Langton Capital – 2021-05-13 – PREMIUM – Staff shortages, rents, staycations, bookings, On the Beach & other:
Staff shortages, rents, staycations, bookings, On the Beach & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: So is the first sign of madness looking for hairs on the palm of you hand? Or, as Einstein suggested, is it doing the same thing multiple times and expecting a different outcome? Or, as I prefer to believe, is it finding yourself apologising to your dog for walking through a door before he pushes past or for not being quick enough with his food of a morning? Anyway, we’ll leave that one with you as we’re a tad pushed this morning. On to the news: ADVERTISE WITH US: Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details. CHANGED EMAIL FORMAT: The Premium Email is unchanged. The Free Email is written and pre-sent the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email. THE ELEPHANTS IN THE ROOM: Introduction: • In the UK, if not in large parts of the wider world, Covid may be past its worst (in the absence of malign variants, that is). • There are justifiable caveats, but it makes sense to look to the future, ask what the new normal will look like, etc. • On the balance of probabilities: o There is some pent up demand. o Supply (the number of outlets) will be reduced and, o There will be limited overseas travel this year meaning that it should be a good year for staycations. • Which is great. But there are some elephants in the room. We’ll consider over the next few days (and not in any particular order of importance): a) Labour shortages, b) Cost and price inflation c) Accrued debt (banks, bonds, landlord, VAT, supplier etc) and, d) Other issues (supply chain problems etc) LABOUR SHORTAGES: Mangling a metaphor here but, until you press the accelerator, you may not know if there is any petrol in the tank. For the majority of outlets, next week, when trading will be allowed indoors, will be the first occasion that they have attempted anything like ‘normal’ trading. The backdrop: • The furlough scheme has ‘protected jobs’ but it is not clear yet how many of those protected workers actually want to do the job going forward. • Stories circulated last year that many workers had returned to the EU. The UK population may have dropped by up to 1.5m last year with around half that number leaving London. • Brexit and the pandemic ‘caused’ the exodus. One impact will recede, but the other may not. Experiences to date: • A sizable minority of operators opened for outside trading on 12 June. Some closed and reopened again depending on demand or the weather, but all that tried to trade will have some experience regarding staff retention. • Knowledge is power. That’s too stark a statement but at least operators that opened will have some inkling as to whether they are about to face a major staffing problem. • Our betting is that there will be an issue. It may be most acute across chefs and in the back of house. This could lead to higher wages and increased costs. We’ll consider inflation perhaps tomorrow. USA data: • Several stories on the same day about a tightening labour market in the US. • Apart from spelling a word wrong, NRN in the US sets the tone when it says ‘The Labor Shortage: Next Pandemic for Restaurants’. It says ‘out of the frying pan, into the fire. That’s how restaurant operators are feeling these days. Having barely survived one existential crisis, they are rushing headlong into another one.’ It says ‘restaurant sales are on a steady upward climb’ but adds ‘the industry lost millions of jobs during the pandemic and restaurants have struggled to regain lost employees. According to data from the Bureau of Labor Statistics, “eating and drinking place employment remains 1.8 million jobs—or 15%—below pre-pandemic levels.” The labor shortage applies to each segment of restaurants, from full-service establishments and fast casual chains, to quick-service restaurants (QSRs) and snack bars.’ • The US industry (which is renowned for its hire & fire approach) has ‘recovered’ more rapidly than that in the UK. We quote CGA below as saying that the US industry has ‘roared back to life’ with 98% of states (presumably 49 out of 50) now allowing indoor trading. • The JOLTS (Job Openings and Labour Turnover Survey) report came out earlier this week and stated that 8.1m job posts were added in April. Forbes says the jobs market is tightening in the US and the resultant fear of inflation is what is said to have moved markets lower on Tuesday. • The large increase in job adverts will be partly due to stimulus measures, perhaps over-stimulus, and part down to existing workers having disappeared when asked to return to their posts. • Forbes says ‘many small businesses, such as restaurants, complain that they can’t find workers and jobs aren’t being filled—putting pressure on the owners and staff.’ It quotes ‘many people’ as saying that ‘businesses are refusing to pay fair and liveable wages’. This has an implication for costs. • CNBC is on similar lines saying the report sparked ‘growing concerns about employers being able to find enough workers to fill openings, which in turn could make the economic recovery slower than anticipated.’ • The US hotel market is facing similar challenges. The Hunter Hotel Investment Conference in Atlanta heard that labour is ‘going to be a challenge’. G6 Hospitality says this has ‘been an ongoing challenge as some team members were uncomfortable coming back to work regardless of the safety measures put in place.’ It says ‘demand continues to grow, which increases the need for more staff.’ • Other operators told the conference they were sending out ‘vendors’ to poach staff from other sectors. This suggests retaliation and wage inflation over time. UK outlook. • The future, as JM Keynes said, is unknown. And it may well be unknowable but there are some potential mitigating points. • The number of workers may have declined but so too has the number of outlets. • There will have been a little ‘slack’ in the system. So, in the short term at least, companies may be able to get more done with less labour. • Over time, however, service standards could slip and customers may be disappointed. Operators may bid up the cost of staff and prices, overall, may rise as a result. • Loungers’ Alex Reilley tweets ‘probably the most long-lasting legacy that the impact of Covid will have on hospitality is recruitment.’ He says ‘people already in hospitality or those considering hospitality as a potential career will look at how easily the sector was closed down by the govt &, understandably, worry…’ He adds ‘next we need to see the govt deliver on its aspiration of dropping all SD measures on June 21st – only then is the sector in a position to properly stand on its own 2 feet.’ He concludes ‘normality I fear the effects of the pandemic on recruitment will be acutely felt. We urgently need a govt-led plan or we’re going to face a severe & inevitable labour crisis.’ • Stories similar to those related from the US above are not yet common. But, interestingly, Heathrow says more staff must be recruited to man the UK border at airports. • More staff will then be needed to track passengers who have filled in passenger locator forms in order to ensure that they abide by the rules. It’s not clear where all these recruits are going to come from. PUBS & RESTAURANTS: The outlook for rents: • New Look sets precedent. We not that New Look has overcome (in the High Court) the objections of a number of landlords to its proposed CVA. City AM is not alone when it says this is a landmark case ‘that experts say will clear the way for other retailers to use Company Voluntary Arrangements to combat the impact of the pandemic.’ The tenants may be the winners and you don’t have to look too hard to find the losers. New Look had already secured creditor approval for its CVA but a number of its landlords had objected and had taken the ruling to court. They have now been told that they cannot oppose the deal. • Langton comment: The CVA allows some 68 branches to move to zero rent with 402 stores moving to turnover rents. The terms of the leases, which will be divided into a number of tranches, will be deep in the detail of the CVA. But suffice it to say that turnover rents move some of the economic risks and rewards from the tenant and onto the property owner. • City AM quotes observers as saying that this is a ‘bruising’ outcome for landlords and that it effectively stacks the deck against them. This after maybe 1,000 years of the deck being stacked the other way? But, whatever the occasional rights and myriad wrongs of UK property law, we are where we are – and it’s a somewhat different place to the one inhabited before the pandemic. • It’s possible that we would have got here anyway (there were, after all, a rash of CVAs in 2018), but the pandemic has accelerated change. City AM, perhaps listening to the landlords’ legal counsel, says that the judgement ‘will only see landlords confirmed as the piggy banks of the slowly recovering retail sector. A chance would be a fine thing. We can see the point of view of another commentator, who says this is ‘simply a reflection of the economic fall-out of the pandemic and many may feel that it rightly shares the pain across the whole of the retail sector,.’ • It is entirely possible that a number of other operators will press the go-button on CVAs now that they have a clearer view of what to expect. Alix Partners says the “ruling should provide a greater level of certainty around the process and, as government support tapers down, could lead to a higher number of CVAs.’ Staycations:
• Shifting demand for overseas holidays to the winter. This story impacts both Pubs & Restaurants (positively) and tour operators (less so). TUI, which yesterday reported H1 numbers (slack demand, big losses etc), has said that people are deferring their holidays to the winter season because of a lack of clarity regarding the summer. This should help bolster demand for UK pubs & restaurants (and domestic hoteliers) over the critical summer period. In what may be more a hope than a firm prediction, TUI says that customers remain keen to travel once Covid restrictions were fully lifted. Interestingly, TUI said that it had sold 2.8m summer holidays as at February this year – and that number has actually declined, to 2.6m, due to a lack of clarity and cancelations and re-bookings. Summer 2022 bookings look strong but, 15mths ahead of departure, these are relatively small Company & other news: • The Night Time Industries Association has warned MPs that the rent crisis facing the UK’s nightclubs could lead to multiple closures. It says late night operators could have run up as much as £2.5 billion in accrued rent. It says some 75 per cent of commercial tenants in the UK’s nightlife industry could be facing bankruptcy. It adds ‘large swathes of the nightlife sector have been closed since March 2020 with no meaningful opportunity to open and trade. As a result, businesses have been unable to pay rental arrears, through no fault of their own, and have accrued considerable debts. While the government put in place a moratorium on evictions in March 2020, this is due to expire on June 30, and the prospect of repaying these debts, for most in the sector, is largely unattainable.’ • The government is to drop its advice that people should work from home from 21 June. PM Boris Johnson says the “dynamism” of England’s cities may return “remarkably quickly” when workers return. • SIBA has reported that the use of outdoor spaces at brewery taprooms across the UK, often referred to as ‘tap yards’, has mushroomed since 12 April. SIBA says on average brewery taprooms were around 73% busier over the last few weeks when compared to the same period in 2019. In Harrogate, North Yorkshire, SIBA’s Chairman Ian Fozard runs Rooster’s Brewery, which has seen a very busy few weeks at their large brewery taproom beer garden. • UK Hospitality Scotland has commented on the confirmation of the next step to ease restrictions north of the border saying ‘today’s confirmation of the move to Level 2 for mainland Scotland, albeit with the likely exception of Moray, and the move to Level 1 for the country’s islands is extremely welcome.’ It adds ‘the easing of restrictions provides a much-needed psychological boost and promises some economic respite for businesses that have experienced fourteen months of severely disrupted trading.’ It concludes ‘even after all restrictions have been lifted, hospitality will still be in a very fragile state and continued Government support will be vital in ensuring the sector’s full recovery and in enabling businesses to play their full role in Scotland’s economic and social renewal.’ • Working from Home: The ICAEW says the move to hybrid working could be a dilemmas for employers. It says combatting worker loneliness is a challenge and says up to 50% of homeworkers feel ‘disconnected from their employer’. It says another danger is the emergence of an ‘out of sight, out of mind’ culture. This may even grow to become an ‘us and them’ feeling. • DesignMyNight reports that one million online bookings for hospitality venues have been taken in seven days. • US data. The latest Beverage Trak data from CGA concludes that the US on-trade has “roared back to life”, and is even seeing growth compared to the same period in 2019. CGA says ‘naturally, the market is in velocity growth versus the shutdown of 2020 but what perhaps is even more encouraging is that the w/c May 1 is up +4% vs the same time period in 2019.’ • The National Restaurant Association in the US reports that 10% of restaurateurs do not believe their staffing levels will come back up to ‘normal’. Most of the remainder expect normality to return by the autumn. • Marston’s has reported that all of its pubs in England will open for indoor and outdoor service from 17 May. The company says ‘table service will take place, but guests will also have the option to order via Marston’s online ordering system called ‘Marston’s Tap’. The online platform is available across the majority of Marston’s pubs and a full rollout is underway following its success.’ CEO Ralph Findlay says ‘it’s fantastic that our pubs can reopen, inside and out. Over the past few weeks, we have seen people visit pub gardens, come rain or shine, for the pure enjoyment of socialising with friends and family.’ • US operator Denny’s has updated on Q1 trading saying that off-premise sales have continued at higher than normal levels post reopening. CEO John Miller says ‘we’ve been pleased with our ability to retain off-premise sales, which have been more than doubled since the start of the pandemic.’ HOTELS & LEISURE TRAVEL: • Spain’s tourism minister, Maria Reyes Maroto, has confirmed Spain intends to reopen to British visitors from 20 May. • Jet2.com and Jet2holidays have added flights and holidays to Portugal and TUI has confirmed that it will take UK customers on holiday to amber destinations. It will be up to the customers to quarantine on their return. • Jet2.com’s CEO Steve Heapy has said the Home Office needs to sort out the UK border in airports to solve the “unacceptable” waits at immigration. • Langton comment. Real world problems or problems of success? Saying yes to visitors implies processing them at the border. Mr Heapy (above) says something ‘needs’ to be done – but you have to be careful what you wish for. The BBC reports ‘Heathrow Airport is considering contingency plans to divert aircraft to other UK airports or EU hubs if queues at the border become too long.’ This raises the spectacle of a family returning from a holiday, say in the US, being diverted to Charles de Gaul rather than Heathrow. • On the Beach Group says it will extend its pause on operations from 30 June to 31 August 2021 ‘following the announcement earlier this week on the traffic light system for leisure travel, where most destinations have been classified Amber.’ It says ‘the Board’s decision is based on consumer feedback from both research and search / sales data, showing a market wide lack of appetite for booking Amber destinations, as well as the likely loss of customer goodwill for holidays that might be booked only to be cancelled or re-arranged.’ It adds ‘this position will be reviewed following the Government’s update on travel and associated restrictions which is expected to be released at the end of May.’ • Langton comment. On the Beach says it ‘will monitor the situation closely, and return to selling summer 2021 beach holidays as soon as there is more certainty that new holidays booked will take place without disruption or cancellation, and that the traffic light requirements can be managed by authorities and consumers alike.’ CEO Simon Cooper says ‘unlike many of our competitors, we have no interest in selling holidays that are unlikely to happen, as our business model enables us to put customers first, rather than needing to get cash in the door to contribute to high fixed costs, and offering refunds in the form of a voucher when holidays get cancelled.’ TUI (see pubs section above) has reported the number of summer holidays ‘sold’ net of cancellations actually fell between February and May this year. • Carnival’s Princess Cruises has announced it is cancelling a number of cruise vacations from the California Coast and Mexico during August. It says ‘we continue to have constructive discussions with the CDC but still have many questions that remain unanswered.’ On the Beach, above, accuses some of its competitors of putting on holidays only to have to cancel them. • Whitbread is to grow its Premier Inn and hub by Premier Inn hotels by 2,142 bedrooms this summer. It says ‘we are investing to win this financial year as we recover from the pandemic and continue to grow and innovate our market leading brands. The seventeen new and extended hotels we are opening this summer will bring our best product to many of the UK’s most popular cities and leisure destinations – locations where we expect strong, long-term demand for our affordable hotel rooms.’ • STR updates on the London hotel market saying that occupancy is 28.6% with achieved average rates of £67.13 to give REVPAR of £19.23. It says ‘the absolute occupancy level was the highest for any month in London since October 2020, while the ADR and RevPAR levels were the highest since December 2020. Occupancy-on-the-books data for the market shows weekend peaks after May 17 — the day hotels can reopen.’ OTHER LEISURE: • Games producer Electronic Arts has announced full year numbers to end-March saying that ‘with tremendous engagement across our portfolio, we delivered a record year for Electronic Arts. We’re now accelerating in FY22, powered by expansion of our blockbuster franchises to more platforms and geographies, a deep pipeline of new content, and recent acquisitions that will be catalysts for further growth.’ Games have been a beneficiary of lockdown. FINANCE & MARKETS: • The ONS reports the UK economy only shrank by 1.5% in the first three months of 2021 after a strong performance in March. The economy is 8.7% smaller than it was before the pandemic. The NIESR says ‘we now forecast month-on-month growth of 2 per cent in April, and growth of 4.7 per cent in the second quarter compared with the previous quarter. This is likely to be driven by the retail and hospitality sectors, which we anticipate being re-opened in line with the government’s roadmap.’ • Exports to the EU rose in March. France is reported to be set to block a post-Brexit financial services deal in order to gain leverage over fishing. The City of London is reported to have lost £2.3 trillion in a single month in derivatives trading. • US inflation ‘surged’ in April. Consumer prices are 4.2% higher than they were 12 months ago, up from 2.6% in March. • Sterling weaker at $1.406 and €1.1639. Oil lower at $68.55. UK 10yr gilt yield up 5bps at 0.89%. World markets partially recovered yesterday but then headed lower. London set to open down by around 40pts. RETAIL WITH NICK BUBB: Today’s News: The Burberry finals today (for y/e March) are pretty upbeat, with no mention of the recent problems in China, helped by the strong Q4 sales recovery flagged back on March 12th. For the full year, total revenue was only 10% down, despite all the store closures and reduced tourism, with adjusted operating profits of £396m only 8% down, amazingly. There is nothing about current trading, but Burberry do say that “In our next chapter we will focus on delivering growth whilst continuing to enhance the quality of our business”, with LFL sales this year to be impacted by the exiting of stock markdowns in mainstream stores as the company purses a relentless full-price retailing approach. Yesterday’s Press: We didn’t have time yesterday to flag up the article in the Times (“Deliveroo backers reveal if they are eating their words”) that flagged that, after the research blackout following the float of Deliveroo a month ago, the big banks that talked investors into paying 390p a share were freed to publish their thoughts on Tuesday. Of the six IPO banks, who earned £49m between them for their work on the float, four of their Research teams have conceded that the shares are no longer worth what they were priced at before the IPO, with two of them (Citi and JP Morgan) starting their coverage with “Neutral” ratings… Pret Watch: Further to the news that Pret A Manger is expanding its partnership with Tesco by opening shops inside Tesco stores, we saw yesterday on Twitter that Bloomberg has launched a new weekly index of shopper footfall using Pret sales data! Using January 2020 as the base, Pret sales in the once busy City, for example, were only 39% of that level in w/e May 6th (and that was 7% points down on the week before), while Pret in London airports was just 19% of the starting point that week, with London stations at 57%, the West End at 61% and London suburbs at 86%, for example. This Week’s News: After the Ocado AGM at 10am today, tomorrow brings the Greggs AGM at 9am. |
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