Tracker, costs, Crowdcube, US implants etc.:

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A DAY IN THE LIFE:

A few beers in Hull over the weekend, the Corn Exchange, Ye Olde White Hart, the George and the Blue Bell for anybody who knows about these things.

And, apart from the wider selection of beers at the bar, little has changed over the years although the volume of signs in one of the pubs did force a smile.

So, here’s a question for you: which major company feels the need to inform its customers via a blizzard of harsh white signs not to use mobiles or tablets, not to let kids in after 6pm, not to vape, to email people, to look on Facebook or to share photographs?

The company says ‘we want our traditional pub to be a haven for social conversation’ but, as newspapers and the like aren’t to be banned, it does rather look as though ‘traditional’ involves freezing technology somewhere around the time that George V died and that’s going to be difficult to police over time.

Anyway, enough of that. On to the news:

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COFFER PEACH TRACKER: The latest Tracker, for the month of September, suggests that LfL sales grew by 1.2% in the month. 14 Oct 2019:

Summary:

• Positive numbers in a challenging market.

• The Tracker suggests that the UK’s pubs, bars & restaurants have been more resilient than the retail economy as a whole saying ‘retail woes and Brexit fears fail to dent pub and restaurant sales.’

• LfL sales across its data-base rose by 1.2% in September with drink-led pubs and bars ‘boosted by warm weather’

• The BRC says that retail trading as a whole was down by 1.7% in September. The BRC blamed uncertainty about a no-deal Brexit for reduced consumer spending.

• The data suggests that, perhaps, expenditure on ‘affordable treats’ is holding up.

• 12mth underlying LfL growth is running at 1.8%. This is below the rate of inflation and below the rate that may be needed to hold margins static. Wage growth is currently at an 11yr high but, just at the moment, this does not appear to be feeding through to LfL spending across the UK’s pubs & restaurants

Leisure spending vs spending in general:

• CGA says ‘if Brexit worries put the public off shopping on the high street, they don’t appear to have stopped them going out to eat and drink.’

• This is one-month only but it is welcome news nonetheless. Spending on drinks, casual dining etc. is often categorised as an ‘affordable treat’ and, so the story goes, whilst spending on a holiday or a new suite can be delayed, spending on eating or drinking out on a given day cannot.

• CGA says ‘just looking at retail as a barometer of the nation’s well-being, you would be forgiven for thinking we were deeply depressed. But the eating and drinking-out numbers paint a very different picture. It may be that pubs and restaurants are providing welcome relief from the constant news of Brexit uncertainty.’

• We would suggest that complacency would be wrong at this (and pretty much at any) stage. Because the fortunes of retail sales and leisure spending are often intertwined (e.g. concerning footfall on the High Street or in retail parks) and levels of spend are more often positively than negatively correlated.

Depressed customers driven to drink?

• Except in the very short term, we would suggest that this is incorrect. Certainly redundant workers will congregate in the pub after a mass-layoff – but this is unlikely to last.

• Longer term influences will be levels of income and relative certainty as to job security etc.

• The Tracker nonetheless quotes Paul Newman, Head of Leisure & Hospitality at accountants RSM as saying ‘much to the relief of the embattled pub and restaurant sector, the spectre of a no-deal Brexit seems to have driven consumers to take solace in their local hostelry in September.’

• This isn’t a sustainable business position.

• RSM adds ‘with consumer sentiment set to be severely tested over the coming weeks, operators need to focus on operational excellence with only the leanest and most efficient likely to prosper in such challenging market conditions.’

Experiential:

• It does appear as though many consumers are at ‘maximum stuff’. Sure, we could all live with a first, second or third boat but, in the real world, we’ve got enough pots, pans, chairs, TVs etc.

• Davis Coffer Lyons says ‘the comparison with retail illustrates the extent to which consumers are opting for intangible experiences with their disposable leisure spend.’

• It says ‘this shows a move towards sustainable consumerism—where purchasers shun superfluous fashion goods in favour of experiences and are increasingly looking for sustainably-sourced foods and healthy eating menus, both away from the home and in the home.’

Wet sales vs food:

• Continuing the trend of several months, the Tracker says that ‘pubs had the best of trading during September, with like-for-like sales ahead 1.9%, with restaurant chains also collectively (restaurants and pub restaurants) seeing positive like-for-likes, up 0.4%.’

• The weather impacts wet sales positively whilst it is neutral or negative for food sales (and for indoor entertainments – often associated with a meal – such as bowling, cinemas etc.)

• Drink-led pubs’ revenues rose by 2.6%. Whilst this is labelled a ‘jump’, it is only slightly ahead of inflation and may well be below the level of LfL growth indicated by JDW and others as necessary to maintain level margins.

London vs Provinces:

• The provinces traded more strongly than London. This is a reversal of the recent trend.

• The difference, however, is very marginal. Units outside London reported sales +1.3% vs +1.0% inside the M25.

Property:

• Davis Coffer Lyons, whose income is likely to be positively correlated to property prices, says ‘we continue to see a good appetite for good quality sites in London and nationwide from operators.’

• This is all a matter of definition.

• The Tracker shows that total sales, including new openings, were up by 4.3% in September (vs LfL +1.2%) suggesting that, at least across the constituents of the Tracker index, around 3% new capacity per annum is still going into the market.

• With GDP flat and costs rising, this may exacerbate problems re saturation.

• True, capacity is coming off elsewhere. But Restaurant Group recently suggested that, whilst around 25% of new capacity had gone into the market over the last 5yrs or so, only c1% had come out in the last 18mths.

GENERAL NEWS – PUBS & RESTAURANTS:

• The CGA Mixed Drinks Report 2019 suggests that ‘cocktail drinkers visit the on trade 25% more than non-cocktail drinkers.’ It also says ‘the cocktail market continues to grow in terms of value £587m (+9.5% vs last year) and the number of outlets stocking 41,938.’ CGA suggests ‘influential cocktail drinkers clearly impact the market and understanding their consumer behaviour along with the latest trends will empower suppliers to better analyse the market and opportunity.’

• The Daily Mail reports that Deliveroo’s customer base has been hacked with hackers selling ‘access to Deliveroo customers’ accounts for as little as £3 with stolen details used to order food shops and restaurants.’

• The Mail alleges that fraudsters are ordering meals and charging the bills to the accounts of hacked customers.

• Lynx Purchasing has warned that costs for operators over Christmas are set to rise. It says ‘there is likely to be a costly Christmas in store for catering and hospitality operators, as price rises kick in for many festive menu staples.’

• Lynx says that ‘both turkey and Brussels sprouts, essential components of a traditional Christmas dinner, are forecast to see higher prices in the run-up to the festive season. Other food items, from lemon for the pre-dinner gin & tonic to cream for the Christmas pudding, are also in the inflation firing line.

• Lynx, which accepts that the way that Brexit turns out (or does not turn out) will impact its findings. It says ‘while we’re still waiting for clarity on how Brexit, in whatever form it takes, will affect the supply chain, other factors are having an impact as operators get ready for the peak trading season. Extreme weather, from the spring floods to the summer heatwave in Europe, has affected many crops, and there are various other challenges facing meat, seafood and dairy.’

• This will cause problems as, again depending upon Brexit, consumers have shown recently that they are willing to cut down on their expenditure as uncertainty continues.

• Lynx particularly points towards turkey, pork, fish, salad, fruit and dairy products as being subject to upward pressure. Not sure what that leaves over. Tinned products may be more stable. Again, it’s worth pointing out that negotiations with Brussels will have a major impact on the outcome over the next few weeks.

• KPMG, administrators to the failed Patisserie Valerie, where the potential court case against an ex-director or ex-directors is being awaited by shareholders, has proposed amending the terms of its administration. It says ‘for the modification of the Joint Administrators’ proposals as follows: One possible strategy in order to bring the administration to an end is to place the Company into creditors’ voluntary liquidation. In the circumstances, we propose that Paul Allen and Geoff Rowley of FRP Advisory LLP to be appointed as Joint Liquidators of the Company, without further recourse to creditors.’

• The joint administrators also propose that their fees be paid.

• Crowdcube has updated on its Q3 trading saying that the level of business was up 38% on the prior year with £58.7m raised for customer companies. Co-founder Luke Lang says ‘our fantastic third quarter results show that it is possible to thrive in spite of the gloomy economic backdrop in the UK and Europe. Ambitious businesses who want to leave their mark on the world and build meaningful relationships with their communities can have staggering success.’

• Crowdcube last reported numbers to Companies’ House for the year to end-September 2018 in which it revealed that it had lost £3.0m in that year after a loss of £4.7m in the prior year. As at just over a year ago, the group had accumulated losses of some £20.5m since incorporation.

• Chick fil A has opened its first restaurant in the UK. It told US investors ‘we can confirm that we opened a pilot-licensed location in the U.K. on Oct. 10 and we are pleased to have already served nearly a thousand customers.’

• Chick fil A says ‘for right now, we are focused on this location to help us understand more about consumer interest in our brand and signature menu items.’ Chick fil A is the third largest restaurant chain in the U.S. by system-wide sales.

• Wendy’s the third largest burger chain in the US, is pushing breakfasts in its home market and is preparing to return to the UK. It says it will open restaurants in the next 12 to 18 months.

• KFC has announced it joining forces with Uber Eats in a trial that will see 50 KFC restaurants added to the platform across London.

• BBPA has responded to research from UKinbound that has indicated that the Government’s proposed post-Brexit immigration system will have a negative impact on pubs. The work showed that 70% of pubs are likely to experience a significant shortage if a £30,000 salary cap is introduced.

• The MCA has reported coffee shops have the highest frequency of visits in out of home channels, with 32% of customers visiting coffee shops once a week or more.

• Research from CGA has found that increasing interest in aperitifs has caused cocktail sales by volume and value to to rise 8.8% and 9.9% respectively in the last 12 months.

• Contactless payments accounted for more than half of all debit card transactions during July.

• Pizza Express could have to close 40% of its stores putting thousands of jobs at risk, the Telegraph has reported.

• Carlsberg has announced it has designed what it claims is the world’s first paper beer bottle made with sustainable and recycled wood fibres.

• Boxpark is set to open its first outside of London site after receiving planning permission from Adur District Council to open a ‘seafront dining destination’ on Shoreham Beach.

• In the US, Wendy’s will introduce its new breakfast daypart in Q1 2020, expecting the new breakfast platform to deliver a 10% growth in sales. CFO Gunter Plosch expects Wendy’s 2020 breakfast sales to be worth $600-800m.

HOLIDAYS & LEISURE TRAVEL:

• The Commons business, energy and industrial strategy committee will question Thomas Cook CEO Peter Fankhauser and chairman Frank Meysman on Tuesday morning.

• Mintel research suggests the failure of Thomas Cook ‘should not be confused with the demise of the package holiday’. Mintel said ‘The volume of overseas package holidays taken by UK residents continues to grow year-on-year, albeit at a slower pace than pre-referendum levels.’

• Proposed government legislation will enable collapsed carriers to be placed into ‘special administration’ which would mean aircraft and crew could continue flying in the short-term to repatriate passengers. This follows the CAA having to get hold of 150 aircraft from around the world after Thomas Cook collapsed. 

• Heathrow has backed IAG’s pledge to have net zero carbon emissions by 2050 and is demanding industry-wide action to achieve carbon-neutral flying.

• Teesside International airport is seeking a new managing director to help revive the airport after it was returned to public ownership.

• Kempinski, Europe’s oldest luxury hotel chain, has announced it will expand internationally by opening 100 hotels by 2021.

OTHER LEISURE:

• The Joker has topped the box office for a second week in a row, with the film earning $55m at 4,374 sites.

• Mastercard, Visa, eBay and Stripe have all pulled out of Facebook’s Libra cryptocurrency project. Their move follows the withdrawal of PayPal last week.

FINANCE & ECONOMICS:

• Sterling up sharply on Brexit deal hopes at $1.2612 and €1.1429. Oil up at $60.20. UK 10yr gilt yield up 11bps at 0.71%. World markets higher on Friday with Far East up in Monday trade.

• Brexit & politics:

o PM Johnson yesterday update the Cabinet on Brexit discussions. Jacob Rees Mogg told Brexit supporters that the PM ‘can be trusted’ but he may have to make further concessions re Northern Ireland. EU insiders are saying that Mr Johnson has backed down over certain of his demands but that he needs to give more ground.

o Discussions will continue in Brussels today. Queen’s speech today. EU heads of government meetings Thursday and Friday. If a deal is agreed, it will be put before the UK House of Commons on Saturday.

o CBI says Labour’s nationalisation plans would cost at least £196bn. It would take UK debt levels back to their highs of the 1960s.

o DUP says the latest proposed deal, as they see it, is not possible as it would treat Northern Ireland differently to the rest of the UK. DUP deputy leader Nigel Dodds told Italy’s La Repubblica that the proposal ‘cannot work, because Northern Ireland has to remain fully part of the UK customs union’.

o Ferry companies Brittany Ferries, DFDS, P&O and Stena Line have been awarded an £86.6m contract to deliver essential goods into the UK.

START THE DAY WITH A SONG:

Last Friday’s song was Here Comes Your Man by the Pixies, today who sang:

You look so tired, unhappy,

Bring down the government

They don’t, they don’t speak for us

RETAIL WITH NICK BUBB:

• Saturday’s Press and News: As the Brexit drama continued on Friday, sterling surged further, to $1.27 and the front page headline of the FT on Saturday was “Crunch Brexit talks as hopes grow for a deal”. But there was surprisingly little focus in the Saturday papers on the surge in Retail share prices on Friday (eg M&S jumped by 10%), with the jump in Housebuilding and Property stocks getting more attention, eg the market report in the Times highlighted the 14% jump in Travis Perkins. In other news, there were snippets in most of the papers about the weak QUIZ trading update and the HMV Birmingham store opening, whilst the Daily Mail noted that the Greggs share price had been hit by a share placing by CEO Roger Whitesides on Thursday. The Times had an interesting feature profile of the new boss of Tesco, Ken Murphy (aka “Ken who?”), noting that he is a protégé of Alliance Boots
boss Stefano Pessina (“The Irish rugby fan chosen to pick up the ball at Tesco and run with it”). Finally, the FT had a Small Cap column feature on three retailers said to be bucking the trend by investing in the future: Card Factory, ScS and Vertu Motors.

• Sunday’s Press and News:  The Sunday Times led its Business section front page with the headline “Sterling to rally further as hopes grow for Brexit breakthrough”, but it flagged that the UK in a Changing Europe think-tank has warned that Boris Johnson’s planned trade deal will inflict even more damage to the UK economy than Theresa May’s mooted deal with the EU. The Sunday Times also had a thoughtful column by its Economics correspondent David Smith on “The long and the short of Johnson’s Brexit deal”. In terms of Retail news, the Sunday Times flagged that the US sports giant Nike wants to stop supplying small independent stores and that suppliers to the troubled footwear company Office have had their credit insurance pulled. The Mail on Sunday had a gloomy piece about how the retail sector is braced for “the worst Christmas in a decade”, highlighting the apparently desperate
Sale that has been going on at John Lewis in the Home area. The Sunday Times had a feature on WH Smith ahead of its final results this week, highlighting the focus on US expansion, whilst the Sunday Telegraph had a feature on ASOS ahead of its final results this week, highlighting the pressure on CEO Nick Beighton to get the business back on track. Finally, the Sunday Times magazine had a feature on Waterstones boss James Daunt and how he plans to turnaround the ailing Barnes & Noble chain in the US and start opening stores again.

• News Flow This Week:  The Carpetright EGM to approve the financial support from its main shareholder, Meditor, is being held today. The latest monthly Kantar/Nielsen grocery sales figures are out tomorrow morning. The ASOS finals are on Wednesday. The WH Smith finals are on Thursday, along with the ONS Retail Sales figures for September and the Watches of Switzerland AGM.