in context, Fourth says ‘the industry has experienced an unprecedented period of labour inflation in the years building up to the pandemic, driven by the fight to attract and retain the best talent. This bubble has been emphatically burst by the pandemic, but with the legislative increases to the National Living Wage coming into force, and the staggered reopening of sites on the horizon, the indications are this is about to change.’ Fourth says ‘what’s not clear is the long-term impact the pandemic will have on wage rates. There has been a reduction in the number of sites in the UK, but research also indicates that there has been a shrinking in the pool of available workers, with the ongoing churn of workers coming and going from the European Union slowing down, due to travel restriction and tighter immigration restrictions.’ The balance of forces is, as yet, unclear.

• The Telegraph says ‘more than 60 restaurant owners, nightclub operators and other hospitality figures have told Boris Johnson that they will not force customers to show Covid passports. The signatories says ‘we will not be forcing our patrons to show us any documentation referring to health status to gain entry.’

Longer term impacts:

• The Lumina Intelligence UK Food to go Market Report 2021 suggests that the landscape of the UK food to go market is changing. It says that combined forces, such as increased outdoor socialising and more hybrid/home working patterns ‘are forcing operators and brands to adapt their strategies to continue to drive footfall to stores and to reach new customers.’

• Changed working patterns. Wired reports that, when ‘Canary Wharf’s offices are fully occupied, they are home to 120,000 people every day. Those numbers fell dramatically due to lockdown. On the last working day of February just 19,282 people passed through Canary Wharf station, according to Transport for London (TfL) figures, down from 110,609 on the same day last year. At the peak commuter time of 8:00am, just over 1,000 people tapped through the Canary Wharf gates, down 93 per cent on the same hour of the same day last year.’ The $64,000 question is, how much of this, if any, will be permanent?

• Langton comment: Putting the above question into context, you don’t have to hold your head under water permanently to drown. If the 19k passengers (many of whom now will be security and cleaning staff rather than the more highly paid bankers and the like that support the local bars & restaurants) trends back over 100k over a period of 6-12mths, then many operators will struggle.

• And indeed, it may be worse. Wired quotes TfL transport commissioner Andy Byford as saying ’it will take another 12 to 18 months before passenger numbers across the network return to 80 per cent of normal capacity.’ The double whammy is (or will be) job cuts and hybrid working. Mix this with the end of furlough support, the phasing back in of 20% VAT and the reappearance of business rates, and the revenue versus costs mix might not be too attractive.

• London Union’s Jonathan Downey tweets ‘this is one of the two main reasons I took the decision last August to hand back the keys on Giant Robot, our Canary Wharf site: There were no people there, and there seemed no prospect of them ever coming back soon enough and in the numbers required to make the business viable.’ He says ‘the other reason? The massive amount of rent debt accrued during the periods of lockdown/shutdown.’ He adds ‘we invested almost £2m in Giant Robot and it did okay (annual wet sales of £3.2-3.5m), but there were never enough of our kind of people there.’

Company and other news:

• Deliveroo. Shares rose by 5.7% yesterday to 265p.

• Langton comment. It’s the first decent upward move and holders will be hoping for more. Ironically, the move coincided with the delivery company’s suppliers (and competitors) being able to open for at-restaurant trade again for the first time this year. With Deliveroo’s business model in mind (which could require radical evolution to get to profitability), we would still caution against spending £10bn to build a £5bn company. It’s easier than doing the reverse, but far less rewarding.

• The Telegraph quotes Just Eat’s comments on rival Deliveroo’s IPO flop. The former says this is a ‘disaster. This is clearly very damaging to their business, their customers and the trust in the European tech sector as a whole.’ The Telegraph says ‘there’s no doubt Just Eat is one of the main reasons that Deliveroo had such a disastrous debut on the public markets last month.’

• Admiral Taverns has reported full year numbers to 30 May saying that turnover was £64.7m with underlying operating profits of £11.2m (versus around £17.2m last year). The company says ‘the period was significantly impacted by the Pandemic which resulted in the UK Government’s mandated closure of all the Group’s pubs on 21st of March in response to a rising number of Covid-19 infections. This resulted in an almost complete loss of income for the Group leading up to the end of the accounting period, with income from sales of beverages falling to zero and rents charged to licensees initially cancelled.’

• Admiral CEO Chris Jowsey says ‘Admiral Taverns made significant strategic progress in the last financial year delivering an underlying profit of £11.1m despite the huge impact of Covid-19 pandemic, which fell in the final quarter.’ He adds ‘as the industry begins to reopen its doors, the role of the community pub has never been more important. An integral part of the UK’s social tapestry, they are vital hubs which bring people together, provide a forum to combat loneliness and raise over £100 million pounds for charity each year.’ The CEO concludes ‘from the onset of the pandemic we have worked hard to ensure our licensees received the support needed to emerge from the crisis energised, motivated, and not weighed down by debt. As consumer macro trends for ‘localism’ and authenticity grow ever stronger, the Group remains well placed to succeed with its strategic plans for long-term
growth, once the UK’s pathway out of the pandemic is firmly established.’

• New River to exit Hawthorn.

• New River has announced that it could offer Hawthorn shares to the market via an IPO. The company says it has committed to ‘divest ourselves of our community pub business in order to reset our LTV and provide the firepower to reshape our portfolio. This includes a potential Initial Public Offer of Hawthorn.’ It says ‘Hawthorn opened over 60% of its pubs in England on 12 April 2021, following the easing of restrictions on outside trading, and plans to reopen the remainder of its portfolio when inside trading is permitted from 17 May. With a focus on well-located community and suburban pubs, our portfolio is well placed to benefit from consumers working from home and using their local services and facilities, and we expect this to lead to a strong bounce back, as we saw in the summer of 2020 when on reopening Hawthorn outperformed the UK pub sector.’

• Vianet updates on trading saying that ‘although the vast majority of H2 was characterised by a more challenging Government regime of enforced lockdowns and pub closures, we are very pleased to report that, notwithstanding this challenging business backdrop, trading for the period showed a slight improvement on our H1 financial performance; free operational cash flow in H2 was neutral despite one-off rationalisation costs and the delayed receipt of £0.45m which arrived post year end.’ The company says ‘we anticipate for the financial year end March 2021 the Group will report an adjusted operating loss in the region of £0.7m and c. £1.1m of operational cash generation.’

• Vianet chairman James Dickson says the group is ‘in an excellent position to benefit from the increased demand for data insight and contactless solutions as the economy recovers.’ He says ‘although there have been unprecedented business challenges, the Board is very confident that as the restrictions ease, we have implemented the correct measures enabling the Group to capitalise on the momentum we had generated before this global crisis and to take advantage of the exciting growth opportunities which lie ahead.’

• Multi-channel. Yo! Sushi has signed an agreement to supply product to WH Smith.

• Tesco has been praised for tweeting ‘pubs have had it tough this year. So, as good as our deals are, this week we’d rather you support your local pub (as long as you feel safe to do so). Because right now, Every Little Helps.’

• Revolution Bars Group yesterday announced alongside its numbers that it is developing two new concepts to “appeal to a wider customer base”. The concepts will be trialled once trading conditions allow.

• Wing Shack Co is reportedly looking for five new locations in London and two outside the capital this year.

• London recipe box company The Cookaway aims to expand after passing its £700k crowdfunding target.

HOTELS & LEISURE TRAVEL:

• TTG reports that TUI is still planning for a 17 May resumption of international travel. UK rival Jet2 has cancelled departures up to 23 June. 

• Costs still a bit of a buzz-kill. Randox, the largest supplier of PCR tests in the UK, has cut the price of its tests to £60 each. Prices at the moment are around £100, although Gatwick is offering a £60 PCR test at its terminals and Jet2 has partners offering them from £75.

• Travel Weekly has hosted a webcast in which operators have concluded that there will be more failures if holidaymakers are denied the chance to travel over the peak summer period.

• Aito reports that 46% of vaccinated over-50s are planning holidays and 94% presumably intend to do so overall as that is the percentage saying they will spend the same amount or more on holidays this year than they did pre-Covid.

• Israel is to open up to vaccinated tourists from 23 May.

• Willerby (a mobile home and caravan company based in Hull) has said that it expects a bumper spring. The company says ‘many people are considering buying a holiday home for the first time and, as a trusted brand with a strong tradition and reputation, we can help them make the best decision for themselves and their families.’

• Uber has reported the highest March bookings in its 12yr history.

FINANCE & MARKETS:

• The ONS reports that UK GDP rose by 0.4% in February after a 2.2% fall in January. The number, less than the 0.6% hoped for, nonetheless leaves most forecasts intact. The NIESR says that Q1 GDP should be down by around 1.5%. It says ‘compared with the first lockdown in Q2 of 2020 the effects of restrictions imposed since January have clearly been much more sector-specific.’ It says growth was strongest in the public sector and health areas.

• The ONS has also reported that the UK’s trade deficit with the rest of the world widened in February to negative £16.4bn. This deficit would be reduced a little by a services surplus under normal circumstances. The net deficit will need to be funded by the transfer of assets or gilts to overseas ownership. The ONS reports that both imports from and exports to the EU rose in February.

• Former Bank of England governor Mervyn King has cautioned that central banks and finance ministries may be at danger of becoming hooked on stimulus packages.

• Sterling mixed at $1.3777 and €1.1516. Oil higher at $64.33. UK 10yr gilt yield down 2bps at 0.77%. World markets mixed with London set to open marginally down as at 7.15am.

RETAIL WITH NICK BUBB:

• Today’s News: Along with the Tesco finals, there have been trading/rent collection updates from a number of the big property companies, including British Land and Great Portland, but the most interesting news is perhaps the announcement from NewRiver that it plans to sell off its pubs business and focus on its core community shopping centre operation. As for mighty Tesco, the main news is that they held the total dividend for last year, despite a 37% fall in adjusted PBT to £1161m in y/e Feb and that they expect Retail operating profit in 2021/22 to recover to a similar level as in the 2019/20 financial year (on a continuing operations basis): “Whilst we expect some of the additional sales volumes we have gained this year in our core UK market to fall away as COVID-19 restrictions ease, we expect a strong recovery in profitability and retail free cash flow, as the majority of the
additional costs incurred as a result of the pandemic in the 2020/21 financial year will not be repeated”.

• This Week’s News: Tomorrow brings the THG finals/Q1 update, the Travis Perkins/Wickes Q1 update, the Deliveroo Q1 update and the Naked Wines finals. On Friday John Lewis is holding a Strategy event for analysts at their Oxford Street store.