Langton Capital – 2021-06-24 – PREMIUM – Lockdown leaks, young staff, dark kitchens, FUL, VARE, holidays etc.:
Lockdown leaks, young staff, dark kitchens, FUL, VARE, holidays etc.:
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A DAY IN THE LIFE:
So, Germany, huh? It was 25yrs ago on Saturday that we sat, or stood by that time in the evening, at the old Wembley to watch Germany knock England out of Euro-96 on penalties. Let’s hope it’s better this time.
Anyway, thinking about the phrase ‘guilty pleasure’ led me to consider that one of the many unintended or unexpected consequences of the pandemic has been that it’s no longer a guilty-pleasure, or even guilt-ridden at all or indeed much of a pleasure, to take a day off when it’s not strictly necessary ‘to work from home’ – but also to cut the grass, check out the football, spark up the barbie and drink oneself senseless.
Because, we can all now do it.
And, like working out in your early-teens that you can now afford more chocolate than you could ever sensibly eat at one single sitting, there seems to be some link between desire, scarcity, want, guilt and the resultant pleasure of an event that, once broken, can’t easily be put back together again.
That’s another thing to blame Matt Hancock for. Must write to Dom. On to the news:
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PUBS & RESTAURANTS:
• The leaks to the Press are increasing in volume such that City AM feels able to say ‘England is on track to lift all remaining lockdown restrictions next month, with ministers encouraged that, despite a rise in Covid cases, deaths have remained low.’ Interestingly, deaths on Tuesday were the highest in eight weeks. Nonetheless, the narrative is moving in another direction. An announcement is due on 5 July. City AM says the ‘government is expected to confirm on 5 July that restrictions will be lifted two weeks later, giving the UK a little more time for adults to have a second jab, and therefore the maximum protection available against the Delta variant.’
• Further comment: The removal of restrictions, provided it doesn’t seed a fourth lockdown in the autumn, will be welcomed by the hospitality industry. Capacity inside venues (excluding beer gardens) will increase by perhaps between 30% and 50% and, if customers are allowed to buy at the bar & carry their own drinks to table, etc, then labour costs could be reduced. Nightclubs are expected to reopen on 19 July and the guidance that people should work from home if they can will be dropped.
• In the US, analyst Alignable has reported that 39% of restaurants were unable to make their rent payment for the month of June. It says this is better than May (49%) and December, when 61% were unable to pay. Operators say the problems are exacerbated by low revenues and footfall as well as labour shortages.
Staffing & labour. Unintended consequences:
• The vaccine rollout started with the oldest and most vulnerable in society and, with youngsters not yet vaccinated, restrictions have been partially lifted. This is sensible stuff but it does mean that a larger proportion of those getting ill at the moment (and their contacts) are young people and, as hospitality staff are by-and-large very young, this is exacerbating some already-present staffing problems.
• Further comment: Langton just avoided a lockdown order earlier this week (a contact of a contact, so one stage removed) but two adult sons are locked down and a nephew and one of the son’s girlfriends have tested positive. A look at the England and Scotland football teams and, indeed, any group of younger people, and you will see the swathe that is being cut through the workforce now that Covid is spreading among young people and the NHS’s contact tracing app seems to be working properly.
• The Press would also have it that a quarter of a million school pupils were isolating last week and we’re heard from reps of the Watergate Bay Hotel in Cornwall who says ‘as a result of the track and trace regulations still set as they [younger staff] were pre-vaccine roll out huge, swaths of his staff are having to self-isolate if they have been in contact with anyone who tests positive, even if they are double vaccinated and have taken a test to show they are negative.’ He says that the staff are ‘mostly showing no symptoms’ and some contacts, despite regularly testing negative, can’t return to work.
• The contact says this is ‘crippling Watergate Bay and so must be affecting the whole sector, right when they need to be getting revenue levels back to as high as possible.’ It’s hard to see what anyone could or should have done differently, but it’s still a major issue for some hospitality employers.
• Per Bizimply, hospitality employers will need to keep clear records of their team members’ immigration and right-to-work status from 1 July, with employers facing imprisonment and unlimited fines for knowingly employing someone who does not have the right to work in the UK.
Working from Home:
• A City AM opinion piece suggests that ‘older workers planning to work from home permanently are selfishly risking the development of young people.’ Whatever the rights and wrongs of such statements, it is unlikely that city centre office volumes will be getting back to anything like ‘normal’ in the near term.
• As night follows day, commodity and producer prices will (almost always) be carried through into consumer prices. Add inflation in China, the undisputed workshop of the world, and higher freight costs and prices will rise. The BBC says ‘cost pressures on UK firms have gone up at a record level, suggesting that the current surge in consumer prices may be more than just a blip.’ See our previous comments on the vested interest of some bodies in pushing the ‘blip’ theory.
• Further comment: We don’t want to make this into an economics paper. Not least because we’ve forgotten most of what we once knew, but it does appear, with inflation almost in double figures in China and over 5% in the US, that the UK is in for a round of price rises – and possibly more than one. See Finance & Markets below for a bit more detail. There Markit says ‘the rate of input cost inflation accelerated for the fifth month running and was the joint-fastest on record, equal with that seen in June 2008’ [during a commodity price boom].
Delivery & Dark Kitchens.
• The Local Data Company looks at the market for dark kitchens. It says various industry figures confirm how important the ‘at home’ market has become for the food and beverage sector; ‘not only as a revenue stream unaffected by changing lockdown rules, but also as a way for their brand to reach a new audience.’ It says dark kitchens are one way of centralising delivery and preserving food quality on what could be rather long journeys otherwise.
• LDC says ‘dark kitchens are one of ways surplus space can be utilised.’ It says the ‘location of these units is critical, not only do they require the square footage for a fully functioning kitchen, but they also need to be situated in an affluent, residential catchment in order to be close by to consumer’s homes. These units tend to be in residential areas within city centres, with a large proportion of residents who do not own a private car but are relatively affluent with disposable money to spend.’ There will need to be transport links (both for inbound and outbound deliveries) and ‘often these locations would not be appropriate for the same brand to open a full customer-facing unit due to location and as such costs tend to be lower (at the moment anyway) for these units.’ LDC says ‘an example of a brand that has focused on this strategy is Wagamama, which have opened 5
• Further comment: The pandemic – and pre-existing trends – have had significant impact on demand for sites. Amazon’s success has increased demand for warehouse space, delivery drivers and cardboard whilst the boom in food delivery (currently de-booming just a little bit) has increased demand for dark kitchen space, drivers / riders and, also, cardboard and packaging materials. Good dark kitchen sites won’t be infinite in number. Operators, both delivery companies and their restaurant suppliers, who got their act together and identified the most suitable sites early, could be in the best position.
Company & other news:
• Various Eateries has reported H1 numbers saying that it has turned in a ‘very strong performance since reopening’ and that it is ‘well-positioned to execute against strategy.’ The company reports that it saw a ‘positive like-for-like performance of +10.1% at our Coppa Club sites outside of London during October 2020, the only complete month of trading.’ The company reports revenue of £3.25m (2020: £11.2m) with a loss before tax for the six months of £3.2m (2020: loss £3.3m).
• Various Eateries says that it has seen ‘better than anticipated sales across Coppa Club estate with like-for-like revenue up 11.3% in the first five weeks (12 April to 16 May) of exclusively outdoor trading versus the same period in 2019.’ It says it has seen a ‘further significant uptick in sales in the five subsequent weeks (17 May to 20 June) where Coppa Club sites have been able to open indoors with like-for-life revenue up 28.3% versus the same period in 2019.’ Executive chairman Andy Bassadone says ‘our business is primed for growth: we have used lockdown to hone our existing sites, secure new ones and ensure we have the right systems and processes in place behind the scenes to enable us to scale effectively.’ He says ‘as we emerge from the crisis, we do so a well-funded operator, led by an experienced management team with an exceptional track record of building hospitality
• The Times comments on Franco Manca owner, Fulham Shore’s positioning saying that the group ‘targets ten to twelve openings this year, and is hoping for fifteen to sixteen next year. New flags on the map will include sites in Cardiff, Cheltenham, Norwich, Manchester and St Albans.’ The deals (and indeed the quality of the sites) being offered by landlords are very much improved. The Times adds ‘there are strong rumours that Fulham Shore is close to signing up franchisees to take the Franco Manca brand overseas…probably to Portugal and Greece.’ The paper says ‘the company is trading strongly.’
• In a letter to the Institute of Directors and R3 Business Secretary Kwasi Kwarteng said the govt will take a ‘cautious approach’ to firms that owe it money in the wake of the coronavirus pandemic.
• The Good Beer Co teams up with Royal Voluntary Service and Together to recruit pubs and breweries to be part of ‘Cheers For Volunteers’ on Thank You Day.
• Marmadukes, a Sheffield-based cafe chain, opened its third site in the South Yorkshire city on 23 June.
• High Street blow. Lloyds Banking will close 44 branches due to a lack of customers at the sites as people move to digital banking.
• Figures from France’s official Champagne body show May champagne shipments are up almost 13% compared to the same month in 2019, and up 150% on May 2020.
• Next week, Nestlé will launch Wunda, a plant-based milk alternative, in Tesco and the Co-op.
HOTELS & LEISURE TRAVEL:
• The government’s review of the travel traffic light system will happen later today, with speculation that destinations such as the Balearic islands and Malta could be added to the green list. Further comment: Transport Secretary Grant Shapps will comment this morning, with an update on the traffic light system expected in the afternoon. There have been calls for an exemption to quarantine for fully-vaccinated people from amber countries. Shapps insists he and ministers ‘need to look at what the science says.’ Separately, German Chancellor Angela Merkel has suggested all EU countries should make British travellers quarantine on arrival to slow the spread of the Delta variant.
• Carnival has updated on the dates on which its various brands will recommence cruising. The company says ‘we are excited to see eight of our world-leading cruise line brands sailing this summer, and to date, we’ve announced over half of our capacity returning by the end of the fiscal year, as we work to meet significant pent-up demand for cruising.’
• PPHE has announced that it has unlocked ‘£113.7 million of equity through a joint venture with Clal Insurance.’ CEO Boris Ivesha says ‘the agreement values its assets at the Group’s latest EPRA NAV level and the proceeds will enable the Group to pursue new growth opportunities as the pandemic period subsides.’
• Research by Battleface has found that almost a quarter of people plan to travel abroad in 2021 or 2022 for family reasons, while 28% would like a foreign holiday. Almost three quarters are prepared to complete a full vaccination programme in order to travel internationally this summer.
• Travel industry leaders and organisations held events outside the parliaments in London and Edinburgh, and in cities and airports around the UK, to call for the safe reopening of travel, highlighting the impact of Covid restrictions and appealing for more financial help.
• ABTA estimates that 195,000 travel jobs have been lost or are at risk as a result of the pandemic. Tim Alderslade, CEO of Airlines UK said ‘It is now or never for the government to reopen travel and save what is remaining of the summer season’.
• 888 has announced a partnership with Authentic Brands Group ‘to develop Sports Illustrated online sports betting and iGaming products in the United States. Leveraging 888’s world-class proprietary and scalable technology, 888 expects to kick off the partnership with the launch of an all-new Sports Illustrated wagering experience later this year branded SI Sportsbook, which is expected to launch in Colorado in the second half of 2021, with other states to follow.’ CEO Itai Pazner says ‘this agreement provides us access to millions of engaged sports fans across the U.S., giving us a high-volume and cost-effective customer acquisition channel, and great content to engage sports fans. We are excited about the potential to deliver our cutting-edge, proprietary sportsbook platform into the market, providing Sports Illustrated fans with a first-class betting and gaming experience.’
• Genting has invested $4.3bn (£3bn) in Las Vegas as has opened a new resort in the US gambling capital, Resorts World Las Vegas. This is the most expensive resort ever developed in Las Vegas. Vegas visitor numbers fell by more than 50% last year as casinos were forced to close but tourists are now returning, although in lower numbers versus 2019 levels. The new resort has 3,500 hotel rooms and suites, a 5,000-seat theatre and one of the world’s biggest LED screens on one of its towers.
• The influential public accounts committee has called on the government to offer urgent support to outdoor events organisers as many festivals are facing ‘devastating consequences to their survival’ this summer amid confusion within government over how a £1.57bn post-Covid arts fund will affect the sector.
• Ministers are pushing ahead with controversial plans to sell Channel 4 as part of a shake-up of the public-owned media industry. Unlike other broadcasters, Channel 4 is currently required to reinvest its profits in new shows, funnelling cash to the independent production companies that make all its programmes.
• Users can now shop on WhatsApp after CEO of Facebook Mark Zuckerberg announced three e-commerce updates – shops on WhatsApp and Marketplace, Shops Ads and Instagram Visual Search.
FINANCE & MARKETS:
• The Markit Flash PMI numbers for May put the cat amongst the pigeons as far as inflationary fears were concerned. Markit says ‘inflation worries have continued to intensify.’
• Further comment: Markit says ‘record levels of the survey’s price gauges and the further development of capacity constraints hint strongly that consumer price inflation has much further to rise after already breaching the Bank of England’s 2% target in May.’ It adds ‘although businesses also reported a record increase in employment during June, many firms continued to report a lack of capacity to meet the recent surge in demand, often due to staff and supply shortages. The survey also found growing evidence of labour shortages feeding through to higher wage costs, which could add to worries that the recent spike in inflation could prove stickier.’
• The Markit Flash PMIs for May in the UK suggested yesterday that growth continues but that the pace has moderated since April. The announcement mid-May that unlocking was to be pushed back four weeks may have had a dampening impact. The Manufacturing PMI was 61.7 (April 62.9), the Services PMI was 61.7 (April 62.9) and the Composite PMI was 61.7 (April 62.9).
• Further comment. Markit says ‘Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound very sharply from the first quarter’s decline.’ It adds ‘there are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May’s record performances, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.’
• Sterling up at $1.3958 and €1.1704. Oil price higher at $75.28. UK 10yr gilt yield down 1bp at 0.78%. World markets lower yesterday but Far East mixed in Thursday trade. London set to open up around 6pts.
RETAIL WITH NICK BUBB:
Today’s News: There is no UK company news of note, but over in sunny Warsaw the recently floated Pepco Group has announced its interim results (for the 6 months to end March). The statement is headlined “Continued strong strategic and profit progress, with resilient peak trading performance across all retail brands”, but the most interest is in the performance of its UK discount chain, Poundland which looks to have held up pretty well, with trading store LFL sales growth of 1.4%, despite the adverse impact of lower High Street customer footfall. And ahead of the Dignity AGM yesterday morning, the much-promised Strategy update from the embattled funeral services operator was announced at 10am and the City was pleased to hear that Dignity is to focus on the sale of funeral plans through branches rather than by telephone (in order to improve customer standards/service), despite the expected
This Week’s News: The THG AGM is being held at 12.30 today, half an hour after the announcement from the MPC on interest rates. The Tesco AGM is being held tomorrow morning and overnight we get the monthly GFK Consumer Confidence index. Over in the US the Nike Q4 results tonight will be a big focus for JD Sports fans.