Langton Capital – 2021-08-31 – PREMIUM – Delivery, shortages, rates, contactless, FUL, ROO, Flight Club etc.:
Delivery, shortages, rates, contactless, FUL, ROO, Flight Club etc.:
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A DAY IN THE LIFE:
As we edge closer to September, the number of out-of-office replies should drop as people return from holidays to face the autumn but the bigger question is, will this involve returning to the traditional workplace in the same numbers as seen in 2019, or will working from home remain a major thing?
So long as the work gets done, you may think that’s not a major issue but, if you’re responsible for scheduling commuter trains or if you have a coffee shop next to a transport hub in Central London, it most certainly is.
And that brings home the opposing comments that ‘business isn’t without risk’ and ‘100yr events (which seem to come around more frequently than every 100yrs, it has to be said) aren’t represented in 10yr models’..
The latter comment is perhaps the more appropriate at present because, if when the various sandwich shops, coffee shops and snack bars were doing their models, they’d been told they would spend a year at 10% of normal revenues and another three at 50% or so, they would have come up with very different results.
In addition, the risk return they required on capital would be higher, there would be much fewer of them, etc. But that’s a somewhat heavy, September rather than August-type comment that we perhaps should have saved until tomorrow. Still, on to the news:
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PUBS & RESTAURANTS:
Trading – demand:
• This remains variable across geographies and business types. The Telegraph reports that ‘the number of people dining out in London remains below pre-pandemic levels months after Covid restrictions were lifted.’ It says that ‘a lack of tourists [is] still hurting the capital’s pubs and restaurants.’ It says diner numbers are around 8% below numbers seen in 2019. It says that numbers are up to a third higher in other areas of the country.
• Further comment: UKH points the finger at tourist numbers but a lack of commuters will be a further negative. UKH says ‘inner city pubs are clearly suffering at a greater rate’ and adds that, even in London, ‘in Zones 3, 4 and 5, where people are still working from home, those places are recovering more quickly.’ Springboard says that retail footfall in London, though improving, is still around 20% below numbers recorded for 2019.
Staff & product shortages:
• Lorry driver shortage continues to bite. The field is split between business, which sees its empty shelves as something other than a figment of their imagination, and shortage deniers who insist that any problems either don’t exist, represent temporary ‘perturbation’ or can be solved by upping wages and passing on the cost to the consumer.
• Further comment: Morrison’s has called for HGV drivers to be made eligible for Skilled Worker visas. The Road Haulage Association says there is a shortfall of 100,000 drivers. The Sunday Times says the government is to consider easing post-Brexit immigration rules in line with these demands. The food & drink industry has made a similar request.
• The government, meanwhile, says that the upset, if real, is a short term perturbation (had to look that one up) and says ‘we want to see employers make long term investments in the UK domestic workforce instead of relying on labour from abroad.’ Business Secretary Kwasi Kwarteng says bringing in non-UK drivers would only be a “short-term temporary solution”. He says employers should instead be “utilising the strength of our domestic workforce” and looking to employ those facing an “uncertain future” when the furlough scheme ends.
• Meanwhile, the TUC has called for an extra four Bank Holidays to be introduced in England & Wales. It says employees are being presented with a “stingy” number of free days off in addition to their paid for company holidays. That seems sure to fall on deaf ears. The TUC says that, after yesterday’s Bank Holiday, ‘there’s no national holiday until Christmas. And that’s because the number of holidays we get is so stingy compared to other nations.’
• The ONS reports that 20.4% of accommodation and food service operators have had issues with getting goods or services in the past two weeks. A further 9% stated they had been unable to get the materials, goods or services they required. Elsewhere, global shipping costs are reported to have been pushed to a new high in August. Cost increases are likely to lead to price rises down the line.
• Workforce management specialist Bizimply reports that hospitality operators are under increasing pressure to pay the Real Living Wage (RLW). The company said ‘Upward pressure on wages is a consequence of operators restaffing as hospitality reopens after the pandemic, at the same time as the sector deals with the reality of significant labour shortages post-Brexit’.
• Further comment: Paying up to attract staff is a quick and efficient fix – at least at the micro level – but it does have implications for costs. Delivery cost impacts most products and, with trading fragile, not many companies will be willing or able to absorb the hit to margins that higher costs imply. There will therefore, we would expect, be a move to pass such costs on to the consumer.
• The space under Finsbury Square, which was first an air-raid shelter but which became a public carpark, may be converted to be used as a hub for food delivery riders by its new owner, British Land.
• See comment on New York fee caps below. Also in the US, the city of Chicago has filed two consumer protection lawsuits against DoorDash and Grubhub for “engaging in deceptive and unfair business practices that harm restaurants and mislead consumers.” The lawsuits are the result of an investigation led by Business Affairs and Consumer Protection and the city’s law department. Massachusetts sued Grubhub earlier this year for breaking its temporary fee cap. Chicago mayor Lori Lightfoot says ‘as we stared down a global pandemic that shuttered businesses and drove people indoors, the defendants’ meal delivery service apps became a primary way for people to feed themselves and their families, as well as support local restaurants. It is deeply concerning and unfortunate that these companies broke the law during these incredibly difficult times, using unfair and deceptive tactics to take
• The FSB, which represents small businesses in the UK, has said that business rates are a major disincentive to invest in green and other socially responsible measures. Chair, Mike Cherry, says ‘this is a levy that hurts small firms trying to do the right thing: if you put solar panels on the roof to aid your transition to net zero, or install ventilation to support the wellbeing of your staff, the Valuation Office Agency will advise your local authority that you should be paying more in business rates.’
• Further comment: With government finances in the state that they are in, any reduction in business rates in some areas is likely going to require tax increases somewhere else. The business rates issue could be one side of the coin and some way of taxing international conglomerates more fairly, particularly the online giants such as the FANG stocks, could be the other. The FSB makes a fair point when it says ‘renewed efforts to ensure that rates bills are based on fair valuations are welcome and much needed – the more we can move to rolling up-to-date valuations, the more we can ensure this is a fair system fit for the digital age.’ However, there will need to be some way found in order to balance the UK’s books over the longer term.
• Scottish first minister Nicola Sturgeon is reported to be considering the use of vaccine passports north of the border for pubs, night clubs and restaurants.
• The High Street: The Local Data Company reports that 35 of the BHS stores that closed down when the chain went bust five years ago, are still unoccupied. That represents around a fifth of the then estate. Since BHS failed, several other department store chains have either failed (e.g. Debenhams) or put a number of sites onto the market.
• Further comment: A sample base of only two but the BHS in Hull is still vacant whilst the site in York was taken by Sports Direct. Unfortunately, the John Lewis in the Vanguard Centre is now empty as are the two units next to the Sainsbury in Monk’s Cross, which used to house TK Maxx (gone away) and Argos (now housed within the nearby supermarket). Landlords, never a group in receipt of too much sympathy, have their jobs cut out in letting some of these sites.
• Single use plastics: The FT reports the government’s comment that ‘single-use plastic cups, plates and cutlery could soon be banned in England.’ It says ministers will launch a public consultation in the autumn about the prohibition of an array of disposable items, including knives, forks and polystyrene cups, as the government works towards its goal of eliminating all “avoidable” plastic waste by 2042.
• Further comment: The government says that people in England use 55 disposable plastic plates or items of cutlery per annum. Given that some of us use virtually none, a small number of consumers must use a phenomenal number each. A proposed deposit return scheme for plastic drinks containers, first announced in 2018, is reportedly unlikely to come in until late 2024 at the earliest. Some cities, such as Berlin, pay for bottles such that certain people collect them to return them for cash.
• Contactless payments will be capped at £100 from 15 October, with the limit currently at £45. Consumer advice group Which? warned that if criminals tried to take advantage of the increased limit, it could put consumers at financial risk. There may be a daily limit to usage but, without having need to resort to a PIN number, a thief could be able to make several £100 purchases before cards are reported missing.
• Westminster City Council has announced that it is set to end the traffic-free roads scheme set in place during the pandemic. However, Mayor Sadiq Khan said ‘traffic-free roads have been a lifeline to hospitality businesses in Soho…I’m determined to see bars and restaurants flourish once again, and I stand ready to work with Westminster and the local community to ensure they do’.
• The Society of Independent Brewers reports that 96% of small independent brewers in Scotland are unprepared for the Deposit Return Scheme due to be introduced next year. The recycling scheme is due to be introduced in July 2022, in which a refundable deposit will be added to every bottle and can sold in Scotland as well as hefty enrolment and administration fees for independent businesses and breweries.
• In the US, New York City Council passed a permanent commission fee cap on third-party deliveries, capping them at 15% per order and all other fees will be capped at 5% per order except for transaction fees. It is said that New York’s legislation could influence other major cities to adopt permanent caps to help struggling restaurants.
• Further comment: This is perhaps a crowd-pleaser but it will limit profits that delivery companies are able to make and the concern may be that such practises could spread to the UK and other markets. The consumer may be the ‘winner’ with restaurant companies also potential beneficiaries if moderate delivery fees expand the market. The delivery company itself may be less happy with such caps.
• The Sunday Times reports that Fulham Shore, which owns the Franco Manca and Real Greek chains of restaurants, is set for further growth. The Company hosts its AGM later in September. The Sunday Times says the group is seeing ‘international growth on the horizon, and soaring summer sales’. It rates the shares a ‘buy’.
• In the US, McDonald’s has suggested that franchisees should close their dining rooms in areas where COVID-19 cases exceed 250 per 100,000 people on a rolling three-week average.
• Heineken’s UK Star Pubs and Bars estate is to inject £38m into its portfolio of pubs.
• Deliveroo has reported a ‘historical’ shareholding by Delivery Hero SE saying ‘the first TR-1 notification received by the Company from Delivery Hero was that which disclosed a holding representing 5.09% of the Company’s Class A ordinary shares. This was received after market close on 6 August 2021 and was duly published by the Company on 9 August 2021. Subsequently, the Company has received two further TR-1 notifications from Delivery Hero regarding the crossing of lower disclosure thresholds in the Company’s Class A ordinary shares on its way to accumulating its current stake. These disclosures are now being on-notified by the Company.’ It says these should ‘clarify’ the situation and says ‘Delivery Hero’s holdings represented the following percentages of the Company’s total Class A ordinary shares: 3.01% on 8 June 2021, 4.36% on 2 August 2021, and 5.09% on 6 August 2021.’
• Flight Club has submitted plans to Cheltenham Borough Council seeking permission for darts venue to open in the town. The site, which would occupy Units 11 and 12 at the Brewery Quarter, was previously home to Mexican restaurant Chiquito, a brand owned by The Restaurant Group until the majority of its units were put into administration early last year.
• EG Group reports that Leon’s integration into the group has seen ‘strong progress’. EG plans to open a further 10 Leon restaurants in 2021. In the three months to 30 June 2021, the group reported total revenue of $6.5bn, up 57% YoY.
• Delivery Hero reports H1 gross merchandise value (GMV) up by 78% YoY to €16.2bn from €9.1bn but EBITDA losses of €332.3m compared to €323.5m the year prior. In Asia, the adjusted EBITDA of -€202.2m improved only marginally compared to the previous year’s period, whereas in Europe adjusted EBITDA improved from -€7.9m to €1m.
• Hawksmoor is set to open a site in New York at the ‘beautiful National Historic Landmark built as The United Charities Building in 1893 with an incredible 10m-ceilinged assembly hall that will be the main room of our restaurant’, says the company.
HOTELS & LEISURE TRAVEL NEWS:
• A study conducted by BVA BDRC reports that intent to travel overseas remained low in the UK, stating that there was a lack of confidence that booked trips would go ahead. As of May, only 42% of UK adults were seriously considering an overseas short break or holiday in the next 12 months. Low confidence that trips would go ahead was caused by concerns around the threat of government restrictions and/or quarantine either in the UK or in the destination.
• Home Office figures show that arrivals by air to the UK during the course of the pandemic have been, on average, about 90% lower than pre-Covid levels. There were just over 1.4 million air passenger arrivals to the UK in July 2021, compared to the 11.1 million recorded in July 2019.
• Further comment: It might be the case that, if five years, most industries are back to ‘normal’ but the experiences will not be the same across industries. This matters because the length of time below trend impacts cashflow and the longer this remains negative, the more damage will be done to balance sheets. Travel is not currently in a very positive position.
• With footfall in some cities up to 2019 levels and some hospitality businesses ahead of two years ago, it’s clear that some small ticket areas have largely recovered – but the same cannot be said for travel. The booking process, the ticket size and the botheration factor are all very different and, as the Home Office points out, travel volumes are still very much lower than pre-pandemic.
• Global confectioner Mars is reported set to cut its business travel budget by a half.
Trends & other:
• Abta members report that holidaymakers have been primarily booking Mediterranean beach breaks for the bank holiday weekend. Crete and Majorca are the most popular destinations, followed by Croatia, Malta, Rhodes (Greece) and Cyprus.
• General secretary of the GMB union, Gary Smith, said he wanted to end the ‘exploitation’ of more than 200,000 drivers in the industry ahead of a meeting with Uber bosses. Uber has formally recognised that 70,000 of its drivers in the UK will be represented by the GMB.
• China is to limit online gamers under the age of 18 to just an hour’s play on Fridays, weekends and holidays. A state media outlet has branded online games “spiritual opium”.
FINANCE & MARKETS:
• US Fed chair Jerome Powell has said that US central bank could begin withdrawing stimulus this year. However, he said the bank was in no hurry to put interest rates up, despite a recent spike in inflation.
• Government spending. Promises may be becoming untethered from financial reality. The Telegraph says chancellor Rishi ‘Sunak is right to put the brakes on the HS2 white elephant.’ It says the ‘high speed rail link has little relevance to ‘Red Wall’ voters and abandoning the leg to Leeds is the right thing to do.’
• Sterling stronger at $1.3781 and €1.1659. Oil price up at $73.19. UK 10yr gilt yield down 2bps at 0.58%. World markets mixed on Friday with London set to open up around one point as at 7.15am.
• The Lloyds Bank Business Barometer has found that UK business confidence is now at a four year high in the wake of the relaxation of self-isolation rules and the vaccine rollout.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines on Saturday were dominated by the continuing rush to evacuate Afghan allies from Kabul airport: the Telegraph highlighted “PM’s “great regret” at leaving Afghans behind”, the Times flagged that “US prepares to strike back”, the Daily Mail highlighted “Hostage fears for 1,000 UK allies” and the Guardian noted “Fear and fury as thousands abandoned to Taliban”. The FT had a lot of coverage of the “Escape from Afghanistan”, but the main FT headline was “Kwarteng call to hire UK workers”, flagging that the Business Secretary has rejected calls to introduce short-term visas for Overseas lorry drivers.
• Saturday’s Press and News (2): In terms of Retailing stories, the main news was the successful $7bn float of the Cazoo Online second-hand car retailer in New York. Otherwise, the main focus was on the cooling in Sainsbury bid speculation, after their house broker UBS downgraded their recommendation, as flagged by the headline of the stockmarket report in the Times: “Sainsbury’s shares hit by a hint that US deal doesn’t check out”.
• Sunday’s Press and News (1): The photos on the front-pages of the Sunday papers were dominated by shots of the interior of the packed transport plane flying the last UK troops out Afghanistan: the headline in the Sunday Telegraph was “Britain out of Afghanistan”, whilst the Sunday Times went with “Afghan blame game erupts” and the Observer revealed “Foreign Office ignored frantic pleas to help Afghans”. The Mail on Sunday ran with an exclusive about a “cash for access” row involving Prince Charles (“Charles for sale furore”)
• Sunday’s Press and News (2): In terms of Retail stories, the main news in the Sunday papers was the Sky News report that Sainsbury is weighing up a £200m bid for the ailing Sainsbury’s Bank from the US private equity firm Centerbridge, as noted by the Sunday Times, the Sunday Telegraph and the Mail on Sunday. The Mail on Sunday noted separately that the US hedge fund Third Point has cut its entire short in Sainsbury’s, on the back of the Apollo bid speculation. The Sunday Telegraph also had an article about the Morrisons bid situation (“How pensioners got a lock over Morrisons’ bidders”) and the Sunday Telegraph had a lengthy Business editorial about how Tesco and Sainsbury need to start showing that they can grow again and make their own acquisitions, if they want to avoid being taking over as well (“Tesco and Sainsbury’s must fight for their future”). The former Tesco CEO Terry
• Sunday’s Press and News (3): In other news, the Sunday Times highlighted that the Issa brothers plan to open over 300 Asda convenience stores across their EG petrol forecourt empire, following a successful trial of “Asda on the Move” at five locations. The Sunday Times also flagged that a record land price has been paid for a former Arcadia distribution warehouse in Milton Keynes and it also had a feature about the shady entrepreneur Ted Ward who is behind the fledgeling “15:17” department store chain (“Del Boy of retail who won’t quit”). The Business Leader column in the Observer stuck the boot in on the controversial share incentive scheme unveiled by Frasers Group for their erstwhile new CEO Michael Murray (“If the son-in-law rises to £100m, what will Ashley’s staff think?”).
• 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 (“A Brexit headwind the UK recovery could do without”), in which he noted that “our exit from the single market is exacerbating supply shortages”. The column in the Sunday Telegraph by the veteran City commentator Jeremy Warner also deserves its usual shout-out: headlined “Little did we know, but 9/11 was the start of the West’s economic crisis”, he noted that “whilst the West has languished in economic torpor, China has forged ahead”. We also enjoyed the column by the Economics correspondent, Philip Inman, in the Observer, headlined “Sunak’s Scrooge could spoil party for Johnson”.
• Bank Holiday Monday Press and News (1): The front pages today are again dominated by the Afghan crisis: the Guardian leads on “Taliban say they will allow more departures as US strikes Kabul”, while the FT has “US says drone strike foiled fresh attack on airlift”. The Times leads with “Terror threat ‘worst in years’” and the Telegraph says “Afghan commandos could fight for Britain like Ghurkas”. The Daily Mail, however, goes with “GP’s who see only HALF of patients in person”.
• Bank Holiday Monday Press and News (2): In terms of Retail news, there were quite a few “fillers” in the Bank Holiday Monday papers: the Daily Mail highlighted that the Morrisons bid has added £8bn to the combined market cap of the listed supermarket chains (including Ocado and M&S) since the CD&R approach was first revealed on June 19th. And the Guardian had a full-page article about how the proof will be in the pudding, in terms of whether the private equity takeover affects the Morrisons business: “Bradford eyes takeover of Morrisons with scepticism”. And the Times had a big feature on how the Co-op group has expanded its Academy school programme: “How next generation will learn to love the Co-op”.
• Today’s News: There is still no news from Fortress about an offer to top the agreed bid from their rival CD&R for Morrisons, but Morrisons’ convenience store partner, McColl’s, has announced that the Open Offer of up to £5m of shares was under-subscribed and only £3m was raised (on top of the firm placing of £30m, to prop up the balance sheet enough to finance more expansion of Morrisons Daily stores).
• This Week’s News Flow: After yesterday’s Bank Holiday, this week is quiet, but, as we move into September, tomorrow brings the WH Smith pre-close update, plus the McColl’s EGM to approve the aforementioned highly dilutive equity placing, whilst in the evening the latest FTSE index quarterly review is announced (with Morrisons expected to make it back into the FTSE 100 index). On Thursday the jeweller Signet announces its Q2 results in the US.