Langton Capital – 2021-06-16 – PREMIUM – In this together? Eviction moratorium, 19 July, WFH, labour, Just Eat etc.:
In this together? Eviction moratorium, 19 July, WFH, labour, Just Eat etc.:
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A DAY IN THE LIFE:
Shorter than usual today as Langton was out for a few emergency beers (and to watch the football) last night.
However, it’s worth saying it’s amazing just how much of a mess a small splash of milk at the bottom of your teacup can make if you knock it over.
Because there appears to be some Tardis-like process that ensures that 5cc of milk (heaven help us not Ribena or red wine) can cover an area of a couple of square meters of carpet tiles and splash up the side of your desk and the desks of everyone around you.
Just an observation. And it needs cleaning up because, even to a covid-impacted sense of smell, I’m assuming that ten day old milk wouldn’t smell that nice if left to its own devices in this heat. On to the news:
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WE’RE ‘ALL IN THIS TOGETHER…’
• It’s undoubtedly a snappy journalistic soundbite but, on re-reading the title and comparing it with the varied experiences during the Covid-19 pandemic, it’s tempting to ask ‘are we really?’ The impact of the virus has been very different across different sectors and groups of people.
Open or shut?
• Much of the public sector, food retail and some other sectors have remained open. Non-essential retail has been harder hit. Harder hit still has been hospitality but, even there, experiences have been varied.
• Pubs and restaurants have been open (a few times) during Covid and some benefited from eat out to help out. Nightclubs have been shut.
• In holidays, staycations have done well (when allowed to operate) but overseas holidays have been badly impacted and cruise ships are still virtually inoperable.
• The suburbs sprang back to something like life much quicker than did some city centres. Working from home was mandated (where possible) and it has become habit-forming.
• This has a wide impact on operators who, by virtue of their location, will have done either well, tolerably well, poorly or dreadfully. A large, suburban pub with a big beer garden will have done much better than a workplace bar near a tube station in the centre of London.
Companies versus the consumer – financial:
• Some companies have been badly hit. They may have been shut or restricted in capacity. Margins may have been hurt by additional staffing and cleaning costs. But customers, on the other hand, may have saved money (no foreign holidays or commuting costs) and they could be in a financially buoyant mood.
• Companies may seek to recoup lost profits by increasing prices and by taking the wider margin offered by the 5% VAT rate. Consumers may find this tolerable in the short run but, over the longer term, and particularly if prices rise when VAT returns to its old level of 20%, this could be tested.
Companies versus the consumer – comfort and service:
• Trains and tubes are less crowded. Ditto pubs and restaurants and, to some extent, the consumer may like this. The operators, however, not so much.
• Pubs and restaurants want to be full. The Tube loses less money when it is crammed but, to the consumer or the traveller, these may not be positive developments.
• To the extent that the wishes of customers and the companies that serve them could be in conflict, it represents a situation that will need careful handling.
• Langton had a burger and chips in a very pleasant pub in Central London yesterday evening. OK but we ordered chicken. The burger came cold, it was little bigger than a fat 50p piece and cost £15.99. There were about two dozen fries.
Managed pub companies versus publicans (tenants):
• These are different parts of the same industry and, to a material extent, their performances have diverged.
• Not least because publicans have a gross margin of 50% (if tied) and pay rent whilst managed pubs should have a margin nearer or over 70% and many are freehold.
• The level of professionalism, though varied, is usually higher at managed operators as is the depth of the balance sheet and the ability to withstand unpleasant financial shocks
• Dealing with Covid-19 is a work in progress and, to that extent, there can’t really be a final conclusion.
• But interim comments can be made. First among them may be that the customer isn’t the enemy. They need nurturing. They have found a work-around over the last 15mths and, though they may have missed the pub, the cinema and the restaurant, life didn’t stop because they were shut down.
• And quality counts. Not absolute quality but value for money (be the money high or low). And professionalism is a plus point. And attention to detail and the ability to do many things (none of which may be ‘difficult’) well and consistently and hundreds of times a day, seven days a week and 52wks a year.
• Propping up the end of the bar with the locals and charging them more than £5 a pint to share your company might not be enough.
PUBS & RESTAURANTS:
Commercial evictions ban extension?
• Sky reports that it understands ‘the government is to extend the ban on commercial evictions introduced during the pandemic until 2022.’ It says today ‘ministers are expected to announce that the moratorium for business tenants will not expire at the end of this month as planned and will instead continue for at least the rest of the year, according to a government source.’
• Langton comment: Sky says ‘it is believed that restrictions on landlords using laws permitting them to recover rent arrears by selling a tenant’s goods will also be continued.’ This would be understandable given the extension of covid restrictions but, as the latter have only been extended by 28dys, a six month extension to the evictions ban is markedly longer. Sky says ‘the move is likely to offer some relief to businesses who have been unable to negotiate rent deferrals with landlords and feared being evicted from their properties.’ A spokesperson for the PM would only say yesterday ‘we are considering responses to a recent call for evidence on the next steps with commercial rent and we will set out response shortly.’
• Sky may be right but, with the moratorium on commercial evictions due to end on 30 June, the possibility exists that landlords will move quickly to evict non-paying tenants from units that they believe they will be able to quickly re-let. A more likely outcome, as we have commented before, is that the moratorium is extended.
• Langton comment: There are a lot of things that have been kicked into the long grass and this may be another. The PM has said we need to make ‘one more heave’ before vaccinations win the race versus the virus and, if this is the case, it seems silly to turf out large numbers of tenants just before redemption comes their way.
• Of course, a churn of tenants could enliven the market. But it’s unlikely that the outgoing tenants would see it that way and, on balance, the status quo may be maintained for a little while longer. Estimates centre on around £2.5bn of unpaid rent having accrued during the pandemic.
• In a number of instances, landlords have called the bluff of tenants who had been asking for lower (or turnover-based) rents on the basis that they (the tenants) had invested so much in the properties that they would not walk away. These ‘calls’ were met with CVAs and the landlords in question are now left holding well-furnished but structurally loss-making units. They may well offer these to potential new tenants but confidence will need to return before there could be many takers.
Relaxation of restrictions, now due 19 July:
• Chancellor Rishi Sunak’s actions on furlough could be a lead indicator. The chancellor has rejected business demands for an extension which, in the right light, could be seen as a positive indication that the government really, really (this time) does intend to lift restrictions on 19 July. The Guardian says ‘sources close to the chancellor said he believed sufficient economic support measures were already in place to cope with a delay. Two sources said Sunak had intentionally “gone long” at the March budget by announcing furlough would last until September for exactly this reason.’
• The Press carries a number of reports from glum-looking tenants outlining how their summers are now at risk and how would-be customers with pre-booked spaces may have to be given their money back. This is unfortunate for the tenants in question. The mood music had changed but maybe only a couple of weeks ago. The BBC refers to nightclub operators saying that they face ‘extinction’ as a result of restrictions not being eased.
• Pub and restaurant trade bodies have understandably shifted their focus from trying to persuade the PM to stick to his original roadmap onto a call for further support because he has felt unable to do so. Hospitality and pub industry leaders have written to no10 with trade bodies including BBPA, UKH and BII saying they are “bitterly disappointed” by the delay which will cost the pub sector alone £400 million. The trade bodies have ‘urged the Prime Minister to delay the reintroduction of business rates payments, which would cost the sector some £93 million in just July, by at least three months.’ They have also called on the Prime Minister to prioritise the additional £1.5 billion business rates support package announced back in March, to ensure eligible businesses such as brewers can apply as soon as possible.
• A spokesperson said: ‘Our sector is facing one of its toughest periods in its history and this latest delay is yet another setback.’ They continued ‘many pubs cannot break even under current restrictions and around 2,300 still remain closed. It is now absolutely critical that the Government provides our sector with further support – else the recovery of our pubs will be over before they’ve even been given a chance.’
Working from home:
• As we tweeted yesterday, with restrictions left in place for another month, the sun shining and football on the telly, the number of people working from home may not drop markedly in the near term. This impacts city centre and transport hub coffee shops, cafes, bars and restaurants.
• Langton comment: The demand for home BBQs and lawn furniture is likely to rise as a result of yesterday’s ‘freedom’ delay whilst demand for season tickets from Surbiton and suburbia in general is likely to fall.
• But there is some pushback from employers. Morgan Stanley CEO James Gorman has sent message to staff in the US saying that ‘if you can go into a restaurant in New York City, you can come into the office.’ He says ‘by Labour Day, I’ll be very disappointed if people haven’t found their way into the office and then we’ll have a different kind of conversation.’ Labour day is at the beginning of September. Gorman goes on to say ‘if you want to get paid New York rates, you work in New York.’
• Views differ and the Telegraph reports that bosses, who favour a return to work, are ‘on a collision course with staff over a shift to permanent home working as official figures indicate huge numbers of employees want to stay away from the office.’ Picking a fight with employees can be disruptive. Persuasion might work better, particularly in a strong labour market with staff shortages. The Telegraph reports the ONS as saying that ‘a total of 85 per cent of adults who are currently working from home want to adopt a “hybrid” approach after the pandemic by splitting their time between home and the office.’
• The Guardian agrees quoting Goldman Sachs, ‘whose boss David Solomon has criticised remote working as an “aberration” and called for a return to offices as soon as government guidance allowed.’ Around 30% of the bank’s 6,000 London staff are currently attending the London office.
Labour & staffing issues:
• The NIESR has commented on the average wage numbers that came out yesterday from the ONS. These are important in determining spending power. The NIESR says ‘the labour market is continuing to recover from the pandemic, with employment, vacancies and wages all increasing. It’s wage tracker ‘predicts that average weekly earnings growth will accelerate from 4.2 per cent in the first quarter to 8.1 per cent in the second because of base and compositional effects. Removing those effects, underlying earnings growth is only 2½ per cent in the second quarter.’
• Langton comment: The 8.1% figure above looks pretty scary as regards inflationary pressures. NIESR says that, if you ‘normalise’ things, often a dangerous and subjective process, then the real growth is only 2.5%. That is still a multiple of the rate of increase in the CPI. The NIESR says ‘the recovery driven by improved confidence and the reopening of sectors of the economy is broad-based across age groups, industries and regions.’ It concedes that ‘the possibility of a third wave represents a material risk to the labour market if it were to delay – or reverse – the lifting of restrictions and cautions that ‘delay to reopening arts and travel while phasing in employer contributions will be a new test of labour market resilience. Some of the improvements in employment and wages may stall if the UK can’t reopen its economy fully soon.’
Other covid news:
• UK Hospitality Scotland Executive said yesterday that the ‘announcement from the First Minister that progress towards Level 0 has stalled adds to the continuing uncertainty for hospitality businesses.’ It says that ‘many are struggling to keep trading in the face of restrictions, whilst some of our members remain closed’ adding ‘Level 0 is not the end and there will still be significant restrictions on hospitality, so it was good to hear the First Minister refer again to publishing details of life beyond the current strategic framework and the promised review of physical distancing. Without this information businesses cannot begin to plan for the future and we look forward to seeing the details as quickly as possible.’
• UKH Scotland says ‘in the absence of progress, UK Hospitality Scotland and our members will work with the Scottish Government to review current restrictions on businesses, helping to identify pragmatic changes that can be made to improve the trading environment and customer experience.’
• Clear Sight has updated on its Recovery investigation saying that good news on the vaccine rollout coincided with ‘bad news’ on the Delta variant. It says that national sentiment took a hit and says only ‘15% of consumers anticipate ‘normality’ this summer – but most are now looking towards 2022.’ Clear Sight says ‘usage of public transport services continues to recover – but more slowly than last month’ and adds that ‘accommodation booking activity in May recovers to its highest level since October.’ It sees evidence that UK bookings were either flat or dipping slightly in May and says ‘most sectors record month-on-month improvement in the proportion of consumers comfortable with the idea of engaging – but in some cases has stalled or gone backwards in early June.’
Company & other news:
• The meetings sector, which has been particularly badly hit by the pandemic lockdowns (and slow reversal of restrictions) has called for further help from the government. The pandemic experience has been even worse for nightclubs.
• Just Eat Takeaway.com has announced the completion of the Company’s acquisition of 100% of the shares of Grubhub. It says ‘the Transaction represents Just Eat Takeaway.com’s entry into online food delivery in the United States and builds on the strategic rationale for the Company’s merger with Just Eat plc. As a result of the Transaction, the Enlarged Group is now built around four of the world’s most attractive markets in online food delivery: the United States, the United Kingdom, the Netherlands and Germany, increasing the Enlarged Group’s ability to deploy capital and resources to strengthen its competitive positions in all markets.’
• Just Eat CEO Jitse Groen says ‘I have always believed that the combination of Takeaway.com, Just Eat and Grubhub is a winning combination. The new company is the market leader in Europe, Canada and Australia, with very strong positions in the most important markets in the United States. It is humbling to run such a company after our start in Holland more than twenty years ago.’
• According to a new survey by Streetbees, some 60% of respondents have not scaled back plans to socialise in pubs and bars due to the increasing number of Covid-19 cases, with those aged between 40-44 and 25-34 being the least likely to change their plans.
• Dispatch, a start-up that aims to give customers around the country the opportunity to order food from London restaurants, has raised £10m in a seed investment round co-led by Andreessen Horowitz and LocalGlobe.
• Big Drop Brewing Co has raised £3.5m in a funding round led by Panoramic Growth Equity and supported by Rubix Ventures. The alcohol-free beer company reported revenues up 150% YoY, forecasting sales of £5m by the end of 2021.
• Un-lockdown postponed. What does it mean for return-to-work / work from home dynamics? When the sun’s shining? And the football’s on? No prizes…
• Short term trade dynamics. Football. Good for wet, bad for food. But, in times of table service, the food former may not outweigh the bad latter. Sunday lunch is the worst slot to lose food business. Remaining England matches much better
• Trade? It’s complicated. Suburban > city centre, wet > food (in the sun), freeholders > leaseholders etc. Also, publicans, a noisy & forceful bunch, are suffering but multi-pub companies, esp. if freehold, are doing reassuringly far better.
• 21 June postponement. Lateral thoughts. Possible carve out for Lloyd Webber noteworthy. Wimbledon finals OK (tone deaf, elitist, straw-boater favouring). Weddings > 30 (misdirect if ‘all restrictions remain in place’) etc.
HOTELS & LEISURE TRAVEL:
• The All Party Parliamentary Group for business travel heard yesterday that business travel effectively remains in lockdown. Attendees told the committee ‘it is not an exaggeration to say that as a sector, we are still in lockdown. We look enviously at the hospitality sector operating at 50% whilst understanding their frustrations. We are not even operating at 10% of pre-pandemic levels with no end to this crisis in sight.’
• Airbnb is reported to have paid an Australian tourist $7m after she was allegedly raped at knifepoint at a rental property in New York City. Bloomberg says that, as part of the $7m settlement, the victim cannot blame or sue Airbnb or the apartment host where the incident took place.
• Travel Weekly points out that the extension of restrictions means that ‘capacity on domestic cruises in June and much of July will remain capped.’ It says that, whilst domestic cruises have been permitted since 17 May, they can still only operate at up to 1,000 people or 50% capacity, whichever is lower. This capacity limit applies to passengers only.
• Head of the Hosbec association of Valencia region hoteliers, Toni Mayor, said he did not expect to see UK tourism take off until August following a meeting with Hugh Elliot – the UK’s ambassador to Spain.
• Matt Hancock has declined to give assurances on the resumption of international cruising from the UK. Jackie Doyle-Price, MP for Thurrock, said ‘there really needs to be clarity if we are going to save the sector, which supports 90,000 jobs and is worth £10 billion a year to the British economy.’
• Which? reports that less than 1% of UK travel insurance policies provide people with full comprehensive cover for Covid-related disruption despite commentators saying that having some sort of Covid cover is vital.
• The self-isolation period for British travellers to Ireland is set to be raised from 5 days to 10 by the Irish government, due to the increase in the number of Delta cases in the UK.
• EasyJet has added an extra 150,000 seats to its intra-European network where there is ‘positive booking momentum’. The company also called on the UK govt to reopen international travel as a matter of urgency.
• Boris Johnson hinted that Andrew Lloyd Webber’s latest production could be exempt from the delay in lockdown easing. Responding, Lloyd Webber said he was ‘pleased and surprised’ by the comments, but suggested the possibility of a pilot scheme came as news to him.
• Premier League clubs reported a fall in revenue for the first time, according to Deloitte’s sports business group, as revenues were down by 13% yoy. Revenue was also impacted by a broadcast rebate and delay affecting some other TV and radio broadcast income and a 3% increase in wage bills.
FINANCE & MARKETS:
• The ONS yesterday reported a record rise in the number of workers on payrolls in May. It said there were 197,000 more people in paid employment last month compared with April. The unemployment rate fell again to 4.7% in the three months to April, down from 4.8% previously. The number in paid employment is still down by over half a million since the pandemic began.
• The ICAEW reports that its ‘members have expressed concern that ongoing Brexit issues are being masked by the impact of the coronavirus pandemic and are calling for a more granular understanding of the economic forces at play to help organisations mitigate its effect.’ It quotes 61% of firms as saying that Brexit has caused them difficulties.
• Sterling weaker at $1.4088 and €1.1616. Oil up at $74.64. UK 10yr gilt yield up 2bps at 0.76%. World markets mixed yesterday with London set to open up around 9pts as at 7am.
RETAIL WITH NICK BUBB:
• Today’s News: The big news today is that the IPO of the much-vaunted Online furniture retailer Made.com has been a bit of a flop, with the shares priced at the very bottom of the 200p to 265p range, valuing the business at a mere £775m (in contrast to the initial talk of at least £1bn). Conditional dealings start today ay 8am, with unconditional dealings starting on 21 June. In the world of bricks and mortar retailing, the sofa and carpet retailer ScS has followed its rival DFS and released a bullish trading update, flagging that with orders over 370% up in the last 10 weeks (79% up on 2019), the full-year profits (to the end of July) will be ahead of expectations and that the prospects for y/e July 2022 are looking even better, given the strength of the order book. The AO.com finals we’d expected today have been delayed until July 1st (apologies for not spotting another audit delay