Langton Capital – 2021-08-25 – PREMIUM – McDonald’s, supply, labour, business rates, Grind, cottages, Rank etc.:
McDonald’s, supply, labour, business rates, Grind, cottages, Rank etc.:
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A DAY IN THE LIFE:
Having suffered a power outage on Monday evening, one that ended up lasting about seven hours, it came home to us just how dependent we are on electricity.
That’s a) not a shock but b) is actually a bit of one when you have to live with it, realise the internet doesn’t work, you’re phone is on 9%, your laptop is now flat, all your books are on your Kindle (likewise, flat) and that the power packs that could have at least charged up the smaller devices had also been ignored and left in a drawer for nine months to accumulate dust.
So, here’s the playbook.
Have a few torches, candles, matches, spare batteries and perhaps a lamp or two stored away. This can be your zombie apocalypse cupboard. Crazy but, if the power goes off at 7pm just as the sun is threatening to set below the neighbour’s chimney pots, you’ll be pleased you had it.
You can charge your phone, short term, if you’ve got USB plugs in the car. A camping stove is good fun – but don’t light it in the car. And don’t burn your house down. Ditto, a kettle you can plug into your car’s cigar lighter will work. Or an old fashioned kettle that you can heat up on the wood-burner because a) you won’t be having a hot drink otherwise and, when you go to bed b) you’ll realise that much of your hot water is pumped around your house by, you guessed it, electricity.
Also, make sure you’re known to the grid. I don’t know how or when we registered with the appropriate people but POWERGRID was texting us from the off. We found out it was 180 houses affected (not just us, thankfully. Misery likes company and the bigger the problem, the more urgent the solution) and they were pinging through the night.
Freezers will last many, many hours but don’t leave the electric hob on. Otherwise you’ll be setting fire to your tea-towels and noxious plastic bowls at two o’clock in the morning. Never a good look. See advice on ‘not burning your house down’. On to the news:
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PUBS & RESTAURANTS:
Current pandemic stats:
• There are faint rumblings of concern regarding the level of deaths currently being recorded. The number averages around 100 a day (some 174 yesterday) compared with around 1,000 a day at the height of both spikes and 0-5 a day at the troughs (coinciding with EOTHO last August and unlocking in England in June this year). The Guardian says ‘scientists have warned that case rates will jump again when millions of pupils return to schools next week.’
• Further comment: Yes, the successful vaccination programme means that this ‘wave’ is nowhere near as bad as the first two – but deaths are the ultimate measure as they come after infections and hospitalisations. Nobody wants to whisper the words ‘autumn lockdown’ but, unfortunately, it may only be a matter of time before somebody does. However, the concerns of the scientists will be rubbing up against the outright fed-upedness of the population and the suggestion from some quarters that ‘we will just have to coexist with Covid-19 and put up with booster shots for the foreseeable future.
Supply – product:
• McDonald’s has said that customers will have to do without milkshakes and bottled drinks at some of its UK venues as it can’t secure deliveries. It has said the products will not be available across many of the company’s 1,250 restaurants across England, Scotland and Wales. The company told The Independent ‘like most retailers, we are currently experiencing some supply chain issues, impacting the availability of a small number of products.’ It says ‘we apologise for any inconvenience, and thank our customers for their continued patience. We are working hard to return these items to the menu as soon as possible.’
• Further comment: McDonald’s must be capable of twisting arms to a greater degree than most and, if even the Golden Arches can’t get what it wants in this environment, then hopes for other operators must be slim.
• Having said that, we have seen with a number of food producers, e.g. Premier Foods, that they have used periods of increased demand (for long-shelf life products at the beginning of the first lockdown) to prioritise higher margin products. In the case of PFD, this meant dropping non-branded products. The milk shake issue looks to be a supply drop rather than a demand rise, but the outcome could be similar. It may be that the milk-shake producers (or the dairies or the flavouring companies) are taking the opportunity to sell what product they do have to companies that don’t twist their arms quite as much and which don’t screw every last penny out of the deals that they negotiate.
• The MA quotes Rachel Dobson, MD of Lynx Purchasing, as saying that current supply problems go ‘right back through the supply chain from picking and packing to warehousing and distribution.’ She says that problems caused by Brexit and the pandemic mean that ‘almost every product pubs buy is likely to affected to some extent.’ She says to ‘talk to your fish, meat and fresh produce suppliers to get the best value from the products available’ and says ‘keep menu descriptions flexible’ using such terms as ‘catch of the day’, ‘pie of the week’, or ‘seasonal veg’ to give some flexibility.
• Further comment: Good stuff but this doesn’t work for chip shops. And nor does it do much when the customer knows what a ‘staple’ is and can tell pretty quickly when it’s not available. Lynx says ‘fewer, bigger deliveries are far better value than frequent small ones’ – but that won’t help if product is not available. It says to plan ahead. Yes, but planning for Christmas will always include a lot of turkey orders and, if that meat isn’t available, there won’t be an easily saleable ‘dish of the day’.
Supply issues – labour:
• Amazon is reportedly offering new warehouse workers a £1,000 joining bonus. In the same way that Tesco was criticised for poaching drivers, this is a) sensible at the micro level but b) it doesn’t do much to improve the market for labour as a whole. Amazon is currently advertising its new jobs at warehouses in Darlington, Dartford, Swansea, Redditch and Coventry. Staff are also being offered an hourly rate of £11.10 an hour, with overtime at £22.20 an hour. Amazon says it is offering “immediate starts with no experience needed”.
• The Telegraph humanises the problem when it says that ‘Christmas supplies are at risk as staff shortages continue into next year.’ It says ‘festive season shopping is likely to be more difficult this year due to supply problems being faced by a growing number of retailers.’ The Recruitment and Employment Confederation says ‘there is a real focus now on how to make sure everyone gets what they need for Christmas. We regard this week, the third week of August, as the week we begin to ramp up for the peak across these sectors.’ The CBI adds ‘there are signs of operational challenges still biting, with stock levels reaching another record low and import penetration falling. Disruption is being exacerbated by continued labour shortages, with many retailers reliant on younger employees currently awaiting their jab.’
Costs – business rates.
• The BBPA has said that, based on turnover, the UK’s pubs ‘overpay’ business rates to the tune of £570m.
• Further comment: Nobody really thinks they pay too little tax. The BBPA says that ‘pubs overpay their fair share of Business Rates by £570 million a year.’ Without reading further, the definition of ‘fair share’ is likely to be a) critical and b) contested. The analysis also overlooks the fact that business rates haven’t been fully payable for a year and a half and won’t be until April next year.
• Basing the estimate of what is ‘fair’ on turnover isn’t the whole story. It will make lower revenue, higher margin businesses look as though they are overpaying whilst operators with very high levels of turnover (but low margins) may look as though they are ‘getting away with it’. We haven’t got the data to hand, but we would suggest that petrol retailers could be made to look like freeloaders on the business rates front (on this measure) but, if you asked what amount of tax (VAT & other taxes) they pay per square foot or versus business rates or as a percentage of turnover, they would look as though they are disadvantaged.
• The BBPA calls for an overhaul of the business rates system. It says ‘the pub sector in the UK pays 2.5% of all business rates, despite accounting for just 0.5% of rateable turnover.’ Just what ‘rateable turnover’ is, is unclear, but the BBPA goes on to say that it ‘welcomes the Government’s aim to provide more regular revaluations for pubs in principle in the hope it will result in fairer rates for pubs due to more regular re-evaluations.’ It adds, however, that it ‘has concerns that the proposed changes to the current system of re-evaluations will mean rates payers have to pay in order to access a better and more transparent tax regime, which is irresponsible.’ It says a ‘root and branch reform of Business Rates is essential to the future of our sector, which is why we are supporting the Long Live The Local campaign calling for reform of Business Rates in addition to reforming VAT
• Energy drinks firm Boost Drinks has secured a partnership with premiership team Leeds United.
• The British Property Federation (BPF) is asking the Government to introduce annual business rates revaluations, saying that while rent levels outside London had come down by more than 50% in real terms over the past decade, business rates bills have continued to rise.
• Andrew Hawes, chairman of Champagne Agents Association, said strong demand for Champagne is likely to cause some shortages towards the end of the year. Mr Hawes said ‘It’s not a case of Champagne running out, but what we’ll see is less promotional activity, especially over Christmas’.
• Grind has raised £22m to fund its international expansion, with the US a key target for its coffee houses.
• Further comment: Grind says that cash will be used both to develop UK direct to consumer business and fund international expansion drive, particularly in the US, from next year. David Abrahamovitch, Founder & CEO, says ‘it’s amazing to reflect on how the little coffee shop we opened a decade ago has evolved into such a recognisable brand, enjoyed by our customers around the world.’ The latest investment round is Grind’s third equity crowdfunding raise.
• The group’s most recent filing with Companies’ House was for the year to 26 April 2020. In it, revenues had risen from £10.7m to £12.1m but, with the impact of the pandemic beginning to be felt, the operating loss had risen from a loss of £900k in 2019 to a loss of £1.7m in the year under review. To 26 April last year, Grind, which is in the process of building a business and which might expect to make losses, had lost a cumulative £6.0m since incorporation.
• It will have added to these losses in the year just ended but, as the above fund raise suggests, it intends to try to grow its way out of its unprofitability in the same way that Caffe Nero did some years ago. The big question will be whether there is room for a further major coffee player (albeit artisanal) in the market – and whether branching out overseas carries with it major risk.
• Tortilla will launch in several new Deliveroo Editions kitchens to service new regions that were previously outside of its coverage area, on an exclusive basis.
• Just Eat has announced plans to create more than 1,000 customer service roles at its new office near Sunderland.
• Mr White’s, a Marco Pierre White restaurant, is set to open in London’s West End. The site is the former Chiquito site next to the Odeon cinema, with the opening planned for October.
• Red Dragon Pubs will open four pubs by the end of October, bringing the South Wales pub operator’s estate to 12. The company has vowed that its pubs will be as close to the community as possible and they won’t change the name of any pub its purchases.
HOTELS & LEISURE TRAVEL NEWS:
• Self-catered accommodation in the UK is reported to have risen in price by on average 40% since the summer of 2019, per Which?. The consumer magazine says this equates to around £300 per week. Marketing group Opinium says that over 20 million Brits are planning (or have taken) a UK break this year.
• Further comment. This is hardly surprising as demand is up and supply is constant (at least in the short term – and also it’s worth noting that some hospitality workers have reportedly been kicked out of their accommodations in resort towns as landlords can make more from tourists). Also, holiday home letting-owners lost a chunk of the spring and summer last year and much of this, meaning that they are trying to recoup lost sales. Case law quickly established that companies had to refund monies to would-be holidaymakers who were unable to travel and cottage companies (and the cottage owners themselves) had a tough time of it. This could be payback but, as BBC’s Panorama points out, the cost of holidays in Devon, Cornwall or the Lake District (though it is a little selective perhaps in its data), is currently higher than that in the South of France or on Lake Garda.
• The Cornish tourist board and Cumbria County Council have asked tourists to take tests before visiting the areas. Visit Cornwall, told the PA news agency ‘we are asking people not to come unless they have booked ahead and request they take a lateral flow test before, during and after (their) stay so that (people) can be safe and help us to manage the current spike.’
• Further comment: This is sensible but, whilst the Tourist Boards are appealing to the better nature and public spiritedness of would-be holidaymakers, they are also putting the latter in a difficult position as they may struggle to get refunds at such short notice. It is perhaps ‘the right thing’ to get a test but, at the end of the day, the potential visitors will be asking themselves, particularly if they don’t feel all that ill, just what they would do if it comes back positive?
• Italian newspaper La Stampa has reported that several measures have been proposed to control tourist numbers in Venice, such as an online booking system and a fee to enter the city. The proposed fee will vary between €3 and €10, depending on seasonality.
• Silver Travel Advisor reports that mature travellers intend to spend the same or more on holidays in the next year but on the same number or fewer trips, with older travellers being strongly in favour of vaccine passports.
• Airbnb has announced it will house 20,000 Afghan refugees at no charge, with the company’s boss saying the firm felt a responsibility to step up. CEO Brian Chesky also said ‘I hope this inspires other business leaders to do the same.’
• FCM reports that the number of corporate travellers in EMEA has almost doubled quarter on quarter, up 93% in Q2. The majority of the uplift was attributed to intra-European growth.
• However, Boston Consulting Group warns that the corporate travel sector is unlikely to see a smooth return to ‘normal’ amid spikes in Covid-19 infection and growing pressure on businesses to bolster their carbon-reduction efforts.
• New reports indicate that the UK and US travel corridor could remain closed to Brits until late November, with the US only allowing American citizens, their relatives and a few exempt groups into the country at the moment. The UK began to allow fully vaccinated Americans into the country without undergoing quarantine measures from the beginning of August.
• Data from Balpa shows UK aviation is suffering more than European competitors and ‘needs urgent government help’. The three worst affected airports in Europe are all in the UK, with Gatwick the worst-impacted followed by Manchester and Heathrow.
• Deputy managing director of cruise.co.uk, Tony Andrews said that UK domestic cruising is a ‘real success story’ as a poll showed that 48% of people who have taken a UK cruise this year plan to book another in the next 12 months.
• MSC Cruises reports that nearly 50% of MSC Virtuosa’s capacity came from new-to-cruise passengers. MSC Virtuosa has capacity for 6,300 but has been limited to 1,000, in line with government guidance.
• STR reports that China’s aviation and hospitality sectors have seen demand drop sharply as some Covid-19 restrictions have been reimposed. Domestic aviation demand in China was close to 2019 levels earlier this year with hotel occupancy in line with that of 2019. STR points out that occupancy rates across the country’s hotels fell from around 70% to 40% over the period of a fortnight earlier this month.
• Further comment: The above (and what is happening in Japan, NZ, Australia etc) shows that, to an extent, no country is really out of the woods yet when it comes to Covid. It might make sense to expand into demand somewhat cautiously and ‘caution’ is a word that we have heard from a number of operators (e.g. Adnams) in recent days.
• Chinese ride hailing platform Didi is reported to have called off plans to launch in continental Europe and in the UK. The company says ‘we continue to explore additional new markets, liaising with relevant stakeholders in each and being thoughtful about when to introduce our services. As soon as we have any more news on additional new markets, we look forward to sharing.’
• A major upgrade of the main East Coast train line, Langton’s particular favourite, has been delayed by at least a year (to 2023 at the earliest).
• Rank Group has updated on its VAT refund claim saying ‘the Group notes the decision by HM Revenue and Customs that it has decided not to appeal the decision handed down by the First-tier Tribunal on 30 June 2021 regarding VAT paid on slot machine income in the period from April 2006 to January 2013.’ It adds that ‘the First-tier Tribunal has agreed a 60-day extension to allow HMRC and Rank to agree the exact quantum of the claim which Rank still expects to be c.£80m.’
FINANCE & MARKETS:
• The CBI has reported that it is seeing the worst stock shortages in the history of its Industrial Trends survey. It sees this as the major problem preventing faster growth.
• Sterling weaker at $1.3716 and €1.1682. Oil up at $70.75 and UK 10yr gilt yield unchanged at 0.54%. World markets mixed yesterday, better for choice. London set to open virtually unchanged as at 7am.
• Data produced by HMRC shows that the number of house sales fell by 62% in July after many buyers speeded up earlier purchases to push them into June and beat the stamp duty holiday deadline.
RETAIL WITH NICK BUBB:
• Nick is on a well-earned break. Back after the Bank Holiday.