Langton Capital – 2021-04-20 – PREMIUM – Pub & restaurant trading, Deliveroo, IPOs, C&C & other:
Pub & restaurant trading, Deliveroo, IPOs, C&C & other:
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A DAY IN THE LIFE:
A few years back what appeared to be an American lady advised me, a Yorkshireman, standing harmlessly in a pub in London (your honour) to eff off back to Ireland.
Just what elicited the suggestion remains shrouded in mystery but what came across clearly, was that the falling-down-drunk person’s understanding of the regional accents of the British Isles was somewhat off.
Because, she seemed to believe, if you’re not somewhere on a scale between Hugh Grant and Prince Charles, then you must be either a Cockney or an Irishman. And she’d decided that I was the latter and, moreover, that I would benefit from some advice as to where I should go and what I should do when I got there.
Still, water off a duck’s back and, as I was talking to a Liverpudlian at the time, I’ve consoled myself with the belief that she might have been talking to him. On to the news:
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PUBS & RESTAURANTS:
• Evidence, some anecdotal, other observations via the Press, trade bodies and individual companies, continues to suggest that, albeit weather-assisted, trade is currently buoyant – at least for those operators that have been able to reopen. There has been talk of queues waiting for some shops to open and Springboard says that footfall across UK shopping destinations was up 87.8% week-on-week last week. That is a) good but b) is measured from a low base. The near-doubling of footfall, however, is good news for the coffee and sandwich shops located nearby. York was busy, with certain roads pedestrianised and perhaps a little under half of units in the town centre appearing to be open. It is hard to judge these numbers on the ground and CGA maintains that, across the whole industry (restaurants as well as pubs) the number was nearer to 25%.
• In a statistic that effectively compares the severity of last year’s lockdown with the one that we are just exiting, Springboard said total retail footfall was up 330% from 11-17 April versus the same week a year ago. Overall footfall is still said to be around 25% below 2019 comparatives. This does not give the full picture as it is possible that people going out in 2021 are on more of a mission to spend than they were when they went out in 2019. Springboard says ‘these results provide concrete evidence of the desire of shoppers to return to bricks and mortar stores and destinations. The key issue for retail destinations will be whether this momentum can be sustained.’
• Langton comment: Springboard is correct to question momentum but we would suggest that an even deeper question is, are people who go out spending – or are they just celebrating the fact that they are able to go out? At the moment, we believe (based on feedback from operators) that there is a lot of spending going on. This is great but, as an industry veteran has told us in a phrase that left an impression, customers will get ‘wallet fatigue’ at some point.
• It’s always risky to say ‘it’s different this time’ but, to some extent, it is. That because would-be shoppers have been forced savers for months. Job losses have been modest and, courtesy of the furlough scheme, many workers – ex the cost of commuting – are as well off on 80% of wages as they had been on 100%. Add in the fact that there has been little chance to spend money, and demand could be sustained for a prolonged period.
• We have GfK’s UK consumer confidence numbers coming out on Friday, which should point to a continued uptrend to the consumers’ feeling of financial wellbeing. See also comment below Peter Backman’s points below.
• Potential developments: The main issue will be ‘are we still on track to reopen indoors on 17 May’. In the short term, operators and customers will be keeping an eye on the weather. Trade has been good (with caveats) for operators that have reopened and it will be interesting to see if more sites follow suit. Furthermore, it is pay weekend next weekend with a Bank Holiday padding the weekend following. Operators will be keen to see just what sort of boost, weather permitting, pay weekend and the Bank Holiday bring.
Other Covid news:
• Foodservice analyst Peter Backman says ‘as the covid waters recede we shall find out how much has changed.’ He says these changes will ‘shape the foodservice sector over the months and years ahead.’ He says he believes 15% or so of foodservice units will not reopen at all. There are other suggestions of an even higher percentage. Backman also questions whether there will ‘be enough competent, trained people around to work in the foodservice sector’ when it has reopened. Hundreds of thousands of staff have returned to their home countries with some estimating that the population of London alone has fallen by 700,000. Some but not all of these people may return.
• Backman asks how will delivery fare and evolve? He says it is here to stay but it will have to evolve. Whoever has downloaded a delivery app is unlikely to delete it just because restaurants have reopened. But the frequency of use could diminish. Backman says ‘dark kitchens, virtual brands, meal kits, and apps that give control back to operators, will all play their part.’ There is a widespread feeling at the moment that too much power has accrued to the delivery companies.
• Langton comment: Power has certainly accrued to the delivery operators but, the question is, what can the hospitality industry do about it? If the answer is nothing, then this is a new fact of life. If they can regain the initiative, then there could be some roll-back. Certainly, they are less dependent on the delivery apps than they were just a week ago.
• Permanently closed units: The 15% or 30% figure (for permanent closures) is very important. There will be a difference between capacity that has permanently exited the market and capacity that has simply changed its ownership structure. It would be easier to hit the 30% figure if the Issa purchase of Leon is seen as a closure (and a reopening) rather than just counting units that have been shut or converted to alternative use.
• For surviving operators, of course, a permanent closure is preferable to a unit simply changing hands because, in the latter case, an incoming operator may be better financed and more able to compete than was the company that went bust. The problem here is that the next best use of a restaurant – is a restaurant. There may be £500k to £800k of F&E in the unit. If this has fallen into the hands of the landlord (or other creditors) then they may be able to use it as an inducement to tempt in the next operator. This is an opportunity for players making selective site purchases, but it is less beneficial for the industry as a whole when it comes to profitability.
• Working from home. HSBC has said top managers in its Canary Wharf HQ will now have to hot-desk as it is expected that not everyone will be in the office at the same time going forward. HSBC’s Noel Quinn says ‘hybrid working’ is inescapable. He says on LinkedIn ‘my leadership team and I have moved to a fully open-plan floor with no designated desks.’
• Langton comment. Accountant Deloitte weighs in. It has reported that as many as 7.5m employees, some 25% of the workforce, do not want to go back to the office at all – but a slightly larger number (at 28%) are very keen to get back. This will impact different workers in different ways. Deloitte says ‘those coming into the workforce, in their early careers, are sponges. They can learn technical stuff anywhere, but what gives them the edge and what makes work interesting and exciting is the stuff you cannot learn in a textbook or an online course.’ The accountant says ‘it is how people work and interact. It is observing how more experienced people handle different situations. You cannot teach that directly. People in the early stages of their career know that, and they are yearning for it.’
• The above has significant implications for the need for office space and the likely demand for the products sold by grab and go restaurants, sandwich shops and coffee shops. Deloitte says around 40% of workers believe they were more efficient at home, while a third were more relaxed. The efficiency point may be ‘for them’ (i.e. they do not have to commute) rather than ‘for the company’. Some 40pc said they like not having to commute. The ONS has said that around 49pc of business workers are at their usual place of work. Some 17pc are still on furlough.
Company and other news:
• Deliveroo shares down another 9p or 3.6% at 238p. They are now little more than half the 460p that was initially mooted as the top of the range of prices at which the company could float its shares. They came at 390p and are currently some 49% below that level.
• We mentioned yesterday that, on the heels of Deliveroo, Soho House, Music Magpie and Hawthorn Leisure, another company that may list its shares has been outed as Yo! Sushi. This is either a sign that demand for leisure shares is healthy or that the current owners want to get out (or both).
• Langton comment. Certainly there is an asymmetry of knowledge as the sellers will know much more about their companies than will the buyers. This can still be consistent with rising share prices in the aftermarket but, in the case of Deliveroo, for example, it was not. It may be that, in one or two of the cases, the PE sellers are ‘dual tracking’ the process. That is to say, they may IPO but, if another PE house or a trade buyer shows an interest in the company, there could be a straight sale of the company. This is often a preferred route as it will allow a clean exit for those wishing to sell their shares.
• Coca-Cola yesterday reported Q1 numbers saying that sales had bounced on the back of increased Covid-19 vaccinations and fewer restrictions in several key markets. The company says that it generated $9bn in net revenues during the period, a 5 per cent increase year on year and ahead of estimate of around $8.6bn. Sales were up 6% on an organic basis. The company has retained its guidance that sales will rise by a high single-digit percentage this year. Net income for the quarter fell to $2.25bn, or 52 cents a share or 55 cents a share on an adjusted basis.
• April frosts may have cost the French wine industry as much as €2 billion per the Fédération Nationale des Syndicats d’Exploitants Agricoles
• The Garden Cider Company, has announced it is expanding its Doorstep Drop initiative to include local vineyards and distillers.
• China’s Luckin Coffee Inc is to raise $240 million from investors
• We usually look at confidence and job statistics. However, it is worth saying that the advent (or reintroduction) of 95% mortgages got a lot of attention yesterday. This may be marketed as either help to get first time buyers on the housing ladder or an attempt to further bolster prices. If the move is successful in reducing the size of deposits needed, then consumption (in pubs, restaurants and in other areas) could be boosted.
• Langton comment. An unscientific, scientific approach to the rumoured ‘wall of money’.
• Much has been made of enforced savings and over whether (and over how long a period and on what) the cash hoarded will be spent. This is a big issue as it speaks to the sustainability of the current spending boost.
• Holiday spend much reduced. Where will that cash be spent?
• We would point out that people have missed holidays – in two senses. They would like to have had them and they haven’t taken them. The latter is a tangible fact that will have bolstered savings to the tune of what, perhaps £2k to £10k for families across various income scales. Holidays are often the second largest (behind the house) or third largest (behind housing and motor vehicles) expenses faced by many consumers.
• The question therefore is whether the family that wanted to (but didn’t) have a £3k or £4k villa holiday (or two more modest holidays adding up to the same amount) last year (and probably won’t have one this year) will spend double or even treble that on holidays in 2022. And the answer to that question, which would mean a leakage of the cash out of the UK, is almost certainly not. Some of the £3,500 for one year or £7,000 for two will have been spent on cottage holidays but maybe only a third. Or even less suggesting that there could be £5k sloshing around in a relatively average household. Some may go on home improvements, white goods etc but any material slice of the £5k would pay for a lot of pizzas and pints. Some of it will doubtless go to savings (or paying off bills) but some, one would hope and expect, should come to domestic hospitality).
• Worked example, Langton, spot the difference. Hols 2019 (not all separate trips): Brussels, Canaries and driving holiday to Venice, Munich, Vienna, Ljubljana and Yorkshire. Hols 2020: Yorkshire, Lincolnshire. Hols this year: Yorkshire, Derbyshire.
Prices & likely return of inflation:
• The latest Foodservice Price Index from CGA and Prestige Purchasing has suggested that ‘several months of falling food and non-alcoholic drinks prices are expected to come to an end as the hospitality industry reopens.’ Figures for a basket of products showed prices rose by 2.2% year on year in February, though prices in that month were down by 2.6% on January. The Price Index suggests that, as the economy reopens, ‘a repeat of the considerable firming of prices experienced during the sector’s unlocking in Summer 2020 can now be expected.’ Prestige Purchasing says ‘we expect prices to rebound as volumes recover, probably to above 2020 levels by later in the year. Operators would be well advised to seek price holds from suppliers whilst the current inflation levels remain benign. They should also avoid taking a renewal of pre-lockdown supply for granted, as the commercial impacts of the
• CGA adds ‘these figures are reminders that foodservice supply remains volatile, and that the many impacts of both COVID and Brexit will be felt for some time to come. All businesses will need to stay alert to pricing issues if they are to make a positive start to the recovery journey.’
HOTELS & LEISURE TRAVEL:
• The Telegraph reports that the government is considering VAT exemption for all forms of Covid testing. This would help, though only on the margin. Travellers returning from “amber list” or “red list” countries have to take a pre-departure test and tests on days two and eight of their mandatory 10-day self-isolation period. For any sort of family holiday, this will jack the prices considerably.
• Agency Travelplanners is reported to have ceased trading after 45 years
• India has been placed on the UK’s ‘red list’.
• Boutique Hotelier has reported that ‘hoteliers in England have reported strong bookings levels and an ‘overwhelmingly positive’ response from guests in the first week of reopening outdoor facilities.’
• The CDC in the US has said that fully vaccinated people can travel within the U.S. without the need of COVID-19 testing or self-quarantining post-travel. STR points out that ‘people are considered fully vaccinated two weeks after their recommended second dose of vaccine.’
• The plans for a breakaway European Super League got a lot of coverage yesterday with a lot of opposition from various parties with the notable exception of the teams that would benefit financially. The Premier League, UEFA and FIFA are particularly upset.
• The proposed European Super League in football has provoked a furious response. The ferocity may be a mark of how seriously the Premier League and UEFA etc take the proposal. UK culture secretary, Oliver Dowden, has said he will do “whatever it takes” to block the plans. That’s rather a bold comment. Dowden said ‘it was a tone-deaf proposal, but the owners of those clubs won’t have been able to ignore the near universal roar of outrage from all parts of the football community over the past 24 hours.’ PM Boris Johnson has said in The Sun ‘I’m going to do everything I can to give this ludicrous plan a straight red.’ It’s not clear just how interested in football the various commentators were just 48hrs ago.
FINANCE & MARKETS:
• Sterling up at $1.3996 and €1.1605. Oil higher at $67.74. UK 10yr gilt yield down 1bp at 0.76%. Markets broadly lower yesterday with London set to open down around 6pts this morning.
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