Key issues, trading (and restrictions), staff, rent arrears, Portugal & other:

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A DAY IN THE LIFE:

Well, we’re back from holiday and have a lot to catch up on.

In addition, we’ll formulate some sort of narrative as we visited dozens of cafes, coffee shops, pubs & restaurants and will outline some of our experiences (which were mixed to say the least) over the coming days.

We saw the good, the bad and the pitiful, the latter in the more literal sense that some operators seem stunned or depressed to the point that they may struggle to get back to anything like normality.

Which is a great shame although, for other operators, there will be opportunities. Selling the products and services that people want to buy, at prices they are willing to pay from units that they wish to visit would be a good start but, as always, the devil is in the detail.

Anyway, that’s enough of that for the moment. On to the news:

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THE MAIN ISSUES:

There are a number of ways of saying it (you should take the time to see the wood for the trees, keep your eyes on the prize, focus on the signal rather than the noise etc) but, as always, there are big issues facing hospitality.

Langton comment. Everything feeds up to trading and profits. Indeed, the bottom line in the P&L encompasses pretty much all other things – but there are several key issues which we outline below. We accept that this is a gross, linear, oversimplification and that the truth would be more a series of multi-dimensional Venn Diagrams with complicated overlaps:

• TRADING – the key to most things:

• KEY ISSUES:

o Staffing & access to labour

o Inflation – cost and selling price

o Debt – to landlords, banks & HMG

o Other – demand (e.g. staycations, unemployment, confidence) supply lines and trading unit numbers (permanent closures).

By their nature, the key issues change relatively infrequently. This can be a bit boring when it comes to filling column inches. But it is critical that operators and observers don’t shoot off down crazy and irrelevant tangents just because they add a bit of colour.

PUBS & RESTAURANTS:

Trading:

• CGA has reported that the sunshine ‘heated up drinks sales over the Bank Holiday weekend.’ It says ‘widespread sunshine and the Bank Holiday weekend combined to give drinks sales a much-needed boost in the final days of May’ with LfL sales up by 41% on 2019 on Sunday and up by 55% LfL on the Monday. It says ‘the bumper two days were particularly welcome for bars, where year-on-year drinks sales jumped 105% on Sunday and 23% on Monday. Beer gardens helped to make it a strong weekend for pubs (up 40% on Sunday and 60% on Monday), with restaurants (up 30% on Sunday and 55% on Monday) slightly behind.’

• Langton comment: This is just two days – albeit, they were good. The time period is short and it was weather impacted. CGA lets the cat out of the bag somewhat when it says it is not comparing like periods – as it chose the last weekend in the month rather than the weekend that included the Bank Holiday in both periods. CGA says ‘some caution is needed with the numbers, as Sunday and Monday’s trading compares to days in 2019 that did not fall in the Bank Holiday weekend.’

• CGA goes on to say that around a quarter of units are still closed, meaning that total industry sales are still well below 2019 levels. CGA says ‘sunshine and Bank Holidays are a powerful cocktail for pubs, bars and restaurants, and it was good to see such buoyant trading over the long weekend. Good weather in the half-term week for schools should bring more decent trading, but we shouldn’t forget that the sector is still a long way off where it was before COVID-19. Distancing limits and the enforced closure of large parts of the drinking-out market mean many businesses remain vulnerable, and it is crucial that the remaining restrictions are lifted as scheduled on 21 June.’ The last point, that or removing restrictions on 21 June, is now being considered by government and cannot be taken for granted.

• We would suggest that the sunny Bank Holiday weekend was good – but then again, of course it was good. Micro-analysis can be useful but the hot and sunny trading period might give the wrong signals if compared with an average weather, non-Bank Holiday weekend two years ago.

• CGA has said that its consumer pulse survey has shown that the Euros this year should boost trade. It says ‘30% UK consumers plan to watch games in football’s upcoming Euros in a pub, bar or restaurant—a reminder of the major potential of live football for the On Premise, despite the current restrictions.’ It says younger customers are particularly interested in viewing the football in the pub and concludes ‘football tournaments are always good news for pubs and beer brands in particular, and with all three home nations taking part there will be some great opportunities right across Britain.’

• Langton comment: This is hardly good news. If you turn around the question and ask: will the Euros be negative (or even neutral) for pubs and you find the answer is fairly obvious. Major football tournaments (in the absence of pandemics) happen every two years and Langton is not aware of any such event that has not boosted trade.

• The British Beer & Pub Association has reported ‘that pubs traded 20% lower in their first week of reopening indoors than the same period before the pandemic.’ It says ‘restrictions and social distancing measures pubs are having to implement, which are making them unviable as businesses. The BBPA says ‘turnover for the pub sector in the UK as a whole for the week of May 17th was at 80% of the same period in 2019, despite 95% of UK pubs (some 45,000) reopening to trade.’ CEO Emma McClarkin says ‘pubs trade on incredibly small margins, so being 20% down on normal times is huge and incredibly concerning.’ She adds ‘what is especially worrying is that there was a lot of enthusiasm to visit the pub when they first reopened indoors. When that initial enthusiasm to return to the local cools down, trade could get even worse, leaving pubs unable to get beyond break even.’ Ms McClarkin goes
on to push for a 21 June removal of all restrictions saying ‘without restrictions removed, thousands of pubs remain unviable and could still be lost forever despite being back open for now.’

• Langton comment: Down 20% isn’t too bad and is broadly in line with feedback that Langton has received. Sales per reopened unit are down if the 95% reopened figure is taken as read. However, we would suggest that some opening hours may have been cut implying that revenue per open-hour could be nearer to flat.

• The BBPA says that ‘pubs trade on incredibly small margins’. This is a sweeping comment. Some ‘lifestyle’ pubs may not make a profit at all whilst tenanted pubs may indeed work off tight margins. Other units, either freehold or larger sites, will have decent margins and could make money on 30% to 40% of normal sales. Add in zero business rates and 5% VAT and the outlook is not uniformly bleak. 

Trading restrictions & impediments:

• There is plenty of speculation that the 21 June removal of all restrictions may be delayed and / or watered down.

• ‘Government sources’ have told the Telegraph that the “work from home if you can” advice could be extended beyond the 21 June reopening date. A final decision will be made on 14 June.

Staffing issues, labour shortages:

• The Press has caught onto this with papers talking about ‘raiding’ colleges for staff, companies poaching chefs from each other, loyalty bonuses appearing and finders-fees being paid to those able to provide applicants for jobs. This seems to be the case in the US (see below) as well as in the UK. The Times says ‘the crisis, caused by an exodus of workers to Europe and side-effects of the furlough scheme, is the latest blow for hospitality operators.’

• In the US, NRN reports more foodservice jobs are being advertised as the US jobless rate has fallen to 5.8%. The Bureau of Labour Statistics says ‘employment in leisure and hospitality is down by 2.5 million, or 15%, from its level in February 2020.’ NRN says ‘restaurant companies have announced employee applicant incentives and special hiring days as they deal with labour shortages.’

• An answer (albeit one of several required) to labour issues? Restaurant Dive reports ‘McDonald’s is piloting voice-ordering technology at the drive-thrus of 10 Chicago restaurants.’ Langton comment: Finding ways to cut labour could partially solve any upcoming labour shortages. NRN says ‘these restaurants, which prioritize computers to collect orders rather than employees, report roughly 85% order accuracy. Only around 20% of orders at these locations need to be recorded by an employee.’ At first glance, we would suggest that getting 15% of your orders wrong could be a major headache.

Staycations:

• Whilst Portugal and the overseas tour operators are understandably disappointed that the number of green list countries has been reduced (and effectively includes no large holiday destinations), the outlook for staycations has improved. Langton comment. Nonetheless, the BBC and The Telegraph have picked up on the idea that there could be shortages in the UK this summer. Whist holiday cottage availability and beds in domestic hotels will be the real deciding point, customs clearance company Klear Now has said that there will be a shortage of tents, picnic baskets and garden toys amongst other summer essentials. Demand for camping equipment is reported to have spiked. The company says ‘a combination of Covid restrictions, the backlog from the Suez Canal, increasing global demand for shipping containers, disruption caused by India’s public health crisis and a shortage of packaging
materials means UK businesses are struggling to meet summer demand. With competition for container space so high, some smaller businesses are simply being priced out of landing the goods they need.’

Debt and rent accruals:

• The Mail on Sunday quotes Jeremy King, whose London restaurants include The Wolseley, as saying that there may be a ‘Doomsday scenario’ for hospitality businesses unless all major Covid restrictions are removed as planned on June 21. He calls on the government to extend the ban on landlords evicting tenants ‘because if they do not, many will throw in the towel.’ The ban is due to expire at the end of this month. Langton comment: There are, of course, a lot of vested interests playing out here. The Times reports landlords as being ‘terrified’ that the eviction ban will be extended whilst they also quote UK boss Kate Nicholls as saying ‘the government had “no choice” but to extend the ban on commercial evictions.’ The British Property Federation has ‘called on ministers to lift the moratorium and end the “scandal” of well-capitalised businesses swerving rent.’

• Landlords have their own bills to pay and, if their tenants do not pay their rents, property owners could become insolvent. That said, they struggle to attract much support. Over time, the situation should ‘normalise’ and evictions for non-payment of rent is a fact of corporate life. However, if we have learned anything from QE and almost zero interest rates, which have been around for over a decade now, abnormal trading conditions can sometimes persist for much longer than you might expect.

Other Covid news:

• Michael Gove has told the BBC the Government is “open minded” about extending furlough beyond September.

• The NIESR has reported that the localised nature of outbreaks at the moment means that the R rate is around 0.8 in some parts of the country and as much as 1.5 in others. It says its ‘findings suggest that localised outbreaks can be locally contained through high vaccination rates and changes in behaviour. But there is more to be done in this regard to prevent local spikes morphing into waves.’

• The British Institute of Innkeeping, British Beer & Pub Association and UK Hospitality have written to the Chancellor to highlight just how critical it is that the 21 June relaxations to restrictions go ahead. The bodies say ‘the Government is assessing potential risks around removing all restrictions on the 21st June and we urge them to follow their own roadmap, if the data supports it, and to allow the hospitality and pub sector to open free of restrictions.’

Company & other news:

• Caffe Nero. The Telegraph reports Caffe Nero as saying that any further restrictions could put the company’s future in jeopardy. It says the company’s accounts warn that closures, trading restrictions and a legal challenge by landlords to its recent restructuring of the business cast “material uncertainties” over its future. Auditors in many cases have been demanding such comments be made by directors. The Telegraph quotes a spokesman as saying ‘as is the case for all other retail and hospitality businesses, we certainly hope the Government will not impose additional lockdowns as that would create further uncertainty.’

• Company Rescue reports that ‘Wright & Bell, who own the Kitty Hawk and Lino London-based restaurants, has entered administration.’ It quotes the company as saying that ‘the firm hoped a new agreement would be reached with creditors but in reality, it was not possible, leaving no other choice but to appoint administrators.’ It adds that ‘Wright & Bell Limited has confirmed this administration does not impact any of the other companies the operator owns i.e. Green Room, Marsha and Whyte & Brown.’

• UKH has said that the bottle ‘Deposit Return Scheme must be workable for pubs, hotels, cafés and restaurants.’ CEO Kate Nicholls said: “We support the principle and aims of a DRS system, and believe that it could be an effective vehicle to improve recycling rates across the UK. However, such a scheme must not overly burden hospitality businesses, which are in a fragile state following more than a year of punitive restrictions to trading.’

• The Guardian reports that a number of shopping centres across the UK could close permanently as a result of growing internet sales and Covid-19 related shut-downs.

HOTELS & LEISURE TRAVEL:

Portugal removed from the green list:

• Transport secretary Grant Shapps has confirmed that Portugal will be removed from the England’s green list from tomorrow. He says ‘the positivity rate has nearly doubled since the last review in Portugal and the other thing is there’s a Nepal mutation which has been detected and we just don’t know the potential for that to be a vaccine-defeating mutation.’ Seven countries were added to the red list.

• Jet2 CEO Steve Heapy says consumer confidence in international travel will take a “massive hit” as a result of the above decision. TTG quotes him as pointing out there will be “big empty-leg costs” for flying aircraft just one way of a journey. He spells it out, saying ‘three weeks after starting operations to Portugal, airlines have now got to stop and pull everyone out. People not having been away for two years, wanted a little bit of sunshine, and then little bit of return to normality, and now they’ve been pulled home.’ Langton comment. In addition to the demand-side hit to confidence (see above), there are supply-side considerations. The idea of chopping and changing might look easier in principle than it is in practise. Getting staff back from furlough might not be simple, as we are finding out in pubs, and then retraining before re-furloughing them is costly and wasteful.

• Jet2.com and Jet2holidays has pushed out its restart date to July.

• Portugal’s president of tourism, Luis Araujo, has said that the UK’s decision to remove the country from green ‘safe’ travel status was disappointing. He says ‘our country is open and prepared to welcome any tourist and we have taken all the necessary precautions to ensure the safety of our visitors and residents.’

Other travel news:

• ACI Europe, which represents European airports, has said there could be “widespread chaos” at airports this summer if / when volumes increase, due to Covid-19 requirements.

• Air traffic management company Eurocontrol has said that European air traffic, reported as down 61% last month, is only scheduled to be down 43% this August.

• STR reports that US hotel occupancy in the week to 29 May was only down 4.2% on 2019. The figures were ‘skewed more to the positive because the 2019 comparable was the week after Memorial Day. Regardless, this past Saturday’s 83.0% occupancy level was the country’s highest since October 2019.’

FINANCE & MARKETS:

• Sterling at $1.4145 and €1.1626. Oil $71.40. UK 10yr gilt yield 0.79%. World markets mixed on Friday and into Monday with London set to open up around 4pts.

RETAIL WITH NICK BUBB:

• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were pretty mixed: the Times went with “Covid infections surge”, the Telegraph ran with “Second jabs sped up in effort to lift restrictions” and the Guardian flagged that “Give vaccines to pupils as a priority, say school leaders”. The Daily Mail focused on an exclusive story about French migrants being picked up in the Channel (“What a Border farce!”) and the FT ran with “Big economies set to unveil deal on taxing multinational profits” as its main story, but the FT also flagged on its front page that “Whitehall draws up plans to delay final unlocking amid fears over Delta variant”.

• Saturday’s Press and News (2): In terms of Retailing and other stories, the news that the Turkish-based fast Grocery delivery service, Getir, has raised $550m in new funding, tripling its valuation to $7.5bn, got plenty of coverage and sceptical Business Editorial comment: the Telegraph raged against “the so-called 10-minute grocery delivery firms attracting billions of venture capital money despite basing an entire business model on several spurious assumptions”, concluding that “this seems destined to be another short-lived fad – but not before absurd sums are needlessly squandered by excitable financiers desperate to sell something nobody needs”. The Times echoed those comments, flagging that the venture capitalist “must think we’re all Wayne and Waynetta Slob” and noting that, in terms of all the new grocery delivery firms around, “their mopeds and vans outnumber the profits in a
not obviously eco-friendly way”. However, Lex column in the FT was more bullish about fast Grocery delivery (even though the sector “burns cash, belches carbon and is drowning in competition”), noting that “crazy valuations need not scream dumb money” and that the American fund Sequoia that is backing Getir made money out of the successful Chinese delivery business Meituan.

• Saturday’s Press and News (3): In other news, the Daily Mail’s “Share of the Week” was Ted Baker (ahead of next week’s finals), whilst the market report in the Times highlighted that share buying by the new Chairman of Kingfisher failed to lift the share price, but that Boohoo was boosted by an upgrade from Morgan Stanley. The FT had an interesting feature article on how the pandemic has forced Greggs and Pret to restructure and innovate (and to, increasingly, compete with each other): “Pret A Manger and Greggs vie for slice of smaller lunch market”. The Guardian had a big feature on the decline of shopping centres (“One in 10 British shopping centres face demolition as decline gains pace”), focusing on how the local council in Nottingham plans to demolish the former Intu-owned Broadmarsh shopping centre (first opened in 1975) and reinvent the space. Finally, the FT Weekend Magazine
had a front-page feature on “How to save a bookshop the James Daunt way”, focusing on how “the genteel bibliophile” behind the rescue of Waterstones, James Daunt, is now trying to work his magic on Barnes & Noble in the US.

• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were also rather varied: the Sunday Telegraph went with “Plan to jab 12-year-olds before new school year” and the Mail on Sunday ran with “Migrants: Priti pins blame on Facebook and TikTok”, but the Observer highlighted that “Share vaccines or climate deal will fail, rich countries told” and the Sunday Times flagged that “Palace sends for William to rescue Union”.

• Sunday’s Press and News (2): In terms of Retail stories, the Sunday Times and the Observer both had big articles about the staff shortages in the hospitality sector, but there wasn’t much else of note, although the Sunday Times flagged that landlords are braced for the moratorium on rent collection (due to expire at the end of June) to be extended for another three months…The Mail on Sunday had a feature on the plan of the Royal Mail to offer customers the chance to choose both the day and the time for parcels to be delivered, whilst there was a snippet in the Sunday Times that Amazon is moving to make same-day delivery more of a standard. The Sunday Times had the second part in its “Future of Retail” series, by looking at the clothing rental revolution (“Millennials turning wardrobes into money machines”). The Mail on Sunday noted that the Ted Baker finals on Thursday will also give a
steer on how big a recovery is taking place in formal clothing sales and that the Naked Wines finals on Friday will be an opportunity to see how consumer behaviour has shifted post-lockdown. 

• Sunday’s Press and News (3): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“Britcoin: as cash use slumps, get ready for a digital pound”), in which he noted that “if the public sector stands back, there is a danger of a money “Wild West””. And we would also give our usual shout-out to the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“True or not, the Wuhan lab leak story looks set to change the world”), in which he focused on the implications of the break-down in relations between China and the West.

Today’s News: Tomorrow was meant to bring the Card Factory finals (for y/e Jan), but the company has just announced that the results have had to be put back by a couple of days, to Thursday, to allow its auditors (KPMG) time to finish the audit process. And if you think that sounds a bit odd, wait until you hear that the troubled Motor dealer Lookers has announced that its finals (for y/e Dec) will be held on June 29th, the day before the AGM…And although Lookers is meant to be recovering well from its troubles (as per the trading update on May 25th), the company has also said that it is still looking for both a permanent Chairman and a permanent CFO…

This Week’s News: The BRC-KPMG Retail Sales for May are out first thing tomorrow (and with a tougher comp of “only” c6% down last year, we would look for a bounce of 9%/10% in total sales, to deliver some modest growth on 2019). Thursday brings the delayed Ted Baker finals, the delayed Card Factory finals, the Morrisons AGM and the Signet Q1 results (in the US). On Friday we get the Naked Wines finals and the start of the European Football Championship in the evening (although England don’t play their first match, against Croatia, until Sunday afternoon).