Langton Capital – 2021-05-26 – PREMIUM – Traffic, staffing, Revolution, C&C, coffee, Playtech, Gym Group etc.:
Traffic, staffing, Revolution, C&C, coffee, Playtech, Gym Group etc.:
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A DAY IN THE LIFE:
We’re promised better weather shortly – and it’s reportedly good in the south already – but, yesterday, the sky darkened at regular intervals here in Yorkshire and it absolutely threw it down.
It was a balmy nine degrees again, the rain was bouncing a foot off the car’s roof, was falling from the trees in drops the size of golf balls and was lashing the existing puddles on the grass such that they coalesced into what you could easily mistake for, well, a large lake.
Still, hope lives on. Jam tomorrow but, for the moment, let’s move on to the news:
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PUBS & RESTAURANTS:
• Wireless Social has updated on traffic for the first week of indoor trading (to 23 May) saying that ‘nationwide hospitality footfall recovered to 39% of pre-covid footfall.’ It says ‘London footfall has recovered most compared to other major cities’ and adds that Glasgow is only city that it measures to experience a drop in traffic as hospitality remained closed last week in Scotland. Wireless Social comments that lunchtimes had recovered more fully than evening sessions. It says ‘over the past week, nationwide hospitality footfall recovered by 39% of levels seen in February 2020 pre-pandemic’ and adds ‘the data demonstrates consumers’ enthusiasm to return to the on-trade, with footfall remaining consistent each day throughout the week.’
• Langton comment: There is a lot of noise out there. Some will be accurate, perhaps most of it but, with some commentators (the press including The Morning Advertiser) saying that things are quiet and others saying there has been a substantial recovery, confusion is one of the only certain results. Wireless Social says – despite revenues only 39% of Feb 2020 levels – that ‘the data shows that consumers are eagerly returning to visit hospitality venues and haven’t been focusing on the weekend as we may have seen more often pre-pandemic.’
• It continues, saying the ‘data also highlights the stranglehold restrictions are still putting the sector under. The fact that nationwide footfall in the sector is still below 40% of our pre-covid average shows, that despite images of full restaurants and pubs in the papers, there is still a long road to recovery. It’s vitally important that all restrictions are dropped on 21st June, so we can see the sector flourish and operate freely and in viable conditions.’ Venues will have restricted capacities whilst social distancing is in place. Booking tables may give the impression that sites, which may be ‘full’, are busy whereas, comparing trade with early 2020 or 2019 levels show just how much ground remains to be made up.
• Hoping for a bumper 21 June. The proposed dropping of social distancing and the move to allow people to order and drink at the bar should boost trade. Capacity (via no distancing) will be increased overnight and vertical drinking should help volumes (and spontaneity etc).
• Langton comment: But, while we all hope that 21 June goes smoothly, cash in the hands of customers is finite and, to some extent, the more they spend now, the less they will have to spend later. And, though it’s to be hoped that travel normalises over time, any review of the traffic light system, particularly if it added Spain and / or Greece to the green list, could mean that consumers will divert their spending money in an alternative direction.
• The government says ‘the traffic light system will be reviewed through a series of checkpoints in June, July and October, taking into account the latest domestic and international data.’ It says ‘the government is committed to giving people the freedom to travel with confidence and supporting the wider travel industry.’ This is great but, for a domestic industry like UK pubs and restaurants, the more staycations that are taken this summer, the better.
• We mentioned a few weeks ago that the (non) availability of staff was one of the elephants in the room. The concept is very much in the mainstream now with the Telegraph majoring on the issue yesterday. It said ‘managers in the hospitality sector have found themselves struck by a sudden lack of chefs, waiters, porters and cleaners at just the wrong time.’ The Telegraph quotes some operators, such as David Page at Franco Manca, as saying that keeping the majority of units open for takeaways and deliveries throughout the pandemic has helped them to secure staff. Tim Martin, the chairman of Wetherspoons who argued at length in favour of Brexit, is quoted as saying ‘there seems to be a shortage of labour, which I imagine is only short term, but it doesn’t make any sense.’ Deloitte says ‘in the last 20 years, employers have got used to operating in a labour market where there is a ready
• Langton comment: Without majoring on the controversial topic of Brexit, we would make a number of points:
o David Page is right in saying if you don’t use it, you might lose it. This is as true for staff as it is for many other assets. Some operators have simply not been able to use their staff. It is not surprising that, when they do, the staff are gone or are having second thoughts about working antisocial shifts.
o Suburban operators may be less impacted than those in city centres.
o Labour shortages may restrict supply in the same way that site shortages (i.e. closures) will. This will work to the advantage of those that are able to offer a full service.
o It is hard to see how this will not lead to wage inflation. This, if it happens, will ripple out from hard-impacted areas, e.g. city centres, to other locations as comparable salaries may need adjusting. To have a long-lasting impact, inflation needs to take root. That means it needs to be passed on and the people to whom it is passed on need to demand higher wages themselves. UKH says ‘there have been two years of minimum wage increases, and the salaries of supervisory staff have been knocked up as a result. If this is a longer term trend there is no way they will be able to avoid passing it through.’ This could coincide with the upcoming rises in VAT to 12.5% on 1 Oct and to 20% on 1 April next year.
o Brexit is an issue. The Telegraph quotes former CEO of Carluccio Mark Jones as saying ‘there does seem to be a pub and restaurant industry shortage of staff compounded by Covid and also Brexit. The bar is quite high on workers coming back into the UK. That will inevitably lead in my view to higher wages.’
• Bizimply has reported that sourcing employees is now ‘the biggest challenge as hospitality reopens’. It says ‘employees, rather than customers, are the biggest challenge facing hospitality businesses as the sector reopens. The majority of operators have experienced some team members refusing to return to work’ and adds that ‘half of employers, 50%, say they lack enough trained or experienced staff to fully reopen.’ Labour intensive Covid-19 safety measures such as table-only service and social distancing will exacerbate the problem say 90% of respondents.
• Bizimply says ‘our survey shows that the scale of the employment challenge facing the UK hospitality sector shouldn’t be underestimated. Most customers have been in a forgiving mood in the early weeks of reopening, but they won’t accept poor or slow service for too long.’ Some 82.3% of respondents ‘have made changes to their recruitment and training procedures to address post-lockdown staff requirements.’ Bizimply says ‘75% believe Brexit has made recruitment more challenging.’ This could increase the use of labour-saving tech, where possible and, as we mention elsewhere, could have the effect of reducing capacity (or the ability to serve) even on top of the number of units that do not reopen.
• New York City restaurant entrepreneur Danny Meyer’s growth fund has made an investment of $21.5 million in a labour management platform 7shifts. Meyer says ‘the restaurant and hospitality industry is about to experience one of the biggest periods of growth and hiring we’ve ever seen, and having the right technology in place to manage this process will be a crucial component to succeed.’
Working from home:
• The Guardian reports that ‘workers at accountancy firm EY will be expected to work from home for at least two days a week, even after coronavirus restrictions lift.’ The company has told its 17,000 staff that it will move to a “hybrid working model”.
• Langton comment. This, multiplied manyfold by the number of companies that take similar action, will have an impact on sales for the sandwich and coffee shops in office locations as well as the bars & restaurants near to the travel hubs that will be less busy as a result of the above. Google has said it expects 20% of its staff to work from home permanently in the future and Twitter has offered home working on a long term basis.
• If revenues fall – and fall perhaps permanently – then rents will be at the wrong level. It will be a matter for negotiation as to whose problem that is, the tenant or the landlord. Neither side may agree in the short term but needs must. Directionally, we would expect the level of home-working going forward to be positively correlated with the number of CVAs (effectively the tactical nuclear option on the part of the tenant) enacted in the next year or two.
CVAs and restructuring:
• With CVAs and the like in mind, Company Rescue quotes insolvency and restructuring trade body R3 as saying that restructuring corporate liabilities ‘rescued 7,200 businesses and saved 297,000 jobs’ in 2019. It says 39% of businesses advised ‘remained in operation after the conclusion of the insolvency procedure used.’ Food services and accommodation were overrepresented across the industries – and this will have been exacerbated in 2020 as a result of Covid-19. R3 says that one of the main reasons for corporate collapse was management failure and another was ‘financial issues’.
Company and other news:
• Sky reports that Luke Johnson is to make a second attempt to sell Risk Capital’s Bread Holdings, which owns Gail’s. It says Nomura is investigating options and quotes a price of perhaps £250m. Gail’s has 68 sites. Sky says Mr Johnson’s last café chain, Patisserie Valerie, collapsed due to alleged false accounting issues. The liquidator is suing auditor, Grant Thornton, which is in turn alleging that the management itself rather than its auditors had a duty to detect fraud.
• Langton comment: Sky says Mr Johnson’s ‘status as one of Britain’s most successful entrepreneurs suffered a setback in 2019 when an accounting fraud at Patisserie Holdings, the publicly traded café chain where he had been executive chairman for many years, was uncovered’. Mr Johnson was never implicated in any of the alleged financial wrong-doing and put good money after bad when he provided ‘a £10m emergency loan to keep it [Pat Val] out of administration.’ But Sky says the scale of the crisis, brought about by a reliance on false returns from shops and an illusory cash pile, was too great to allow a rescue. Sky says Mr Johnson has ‘flirted’ with a sale of Bread previously (we have commented in earlier emails on valuation etc).
• Revolution Bars Group yesterday reported that it was undertaking a ‘firm placing and placing and open offer to raise £21.0 million.’ The company said that it would ‘ensure the Group is well-positioned to grow the business once its bars fully reopen.’ The fund raise would ‘reduce the Group’s indebtedness, accelerate its existing site refurbishment programme and to take advantage of favourable market conditions for estate expansion.’ The company raised £6 million via an Open Offer made in June 2020.
• Revolution Bars says £11 million will be used to ‘strengthen the Group’s balance sheet and fund the costs of the Fundraising’ with £2.5 million going ‘to accelerate its estate refurbishment programme’ and ‘£7.5 million to take advantage of favourable market conditions to expand its estate, on a selective site-by-site basis, into new towns and regions. The Board will target a return on investment from 8 new sites of 25% plus’. This morning the company has reported that it has successfully raised the £21m, which amounts to £19.9m after the brokers have taken their cut.
• C&C has reported full year results for the year to 28 Feb saying that revenue fell by 56% to €737m despite net revenue growth of 14.2% in the off-trade. The company reports an operating loss of €59.6m against a profit in the prior year of €118.6m. the company is also announcing a rights issue to raise gross proceeds of approximately £151 million.
• Langton comment: Re current trading, C&C says ‘with outdoor as well as restricted indoor hospitality once again reopened in the UK, C&C has been able to respond quickly to rapidly evolving demand with outlets traded with for the week ending 16 May 2021 at 65% of the same week in 2019. In addition, Irish hospitality is due to reopen from early June 2021.’ CEO David Forde comments ‘FY2021 has presented an extraordinary set of circumstances which have challenged our business, and our industry, at every level.’
• C&C’s CEO continues ‘we are confident in our business model and strategy for growth, the Group continues to face uncertainty with the ongoing impact of COVID-19 across the hospitality sector’ and concludes ‘we look to FY2022 with optimism and C&C continuing to play an integral role in the UK and Ireland drinks market with our brand and distribution assets appreciated by consumers, customers and brand owners alike. We are confident C&C will emerge from the pandemic stronger, more streamlined, and primed to deliver on our ambition to be the preeminent brand-led, final-mile, drinks distributor across our core markets which will ensure long term value for our shareholders.’
• Speaking in the US, KFC has said that it has a long-term goal of 4% annual unit growth, with the potential to triple in size.
• Restaurant Dive has said that Canadian ghost kitchen provider, Just Kitchen, is to expand on the West Coast of the US. This could, over time, become a crowded space.
• Travel restrictions are being advised (they are not yet law) in some areas impacted by the Indian variant.
• Allegra’s World Coffee Portal report 2021 has reported that the ‘UK’s premium automated coffee market doubled in size over five years.’ The introduction of machines by Costa has been instrumental in driving this. Allegra says ‘the UK premium self-serve coffee segment comprises 14,628 units, more than doubling in size since 2016, with advanced technology delivering benefits across quality, consistency and efficiency for hospitality businesses.’
• Langton comment: Whitbread, when it owned Costa, argued for years that baristas took 18mths or 24mths to train but then also maintained that its machine-made coffee was as good as that prepared by one of the aforementioned baristas. The evolution in the group’s comments coincided with its move into the machine-made market. Allegra makes the good point that ‘with post-Brexit staff shortages proving costly for hospitality businesses, a long-term strategy towards automation could also alleviate recruitment pressures for many hospitality businesses.’
• Allegra says ‘one-third of UK consumers surveyed are open to a fully automated coffee shop experience with no human interaction.’ It adds ‘Costa Express continues to dominate the UK premium self-serve segment’ saying it ‘is by far the largest brand in the UK premium self-serve segment, operating 10,390 units and holding a 71% market share. Supermarket giant, Sainsbury’s, has the UK’s second largest premium vending presence with 810 units, with the Starbucks We Proudly Serve automated concept operating 750 units across the UK.’
HOTELS & LEISURE TRAVEL:
• Booking patterns. Book now, cancel later? Below we comment on a couple of operators, Cosmos and TUI, that are selling holidays to amber list countries despite government advice that people should not travel there for leisure purposes. This is a) within the law but b) seems to be relying on inertia to drive holidaymakers to pay their balances and go on the holidays despite, certainly in TUI’s case, allowing cancellation of holidays through to the autumn.
• If, as some have suggested in the trade press, holidaymakers went through with their threats to book multiple (surely only two?) holidays and then cancel all but one of them, this would leave the industry in disarray as early booking is vital in order to know where to position planes and what accommodation to commit to etc.
• Vice president of the Algarve Tourism Bureau Daniel Alexandre do Adro has told Travel Weekly that The Algarve region is expecting visitor numbers this summer to approach pre-Covid levels. Mr do Adro says ‘we are off to a strong start and the numbers for June could very much be close to the numbers pre-Covid — if not exceeding.’
• Spanish tourism minister Fernando Valdes has told Sky News that Spain expects to be added to the green list at the next government review of traffic light categories. He says ‘Spain is doing a great effort not only in terms of vaccination, we have at least one third of our whole population with at least one dose… but also, we have some holiday destinations which are very loved by British tourists such as the Balearic islands, Costa Blanca or Malaga, with notification rates which are pretty low and by the same notification range of the UK.’
• Cosmos has confirmed it will sell holidays to amber destinations despite government ministers saying Britons should not go on holidays to them.
• TUI, on the other hand, ‘has cancelled the majority of its May and June departures to a handful of amber and red list countries,’ reports TTG. The cancellations do not include Spain, but do include holidays in Mexico, Dominican Republic, Costa Rica, Turkey, Egypt, Cape Verde, Morocco, Tunisia and Bulgaria. They will not be available until 28 June at the earliest. TUI says ‘due to ongoing uncertainty, we have unfortunately had to cancel all holidays to the following Red and Amber destinations.’
• The ONS has reported that there were 23.8 million visits overseas by UK residents in 2020, the lowest figure since 1985. The ONS says ‘these large falls are attributable to the coronavirus pandemic, with travel restrictions and reluctance to travel becoming widespread.’
• Staycation signals. Airbnb boss Brian Chesky has told the BBC that ‘Cornwall is now more popular than London.’ Suggesting that some of these stays may be longer term lifestyle choices, Mr Chesky says ‘everyone is going to live a bit differently because they have more flexibility and are less anchored to the city.’
• PwC has updated its US Hotel 2021 Outlook saying that the vaccination rollout is accelerating recovery. It says ‘destinations reliant on leisure demand are expected to experience increasingly strong performance through the summer; however, as we approach Labor Day and companies’ back-to-office plans evolve, some markets are expected to fall off of summer highs.’
• Playtech has reported on trading for the period from 1 January to 30 April 2021 saying it ‘has continued to make progress against its strategic and operational objectives.’ CEO Mor Weizer says ‘I am delighted by the strong performance Playtech has delivered so far in 2021, despite the ongoing challenges posed by the pandemic.’ The company has also announced the sale of its Finalto business. Mr Weizer says this ‘delivers on our strategy to simplify the Company. Our technology and product offering is unrivalled and we have a clear growth strategy to expand the geographic reach of our Core B2B business.’ The CEO concludes ‘we believe that due to the hard work and dedication of our employees, Playtech will exit the pandemic stronger than ever. Looking ahead, we are confident that the simplified Group and the exciting growth opportunities ahead will deliver significant value to
• The Gym Group has updated on reopening saying that ‘the Company re-opened its gyms in England on 12 April, followed by gyms in Scotland on 26 April and Wales on 3 May. The entire estate is now open and trading.’ It says ‘trading since re-opening has outperformed the Company’s expectations, reflecting strong demand for the return to gyms.’ The company adds ‘our expectation is that over the next three months we will trade more in line with seasonal norms. The summer months are historically quieter times for gyms and as a result we tend to see limited net gains in overall membership levels during this period.’ CEO Richard Darwin says ‘our members are delighted to be working out in the gym once more with visits per member and new joiner sign-up rates at record levels. With membership levels growing strongly, we are building our pipeline of new gyms to take advantage of what we see as a
FINANCE & MARKETS:
• Government borrowing came in at £31.7bn in April. This was lower than April last year but was the second highest April on record. The ONS is estimating 2020/21 borrowings will come in at £300.3bn, down from an earlier estimate of £303.1bn.
• The ICAEW says ‘the focus over the next few months is likely to be on the next Spending Review, which will decide on future public spending and investment with the long-awaited social care funding strategy now anticipated to be announced later this year. However, the need to address the long-term unsustainability of the public finances shouldn’t be forgotten.’
• Trade between the UK and Europe fell by 20.3% in Q1. The bulk of the drop came in the first month. Trade with the rest of the world fell 0.4%.
• Sterling weaker at $1.4166 and €1.1555. Oil little changed at $68.70. UK 10yr gilt yield down 2bps at 0.79%. World markets mixed with London set to open down around 12pts.
RETAIL WITH NICK BUBB:
Today’s News: The much-awaited M&S final results (for y/e March) are weak, with underlying PBT down from £403m to only £42m, much as expected, but the group has reported a strong start to trading in the new-year and is targeting a recovery to £300m-350m profits this year, despite extra Brexit-related costs. The perpetually embattled CEO Steve Rowe trumpets that “…through the Never the Same Again programme, we moved beyond fixing the basics to forge a reshaped M&S. With the right team in place to accelerate change in the trading businesses and build a trajectory for future growth, we now have a clear line of sight on the path to make M&S special again. The transformation has moved to the next phase”.
Grocery Market Share Watch: Yesterday’s latest published Kantar supermarket sales figures were for the 12 weeks to May 16th, but the privately disclosed figures for the last 4 weeks are what the City focuses on and we can now bring you these: on a “Total Till” basis, industry sales fell back by 4.2% on last year (up 12.2% on 2019) and on a pure “Grocery” basis (excluding Non-Food), overall Kantar sales fell by 4.8% in the 4 weeks to May 16th, with Aldi/Lidl outpacing the “Big 4”, with sales up by 3.2% combined (given their weaker comps). Morrisons saw gross sales down by 7.0% on this basis, whilst Sainsbury was down 7.5%, Tesco was 5.2% down and Asda was 7.7% down. Outside the “Big 4”, M&S Food “at home” sales recovered by 2.7% gross in the 4 weeks (before looking at the loss of most of its sandwich etc trade at lunchtime).