Langton Capital – 2022-05-10 – PREMIUM – Confidence, prices, consumer spending, footfall, McColl’s, Cineworld etc.:
Confidence, prices, consumer spending, footfall, McColl’s, Cineworld etc.:
A DAY IN THE LIFE:
We’ve reintroduced Start the Day. It’s on the right in bold (or at the bottom if you receive the Word version of this email). It features:
• Start the Day with a Song (back after its Covid shutdown. Suggestions, especially more recent releases, welcome),
• Quotey McQuoteface (a Quote & general knowledge quiz),
• A Little Birdie Told Us (interesting stuff whispered in our shell-like – comments & contributions welcome)
• And Yesterday’s Tweets (which does what it says on the tin).
Anyway, after yesterday’s drubbing on the Stock Exchange, it’s already feeling like a long week. All that read on the screens can be a bit wearing and, in the early stages of a sell-off, there’s so little discrimination between good companies, that could do well as the market around them contracts, and their less-good peers, for whom any sort of consumer downturn could spell curtains.
But we don’t make the rules. Holding up a Stop Sign to halt a stampede will only get you trampled so, to those operators out there who know they are pulling the right levers, by the right amount, at the right time, we can only say carry on the good work and truth will out.
At least we hope it will. On to the news:
INFLATION, FOOD PRICES & THE BANK OF ENGLAND:
CGA and Prestige Purchasing have released their latest Foodservice Price Index, which shows that ‘year-on-year inflation in the foodservice sector hit 13.6% in March 2022.’ CGA and Prestige say ‘the figure is the highest in the history of the Index and continues a surge in prices since the start of the year.’
• The March number ‘is 3.4 percentage points higher than in February, when year-on-year inflation reached double digits for the first time.’ The index producers point out that ‘inflation in March 2021—when the UK was still under widespread COVID restrictions—was just 0.1%.’
• CGA and Prestige say that seven of the 10 categories measured rose by more than 10% in the year and five rose by more than 20%. They say ‘prices in the oils & fats category are now over 50% higher than just one year ago, while the breads & cereals segment has increased dramatically too.’
• CGA & Prestige say ‘Russia’s invasion of Ukraine has exacerbated other major inflationary pressures, including the soaring costs of energy, fuel, transportation and labour.’ Prestige CEO Shaun Allen comments that the conflict has ‘reduced production levels of food staples such as grains and oils, it’s driven up the cost of distribution by increasing oil prices, and it’s raised the cost of energy by restricting gas supplies.’
• Prestige says ‘inflation may calm later in the year, but prices are unlikely to fall for the foreseeable future.’ CGA adds ‘there is little sign of price pressures easing in the foodservice sector.’ It says ‘high inflation is going to be with us for some time to come.’
Barclays has also commented on inflation, agreeing that ‘the invasion of Ukraine in late February 2022 lifted energy prices further and is likely to result in substantial food inflation.’ It says ‘inflation [is] expected to peak at c.9% y/y in April and remain elevated through 2022.’
• Many other observers expect a peak of around 10.75% in October when energy prices rise again. Barclays says ‘disposable household incomes [are set] to fall by c.2% in 2022 and GDP growth is set to stall as a result.’ It says real wages will fall.
Bank of England MPC member Michael Saunders has commented on the inflationary environment saying in a speech to a Resolution Foundation event that ‘secondary inflation’ could be a major problem unless the Bank takes action to ‘lean strongly’ against high inflation expectations. Mr Saunders voted last week for a 50bp increase in rates.
• Killing off ‘secondary inflation’ involves depressing the economy. The Bank can achieve this by kicking the consumer in the gut. It may publicly say that it is doing what it can to help or that it sympathises with peoples’ plights but, in order to depress inflation, it believes that it has to depress spending.
• Mr Saunders says that ‘unless checked by monetary policy, domestic capacity and inflation pressures would probably be greater and more persistent than the central forecast.’ He says ‘the strength of external costs is eroding real incomes and is likely to cap real spending.’ He adds ‘these external cost increases also may exacerbate the rise in inflation expectations and hence, with the tight labour market, could make it harder to ensure domestic inflation pressures return to a target-consistent pace.’
PUBS & RESTAURANTS:
Consumer spending & footfall:
Barclaycard has reported on consumer spending in April this year, saying that it is up 18.1% on last year, boosted by holiday spending. The measure picks up spending on credit and debit cards and it may be influenced by the switch from cash to plastic over recent years.
Barclaycard says ‘consumer card spending grew 18.1 per cent in April as holiday bookings boost the travel sector, but rising living costs start to impact retail and hospitality.’ it adds that ‘spending on essential items grew marginally less than in March owing to a slight reduction in petrol usage and Brits seeking to save money on groceries.’
• The card company says ‘takeaways, nights out and subscriptions all had smaller uplifts than in March as rising prices led to changes in consumer behaviour,’ adding that ‘international travel had its best month since before COVID-19, with airlines and travel agents seeing noticeable improvements.’
• Overall, spending on ‘essential items’ was up by 17.4%. Fuel spend was up by 23.0% year on year. Supermarket shopping was up 15.9%. Barclaycard says ‘over half (52 per cent) of these shoppers are cutting down on luxuries, just under one in two (47 per cent) is buying budget or own brand goods over branded goods, and almost two fifths (38 per cent) are using vouchers or loyalty points to obtain discounts.’
• Barclaycard says ‘the proportion of Brits feeling concerned about the impact of higher household bills on their finances remained high at 90 per cent.’ It adds that, nonetheless, ‘spending on hotels, resorts and accommodation rose 16.6 per cent compared to three years ago, the category’s highest growth since September last year, while the international travel sector had its best month since before the onset of COVID-19. Travel agents and airlines saw significant improvements, declining just -3.5 per cent and -9.9 per cent respectively, compared to last month’s contractions of -10.7 per cent and -12.0 per cent.’
• The card company says that ‘almost a fifth (17 per cent) of Brits are also spending more on special occasions (such as weddings and hen/stag dos) and holidays this summer, to make up for lost time over the last two years.’ It adds spend on ‘at-home experiences’ rose sharply, adding ‘spending on takeaways and nights out was…reined in as growth on fast-food and takeaways (77.9 per cent) as well as bars, pubs, & clubs (39.2 per cent) was lower than in March (79.6 per cent and 41.7 per cent respectively).’
• Barclaycard’s José Carvalho says ‘the impact of rising living costs on consumer spending is starting to show, with a number of categories – including subscriptions, takeaways, and bars, pubs & clubs – seeing less growth than in March as Brits begin to feel the pinch. However, the improvements seen by airlines and travel agents are particularly positive, and hopefully point to a recovery in spending on international travel later this year.’
• Mr Carvalho concludes ‘while concerns around rising household bills may continue to hamper spending on non-essential items, the upcoming Platinum Jubilee Weekend and summer months should provide opportunities for Brits to spend on celebrations and make the most of warmer weather.’
The latest retail numbers from BRC-KPMG show that sales dipped in April after a sharp drop in consumer confidence. BRC CEO Helen Dickinson says that the cost of living crisis had ‘crushed consumer confidence and put the brakes on consumer spending.’ Retail sales fell by 0.3% in April – the first fall in 15 months.
• The BRC says ‘sales growth has been slowing since January, though the real extent of this decline has been masked by rising inflation.’ She adds ‘big ticket items have been hit hardest as consumers reined in spending on furniture, electricals and other homeware, compounded by delays on goods coming from China.’ Non-food sales increased by 6.9% over the three months to April driven largely by inflation.
The Springboard Shopping Centre Index w/e 7 May showed +18.3% footfall YoY, but -14.2% compared to 2019. The index claimed that ‘the additional increase in activity in high streets last week versus the other two destination types was undoubtedly supported by mild weather across the UK which tempted shoppers to visit external locations.’
• Springboard reports ‘the gap in footfall from the 2019 level narrowed considerably last week, and for the first time since the start of the pandemic it was below minus 10%; in part this was a benefit of the steady gains in footfall that have been occurring from week to week, however, there was a clear improvement last week which was a consequence of a decline in footfall in the same week in 2019.’
• SB says it saw ‘a far greater rise in footfall in Central London and regional cities across the UK versus Outer London and market towns which are synonymous with home working.’
A survey of the nation’s food intake shows a 57% jump in the proportion of households cutting back on food or skipping meals over the first three months of this year. One in seven adults (7.3 million) are estimated to be food-insecure, up from 4.7 million in January. The Food Foundation says many people are eating irregularly.
UKH has said that it supports moves by Business Minister Paul Scully to widen the ban on exclusivity clauses to include those earning less than £123 a week. CEO Kate Nicholls comments that ‘the hospitality sector has over 160,000 vacancies, double that of pre-pandemic levels, and recruitment is a key challenge for operators looking to rebuild and recover following the last two years. We therefore see this move as positive for both businesses and workers in the sector.’
Another bloody day for the market and for the hospitality sector yesterday. Four percent losers included 888, Compass, Intercontinental Hotels, Marston’s, Nichols, Ten Entertainment and TUI. Five percent losers were Fever Tree, Jet2, On the Beach, Playtech, Saga & Whitbread. Six percenters wee Flutter, PPHE, Sportech and SSP. Rank was 7% down, Just Eat was 8% off. Cineworld and Entain were 9% lower. Carnival was 10% down, Hotel Chocolat was 11% down and, coming in in last place, Deliveroo was some 12% lower.
• The above comprises a broad church from betting & gaming companies, through travel, luxury products and delivery. Notable by their absences were, perhaps, drinks companies Britvic, AG Barr & Diageo. Also not dropping a noteworthy amount were the Dominos stocks (DOM, DPEU, DPP) along with Fulham Shore, JDW and MAB. Restaurant Group edged up a fraction but its performance, recently, has been dreadful.
• We would suggest that this is consistent with there being limited discrimination between good companies and their less-good peers in the early stages of a sell-off. As time passes, better operators will pick up sites, staff and customers from the relative losers. However, yesterday, that was all for the birds.
Hawksmoor plans to open in Liverpool later this year in the Grade II-listed India Buildings.
Morrisons has reportedly fended off competition from EG Group in a race to buy McColl’s. The offer is expected to see McColl’s stores and workforce preserved in their entirety. Morrison’s is reported to have won over an offer from EG Group.
• PwC says the deal gives ‘much needed certainty to McColl’s 16,000 staff after a period of understandable concern’. Morrison’s CEO David Potts comments ‘although we are disappointed that the business was put into administration, we believe this is a good outcome for McColl’s and all its stakeholders.’ He adds ‘this transaction offers stability and continuity for the McColl’s business and, in particular, a better outcome for its colleagues and pensioners.’
The German Doner Kebab restaurant company is to open its 100th UK restaurant today. The company says ‘our goal for 2022 is to almost double our UK portfolio and continue our mission to bring the GDK experience to more cities and towns throughout the UK.’
HOLIDAYS & LEISURE TRAVEL:
Travelodge has 700 vacancies it plans to fill before the peak summer season, with 640 of those being permanent positions. Roles range from hotel manager and assistant to housekeeper supervisor plus 20 maintenance engineers and 40 roles at the company’s head office in Thame, Oxfordshire.
Birmingham Airport has been described as ‘absolute chaos’ as travellers face hours long queues. Travellers at Manchester Airport have also reported long queues on social media. There has been no recent news on the queues for new passport from HM Passport Office.
Other travel news:
STR reports that London’s hotels saw occupancy of 72.0% in April, with ADR of £151.42 and RevPar of £108.98. The overall improvement in weekday levels points to a return of corporate demand.
American Express Global Business Travel CEO Paul Abbott claims corporate travel companies must consolidate to make the technology investments required to prosper. Abbott said ‘I don’t think we’ll return to pre-pandemic levels, but even if 10% of [corporate] travel doesn’t come back, it is still a huge market…We’re market leader with revenue of $40 billion in a $1.2 trillion sector. In March, we were at 61% recovered [compared with 2019].’
Cineworld has this morning reported that it has ‘obtained undertakings to waive from its holders of its guaranteed convertible bonds due 2025 in respect of events of default arising due to non-payment of amounts due to the former dissenting shareholders of Regal Entertainment Group.’ It says it is ‘continuing discussions with the Regal Litigation Parties and a further announcement will be made as and when appropriate.’
The Wall Street Journal reports that Peloton is actively courting investors to buy between 15 and 20% of the company in a bid to right the ship. The deal could bring some much-needed cash, as Peloton attempts to regain its footing amid gym re-openings and increased competition.
FINANCE & MARKETS:
Inflation. See feature above Pubs & Restaurants’ section.
The Telegraph comments on house prices saying that ‘although experts disagree on when a crash could come, what might cause it, or how severe it would be, house prices are all but certain to go into reverse eventually. Previous drops have come with little warning and caused misery for millions of homeowners.’
Sterling up at $1.2364 and €1.1688. Oil price lower as investors switch from inflation to stagnation concers at $105.32. UK 10yr gilt yield back down through 2% to stand at 1.95%, down 6bps. World markets reported heavy losses yesterday. London set to open up around 13pts as at 6.30am.
RETAIL WITH NICK BUBB:
• BRC-KPMG Retail Sales Watch: We flagged yesterday that the overnight BRC-KPMG Retail Sales survey for April (the 4 weeks to April 30th) would probably report a small negative outcome (despite the bright BDO weekly sales figures and the later Easter this year), given the tougher overall Non-Food comps and the continuing weak Food performance. And total sales were indeed down by 0.3% on last year (after 11.9% growth in January, 6.7% growth in February and 3.1% growth in March). Paul Martin, UK Head of Retail at KPMG, noted that “The cost-of-living crisis came home to roost for retailers in April, with sales growth going into decline for the first time in 15 months”. The key Food/Non-Food split for April is buried, as usual, in the 3-month moving averages (of -1.3% and +6.9% respectively, in terms of total sales growth), but the BRC said that Food sales returned to growth, thanks to
• Today’s News: We can’t see any Retail company news this morning, apart from all the usual share buyback announcements, but the monthly traffic commentary from Heathrow is always good for a laugh and the April survey is headlined “Heathrow records strong April, but unpredictability remains the harsh reality”. The 5.08m passengers who travelled through the airport last month was still down on the record 6.79m in April 2019, but Heathrow have increased their overall 2022 passenger forecast by 16% to nearly 53m, which will please WH Smith.
• This Week’s News: Tomorrow brings the Angling Direct finals and the Vertu Motors finals, whilst on Thursday we get the Superdry pre-close update and the Howden AGM.
• Quote of the Day: Here’s another insight from the American actor and commentator Will Rogers (1879-1935), which we dedicate to the economists worrying about the April BRC-KPMG Retail Sales figures: “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like”.