Barclaycard, jobs, costs, labour, cliff edge(s), DPEU, Brewdog etc.:

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A DAY IN THE LIFE:

Last weekend we had to put the heating on and today and tomorrow it’s going to be boiling.

All of which is rather confusing for the flora, the fauna and the human inhabitants round and about with the latter wondering whether it should dig out its shorts and sunglasses for one last outing.

And, on balance, why not?

The pubs should have a good week – that’s if they can secure the beer and food they want to sell and the staff they need to sell it – and the return to work numbers could stall as many would-be commuters may look out of the window and conclude, nah, maybe next week.

Anyway, there’s a bit going on so let’s move to the news:

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PUBS & RESTAURANTS:

Trading:

• Barclaycard has suggested that consumer spending rose in August, up some 15.4% compared to the same month in 2019. It says there has been an increase in “socialising, shopping and staycations”. It reports that pubs, bars and clubs saw a rise of 43.4% with restaurants up 0.1%. The card processor said that ‘socialising, shopping, and staycations were top of the agenda for Brits in August, as families and friends made the most of the school holidays, giving a welcome boost to hospitality and leisure businesses.’

• Further comment. Barclaycard says ‘with office workers adjusting to new work and lifestyle patterns, this growth looks set to continue. Of those returning to the office after having worked from home during the pandemic, 34 per cent plan to spend more on takeaway breakfast or lunch, and 26 per cent intend to up their spending on socialising after work. A further 27 per cent also expect to keep their work wardrobe updated by allocating a larger budget for new clothes, shoes, and accessories.’

• The card company adds ‘staycations remained popular throughout August as spending on hotels, resorts and accommodation grew for the third consecutive month, compared to 2019, reaching its highest growth recorded since the onset of Covid-19 (+17.5 per cent).’ It says ‘international travel continued to head in the right direction, with travel agents (-55.0 per cent) and airlines (-52.5 per cent) seeing less of a decline than in July (-66.6 per cent and -56.2 per cent) – perhaps a sign of brighter times ahead, as the vaccine roll-out continues and more destinations open up to British holidaymakers.’

• Barclaycard says that confidence in the UK economy ‘rose to its highest point (37 per cent) since February 2020 (42 per cent), with 78 per cent of Brits confident in their ability to live within their means each month, and 71 per cent feeling optimistic about their household finances.’ It cautions that ‘this optimism could be dampened by concerns about rising prices, as almost two thirds (64 per cent) of consumers worry that everyday items are becoming more expensive, and of those, 42 per cent are already making lifestyle changes as a result.’

• Foodservice analyst Peter Backman says that total spend across the UK hospitality and tourism market for 2020 ‘fell from £137 billion in 2019 to £71 billion last year; It would, of course, have been even worse but for the fact that the (relatively) slow-trading first quarter was approximately normal.’ Mr Backman says ‘a major contributor to this covid-induced fall has been the absence of overseas visitors whose 18% share in 2019 fell to 8% last year (and almost zero during the final few months).’

Consumer demand:

• Demand – the outlook for jobs. The Insolvency Service reports that August saw the lowest a reduction in planned job cuts to take it to the lowest figure for that month in seven years. The data suggests that there will not be a surge in unemployment and may indicate the presence of inflationary fears. On that topic, the newest member of the Bank of England’s MPC, Catherine Mann, has said that inflation is not being baked into the system. She says there are ‘historical differences’ with the way inflation behaved in the past. She says that fifty years ago there was a “much stronger relationship between” wages and tight labour markets.

Working from home:

• The degree to which this sticks clearly impacts demand for Pret, Costa (and new sites, rents etc) but it has other implications. Pragma Consulting, for example, says that suit and tie wearing, already on the slide, has diminished further alongside the pandemic. Goldman Sachs has said it will relax dress codes due to the “changing nature of the workplaces” and M&S is reported to be taking suits for sale out of a number of its stores completely.

• Further comment: We needn’t just be talking about suit-wearing here, but could be discussing any one of several ‘before Covid’ behaviours that have been dragged into question by the lockdowns, restrictions and the like. Pragma says ‘as ever, the consumer will dictate how the sector is shaped and the brands which offer hybrid items that look great in every scenario – and via a range of relevant and compelling formats – are the ones that will thrive.’

• We would add that this (suit-wearing) is one of a number of changes that have arguably been accelerated by – rather than caused by – Covid. Working from home, casual Fridays, fewer drinking occasions, the rise of delivery, less use of cash, the growth of streaming services etc may well have been in the ascendency before the pandemic – but they have certainly also been boosted by it. We could have seen several years’ growth or changed shoehorned into a much shorter period of time – and it will be very interesting to see whether any of this growth is surrendered in absolute terms, or whether growth simply flattens for a few years.

• New West End (see also below) says that 91% of the 1001 respondents in a recent survey it conducted, wished to return to the office in some capacity. It says, however, that ‘75 per cent acknowledge that they will continue to work from home for some of the week.’ New West End says ‘an increasing number of office workers are beginning to return to the West End now that restrictions have been lifted, but we need more businesses to heed the wishes of their employees in order to stimulate the capital’s recovery.’

• Returning to work? The Guardian reports the London Underground as saying that this Monday past was the busiest start to any week since the beginning of the pandemic. It says rush-hour trips were up 17% from Tuesday (the first working day) of the prior week. Network Rail says that peak morning footfall at Cannon Street was up 43% on a fortnight ago. Canary Wharf Group says ‘the number of people back at Canary Wharf varies from our tenants. Some businesses have asked for everybody to return and some are asking people to return in phases. In the meantime, our shops, bars and restaurants are doing really well.’

Footfall:

• New West End reports that ‘London’s West End footfall rose 12% between the first and last weeks in August’. It says that it is ‘social outlets – including the West End’s world-famous restaurants and bars – that need custom from returning office workers if they are to survive and subsequently thrive.’ New West End adds ‘the last 18 months have undoubtedly forever changed the environments in which people work, but more must be done to encourage workers to return in some capacity.’

• Further comment. As mentioned above, this last point is the key one. New West End says ‘whether it leads to a quick trip to the shops or a long-overdue lunch with colleagues, every returning office worker will play a vital role in the high street and economy’s recovery.’ This is true and it is to be hoped for. But that doesn’t necessarily mean that it will happen – and, if it does happen, it’s beginning to feel that it will not happen all in one big rush.

Labour shortages:

• These can be ‘fixed’ at the micro level (by paying more wages & attracting staff) but the workforce is a fixed resource and, if staff are attracted from one sector to join another (say from care work to Amazon or from the building trade to HGV driving, there will be labour shortages in other parts of the economy as other problems are resolved.

• Further comment: If, as the retail chain Iceland suggests, lorry drivers can pull in as much as £950 a day, there will be no shortage of applicants when it comes to training up for those jobs. Because £250k a year, though it simply has to be a temporary fix, is good money by any standards and, if the job involves listening to your favourite music (being periodically interrupted by a satnav) and seeing the length and breadth of the country, then where do we sign?

• James Wroath, CEO of Wincanton, has said that qualification time should be ‘cut from 12 months to three’ to address an estimated shortfall of 100,000 HGV drivers.

• The CBI warns that the labour crisis could last for up to two years, and has called for ministers to take action on visas for foreign workers.

• The Recruitment and Employment Confederation reported that there were 1.66 million vacancies at the end of August, showing that there is an acute shortage of workers.

Various cliff edges:

• We haven’t seen the phrase cliff-edge used for a while but the ends of furlough, zero business rates & 5% VAT will all be soon upon us and insolvency firm Mazars says that business closures could be the result.

• Further comment: The Telegraph quotes Mazars as suggesting that restaurant and hotel closures will rise from around now and peak next spring. It says there are signs of stress. Partner Rebecca Dacre comments ‘it is clear that we have yet to see the full extent of the pandemic’s financial hit on hotels and restaurants.’ She says ‘businesses that are just keeping their head above water are likely to be taken under by the end of government support schemes, the repeated cost of reopening and restocking, difficulty recruiting staff and lower occupancy or covers due to people’s changing habits or working patterns.’

• It’s hard not to agree that the going will be tough. Chancellor Rishi Sunak, before he was reminded to get back on message, said last spring that he wouldn’t be able to rescue every business and implied that the market would not be working efficiently if he tried to do so. Mazars says ‘those businesses that have benefited from UK tourism this summer may still find themselves looking for support after the holiday season ends.’ It is also likely (or at least possible) that there will be a bounce back in foreign holidays next year and that the staycation market will weaken.

• Add into the mix the fact that landlords will be able to sue for unpaid rents and loans provided to businesses will need paying back, and Mazars says these developments will ‘cause even further difficulties, and likely trigger a sharply increased number of insolvencies in the sector.’

Company & other news:

• Around 9m school children return to the classroom this week. Social interaction will increase and it is likely that infection numbers will rise.

• DP Eurasia has reported H1 numbers to end-June saying that system sales were up by 58% (revenue up 50%) on the same period last year. It reports that adjusted EBITDA was up 129.7% with net income swinging to a profit of 34.8m TRY versus a loss of 60.9m TRY in the prior year. Re the outlook, DPEU says ‘whilst the Board is conscious of the potential continued risks posed by the pandemic, the strong like-for-like performance achieved in Turkey in the first half of the year and the expectation of continued buoyant trading enables raised guidance for full year like-for-like growth rates in Turkey. In late March 2021, guidance was set at 21-25%, which is now being raised to 35-40%.’

• CEO Aslan Saranga comments, saying the result ‘shows a marked improvement compared to the same period in 2020.  We have increased our adjusted EBITDA by 129.7% compared to the same period a year ago on the back of a 50.3% increase in Group revenue.’ He says ‘our Turkish business continues to expand in record breaking fashion despite the challenging inflationary environment that we have been experiencing’ and adds ‘our Russian business continues to show encouraging signs of improvement and we see positive impact from the implementation of our Russian plan, where we posted positive adjusted EBITDA figures after a loss in the comparable period in 2020.’

• DPEU says ‘the robust franchisee demand has resulted in 16 store openings in Turkey during the first half of the year with a very strong pipeline for the second half of 2021 and beyond.  In Russia, we have also added two stores in the first half.’ It says ‘digital continues to be the driving force behind our sales’ and adds that ‘we are increasing our Turkish like-for-like guidance and the Board expects the full year adjusted EBITDA for 2021 to be slightly higher than the market’s current expectations.’

• The Times reports that Brewdog, which is ‘seeking to put recent allegations of a “rotten culture” behind it’, is launching a JV in Japan with Asahi Breweries as a prelude to an initial public offering.’ It says Brewdog’s co-founder, James Watt, has ‘apologised and promised to make changes’ to the way the company is run. The company ‘plans a stock market flotation’ and was recently valued at £2bn.

• The Social Market Foundation has called for  the development and sale of artificial meat in order to tackle the climate crisis. Animal agriculture currently accounts for 14.5% of the world’s greenhouse gas emissions.

• Byron has been accused of creating a ‘hostile environment’ between managers and waiting staff as tips are about to be split between waiters and kitchen staff 70:30 respectively.

• The owners of The Tipsy Vegan in Norwich are set to open a new Cambridge site in October.

• Megan’s will open the group’s 14th site, and its fourth of this year, this November. The site will be located in Dulwich Village.

• Cask Marque is sponsoring the Good Beer Guide. Paul Nunny, founder of both companies said ‘CAMRA identifies some of the best pubs in the UK and those pubs in the guide who are in Cask Marque will have our symbol by the side of their entry as an endorsement.’

• Robert Foye, CEO of Accolade Wines, has told the BBC that a shortage of lorry drivers could impact the upcoming festive season, saying ‘ultimately costs will go up.’

• Bollinger has launched its B13 limited edition vintage champagne with the name as a reference to the 2013 harvest in Champagne, when the producer said it faced ‘turbulent circumstances’.

HOTELS & LEISURE TRAVEL NEWS:

• Per BBC, Altus Group reports that the number of holiday homes trading as businesses has jumped by more than 20%, with more than 11,000 second homeowners in England have flipping their properties to become holiday lets since the start of the Covid pandemic.

• Further comment: As mentioned above, it will be interesting to see just how much Covid-related change sticks and how much abates as & when the pandemic abates. We have heard stories of properties rented out to hospitality staff in staycation hotspots being taken off them to rent out to holidaymakers. Anecdotally, landlords could make in a week from a holidaymaker what they would have made in a month from bar staff renting their property. This is disruptive both for the residents who have to find somewhere else to live and for their employers. Some operators have had to bus in workers from out of town, which will add to costs.

• Gatwick Airport warns that the UK’s travel restrictions are seeing its aviation sector fall behind European rivals. Figures from ACI Europe show that bookings across Europe are at around 60% of pre-Covid levels, compared to 30% in the UK.

• British Airways and Deutsche Lufthansa have reportedly restored their flights to key financial hubs from London City Airport, ahead of a predicted increase in business travel. Flights departing the City are set to surge by more than 70 per cent in September, to some 260 trips a week by the end of the month.

• In the US per Destination Analyst, since the Fourth of July, Americans’ sense of normalcy and optimism about the pandemic’s course has fallen by half. Americans generally continue to see travel and leisure activities as safe rather than unsafe, air travel, indoor attractions and restaurants have suffered notable declines in safety perceptions.  

OTHER LEISURE:

• 888 Holdings has announced that its ‘all-new Sports Illustrated wagering experience, SI Sportsbook, has launched in Colorado.’

FINANCE & MARKETS:

• Markit reports August’s construction PMI in the UK to have fallen to 55.2 from 58.7 in July. Any number over 50.0 implies growth but the number is the lowest since February.

• Further comment. Markit says ‘evidence that the UK construction sector began to feel the impact of ongoing supply chain disruption was widespread midway through the third quarter of 2021.’ It says ‘supply chain disruption continued to disrupt activity across the UK construction sector, as demand for materials and logistics capacity outstripped supply. Average vendor performance continued to deteriorate at a near-survey record rate, as firms noted severe shortages of building materials, a lack of available transport capacity and long wait times for items from abroad due to port congestion.’

• Markit says that the input cost inflation faced by construction companies accelerated to the second-fastest on record, while the increase in subcontractor rates hit a fresh series high, fuelled by supply shortfalls in the sector.’ It says, however, that despite rising prices and logistics difficulties, the sector ‘noted a stronger degree of optimism regarding the year-ahead outlook, as more than half of survey respondents predicted a rise in activity.’

• The SMMT has reported the weakest UK August car sales last month since 2013. It says supply issues continue to undermine the market. The number was down 22% on last year and was 7.6% below the average over the last decade. Sales of electric vehicles, however, continued to move up.

• Sterling weaker at $1.383 and €1.1649. Oil higher at $72.58. UK 10yr gilt yield down 2bps at 0.69%. World markets broadly better yesterday but London set to open down around 13pts as at 7am.

RETAIL WITH NICK BUBB:

Today’s News: The Ted Baker Q2 update today covers the 16 weeks to 14th August and, although the 50% recovery in total sales is said to be in line with expectations, the picture is pretty patchy, with Online sales actually down by 25% against a highly promotional period last year. Trading margin was over 500bps up, but there is no comment on the likely interim or full-year profits, although CEO Rachel Osborne says that “we are confident that Ted is starting to emerge from Covid a stronger and more resilient business”.

BRC Retail Sales Watch: We said yesterday, ahead of the overnight BRC-KPMG Retail Sales survey for August (the 4 weeks to Aug 28th), that another month of decent growth seemed 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, but growth was a bit weaker than we’d expected (although the survey was headlined “Clothing And Back To School Sales Drive August Growth”). August saw only 3.0% total sales growth on last year (up 7.1% on a 2-year view, after 13.1% 2-year growth in June and 9.6% 2-year growth in July). The key Food/Non-Food split for August is buried in the 3-month moving averages, but Food sales were in growth overall, so the weakness came in the growth from Non-Food, where progress was very mixed: even though Clothing was very strong again, post-lockdown, several sub-sectors
were well down, given the tough comps, with Computing still propping up the league table (along with Household Appliances). Online Non-Food sales were 4.6% down in August, despite the strong Online Clothing recovery, with overall penetration slipping from 39.3% to 38.3% of all Non-Food sales.

This Week’s News Flow: Tomorrow brings the Dunelm finals and the Halfords trading update/AGM. Then we get the Morrisons interims on Thursday (along with the Lookers interims and the Mothercare AGM), whilst the CD&R/Morrisons bid prospectus is due at the end of the week.