Langton Capital – 2021-08-23 – PREMIUM – Confidence, supply issues, Shaftesbury & W End, Covid passports etc.:
Confidence, supply issues, Shaftesbury & W End, Covid passports etc.:
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A DAY IN THE LIFE:
Why is it, and I ask this as a man myself, that men believe they deserve a medal if they empty the kitchen bin?
Is it that we assume the bin magically emptied itself for the three weeks between us stepping up to do it or is it the familiarity bias, such that we are familiar with the work we do ourselves but fail to recognise all of that done by others?
Maybe the latter but, more importantly, when trying to keep out of the rain and being dragged into The Range over the weekend, I noted that the summer and camping stuff had pretty much disappeared and there were shelves and shelves of Halloween and even Christmas bumph cluttering up the shop.
Hence, with 4mths or so to go to the big day in the real world, it’s just around the corner in retail and, now that I’ve seen the evidence with my own eyes, I know where to go if I want to stock up on baubles in good time.
Anyway, when we commented a week or so ago that Hull City was starting its relegation battle earlier, we had meant it as a joke. The team, apparently, thought otherwise. On to the news:
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PUBS & RESTAURANTS:
• A UKH survey using data provided by CGA suggests that consumers returned to the pub more rapidly this July (Freedom Day, lockdown 3.0) than they did last summer. UKH is still warning, however, that the industry remains in a fragile state with businesses fighting for survival on a number of fronts, not least the critical shortage of staff. CEO Kate Nicholls says ‘the hospitality sector is by no means out of the woods.’ She adds ‘Hospitality venues are struggling to return to pre-pandemic levels of revenue with staff shortages hindering their recovery. In order to rebuild, the sector needs the Government to put in place a supportive landscape which includes an extension of the business rates holiday until at least October and a permanently lower rate of VAT for the sector. Such measures will allow the hospitality sector and the people it supports to play a full role in the UK’s economic
• Property company Shaftesbury has updated on trading this morning saying that it has seen a ‘significant reduction in vacancy as West End footfall and trading recover, and operating environment improves.’ It says ‘so far, weekly West End footfall has recovered to 50%-60% of pre-pandemic levels as Londoners, domestic day trippers and staycation visitors have returned in growing numbers.’ It says it anticipates the ‘return of the West End’s exceptionally large office-based working population…from early autumn.’
• Further comment: Shaftesbury says ‘our hospitality and leisure occupiers continue to enjoy a strong recovery in trading levels with visitors focussing their attention on dining, leisure and socialising.’ It says ‘letting terms are generally in line with ERVs and our expectations, but there is a greater degree of short-term income uncertainty in those retail leases which have a significant element of turnover-related rent.’ It says ‘rent collection recovering and expected to improve further now pandemic restrictions have been relaxed:’
• CEO Brian Bickell says ‘I’m pleased to report positive momentum in recent months, with footfall and trading recovering, an improving operating environment and significantly reduced vacancy across our villages.’ He adds ‘we expect that early autumn will see a return of the West End’s exceptionally large office-based working population, which has always been an important contributor to our local weekday economy.’ Bickell says ‘the progress we have seen towards a return to normal patterns of activity over the period, and improving medium-term prospects, have been catalysts for a strong recovery in confidence and leasing activity, both for commercial and residential accommodation across our locations.’ He concludes ‘the momentum of the last four months is providing a sound platform for the continuing revival of the West End in the important months ahead, leading up to Christmas and into
• This is an optimistic spin and is a hope rather than a certainty. That said, some degree of normality is returning and that will come as a relief to operators. Shaftesbury mentions turnover rents and, with levels of sales yet to approach anywhere near their pre-pandemic levels in Central London, it may be necessary in order to ensure survival.
• Confidence is much in the news with data out from GfK, Lloyds Bank, the ICAEW (business confidence) and comments from UKH and CGA. UKH, using data provided by CGA, reports that the bounce-back in trade in July this year was partly due to the fact that there is ‘growing consumer confidence when it comes to hospitality experiences.’ It says there is ‘consumer confidence in the extensive hygiene and safety measures put in place by hospitality venues’ and adds that, ‘at the end of the first lockdown last summer, hygiene and cleanliness were the number one consideration for people when deciding which venue to visit. This year, that has slipped to fourth place behind price, convenience and quality of food. Pre-pandemic, hygiene and safety was the fifth priority for customers of the on-trade.’
• GfK on Friday reported that consumer confidence was holding ‘fast to pre-pandemic levels at minus 8 in August.’ It says ‘expectations for personal finances in coming year are holding up well’ and adds that, of its five measures, ‘two measures were up in comparison to the July 23rd announcement, two measures were down and one stayed the same.’
• Further comment: GfK says ‘against a backdrop of cooling headline inflation and soaring house prices, the UK consumer confidence index is stable at minus 8 this August. Importantly, expectations for our personal financial situation for the coming 12 months are holding up and this positivity bodes well for the economy going forwards this year and next.’
• Big ticked vs small ticket. GfK says ‘the five-point fall in the major purchase index is counterbalanced by the five-point rise in the savings index, suggesting that consumers could be considering switching into saving rather than spending.’ This may be more relevant to big ticket items and leave money available for ‘affordable treats’. GfK says ‘UK consumers have built their savings to record levels during COVID. With the economy continuing to open up and GDP bouncing back, the overall picture for the economic health of the nation is looking good for the remainder of 2021. There are compelling reasons here to be cheerful as we begin to put the hardest pandemic months behind us.’
• Some consumer caution. CoMix has suggested that there is still some consumer caution when it comes to meeting people face-to-face.
• Further comment: It says normal mixing in the UK is below that in other countries and much reduced on pre-pandemic levels. Comix says ‘reported mean contacts remain lower than the levels reported in August last year and far lower than pre-pandemic levels.’ It adds ‘mean reported contacts for adults have increased steadily over the past few weeks, though the overall levels of contact remain less than half of pre-pandemic levels’. CoMix puts numbers on it when its says that we average about 10-11 contacts per person per day. It says that is averaging just three to four for both adults and children.
Supply – staff:
• With the pingemic abating, it’s to be hoped that the worst of pub closures and reduced opening times are behind us. Brexit shortages may still be felt, however. KAM Media says that it ‘seems like the combination of Brexit and Covid have caused many issues in the UK Hospitality industry- from a shortage of drivers to deliver products to a shortage of staff to cook, pour and serve them.’ It calls for a greater appreciation of the degree of job satisfaction that can be derived from a career in hospitality. However, in the short term, there is work to do as KAM says its ‘research told us that only 1-in-5 UK adults consider Hospitality to be an appealing industry to work in.’
• Further comment. KAM says ‘23% still view Hospitality as a “short-term stopgap” and only 10% see it as a well-respected career choice.’ Maybe long periods of furlough and redundancies associated with CVAs and now Covid have coloured would-be workers’ view of the sector. That and the simple fact that a number of employees may simply have returned to their home countries in the EU. Re hopes for the future, KAM says ‘Generation Z and younger Millennials saw a career in Hospitality as more attractive than over 55-year-olds. 28% say it is an appealing industry compared with just 11% of the older age group.’
• KAM suggests that the joy of hospitality could be a well-kept secret when it says that ‘the research found that the view from within the industry was more positive compared with those who had never experienced working within Hospitality. 28% of past or present Hospitality employees said they saw it as an appealing career compared with just 14% of those who have never worked in the sector.’ The industry needs to get the word out. In the meantime, however, there may be some upward pressure on wages.
• The latest Lloyds Bank UK Recovery Tracker has reported that the tourism and recreation sector, which includes pubs & restaurants, saw growth slow, as the impact of staff shortages led to sales being lost.
• Further comment: Lloyds says ‘while the UK recovery remains on solid ground, staff shortages and higher materials costs are clearly disrupting current business activity and future prospects, most notably in the hospitality sector.’ It adds that ‘recent adjustments to the self-isolation rules should help alleviate staff shortages. However, the ongoing impact of the pandemic and Brexit may result in labour market pressures that persist for some time longer. Against this backdrop, management teams will be urgently considering how they can ensure their growth ambitions remain on track.’
Supply – goods:
• The MA reports that two thirds of hospitality businesses are ‘not receiving goods’. It quotes UKH as saying that there are “enormous challenges” in the supply chain. UKH says that a shortage of stock ‘has the knock-on impact of reducing the menu they can offer customers and hitting sales.’
• The government is coming under pressure to sort out the shortage of lorry drivers and, though the immediate concerns re strike action have abated, there are residual fears that some UK pubs could run out of beer this weekend.
• Further comment. Kwasi Kwarteng has been told he needs to grant temporary work visas to EU drivers and also train UK drivers in significant volume immediately. Logistics UK and the British Retail Consortium say ‘while there was a shortage of HGV drivers prior to the Covid-19 pandemic and Brexit, these two events have exacerbated situation.’ They say ‘the pandemic halted driver training and testing for over 12 months, while an estimated 25,000 EU drivers returned home during the pandemic and following the end of the transition period.’
• A government spokesperson said on Friday ‘the British people repeatedly voted to end free movement and take back control of our immigration system and employers should invest in our domestic workforce instead of relying on labour from abroad.’ The implication is that nothing will be done in the short term. The spokesperson adds ‘we recently announced a package of measures to help tackle the HGV driver shortage, including plans to streamline the process for new drivers to gain their HGV licence and to increase the number of tests able to be conducted.’
• The Daily Mail reports pubs could run out of beer for the Bank Holiday. It says ‘landlords warn they may have to shut by the weekend with pumps running dry ‘in days’ after lorry driver strike hit supply chain.’ It says ‘despite the industrial action being resolved earlier this week, pubs across the country are already desperately low on stock, and watering holes owned by the larger chains are the worst affected due to their reliance on imported beers.’
• Some product shortages also in the US. Restaurant Dive in the US reports that product shortages are holding back sector sales.
Demand – working from home:
• Where people are, physically, will have an impact on what hospitality goods and services are demanded and where, geographically, that demand is likely to be felt. There is a stuttering return to work going on. This is not all going one way and Bloomberg reports that Apple has delayed recalling staff to the office until January next year at the earliest. Covid cases in the US are currently rising (as they are in the UK). The tech giant had previously indicated that staff would be expected back in the office from early next month. Twitter has also paused the physical reopening of its offices and has closed offices in San Francisco and New York again.
Demand – red tape, lack of clarity & other:
• The Times reports the nightclub sector as saying ‘there were “clear signs” of a slowdown in bookings from the end of next month amid conflicting signals from the government over vaccine passports.’ It quotes The Sunday Telegraph as attributing to No10 that the government was “planning to make full vaccination the condition of entry to nightclubs”’.
• Further comment: CEO of the NTIA Michael Kill said ‘we are seeing clear signs of bookings and ticket sales starting to slow after the end of September, another blow for a sector which has just been handed the opportunity to rebuild but now faces further uncertainty.’ He adds ‘the passport or certification system is littered with logistical challenges and if mandated will impact both trade and an already stretched workforce. The methods which government are suggesting these mitigations will be deployed will be devastating and will drive a huge part of contemporary music culture and late night economy underground.’
Other Covid news:
• Vaccine passport policy unclear. The Sunday Telegraph says that hospitality leaders have told ministers that they have ‘no idea what their policy actually is.’ PM Boris Johnson has said passes would be required to attend large venues. Sajid Javid has said that “no final policy decision has yet been taken,” leaving the industry somewhat in the dark. Kwasi Kwarteng toes the no10 line saying vaccine passports are “certain to happen now, in certain limited, restricted areas” but adds “I’m just not committing to what those areas are. But I’m ruling them out for pubs.”
• Further comment: Boss of Rekom (was Deltic & Luminar) Peter Marks has hit out at the government’s plans re vaccine passports saying they were ‘ludicrous’. Marks says sales at some of his units are running at double pre-pandemic levels. He says that it ‘has gone ballistic. I have been in the business 40 years this December and I have never seen a change as big as this. This is like suddenly – bang – a rocket’s taken off because of all the pent-up demand for socialising. The response has been unbelievable.’
• In the US, spend per head is said to be up 20% in Q2 this year compared with two years ago.
• Further comment: Restaurant Dive quotes Black Box when it says ‘the number of transactions of $70 or higher surpassed what it was two years ago, while orders under $30 are down by almost 40% as of the second quarter.’ Volume (or traffic) is down. This is helpful to profitability and margins but, if volumes fail to pick up, then the recovery of sales could be in danger of being narrowly based.
• Dive also says prices are going up. It says ‘while diners are going out and spending more, restaurant operators have also been increasing prices related to price inflation, which has been impacted by ongoing supply chain issues. According to a Black Box Intelligence survey, over 71% of operators hiked menu prices. Of that group, more than 36% said they boosted prices by less than 2% while over 20% of operators raised prices by 5% or higher. Increased pricing isn’t driving down consumer spending, however. Restaurant spending rose 32% during Q2.’
• Leon has announced that Nick Ayerst is to step down as MD of the restaurant business. Glenn Edwards will take up the role.
• Busaba Ethai expects to be cash generative at the operational level this year. The company has just reported full year numbers to Companies House.
• Mark Davies has stepped down as CEO of Hawthorn following the completion of the sale of the business to Admiral Taverns. Mr Davies says ‘running Hawthorn has been a great honour in my career. In seven years, we have built a leading and well-respected community pub company with a high-quality management team, a best-in-class operating platform and industry-leading licensee satisfaction scores. This is a testament to my team, the culture that we have created, and the way we run our business.’
• Gordon Ramsay is rumoured set to take Drake & Morgan’s Refinery site in Edinburgh.
• See comments on M&S and its potential recovery under Nick Bubb below.
• Taking money out of the punters’ pocket. Bus fares outside London are reported to have risen by two thirds since 1995.
• Pizza Pilgrims’ ‘at home’ DIY pizza kits will be available to buy from Ocado from 20 August. Co-founder James Elliot said ‘we’ve been so amazed at how many people from Scotland all the way down to Exeter have discovered the brand through our kits’.
• FIXR has partnered with Eclectic Bars to provide the bars with advanced ticketing services. Visitors to the venues will now be able to purchase tickets directly on the venue websites or via FIXR’s website and mobile app.
• Doordash has pulled out of talks with fast-growing German grocery start-up Gorillas. The potential $400m investment was abandoned after Gorillas attempted to find another backer at a higher valuation.
• Tim Hortons is reported set to open a new drive-thru in Speke Liverpool.
HOTELS & LEISURE TRAVEL NEWS:
• Fosun Tourism Group, owner of Club Med and the Thomas Cook brand, reported a loss of $308m in the first six months of 2021. The company said ‘travel in the UK was significantly restricted, our business focused on upgrading digital platforms and launching brands in core European markets to gain awareness and scale.’ Club Med resumed the operation of 39 of its 63 resorts globally by the end of June.
• Club Med reports that UK trade bookings for ski resorts are up 40% year-on-year. UK and northern Europe managing director Estelle Giraudeau said ‘ we’re excited Club Med is continuing to push ahead and diversify its resort offerings with four new ski resorts opening by winter 2021-22’.
• The Business Travel Association reports that the UK lost £4.09 billion in GDP last week due to the decline of business travel trips following Covid-19. There was a fall of 314,477 international and domestic business travel trips in the past week, compared to the same week in pre-pandemic 2019.
• National Express has created a new business focusing on the UK holiday and leisure travel market called National Express Leisure. The new entity will consist of businesses and brands including Fareham-based Lucketts and Woods Coaches of Leicester.
• Betting shops & poverty. The University of Bristol has found that betting shops are ten times more likely to be found in deprived towns than in affluent areas. The Gambling Commission maintains that ‘tackling gambling harm is a number one priority’ and says ‘we will carefully consider the issues raised by any gambling-related research and any actions will be taken through the national strategy to reduce gambling harms.’ The University of Bristol says its ‘research highlights the clear mismatch between the amenities available in ‘left behind’ areas, compared with those that are more affluent.’ It says poor areas have less access to ‘services and opportunities that help people to improve their lives.’
FINANCE & MARKETS:
• Government borrowing fell in July compared to the same month in 2020. The government was some £10.4bn short when it came to paying its bills. Though down on last year, the figure was the second-highest for July since records began. Government debt is now over £2.2 trillion, or about 98.8% of GDP, the highest level since the early 1960s.
• Chancellor Rishi Sunak says ‘the last 18 months have had a huge impact on our economy and public finances, and many risks remain.’ He has fuelled tax rise and spending cut speculation when he added ‘we’re committed to keeping the public finances on a sustainable footing.’ Sky says ‘borrowing is falling but Sunak faces the most challenging situation for a chancellor in decades.’
• The ICAEW has commented on business confidence, saying it ‘is at a record high for the second consecutive quarter…despite staffing challenges and the threat of a resurgence in COVID-19 cases as the economy reopens.’
• Further comment: The survey ‘found optimism at 47 out of 100 on the quarterly index, its highest level since the survey was launched in 2004 and surpassing the previous record set in the last quarter.’ Business optimism matters because it is a necessary prerequisite to positive investment decisions and the latter drives jobs. Ultimately, faith in the jobs market is strongly correlated with the consumers’ desire to spend.
• The ICAEW says ‘the optimism was shared by businesses of all sizes across all sectors, nations and regions in the UK. However, the survey has also revealed newly surfaced labour market problems that businesses could see growing in difficulty over the next couple of months.’ The ICAEW adds ‘companies are clearly benefiting from rising customer demand as the economy reopens and life begins to return to normal. The high level of optimism is unsurprising, but it remains vulnerable to a possible resurgence of COVID-19 as we head into the autumn.’ It concludes ‘while confidence is high across all sectors, with companies reporting record expectations for domestic sales growth, they also told us they face challenges from skills shortages, wage increases and rising costs.’
• Sterling mixed at $1.3645 and €1.1641. Oil lower at $66.42. UK 10yr gilt yield down 2bps at 0.53%. World markets better on Friday with Far East higher in Monday trade. London set to open up by around 43pts as at 7am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines on Saturday were dominated by the continuing chaos at Kabul airport, after the precipitate US withdrawal from Afghanistan: the main FT headline was “Biden vows to get Americans out as Taliban mayhem thwarts airlift”, whilst the Telegraph said “We might not get everyone out, Biden admits”, the Times flagged that “Thousands of UK allies face being left behind”, the Daily Mail highlighted “Our boys’ last stand in Kabul” and the Guardian noted that “”We should all hang our heads in shame””.
• Saturday’s Press and News (2): In terms of Retailing stories, the headlines were split between the reaction to the latest developments in the Morrisons bid situation (after the 285p CD&R counter-bid on Thursday night) and the surprise M&S profit upgrade on Friday morning, but Morrisons won out. The FT flagged that “CD&R sweetens bid in fight for Morrisons” and had a background article on how “Fuel potential energises contest for supermarket”, whilst Lex column in the FT noted that “Whoever wins will have to wring a lot of value out of this low-margin, low-growth supermarket chain”. With the shares closing Friday at 291p, the Guardian highlighted that “Morrisons shares driven higher still as investors bet on bidding war” and the Telegraph flagged that “Investors bet Morrisons battle will escalate again”. The Telegraph also had a background article headlined “Leahy’s latest
• Saturday’s Press and News (3): As for the surprise M&S profit upgrade, seen by the FT as “M&S raises its profit guidance for first time this century*, the 14% jump in the share price grabbed the attention of the Daily Mail (“Shares in M&S soar as sales bounce back”) and the Business editorial noted that “This is not just a profit upgrade, it’s a M&S profit upgrade”. The Times flagged that “Online revival lifts M&S profit hopes” and the Telegraph highlighted that “M&S shares soar after profit targets rise for first time this century”, with the Business editorial in the Telegraph opining that “M&S is finally on the cusp of a revival”.
• Saturday’s Press and News (4): In other news, the disappointing ONS Retail Sales figures for July on Friday morning tended to be subsumed into the Morrisons/M&S coverage, but the Times flagged separately that “Resurgence of virus brings shock retail sales decline in July” and the Telegraph noted that “Retail sales hit by rush to eat out”.
• Sunday’s Press and News (1): The main front-page stories in the Sunday papers were again dominated by the crisis in Afghanistan: the Sunday Times picked on a slightly out-of-context comment by Tony Blair to illustrate the collapse in US/UK relations (“Diplomatic meltdown as Blair calls Biden’s retreat “imbecilic””) and there was a very similar headline in the Sunday Telegraph. The Mail on Sunday flagged up the unhelpful advice of the Defence Secretary to Afghan refugees at Kabul airport (“UK: Run for the border”) and the Observer noted that “Afghans face catastrophe without urgent aid, UN warns”.
• Sunday’s Press and News (2): In terms of Retail stories, there was more news on the Morrisons bid situation, with the Sunday Telegraph flagging that former Tesco boss Terry Leahy is being lined to take over as the Chairman of Morrisons, if CD&R win the bid battle, whilst in his weekly column the Business Editor of the Sunday Times laid into the non-execs on the Board of Morrisons again for switching sides so easily, thundering that “through luck rather than judgment, Morrisons’ directors are set to emerge from this fiasco brandishing a decent price. But their dignity looks distinctly shop-soiled”. And the Business leader column in the Observer highlighted that “As the bidding rises, Morrisons has more and more to live up to”. But the main revelation was the story on the front page of the Sunday Times Business section that the buyout firm Apollo (which has been weighing up joining
• Sunday’s Press and News (3): In other news, the Sunday Times had a feature on the driver and manpower shortage in many industries, to flag “Why supply chain woes may mean Christmas is cancelled”. And the Sunday Times also had a feature interview with the boss of Pets at Home, Peter Pritchard, highlighting that it may also become a private equity bid victim (“We’ve had a pet “baby boom”, so buyers could be sniffing around”). The Sunday Telegraph noted that ASOS is starting to look for a fifth fulfilment warehouse location, which will most probably be in Europe. The Observer had a front-page News story that drivers for Ocado’s Zoom service are being paid less than £5 an hour, after expenses. And the Sunday Telegraph also had a feature on the way Ocado’s sales growth has ground to a halt, as noted by Kantar, highlighting the view of the prestigious KPMG/Ipsos Retail Think-Tank that
• Sunday’s Press and News (4): In terms of all the Economics comment columns in the Sunday papers, we give our usual shout-out to the column by the Sunday Times Economics correspondent David Smith (“As earnings soar, the only way for wages growth is down”), in which he explained why the near-9% wage growth shown in last week’s official data can’t and won’t be sustained until the country becomes more productive. The column in the Sunday Telegraph by the veteran City commentator Jeremy Warner also deserves a shout-out: headlined “Boardroom wokery is driving companies out of public markets” he noted that it is “small wonder that so many executives positively prefer the semi-secretive world of private capital”. We also enjoyed the column by the veteran Economics commentator, William Keegan, in the Observer, headlined “We need a new driver at the wheel of “Global Britain””.