Langton Capital – 2022-02-09 – PREMIUM – Return to work, confidence, Gregg’s, Chipotle, Lyft, BrewDog etc.:
Return to work, confidence, Gregg’s, Chipotle, Lyft, BrewDog etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Sometimes, I rue the fact that the letters U and H are so close together, especially when you’re trying to type the word ‘suit’.
For example, if you’re asking if something suits someone, it can convey completely the wrong impression if you replace the U with an H. Of course, it would fit in with the vernacular a little better if you said that something ‘suits you not’ but that would be a bit convoluted so we’ll leave it there.
Busy day with meetings today. Real, genuine, visiting someone else’s office meetings and, it has to be said, London felt busier yesterday than it has for a while. Perhaps that’s about time. Let’s move on to the news.
GENERAL THOUGHTS: LANGUAGE TO RELY ON?
PUBS & RESTAURANTS:
CGA & Wireless Social have commented on ‘the current vibrancy of the hospitality sector in Britain’s 10 most populous cities.’ They are looking at how much below 2019 sales the areas are tracking. Looking at the four-week period to 15 January, the research concludes that ‘Leeds was the most vibrant city of the 10 with a 0.2% drop in sales compared with the same period in 2019, ahead of Glasgow, Bristol and Birmingham, where restaurant, pub and bar sales held up relatively well in late December and early January.’ London, perhaps unsurprisingly, is 10th out of ten.
• The research suggests that London sales are down 19% ‘highlighting the severe impact of work-from-home instructions and reduced visitor numbers in the capital.’ We commented yesterday on reduced inbound tourist numbers. This has hit London in particular and it will be partly responsible for Edinburgh coming in at a relatively lowly number seven.
• Wireless Social looks at volumes / footfall whilst CGA comments on spend. As average spend has risen, the second number is regularly less bad than the first. One person’s ‘increasing spend per head’ of course, is another person’s ‘gouging the customer’ and, however it is described, it can only go so far. CGA spells it out when it says ‘while visitor numbers have dropped in recent months, average spend has increased slightly, and consumer confidence has increased since the end of 2021.’
• This is now starting to feel a little historic as the energy cap and Bank of England interest rates have increased since end-2021 and both look set to increase further. CGA says it has ‘been an immensely difficult two years for hospitality businesses in city centres, and these vibrancy figures reveal the damaging impact that COVID constraints have had on footfall and sales in late 2021 and early 2022. With restrictions hopefully now behind us and many workers returning to offices, we should see British cities start to return to pre-COVID norms in consumer activity over the course of this year.’
• Vibrancy, in the context of a consumer cost-of-living squeeze is one thing but spend may be quite another.
• Wireless Social comments ‘with the Plan B measures behind us, it’s vitally important that the sector is able to build back and develop in a restriction-free environment. The findings from this inaugural Vibrancy report are sobering, especially with the lens focused on London, but as we’ve seen time and again over the last two years, pent-up consumer demand combined with decreasing COVID case numbers, does positively impact activity across hospitality venues.’
• Wireless Social says ‘going out and supporting hospitality is more important than ever, with stark increases in business rates, VAT and energy bills around the corner, so we’re hopeful that our next report will see a significant improvement in activity.’ We comment further today to clients on the differences and (similarities) between words such as ‘hope’ (and hopeful) and ‘think’, ‘believe’ or ‘have faith that’…
• The cities were ranked:
o 1 Leeds
o 2 Glasgow
o 3 Bristol
o 4 Birmingham
o 5 Leicester
o 6 Liverpool
o 7 Edinburgh
o 8 Sheffield
o 9 Manchester
o 10 London
Construction market analysts Glenigan says ‘the prospects for new construction work are set for a boost now that Covid restrictions have been lifted and a return to office working is in progress, particularly on office refurbishment projects and on hotel & leisure schemes geared to a recovery in the travel sector.’
• See our comments elsewhere about the differences between what you might hope for and what you actually expect. Glenigan goes on to say ‘even if developers are cautious about new office schemes, major private and public sector employers are investing in updating and enhancing their employees’ surrounding with some significant refurbishment/redevelopment schemes, particularly in London.’
Bloomberg’s latest Pret Index suggests that ‘bankers, corporate lawyers and asset managers in the U.K. appear to be repopulating London’s City and Canary Wharf financial districts almost twice as fast as Wall Street.’ It says Pret’s ‘transactions are now 78% of pre-Covid-19 levels in London’s finance hubs, about 10% less than the pandemic high set in the areas last year when almost all restrictions were lifted. By comparison, the cluster that includes Wall Street is only trading at 41% of normal levels.’
• Bloomberg says ‘that figure is expected to increase in the coming weeks with several banks including Goldman Sachs, Citigroup, Morgan Stanley and Bank of America beckoning their employees back to their desks amid a significant drop in infections in New York City.’ Pret Chief Executive Officer Pano Christou says ‘as countries start to loosen restrictions, I hope we will keep seeing that upward trend, especially as workers get back into the office in bigger numbers.’
• Pret says that ‘pre-boarding transactions at London’s airports climbed to the highest level so far this year and are just below two-thirds of normal. As many families prepare for quick getaway trips during the upcoming winter school vacation, Pret’s airport stores could be in for further sales increases.’ It says its ‘stores in London’s suburbs are recording sales almost a third higher than they were before the pandemic as a strategy to cater to those employees still working from home pays off.’
Bank of America has reported that its measure of confidence among British households in their personal financial situation fell to its lowest since the bank began its survey in 2017. It says that a broader gauge of consumer confidence dropped to its lowest in 11 months.
A new marketing group is expected to be set up by England’s whiskey distilleries – to be unveiled in Spring. White Peak Distillery’s co-founder Max Vaughan said the group constituted ‘everyone that currently had a whisky in the market – or was set to release one’.
• Spirits’ sales have held up relatively well in the on-trade per CGA and others. This is partially on the back of the popularity of cocktails. Cotswold Distillery says ‘2021 was key for us – whisky came into its own. We’re in our fifth year of production of whisky now, but it was last year we saw demand take of, both internationally and in the UK.’
A survey by the Night-Time Industries Association (NTIA) reveals that night-time businesses have seen a 26% rise in total operating costs in the past year. On average, increases were as follows: 18% in stock and workforce expenses, a 29% rise in utility costs and a 31% increase in insurance prices all contributed to the overall rise in total operating costs.
The latest Lumina Eating Out Report 2021 shows that 51% of UK consumers ate out during the Christmas week, marking the lowest level of the 12 weeks to 26 December 2021. However, the report found that total spend increased by +2.5%, to £12.29, as festive celebrations throughout November and early December prompted high spends.
Increased scrutiny of emergency Covid loans in the wake of the resignation of Lord Agnew has suggested that perhaps as much as £20bn of the money will need to be written off reports Company Rescue. This is clearly a hot political potato.
• Company Rescue says ‘some insolvency practitioners are suggesting that as much as £20 billion of taxpayer-backed Covid loans may have to be written off because of defaults by struggling borrowers as the businesses goes bust.’ This is not necessarily down to fraud. Delaying insolvency could have been partially behind the granting of the loans in the first place.
• The journal quotes Azets as saying that a ‘substantial and increasing number of businesses are already struggling to make their loan repayments’. Chancellor Rishi Sunak said at the beginning of the Covid pandemic that he wasn’t in the business of keeping zombies alive. He very quickly stopped saying that and, if £20bn has to be written off, then that may be what has happened.
• Company Rescue quotes Keith Steven of KSA Group as saying ‘many companies are restructuring CBILS into the Recovery Loan Schemes, sooner or later the payments have to be met. Many cannot afford the payments now.’ Some £47 billion in Bounce Back Loans were made with another £26 billion in CBILS. The business department currently estimates that £17.5 billion of bounce back credit may not be repaid.’
Sport & the pub:
According to the MA, Oxford Partnership data shows that 30% more customers have come into pubs due to the kick-off of the Six Nations rugby tournament. Scottish pubs sold an extra 238 pints per venue, Wales followed with 184 extra pints per venue and sites in England sold 149 additional pints.
• The Oxford Partnership says ‘while it is still early days for 2022, such strong data at the start of the Six Nations indicates a solid recovery is ahead. It is so exciting to see the industry only performing slightly behind 2019, driven by a growing consumer confidence shown in the increased footfall.’ It adds that ‘however, we urge Government to continue to support the industry which has been under so much strain over nearly two years.’
COMPANY & OTHER NEWS:
German Doner Kebab will open 78 restaurants in the UK this year, making it the fastest growing UK restaurant chain. The ambitious growth strategy will build on the 39 restaurants that were opened during 2021.
• CEO Imran Sayeed says ‘2021 has proven to be a landmark year in the German Doner Kebab story however the next 12 months are going to be even bigger as we open 78 restaurants and double our UK portfolio.’ It adds ‘we have been extremely agile during the Pandemic, listening to the needs of our customers and responding to the huge demand for our game-changing kebabs. This has enabled us to build greater levels of brand awareness and customer loyalty as we bring the German Doner Kebab experience to more cities and towns throughout the UK.’
Oaknorth Bank says that Ottolenghi, which it lent £3.7m to in July 2020, has ‘expanded its online shop with dinner boxes, prepare at home meal kits, and a tableware licensing deal, as well as growing its Ottolenghi Ready range.’ It says ‘the business is now operating at a higher earnings margin than before COVID-19.’
Gregg’s is set to launch a clothing range in conjunction with Primark. The bakery chain is also set to open its largest Gregg’s to date, in the Primark store in Birmingham. The café will have 130 seats. Some have said this is more a gimmick than a serious attempt to crack clothing – but good luck to them. The Birmingham store will open this Saturday 12 February.
Chipotle Mexican Grill (the US parent) yesterday reported full year numbers saying that comparable restaurant sales were up 15.2% for the Dec. 31-ended fourth quarter, and up 19.3% for the full fiscal year.
• Chipotle opened 78 new restaurants in Q4 and says that 215 new restaurants opened in the year as a whole. CEO Brian Niccol says ‘2021 was an outstanding year for Chipotle, highlighting the strength and resiliency of our brand. Together, we accomplished many incredible things as our passionate employees remained dedicated to delivering excellent guest experiences, aligned with our purpose and values. Moving forward, we believe expanding access and convenience through our digital ecosystem, accelerating unit growth, and continuing to develop and support our restaurant employees, will put us in a much stronger competitive position.’
• The CEO has previously said that the chain could around double its 2,950 units in the US. The CEO now says that small-town Chipotle locations can deliver the same economic returns as those in bigger cities. Revenue rose 22% in Q4 to $2 billion. The group says that LfL sales slowed somewhat towards the end of Q4 due to Omicron. Net income in Q4 was $133.5 million, or $4.69 per share. For the year, sales were $7.5 billion, up 26.1% and net income was $653 million, or $22.90 per share, compared with $355.8 million, or $12.52 per share, in the prior year.
The MCA comments on BrewDog’s situation following adverse press publicity and comments from former and current employees saying that ‘another slew of negative headlines against BrewDog CEO James Watt [has] piled further pressure on the irreverent and controversial craft beer leader.
• The MCA could be speaking about another famous person when it asks ‘where is the tipping point when those in the firing line should step down?’ It says changes made do represent a move in the right direction but it quotes one source as saying ‘the key question is whether the current management is suitable to take the business forward’ to which it adds ‘I think the answer is frankly no. Sometimes you can’t have a punk persona without the punk personality – and the punk personality isn’t really well suited to listing on the stock market.’
• The MCA quotes a crisis management source as saying that, when a company looks to IPO, there will be a far wider audience of stakeholders to keep happy. It says ‘you can’t treat it [the company] like your plaything anymore.’ The crisis management company says ‘you cannot fob people off with an apology if you don’t intend to follow through on any remedial action that you are pledging.’
• The MCA concludes ‘as another industry source added, with allegations continuing to pop up, the business has taken two steps forwards and one back. Ultimately the question remains about what role Watt should play in BrewDog’s future.’
SALT microbrewery is launching its Craft + Falafel concept in central Leeds, set to open 18 February. This will be the second SALT Tap in Leeds following SALT Craft + Cocktails.
KERB Counter is launching later this month, offering a bar and test kitchen space in the centre of Shoreditch with exclusive collaborations, pop-ups and food residencies from a roster of food entrepreneurs. The space will open to the public on Thursday February 10 with a residency by From The Ashes BBQ.
The Big Table Group, operator of Las Iguanas, Bella Italia and Cafe Rouge, has appointed Debbie Moore as the company’s new HR Director. Moore was previously Head of HR at Arcadia.
LEISURE TRAVEL & HOTELS:
The World Travel & Tourism Council has said that ineffective government travel restrictions imposed to combat Omicron lost the UK economy some £7bn last year. The WTTC says ‘imposing unnecessary travel restrictions to ‘deal’ with Omicron was not backed by science and cost the UK economy £7 billion in lost revenues.’
• The WTTC says ‘travel is opening up worldwide. If the UK is going to start to repair its economy, it needs to keep borders open.’ The WTTC further goes on to say that the number of those employed in the UK travel and tourism sector fell 7.2% to 3.96 million in 2020 compared with the prior year.
Yesterday, TUI reported that bookings for summer holidays are up 19% on pre-pandemic levels, despite household finances facing a squeeze from surging inflation. It reported that a total of 3.5 million customers had booked a trip for summer 2022 as of 30 January, with new bookings helping group sales recover to 100% of 2019 levels.
Complicated rules putting off travellers. The BBC reports that ‘many UK families have cancelled half-term trips to mainland Spain and the Canary Islands because children over 12 must be double vaccinated to enter.’ It says ‘hoteliers in the islands say the restrictions have lost them millions of pounds’ worth of trade.’
Lyft yesterday reported full year numbers yesterday saying that Q4 revenue rose 70% to $969.9 million. The company still lost $1 billion in 2021 as a whole (compared with a loss of $1.8 billion in the prior year). The company says that Omicron will impact Q1 this year.
• Lyft’s shares fell by 6% yesterday on the Q1 news (which could not have been too much of a surprise) as the co said Q1 revenue would be between $800 million and $850 million, down $170 million or so on Q4 last year. Lyft says ‘were it not for Omicron we would be projecting strong sequential quarter-over-quarter ride growth and revenue growth.’
A survey by research firm BVA BDRC has found that consumer confidence in overseas travel dipped in December and early January with the return of restrictions due to the Omicron variant but did not fall back to the level of summer 2021. The proportion comfortable to take an overseas holiday was down by six percentage points on October at -33, but six points better than in July and August and a 22-point improvement on January 2021.
Peloton has announced plans to drastically cut costs including 2,800 job losses. Following a downturn in performance, the CEO is also leaving the business. The firm has experienced a dramatic fall in sales since gyms reopened, tougher competition and bad PR following the death of a child.
Hasbro has beat analysts’ expectations in its quarterly results, boosted by demand for toys based on the latest Spider-Man movie. However, shares fell on the warning of surging freight and raw material costs pinching profit margins for most of this year.
FINANCE & MARKETS:
Sterling higher at $1.3554 and €1.1864. Oil price lower at $90.91. UK 10yr gilt yield up 8bps at 1.50%. World markets better yesterday (thought London was lower) & the UK set to open up around 61pts as at 7.15am.
RETAIL WITH NICK BUBB:
• Today’s News: The Dunelm interims (for the 26 weeks to Dec 25th) are headlined “Record performance and moving forward as the 1st choice for home”, which is an interesting take on things: the results are strong, with PBT up 25% to c£141m, on the back of a 10.6% rise in sales, but the main interest is in the outlook statement and, although there is no detailed trading update, the Dunelm CEO, Nick Wilkinson, says “Trading to date in the second half, including our Winter Sale event, has continued to be encouraging, and there is momentum across the business…The Board currently expects that FY22 full year PBT will be in line with recently upgraded market expectations” (the consensus PBT forecasts is £206m). In other news, the big shopping centre landlord Landsec is hosting a Capital Markets Day in Manchester today, focused on mixed-use urban neighbourhoods as a key pillar of the company’s
• Grocery Market Watch: The latest monthly Nielsen grocery market share figures cover the same period as the BRC-KPMG sales figures (for the 4 weeks to Jan 29th) and came out at 8.30am yesterday, a week later than the rival monthly survey from Kantar (which covered the 4 weeks to Jan 23rd). The Nielsen survey was headlined “UK supermarket sales fall modestly in January but online share of grocery sales rise to 13.1%”, but total till sales fell by 2.9% in the four weeks (versus +10.6% growth in the same month a year ago) and although the share of Online sales rose to 13.1% from 11.3% in December, it was well down from the peak of 16.1% in January 2021. Mike Watkins of Nielsen said that “…given the increased supermarket spend during the 2021 lockdowns, total till growth will likely decline throughout Q1 before returning to growth by Easter”.
• This Week’s News: Tomorrow brings the Watches of Switzerland Q3 update.