Langton Capital – 2021-08-24 – PREMIUM – Prison labour, Markit, marketing, takeaway, delivery, Gfinity & other:
Prison labour, Markit, marketing, takeaway, delivery, Gfinity & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
With the sun once again shining and a Bank Holiday coming up this weekend, it’s perhaps not surprising that the number of ‘out-of-office’ replies shot up yesterday.
And it may rise further as we approach the weekend but, it’s September next week and, with all of those things being pushed back to that month or ‘the autumn’ or ‘after the summer holidays’ we – and everyone else – could shortly have our hands full.
Anyway, we had a power cut yesterday evening at home. First thing to do is check you’re not on your own – because then you really are in trouble – and we found 180 houses were affected. So far, so good. But then the white vans and behelmeted engineers started flying around and, when the torches came out and they started climbing into fields with satnavs, we knew we were in trouble.
Hence a) this email is a little truncated and b) our camping stove, torches and candles got a bit of an outing. However – and for the moment feeling a bit lonely at our desk – let’s move on to the remaining August news:
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PUBS & RESTAURANTS:
Supply – labour problems:
• Prisoners on day release are to help fill vacant jobs in the meat processing industry after talks were held between meat industry leaders and the government yesterday. The Association of Independent Meat Suppliers says it will contact members who required staff and put them in contact with the Ministry of Justice. The AIMS says ‘it’s down to the members. They [the prisons] have got offenders and prison-leavers, we have got members who need labour. It seems sensible to bring the two together.’
• Further comment: Using convict labour might summon up images of chain gangs for some but, for the food manufacturing industry, this makes some sense. It could rekindle some Brexit debates (Polish youngsters and other Eastern European labour has gone home and we have to make use of what we can get etc) but, if the alternative is a shortage of food, then there may not really be an alternative at all. And the social aspect, finding something useful for prisoners to do on their day-releases, may also have some merit. The Association of Independent Meat Suppliers is also reported to be contacting charities for ex-servicemen and women to try to find additional staff. The AIMS says ‘much of the food industry is facing a recruitment crisis’ and it adds ‘the advice we have received from the Home Office is that the UK’s domestic labour force should take priority. However hard we and many of the
Trading – supply of services, sourcing of labour and products:
• The Markit PMI numbers (see also Finance & Markets below) are a bit of a blunt instrument but the Services element does usually give something of an insight into how hospitality is faring. Indeed, last month, a substantial part of the rise was put down to the reopening of hospitality and, in the interests of symmetry, it is only right that we point out the slowdown in growth that’s apparent in August. It is worth mentioning that the numbers are still indicating growth rather than contraction.
• These are flash numbers and they could be revised either way, but Markit reports that ‘at 55.5 in August, down from 59.6 in July, the seasonally adjusted IHS Markit/CIPS Flash UK Services PMI Business Activity Index was above the 50.0 no-change mark for the sixth month running but signalled the weakest rate of expansion over this period.’ It adds ‘survey respondents attributed higher levels of activity to the reopening of the UK economy and subsequent improvement in demand for business and consumer services. However, there were reports that staff shortages had constrained the recovery, while others commented on less favourable demand conditions.’
• Markit points to problems with supply of products and access to labour.
• Further comment: Markit says ‘despite a slowdown in output growth during August, service providers signalled a robust and accelerated rise in employment numbers. The latest increase in staffing levels was the strongest since this index began in July 1996. Survey respondents typically commented on the need to boost workforce numbers in response to higher order books and depleted business capacity.’ It says ‘improving optimism towards the year ahead business outlook also supported job creation in August. The latest survey indicated a rebound in business sentiment to its highest since May, which ended a four-month sequence of falling confidence.’
• Markit says ‘although the PMI indicates that the economy continues to expand at a pace slightly above the pre-pandemic average, there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter.’ It adds ‘despite COVID-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.’
• Product problems. Markit says ‘supplier delays have risen to a degree exceeded only once before – in the initial months of the pandemic – and the number of companies reporting that output had fallen due to staff or materials shortages has risen far above anything ever seen previously in more than 20 years of survey history.’ With the pingemic abating, there may be some concerns that these issues, which may be a bit more fundamental as a result of Brexit and the lack of inclination of some Brits to do some jobs, could outlast the pandemic.
• Re prices and costs. Markit says ‘prices have risen sharply again, albeit with the rate of inflation moving below July’s record high, as shortages once again fuelled a sellers’ market for many goods and services and wages rose further.’ Hopefully this is ‘bad but better’ in which case it will be fingers crossed that this improvement (or slower worsening) continues.
• On an optimistic note, Markit says ‘more positively, business expectations for the year ahead perked up in August, encouraging a record jump in employment as furloughed workers were brought back to the workplace. However, demand and supply availability need to improve further for this rise in employment to be sustained in coming months.’ As we have outlined, business optimism should lead to investment and jobs. Jobs, in turn, should positively impact consumer sentiment and actual spending decisions.
• Interpreting the figures, the BBC says ‘staff and supply shortages have taken their toll on the UK’s economic recovery this month’ and adds that ‘firms have complained that self-isolation requirements for contacts of people with Covid have made it hard for them to maintain staffing levels.’ It says ‘those rules were dropped from 13 August for people who have been doubly vaccinated,’ the implication being that any continued disruption could be down to Brexit or some other factor.
• Foodservice analyst Peter Backman comments that the pandemic has led to a more innovative use of outdoor space.
• The latest from the Barclaycard Payments’ quarterly SME Barometer suggests that optimism in the hospitality and leisure sector across SMEs is at its highest level since the start of the pandemic.
• The Pragmatist points out that ‘TikTok was the most downloaded app globally in 2020 and boasts a user base of 13 million in the UK alone.’ It says ‘although this is still relatively small in comparison to other social media platforms, such as Facebook (42 million) or Instagram (29 million), TikTok is rapidly growing in popularity.’ It says that suppliers of goods and services, including hospitality operators, could do well to factor TikTok into their marketing programmes if they have not already done so.
• Further comment. Given that it is a visual offer, The Pragmatist suggests that its nature suites fashion and beauty brands – but the same could be said for hospitality offerings, especially when there is an experiential angle. There is also the opportunity for e-commerce. For goods this is perhaps more obvious than for services but, if booking engines can be integrated, then this could work for leisure services as well as leisure (or fashion) goods. Indeed, the article points out that ‘F&B operators, such as Chipotle, have also used TikTok to spearhead marketing campaigns, for instance, by holding an annual ‘Boo-rito’ offer at Halloween and offering food at a reduced price for customers who ordered in a spooky outfit.’
Delivery & takeaway:
• CGA has pointed out that ‘delivery and takeaway sales growth begins to stabilise as consumers return to the On Premise.’ This will come as a relief to many operators – but then next task is to make sure that demand comes back for the operators’ own On Premises product, whilst at the same time trying to ensure that as few delivery and takeaway sales as possible are actually lost.
• CGA says ‘despite restrictions on indoor service lifting following ‘freedom day’, deliveries and takeaways are set to maintain a significant share of restaurant and pub groups’ operations.’ It says that ‘sales in July were 206% higher than in July 2019—a drop on the growth in June (225%) and May (273%), following the return of indoor service in June and ‘freedom day’ in July.’ Whilst down, this still represents a spectacular rate of grow.
• CGA says delivery has maintained its 20.5% share of market month-on-month ‘while takeaway sales (defined as being collected from an outlet by the customer, including Click & Collect and Drive-Thru) declined by 1.3%.’ This despite the fuller reopening of the sit-down offer. Karl Chessell says ‘as consumers returned to eating and drinking out following restrictions lifting, growth has naturally begun to slow in delivery and takeaway sales. However, it’s clear that consumer behaviours have shifted and hospitality at home will remain an important consideration.’
• Further comment. CGA adds ‘understanding the balance between out-of-home and at-home preferences will be key to shaping sales and marketing strategies for all brands, as consumers continue to embrace the delivery and takeaway trend.’ CGA quotes JP Then, the founder of Slerp, as saying ‘hospitality at home remains key for our sector and it shows with online delivery market share remaining at 20.5%. With the multiple challenges facing the sector as it reopens, it is now needing more than ever a focused approach to delivery as an incremental business stream.’
• Delivery. In Australia, Woolworths Group says it is teaming up with Uber Eats for same-hour grocery deliveries.
• Accountant Cork Gully comments on corporate insolvencies in the UK (across all sectors) saying that ‘despite the rise in economic output between Q1 and Q2, corporate insolvencies increased by 31%, to stand at 3,334 across the UK. This rise was higher than previously expected. However, quarterly insolvencies still stand below the average for 2019 of 4,636, down some 28%. Separately, monthly data shows that there were 1,180 insolvencies in July 2021, slightly above the average for Q2.’
• Further comment: Hospitality already relatively hard hit – and may remain that way for some time. Cork Gully says ‘insolvencies remain most likely in sectors that have been hardest hit by the pandemic, such as food services and arts, entertainment and recreation.’ It says that ‘if customers remain cautious about engaging in social activities despite the lifting of restrictions, these sectors are likely to continue to suffer a loss of business for the coming months.’
• Boots has announced a delivery trial with Deliveroo to deliver from its stores in 14 cities in as little as 20 minutes. Deliveroo says ‘this partnership will mean more choice and selection for our consumers, delivered in as little as 20 minutes, and will create more work for riders across the UK.’
• In the US, industry tracker Black Box Intelligence and Snagajob has suggested that wages for hourly limited-service restaurant workers rose by 10% in the second quarter compared with a year ago. Staff turnover rates are also reported to have risen with that for limited-service restaurants now 144% in June, up from 135% in 2019.
• The most popular beer in the world based on Google data is reported to be Corona. Japan’s Sapporo Beer took second place with Modelo, Kingfisher and Asahi in the next three slots. Heineken was number six and Budweiser was 10th.
• Big Table Group, the operator of Las Iguanas, Bella Italia and Café Rouge, has appointed Lauren Burrill as the new marketing director of its Café Rouge business.
• Gordon Ramsay is reported set to open a second restaurant in London’s The Savoy hotel next month. The River Restaurant will have seafood as its central offer.
• UK sustainable restaurant group, Lussmanns, is to open a fifth restaurant. The group says ‘Berkhamsted is a stunning location and the perfect place for our fifth Lussmanns. Over the past 20 years, we have a built a trusted restaurant brand: our customers trust Lussmanns to deliver exceptional food, with excellent service, while committing to a set of ethical values that place the treatment of our planet, and of our people, at the top of the agenda.’
• Japanese restaurant brand ‘gyoza’ is to open a second restaurant in London.
• Ossett Brewery & SALT Beer Factory has announced the launch of a new cocktail concept in the heart of Leeds.
HOTELS & LEISURE TRAVEL NEWS:
• Research undertaken by the Press Association has suggested that there have been some 50 changes in the rules for international travel since the first Covid-19 lockdown in spring 2020. The study finds that the rules changed virtually every week from July 2020 to January 2021. The research was usually communicated through transport secretary Grant Shapps’ Twitter account.
• Some 82 private travel testing companies are to be issued a warning by the government that they should be careful not to mislead customers. Health Secretary Sajid Javid said “it is absolutely unacceptable” for any company to be “taking advantage” of holidaymakers.
• The outbound travel market in Germany is in relapse a little as Turkey has joined Spain on the Covid-19 high-risk list. German tour operators have reported few cancellations to Turkey but tour operator FTI told the travel trade publication FVW: “We expect a few re-bookings.” FWW says sales fell “significantly” through July and August having benefited from an “upswing” in May and June.
• Fred Olsen is now the first cruise line to complete an international sailing from the UK since March 2020. The cruise, with around 800 fully vaccinated guests on an itinerary to Iceland which set sail on 14 August, has now returned to the UK.
• Gfinity plc announced yesterday that it was proposing to buy Megit Limited, a private company which owns and operates the website Stock Informer, in both the UK and US for an initial consideration of £5.0 million, comprising £2.5 million in cash and £2.5 million in new Ordinary Shares in the Company. The company also announced that it was undertaking a placing of new shares at 4p to raise £3m.
• The company announces this morning that it ‘has conditionally raised £3.3 million (before expenses) under the Placing, Subscription and PrimaryBid Offer. The Placing was oversubscribed.’ The co says the new shares should start dealing on 13 September 2021, subject to the passing of the Resolutions by Shareholders at the General Meeting. CEO John Clarke says ‘Gfinity’s strategic focus is based on strengthening and growing ‘what we own’, in particular the Gfinity Digital Media group. The proposed acquisition of Stock Informer delivers this. It is a highly profitable ecommerce referral site for gamers and their lifestyles. Stock Informer will be embedded into the GDM division once the transaction completes. It is a transformational acquisition for the Company and highlights the ambition of the Directors to continue to drive profitable growth within the Group.’
FINANCE & MARKETS:
• Markit flash PMIs. See also Pubs & Restaurants above. Markit reports that ‘UK private sector companies experienced a sharp slowdown in output growth during August.’ It says ‘survey respondents widely reported constraints on business activity due to staff shortages and supply chain issues.’ It adds that ‘efforts to rebuild capacity and strong optimism towards the business outlook contributed to the fastest rise in employment numbers since the index began in January 1998.’ Re the numbers, the composite flash PMI was at 55.3 in August, down from 59.2 in July. Markit says ‘the headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index dropped for the third month running.’
• Further comment: Critically, Markit reports ‘the latest reading was still above the crucial 50.0 no-change threshold, but signalled the slowest expansion of output since the UK private sector returned to growth in March.’ It says ‘weaker recoveries were seen in both the manufacturing and service sectors, with the latter recording the greatest loss of momentum since July. Analysis of comments provided by survey respondents suggested that incidences of reduced output due to shortages of staff or materials were fourteen times higher than usual and the largest since the survey began in January 1998.’
• Jobs. Markit reports that ‘August data pointed to the steepest rate of private sector job creation since the series began in January 1998, which was driven by a survey- Comment record speed of hiring in the service economy. Extra recruitment was overwhelmingly attributed to the reopening of customer-facing parts of the service sector and efforts to replace staff that had departed at an earlier stage of the pandemic.’
• Inflation. Markit says ‘inflationary pressures showed signs of easing in August, with input prices rising at the weakest pace for three months. However, many firms commented on higher wages due to tight labour market conditions. Severe shortages of raw materials and critical components also continued to push up purchasing prices, with UK goods producers signalling the sharpest overall downturn in supplier performance since April 2020.’
• The Resolution Foundation has said that the impact of the stamp duty holiday in pushing up house prices has been overstated. It says that higher savings accrued over lockdown, changes in housing preferences, and cheap mortgage rates were more important.
• Sterling up at $1.3734 and €1.1693. Oil price higher at $69.21. UK 10yr gilt yield up 1bp at 0.54%. World markets better yesterday with London set to open around 3pts higher as at 7.15am.
RETAIL WITH NICK BUBB:
• Nick is on a well-earned break. Back after the Bank Holiday.