Langton Capital – 2021-09-06 – PREMIUM – Staff, beer & food shortages, working from home, inflation, JDW etc.:
Staff, beer & food shortages, working from home, inflation, JDW etc.:
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A DAY IN THE LIFE:
Driving over to and around Hull at the weekend, we happened to be passing Skirlaugh and then the village of Swine, where I’d always thought it would be nice to have a cottage and call it ‘You Filthy’ just for the pleasure it would give me when filling in my address.
Specifically, You Filthy Swine, Yorkshire or some such and, having holidayed near Hope in Derbyshire recently (cottage names copyrighted as ‘No Remaining’ or ‘Precious Little’ etc), I thought this could be something of a hobby.
However, it only captured my attention for the time that it took me to drive past or through the villages in question and now it’s the start of a full week.
And, to add insult to injury, it’s September. We’re meant to be thinking about work again but, with 27 degrees and sun promised for mid-week, the autumn may have to wait for us to cut the grass, stock up on beer and spark up the BBQ. On to the news:
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PUBS & RESTAURANTS:
• The Telegraph warns that staff shortages could last for several years as vacancies have now topped 1.7m. It quotes a report by the Recruitment and Employment Confederation as saying there will not be enough workers in some industries for an extended period. It spells it out, saying ‘the economy will be plagued by labour shortages and potential supply chain disruption for years to come as businesses struggle to recover from the Covid shock.’ The REC says ‘large numbers of people are finding new work post-pandemic as the economy reshapes. But that realignment will take time, and there is good evidence to suggest that the market will remain tight for some years to come, even if the current crisis passes.’
• Further comment: The impact of the pingdemic should be abating and the furlough scheme ends this month. That could mean that temporary factors have been removed and imply that any shortages evident post the end of this month, could be longer term. That certainly seems to be what the REC is implying. The paper quotes the BRC as saying ‘we feel we’re always just on the edge of coping. Anything exceptional will be a challenge.’
• The Independent points out that some checks on incoming products will begin from 1 October. It says this could make UK food supply problems worse and it blames Brexit red tape. Paperwork checks begin next month and physical checks on inbound products begin on 1 January. Indeed, M&S has this morning warned (per The Times) that there could be “significant disruption” to food imports from Europe because officials in some EU countries do not work at weekends. Marks & Spencer, which sold more than £9 billion worth of food and clothes last year, held an emergency meeting with its European food suppliers on Friday, reports the paper.
• The Guardian quotes Aodhán Connolly, who chaired a session of the UK Trade &% Business Commission, as saying that ‘red tape and labour shortages from Brexit have exacerbated problems that are being acutely felt across production, processing, manufacturing, retail and of course logistics.’ Connolly says ‘the government needs to get a handle on this both in the short and long term and we will be making recommendations based on the evidence we heard today.’ Various companies including Coca Cola, Nando’s, KFC and others have warned of delivery problems.
Working from home:
• There may be a gradual drift back to the office going on but we remain a long way from ‘normal’. Bloomberg calculates that demand for products such as coffee in the City are still about 43pc below pre-pandemic levels. The Sunday Times has a similar view when it says that ‘squares that would normally bustle with office workers dashing to and fro, remain eerily quiet ahead of what is expected to be the busiest month yet for workers returning to the office.
• Further comment: September seems to be the month that a lot of companies have pencilled in for a return to the office. Yet there isn’t too much evidence for change. The Telegraph looks at the impact on the wider economy when it concludes ‘mixing office and working from home may appear to offer best of both worlds but problems could soon arise for firms lacking a clear strategy.’ This may or may not be correct but, for the SSPs and Compass’s of this world, the outcome is clearer and not in a positive way. The Centre for Cities shows that, at the end of July, office worker footfall in London was still only 15 per cent of its pre-Covid levels.
• Langton has been down to London most weeks since the lockdown partially lifted in April and things are certainly a) busier but b) not normal. Anecdotally, footfall improved sequentially from mid-April to, say, June and then stalled. Summer holidays, the football etc probably interfered with any straight line recovery – and there has probably been a further improvement since late-August. Hence the 15% of normal figure quoted above does feel somewhat low. Maybe the running total for the year to date could be at that sort of figure but, in September, we would have hazarded a guess north of 50%.
Inflation, employment levels & their impact on demand:
• The BBC quotes logistics companies as saying that the national shortage of lorry drivers could lead to a rise in food prices. Any rise in food prices may reduce the spending power of households when it comes to non-essential products and services.
• Further comment. Certainly, most things are delivered – and any increase in the cost of doing so is likely to be passed on. MD of Iceland, Richard Walker, has said that some lorry drivers are earning £950 per shift. That’s £250k per annum. This a) can’t be an average but b) it will most definitely put upward pressure on prices. Industry leaders are calling for 10,000 European drivers to be given temporary visas. Minister Kwasi Kwarteng has ruled this out.
• The Joseph Rowntree Foundation has said that rising food prices and energy bills could raise the cost of living for millions of consumers this autumn. The ending of the £20 per week universal credit bump next month and the purported 1-2% rise in National Insurance will make a further demand on the consumers’ resources.
• Further comment: The JRF, which is an anti-poverty charity, says ‘millions of families are facing mounting stress and anxiety about how they will cover the cost of living as the planned cut to universal credit rapidly approaches.’ It cautions that it is particularly harmful to remove this credit at a time of rising energy bills and food prices. PM Boris Johnson had previously said there would be no return to austerity, no tax or NIC rises and that the triple lock on pensions was safe.
• On a positive note, the Resolution Foundation says that job creation should remain strong after the furlough scheme ends. It says as many as 900,000 people could still be on the scheme when it ends – and cautions that it will take some time for these workers to be reabsorbed into the workplace. It says ‘firms are unlikely to have the capacity to immediately take on all previously furloughed staff who do lose their job.’
• Wages & inflation. Markit on Friday said ‘tight labour market conditions pushed up wages as service sector companies sought to attract and retain employees. The overall rate of input cost inflation remained steep, but eased from the record high seen in July.’ Tight labour markets would normally be associated with rising wage levels and inflation.
Service sector stats:
• Markit has reported August PMI numbers for the service sector saying that ‘UK service providers signalled that August was the worst month for business activity growth since the current phase of recovery began in March.’ It says ‘the slowdown partly reflected a normalisation of customer demand after the initial loosening of pandemic restrictions during the second quarter of 2021.’
• Markit adds ‘there were also widespread reports that shortages of staff and disrupted supply chains had constrained growth in August.’ The index came in at 55.0 for August vs 59.6 in July. It says the index has registered above the 50.0 no-change value in each of the past six months, but the rate of expansion was the slowest since the service sector returned to growth after lockdown.’
• Further comment: Markit says ‘the service sector lost momentum for the third consecutive month as the impact of looser pandemic restrictions faded in August. Many businesses suffered constraints on growth due to staff shortages, self-isolation rules and stretched supply chain capacity.’ It says ‘service providers signalled the sharpest rise in employment since data collection began 25 years ago. Additional staff recruitment typically reflected efforts to return workforce numbers to pre-pandemic levels after widespread job cuts last year.’
• The Food and Drink Federation has said that UK exports of food & drink to the EU have seen a “disastrous” decline in H1 this year. It says that there has been some growth in exports to non-EU countries, but says this does not make up the shortfall. The FDF says ‘the return to growth in exports to non-EU markets is welcome news, but it doesn’t make up for the disastrous loss of £2bn in sales to the EU. It clearly demonstrates the serious difficulties manufacturers in our industry continue to face and the urgent need for additional specialist support.’ Some observers have pointed out that we did not need to leave the EU to increase exports to non-EU markets.
• Further comment. The FDF also says that ‘at the same time, we are seeing labour shortages across the UK’s farm-to-fork food and drink supply chain, resulting in empty spaces on UK shop shelves, disruptions to deliveries and decreased production.’ It says ‘unless steps are taken to address these issues, the ability of businesses to fulfil vital export orders will be impacted.’
• Gaps on shelves have an equivalent in the hospitality sector and this is clearly a crying shame as it may represent lost sales at a time when it is more important than ever to bring in as much money as possible. Re food, the FDF points out that the biggest product drops in sales to the EU have been in dairy and meat: beef exports were down 37%, cheese down 34% and milk and cream down 19% in H1 vs 2019. Scottish products, salmon & whisky, did better at up 27% and 20% respectively.
• The Food and Drink Exporters Association says ‘there is growing evidence that the complexity of trading with the EU has led to businesses moving operations into Europe and of importers looking for alternative suppliers, contributing to the ongoing decline in both UK exports and UK jobs.’ Regarding stock shortages in the UK, border checks on incoming products have once again been delayed, this time until 1 January 2022. At this point, there is a fear that there could be more grit thrown into the wheels of commerce.
Company & other news:
• JDW chairman Tim Martin has reiterated that ‘Wetherspoon beer stocks in pubs…are approximately the same as for the same period in 2019, although there have been supply issues for a minority of products in the last fortnight, following industrial action, including an overtime ban, which affected a major brewer.’ It says a number of newspapers have misrepresented the facts. Tim Martin says ‘there is clearly a shortage of HGV drivers’ and adds ‘there are supply chain issues in many other parts of the world also.’
• Despite the above, the hot weather this week has sparked further fears that some pubs could run out of beer. The press quotes Heineken-owned Star Pubs and Bars as admitting that deliveries have been hit due to the lorry driver shortage. It quotes Mitchells and Butlers as reporting “sporadic shortages”.
• The Guardian quotes Restaurant Group-owned Wagamama as saying that it is struggling to hire chefs at a fifth of its sites. CEO Thomas Heier told the PA ‘we’ve seen a reduction in our EU workforce in particular.’ He adds ‘but the other thing we’re seeing is increased competition from logistics and delivery firms who are struggling with an increased number of vacancies.’ Fitch last week said the movement of workers out of the UK back to the EU had been “intensified by Brexit”. Wagamama adds ‘it’s a perfect storm of higher than normal demand, with supply chain challenges in the mix and a shortage of staff on the logistics side.’
• Nightcap reports it has entered into a lease for a new London Cocktail Club bar at 78 Queen Victoria Street in Central London. It says it ‘continues to ramp up its new site roll-out and currently has a further five sites in legal negotiations across several of its brands.’ CEO Sarah Willingham says ‘since the lifting of the Covid restrictions we have been impressed with the strong trading at all of our City sites in London.’
• The government has announced that it is pressing ahead with vaccine passports for nightclubs. See our comments last week on the threat to spontaneity. CEO of UKHospitality, Kate Nicholls, has said ‘Covid passports for certain venues and events will be unworkable, cause conflict between staff and customers and will force business to deal with complex equality rules.’
• Research conducted by the Local Data Company reports that almost 50 stores per day closed down across the UK during the first half of the year. Some 8,739 outlets went out of business across high streets, retail parks and shopping centres in H1, with 3,488 opening during the same period.
• Starbucks workers from three Buffalo, New York-area stores have filed to have the official union elections for its Starbucks Workers United union. Jory Mendes, Starbucks’ senior manager of corporate communications, said ‘we firmly believe that our work environment, coupled with our competitive compensation and benefits, makes unions unnecessary at Starbucks’.
• Further comment: This may or may not gain traction in the US but, if it does, combined with a tight labour market, it would imply higher wages. Such a move could be a threat this side of the Atlantic. Circumstances may favour labour in negotiations at present. This may swing back the other way but, in the short term, there is no sign of it doing so. Upward wage pressure could combine with rises in VAT and business rates and put pressure on margins.
• Pernod Ricard has acquired a minority stake in wine and spirits company Sovereign Brands. The investment is said to be the beginning of a long-term partnership aimed at creating business opportunities between Sovereign Brands and Pernod Ricard in the future.
• Brown-Forman reports net sales up 20% in its first quarter to $906m with CEO Lawson Whiting saying the firm ‘ benefited from the re-opening of the on-premise, sustained at-home consumption, and continued premiumisation trends’. Operating profits for the period were up 25% to $289 million.
• Walmart opened its first Ghost Kitchen Brands ‘virtual food court’ location in its Rochester, New York. The Ghost Kitchens service enables Walmart shoppers to select food and beverages from the menus of up to 25 national and regional restaurant and CPG food concepts and combine them into a single order.
• Junkyard Golf Club will open a Newcastle venue this winter, bringing its estate to 6. The new site, on Newgate Street, will feature three bars as well as its golf courses.
• The owners of the Gunpowder Indian restaurant in Spitalfields are set to open a new 54-cover Indian restaurant in Soho in October.
• Booking Office 1869 is set to open in October in King’s Cross, offering an all-day drinking and dining destination.
• Scream For Pizza, based in Newcastle, has announced that it is creating a dozen jobs as it launches a new Quayside venue. The new site has created 12 jobs, more than doubling Scream For Pizza’s workforce to 27 people.
• Ikea says that at least 1,000 of its product lines have been disrupted by the shortage of lorry drivers, with transport, raw materials and sourcing at all of its 22 stores around the UK and Ireland been affected by labour shortages and COVID-19.
HOTELS & LEISURE TRAVEL NEWS:
• The Air Travel Insolvency Protection Advisory Committee has issued a series of warnings to the government on the impact of changing travel restrictions, imminent withdrawal of financial support and proposed Atol reform. The committee warns that last-minute changes to travel restrictions risk ‘a higher level of travel organiser insolvency’ and that if the furlough scheme and Coronavirus Business Interruption Loans (CBILS) cease from the end of September ‘many businesses could fold’.
• The ONS reports that 23% of arrivals from amber list countries broke the Covid-19 quarantine rules, failing to comply either with the requirement to isolate at home for 10 days or to complete the necessary PCR tests.
• The Home Office has criticised UK Border Force after reports of passengers fainting in queues of up to three hours emerged. A spokesperson said ‘We are working very closely with Heathrow Airport and its airlines and we are all committed to making sure all passengers can have a safe and hassle-free journey.’
• In the US, STR reports hotel occupancy of 61% in the week ending August 28, down by more than 2 percentage points.
FINANCE & MARKETS:
• Markit’s composite PMI for the UK in august was 54.8, down from 59.2 in July. It says this ‘signalled a much slower speed of recovery across the private sector economy.’ It says the reading ‘was the weakest over this period.’ It says ‘private sector employment numbers increased at the fastest pace since this index began in January 1998, largely fuelled by a rapid rise in recruitment across the service economy.’ It cautions ‘shortages of staff and raw materials acted as a constraint on the recovery in August, with supply chain disruption leading to an especially sharp rise in backlogs of work at manufacturing companies.’
• Markit comments that ‘strong inflationary pressures continued in August, but the latest rise in overall cost burdens was the slowest for three months. Meanwhile, prices charged inflation eased since July in both the manufacturing and service sectors.’
• US jobs creation in August was weaker than expected as employment rose by 235,000. Some 1.05 million jobs had been created in July. The unemployment rate fell to 5.2% in August from 5.4% in July.
• Sterling up at $1.3844 and ®1.1662. Oil price lower at $71.74. UK 10yr gilt yield up 3bps at 0.71%. World markets lower on Friday but Far East up in Monday trade & London set to open up around 11pts as at 7am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines on Saturday were dominated by the debate over Covid jabs for kids: the Daily Mail highlighted “Chaos over jabs for kids” and the Guardian noted “Ministers expected to defy advice on jabs for children”, whilst the Times went with “Children set to be jabbed from early next week” and the Telegraph flagged “Child jabs rollout to be pushed through”. The FT had a couple of interesting headlines, by way of contrast: the main headline was “Apple delays child sex abuse detection code”, but it also had a story about the news that “Yoga, DJ’s and cash on offer as groups try to tempt staff back into the office”.
• Saturday’s Press and News (2): In terms of Retailing stories, the main focus was on Asda, after it reported weak Q2 sales (down 0.7% LFL) on the day that 2 more senior executives quit the business (Anthony Hemmerdinger and Preyash Thakrar): as noted in the gloomy FT headline: “Clouds hang over Asda as sales slip and more senior figures quit”. There were also snippets in the Times and the Telegraph about the Asda news and a longer article in the Guardian, which highlighted the more cheerful news that Asda plans to open 200 petrol station convenience station stores by the end of next year. The main Business story in the Daily Mail, however, was headlined “Is Tesco the next private equity takeover target?”, flagging the view of the fund manager Alliance Bernstein that Tesco is the most attractive of the supermarket chains. And Morrisons was the “Share of the Week” in the Daily Mail, ahead
• Sunday’s Press and News (1): The front-page headlines of the Sunday papers were mixed: the Sunday Times and the Mail on Sunday ran with a new Royal scandal (“Charles aides fixed CBE for Saudi tycoon who gave £1.5m”), whilst the Observer and the Sunday Telegraph went with the row about how to pay for increased social care spending (the former flagged “Pressure grows on Starmer to back tax on rich to pay for care”, whilst the latter said that “Tories at war over “idiotic” tax increase”).
• Sunday’s Press and News (2): In terms of Retail stories, there was plenty of focus in the Sunday papers on Morrisons: the Observer led its Business coverage with a preview of the upcoming Morrisons interim results (“Bidders’ enthusiasm for Morrisons looks unlikely to be dampened by latest results”), whilst the Mail on Sunday flagged that the improved interim profits are set to ignite the takeover battle, with a counter-offer still expected soon from the Fortress consortium. The main Business story in the Mail on Sunday, however, was that M&S has warned its European food suppliers about the likely chaos next month when EU border controls are tightened on Oct 1st. The Sunday Telegraph had a photo of the boss of Boohoo’s Pretty Little Thing fashion website, Umar Kamani, and his fiancée, to flag his launch of a private club in Dubai. The Questor investment column in the Sunday
• Sunday’s Press and News (3): 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 (“Sunak knows he has to turn off the public spending taps”) and the column in the Sunday Telegraph by the veteran City commentator Jeremy Warner (“Many firms will need to offer big, inflationary wage rises to fill jobs”). We also enjoyed the column by the veteran Economics commentator, William Keegan, in the Observer, headlined “Leavers’ pride may not endure as Britain’s poverty rises”.
Today’s News: There is still no news from Fortress about an offer to top the agreed 285p bid from their rival CD&R for Morrisons, but then they have had to be issued with a “put up or shut up” deadline by the Takeover Panel…In the meantime, dealings start today in the huge tranche of 165m shares issued by Morrisons’ convenience store partner, McColl’s, to fund more expansion and if investors had hoped to make a quick turn on the 20p placing place they will be unable to do so, as the shares closed on Friday at just 19.75p…
Today’s Press: According to the invaluable Guardian press summary email, the front pages headlines today continue to be all about the row about how to pay for increased social care spending: the Guardian itself flags that “PM faces mutiny over plan to raise taxes for social care”, the Telegraph says “Tory party grandees join tax rise revolt” and the Daily Mail highlights “Cabinet revolt on £10bn tax raid”. But the Express faithfully trudges out to the wicket with “Plea to nation: share tax pain to solve NHS crisis”, while the Times says “PM to defy rebels over tax rise for social care”, saying its own polling shows he will have the public’s support. On a different tack, the FT flags that “M&A on track to break records after $4tn of deals so far this year”.
Weather Watch: It has been rather cloudy and cool recently, but memories about “the weather” are always notoriously short-term and often too London-centric…so, ahead of the BRC Retail Sales survey for August tomorrow (see below), we have turned to the Retail weather consultants Planalytics to check on how last month’s weather “should” have affected trading on the High Street (and Online) across the country…And their overview for the calendar month of August was headlined “Cooler for the South – Another Dry Month”, flagging that the UK overall was the coolest since 2018, despite a decent month in Scotland. Overall, the monthly mean temperature of 15.9C was 1.7C below last year. Across the country, in terms of the sales of key seasonal products, Planalytics estimate that the theoretical impact on “weather driven demand” last month was +7% for Soup and +5% for Interior Paint, but -4% for
This Week’s News Flow: The BRC Retail Sales figures for August are out first thing tomorrow and more decent growth seems likely, given the robust BDO High Street Sales Tracker weekly figures for Non-Food and the solid trends in the latest Kantar/Nielsen grocery sales figures. Tomorrow also brings the Ted Baker Q1 update. Wednesday then brings the Dunelm finals and the Halfords trading update/AGM. The Morrisons interims are still scheduled for Thursday (along with the Mothercare AGM), whilst the CD&R/Morrisons bid prospectus is due at the end of the week.