Langton Capital – 2021-09-14 – PREMIUM – Winter Plan, passports, support withdrawal, inflation, BrewDog, DOM etc.:
Winter Plan, passports, support withdrawal, inflation, BrewDog, DOM etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I was thinking about information, the other day because, in the distant past, if it wasn’t passed on verbally, it was lost.
Big backward moves could be expected if an illness wiped out the old folk before they’d finished handing their knowledge down but, to the relief of everyone, the invention of the written word added a degree of permanence.
However, cost was an issue as, before the printing press, books cost around £12,000 each or maybe £400 per page.
So they only dealt with heavy issues such as spirituality rather than how to plant a spud and even if you had access to a book, you’d have to find somebody to read it to you. Probably a priest. Worse, a lawyer but then Gutenberg brought the price down to maybe £50 a book, mass literacy became a thing and we immediately invented other problems as we entered the era of heresy, propaganda and fake news.
More recently, the internet has exacerbated this by making data ‘free’.
The problem being, much of it is garbage and a lot of the rest is opinionated lies. Data is noise and information is something rather different. Indeed, as the volume of raw data goes up, the temptation is to pick the bits you want to believe and just go with that.
Data needs to be interpreted.
We’d like to say ‘that’s where Langton comes in’ but we accept that interpretation brings with it a whole other set of problems as humans are infested with biases and, in some cases, they are liars. Anyway, that’s quite enough of that for now. Thin news day, today, but let’s move on to what we’ve got:
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PUBS & RESTAURANTS:
Covid passports – held in reserve:
• Prime Minister Boris Johnson is to outline later today the Government’s winter Covid plan, with vaccinations set to provide Britain’s main defence over the colder months. The over-50s are to be offered a third jab and children between the ages of 12 and 15 are to be included in the programme.
• Vaccine passports, however, will not be introduced but will rather be ‘held in reserve’. Regarding the dropped vaccine passports, CEO of Night Time Industries Association, Michael Kill, said ‘Our focus now is to ensure that the Chancellor’s October budget allows us the financial space to rebuild and for the industry to maintain its exemplary record in support of the public health’.
• The Press is split along predictable lines as to whether this flipflopping was another example of government incompetence or a masterful bluff in order to oblige younger people to get their Covid jabs. The Independent goes with ‘shambolic’ whilst The Express just sticks to Sajid Javid’s comments and doesn’t mention that a raft of government ministers were saying the opposite only four or five days ago. Commenting on the Winter Plan, which PM Johnson is to announce today, The Express says he will ‘all but rule out further lockdowns to control an anticipated surge over the coming months’.
• Foodservice analyst Peter Backman says that this is ‘a phenomenon that we are only now getting to grips with. Its effects will become visible over the years.’
• Government support to be withdrawn in stages. Peter Backman points out that the ‘swaying rope bridge of 1 October is approaching. That is the day when the Job Retention Scheme (the furlough scheme) comes to an end and it’s also the day when VAT in the hospitality sector increases from 5% to 12.5%.’ This will be rather a big occasion. It is also the day from which landlords will be able to evict tenants for non-payment of rent.
• Further comment: Mr Backman says ‘most operators didn’t reduce prices when VAT was reduced – instead they pocketed the money (some, like JD Wetherspoon, did pass the reduction on). However, the government’s objective was to inject liquidity and working capital into the system, so it was correct for restaurant operators to keep the money. But the implication is that operators shouldn’t now raise their prices when VAT increases. But will they?’
• I think we know the answer to that one. Another point worth mentioning is that, when VAT rises by 7.5pps, this will come straight off LfL sales unless prices are raised by the full 7.5%. Another 7.5pps would come off next April. Mr Backman believes that the general ‘“air” of inflation around’ means that this is maybe an easier time at which it increase prices as consumer may be mentally softened up for a further assault on their wallets. Backman says that operators may be the master of their own destinies when it comes to introducing price rises but ‘the market will decide whether the increases will stick.’
• Inflation: Dealing directly with inflation (see also Finance & Markets below), the Institute of Economic Affairs talks about the mechanics of putting prices up. This is easier to contemplate than it is to enact because of consumer resistance and the existence of well-known price points.
• Further comment: The IEA says that, whatever the input pressures, ‘the final prices that businesses charge tend to be sticky: businesses do not like putting up prices.’ It says that this especially extends to labour and wages, which may be negotiated remote in time and place from any event or events elsewhere. The IEA adds ‘we all want more cappuccinos, more housing space, more goods on the supermarket shelves, more restaurant meals, more care for the elderly and so on. But there are simply not the real resources to produce all the things that we are demanding and paying for with printed money.’ it adds ‘eventually, this is “resolved” by a rise in prices in the wider economy and a rise in wages – in other words, by inflation. But this can take a while to happen.’ Unless something budges us off it, this may the road that we are currently on.
• In the US, Chipotle’s CFO, Jack Hartung, has commented on inflation saying ‘there’s definitely inflation creeping into the system, but it’s not clear yet what inflation will stick and what will be temporary.’ He told Fox Business last week that ‘inflation is driven by the labour shortage. All of our suppliers, every business I’ve talked to, has the same labour challenge, and wages are going up. That’s not going away.’ He says that any temporary shortages in supply vs demand will sort themselves out. Mr Hartung hopes that increased shipping costs will abate. Restaurant Dive quotes Francois-Xavier Roger, CFO of Nestle, as suggesting that input cost inflation next year to be higher than it has been this year.’
• A survey by Which? found that 18% of consumers had been unable to pay with cash at least once when trying to buy something between April and July. However, 8 in 10 people believe shops should continue to accept cash going forwards.
• Transport secretary Grant Shapps has said that it is ‘not in the hands’ of government to guarantee that there will be enough HGV drivers to deliver goods in time for Christmas. Mr Shapps said he ‘can guarantee is we will do everything we possibly can to enable more HGV drivers to pass their tests to get on to the roads, to have better conditions, and the raft of other measures that we have discussed.’ Mr Shapps claimed that the Covid-19 pandemic was the biggest problem re lorry drivers, not Brexit. He said ‘I am not going to stand here and deny that there haven’t been big changes to the way our industry is operating but no-one can realistically deny that those problems had been coming along for a very long time.’
• Further comment: The hospitality industry is as reliant as any on delivery. But some operators, such as the integrated brewers and pub companies, may be in a better position than some others to guarantee that product, particularly beer, gets to where it is needed in the run up to Christmas.
• Disaggregating the problem a little, the issue seems to be with HGV drivers. Anybody with a UK driving license can drive a van, or even a lorry up to 7.5 tonnes if your driving license was issued before 1997. That’s a pretty big truck meaning that the problem must be with articulated vehicles and the like, which will tend to be used for major deliveries to subsidiary distribution centres rather than to the pub, village shop or post office itself.
• Hence, getting the product into the country and to a major distribution centre may be the issue. This will impact standard lager and many imports but it should not affect the dray lorries that move the product from the company’s own brewery to its pubs. The whole process is integrated, of course, and the problem could just get pushed around. Smaller truck drivers may move on to driving HGVs and the breweries themselves will need to get product delivered.
Company & other news:
• Domino’s Pizza Group has announced the completion of its £45 million share buyback programme that has been running since 9 March 2021. It says ‘between 9 March 2021 and 13 September 2021, 11,762,066 ordinary shares were repurchased’ and adds ‘the purpose of the Programme is to reduce the Company’s share capital and accordingly the Company intends to cancel the Ordinary Shares purchased under the Programme.’
• BrewDog has appointed former Asda CEO Allan Leighton as a non-executive chairman. Leighton is the current chairman of the Co-operative Group, Royal Mail, Entertainment One, Element Materials Technology Group, and Wagamama. The hire is thought to be a move ahead of what could be a stock market flotation. The move follows on from the hiring of Blythe Jack as its first chairman. Jack was put in place to oversee ‘the recruitment process for a fully independent chairman in order to ensure the composition of the board is moving towards meeting the requirements of the UK corporate governance code’ said the company. Jack will remain on the board as deputy chair.
• Further comment: BrewDog’s valuation has been rumoured at up to £2bn. Given the way the group has been funded in the past with separate companies set up to do different things, one can imagine the job that’s going on behind the scenes to ‘normalise’ the company and calculate (and audit) the ‘pro-forma’ figures to show what this would have looked like had it been implemented earlier. The challenge for BrewDog, which is moving to right its alleged ‘toxic culture’, will be to move from a fantastic marketing machine to one that can persuade investors that it is capable of delivering material profits.
• The MA reports that trading has been mixed with William Lees-Jones, managing director of JW Lees Brewery predicting that operators are unlikely to know the full extent of the reopening until next April.
• Gordon Ramsay’s ‘Hell’s Seltzer’ is being rolled out to 11 US states by Brew Pipeline. Hell’s Seltzer comes in four flavours; Berry Inferno, Knicker Twist, Mean Green and That’s Forked.
• In the US, Uber Eats and Postmates have announced a new tiered pricing structure, with 15%, 25% and 30% fee plans.
• Further comment. Restaurant Dive says ‘Uber’s restaurant delivery arm is the last of the major third-party delivery aggregators to implement tiered pricing options for restaurants. DoorDash launched its three-tiered commission fee structure in April, while Grubhub also offers tiered commission plans.’ Uber Eats says ‘it’s become clear this is an important pricing lever for our partners—and since making this change we’ve seen merchants taking advantage of the flexibility.’
HOTELS & LEISURE TRAVEL NEWS:
• A survey of ABTA members has found that as many as seven in 10 travel companies plan to make redundancies after the furlough scheme ends on 30 September. ABTA says that summer 2021 bookings were 83% down on 2019. It said that 58% of bookings with departure dates in July or August had been postponed or cancelled. In a letter to government, ABTA says this ‘demonstrates that the traffic light system has acted as brake on the sector and failed to deliver the conditions necessary for recovery’.
• Heathrow boss John Holland-Kaye has urged the government to change rules for international travel in order to support the UK’s economic recovery. Holland-Kaye said ‘If Ministers fail to take this opportunity to streamline the travel rules then the UK will fall further behind as trade and tourists will increasingly by-pass the UK’.
• Airlines Uk and the Airport Operators Association have written a joint letter to transport secretary Grant Shapps, urging the government to ‘fundamentally rebalance’ its approach to foreign travel. The trade bodies called for fully vaccinated passengers and anyone travelling from low risk countries to be able to travel with restrictions or testing.
• The Student Hotel has started construction of its £300m Glasgow Merchant City hotel. The hotel will be a ‘hybrid’ hospitality concept combining accommodation, co-living and co-working spaces with restaurants, bars, gyms, retail outlets and meetings and event spaces.
FINANCE & MARKETS:
• Commenting on inflation, the Institute of Economic Affairs says ‘the warning signs are there’. It says ‘we have not had shortages on such a widespread scale for decades.’ It says that it ‘is highly likely that the problems we face across so many sectors of the economy are indicators of nascent inflation. There are other indicators too. Commodity prices are roaring ahead.’
• Further comment: The Bank of England, which is paid to steady the ship, says that inflation is a blip. It may hit 4% later this year, the highest for almost 10yrs, but it is a ‘temporary perturbation’ that we should all look through. Andrew Bailey says it is ‘important not to over-react to temporarily strong growth and inflation’ but the IEA says ‘as the old saying goes, inflation arises from “too much money chasing too few goods”’ That would appear to be where we are now and, if Iceland is correct in saying that HGV drivers are earning £950 per day, it might not be long before power station workers say they must be worth at least twice that much.
• The Telegraph says ‘City confidence surges on hopes Britain will rip up Brussels rules.’ That would, presumably, put paid to any thoughts of equivalence, a central tenet of which would have to be comparable legislation.
• The CBI has said that Boris Johnson’s recently announced tax rises could undermine the UK’s recovery. Director General Tony Danker is to tell the Alliance Manchester Business School that a “return to business as usual in our economic policy, at this unique moment in British economic history, would be a mistake”.
• Britain is to once again delay post-Brexit customs checks in order to kick the disruption they will cause down the road. The Telegraph says ministers are ‘blaming Covid disruption, despite the EU imposing full checks on British exporters from day one of Brexit.’ M&S is talking about shutting its stores in France due to added red-tape and stocking problems.
• Sterling mixed at $1.3839 and €1.1713. Oil higher at $73.98. UK 10yr gilt yield down 2bps at 0.74%. World markets mixed but broadly better yesterday. London set to open up around 5pts as at 7am.
RETAIL WITH NICK BUBB:
Today’s News: The JD Sports interims today cover the 26 weeks to end July and are astonishingly good: PBT before exceptionals was as much as £439.5m (versus a 2020 outcome of only £61.9m and £158.6m in 2019), including significant contributions from the United States (boosted by the recently acquired Shoe Palace and DTLR businesses) and the core JD business in the UK, “with a strong retention of sales through digital channels in the first quarter whilst the stores were temporarily closed, combined with strong pent-up demand after reopening”. JD boss Peter Cowgill says that “We remain absolutely confident that our inherent strengths in retail dynamics and operations provide us with a robust platform to make further progress. At this time, we are generally encouraged by our performance in the first few weeks of the second half although retail footfall remains comparatively weak in many
Today’s Press (1): According to the invaluable Guardian press summary email, the front pages today are dominated by Boris Johnson’s winter Covid plan. The Guardian itself leads with “Booster jabs for over-50s as No 10 accelerates vaccine programme”, while the Times has “Over-50s to receive booster jabs for winter”. The Daily Mail offers its take on Johnson’s Covid plan, declaring “Return of the doom squad”. The Daily Express splashes with “Boris ‘confident’ Covid plan means no return to lockdown”. Other papers focus on the push to vaccinate children: the Daily Mirror leads with “Jabs for kids in days” while the Telegraph’s main story is “Parents told to get their children vaccinated”. The FT says “Johnson’s £15bn ‘stupid tunnel’ killed off in Treasury crackdown”. And there’s still plenty of love for US Open winner Emma Raducanu, with smiling portraits of the British tennis star in New
Today’s Press (2): In terms of Retailing stories, the mixed Primark pre-close update gets plenty of coverage: the FT headline is “Primark sales show signs of recovery”, whilst the Guardian flags that “Primark hit by ‘pingdemic’ but it says supply crisis won’t lead to shortages” and the Times highlights that “Primark makes the most of its margins”. The Business editorial in the Times notes that “As weather-vanes go, Primark gives a pretty accurate reading on the winds blowing through the high street”. The Times also has a comment column about the problems of WH Smith: “Travel rules and restrictions will determine the fate of WH Smith”. The FT also catches up with the Mail on Sunday story about M&S in France: “Red tape sparks M&S review of French stores”.
This Week’s News Flow: The latest monthly Kantar grocery figures are out at 8am this morning. Tomorrow brings the Dixons Carphone AGM and the Games Workshop AGM, as well as the Pendragon interims. On Thursday we get the JLP interims, the THG interims, the Wickes interims, the Dixons Carphone/Currys name-change and an ASOS Capital Markets Day on Sustainability. Friday then brings the ONS Retail Sales figures for August.