A Day in the Life:

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So someone – and by someone I mean me – forgot to shut the door to the chicken coop over the weekend and, as a result, five chickens are missing, presumed murdered by one or more of the local foxes.

The ducks, on the other hand, are just fine.

They may spend their lives being bullied by the sprightly, sharp-eyed & somewhat smaller (but now stone-dead) chickens but, when it comes to spending the night evading a hungry fox by paddling swiftly from one side of the duck pond to the other, they definitely seem to have had the upper hand.

Hence, undisturbed by what was no doubt a lot of panicky squawking during the night, it was to an open gate, a few piles of feathers and a bunch of smug-looking ducks that we awoke on Sunday morning and, whilst there are no doubt a number of well-fed but filthy, vermin-riddled foxes knocking around the neighbourhood, we may have to go without eggs for a while. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• DP Poland H1 results: Group achieves ‘11 consecutive quarters of double digit like-for-like system sales growth’. Says it has seen ‘improving corporate store and commissary performance.’ Group has 19 stores across Warsaw and Krakow, 12 corporately managed and 7 sub-franchised.

• DPP H1: Says group EBITDA losses reduced. Sales 11.4m PLN v 9.3m PLN last year, LfL system sales +16%, LfL gross profit +27%. Group says top 3 corporate stores averaged £26k EBITDA each in H1 2015 vs £7.5k each in H1 2014. The group’s most mature corporate store delivered EBITDA of £29.5k6 in H1 2015.

• DPP H1: Group EBITDA losses down 40% H1 2015 to £0.8m. Co opened 4th Krakow store last month + will open in 3rd city next month

• DPP H1: One sub-franchisee, RHPP, now operates 5 stores + CEO Peter Shaw says ‘the continuing improvement in corporate store EBITDA performance, coupled with a growing contribution from sub-franchise sales royalties and commissary sales, plus a reduction in central expenditure has considerably reduced Group EBITDA losses in the first half, compared to the first half of last year.’ He goes on to say the group is focused on new sites saying ‘we are targeting further store openings in additional cities by the year end.’ Mr Shaw says the group will open a new central supply depot shortly and says ‘with an initial capacity to supply 50 stores, the new commissary will give us the option to expand production capacity further to supply up to 100 stores, with minimal additional capital outlay.’

• Casual Dining Group is soliciting advice re £150m bond deal. Sunday Times suggests choice of an IPO has been rejected. The Apollo and York Capital Management-owned company recently bulked up via the purchases of Las Iguanas and La Tasca leading some to suggest that an IPO was likely. The group lacks a pizza, burger or chicken offer. It exited Strada almost exactly one year ago. CDG CEO Steve Richards said ‘we are constantly evaluating options for our business in terms of the best way to grow it. However, we have not been exploring the option of a sale and have no plans to go to the public markets.’

• CDG to trial new concept under its Café Rouge brand at an existing site outside Euston station to be called Rapide

• AlixPartners + Peach Market Growth Monitor points to 6.9% growth in restaurant sites in year to June but 4.4% fall in wet-led pub numbers. It says the number of community pubs fell by 5.1% ‘reflecting the continuing shift in consumer preferences towards eating-out occasions.’ The study suggests ‘branded food pubs saw a 9% growth in numbers to c2,400 over the year, with the bulk of the overall growth in restaurants coming from the, largely branded, chain restaurant market.’

• M+C monitor suggests ‘there are now more restaurants with licences in Great Britain than drink-led ‘community locals’’. About 27,500 v 26,700. In a continuation of a trend that has been in place for many years, it says ‘pubs that have closed were more dependent on alcohol, and in particular, beer sales, than the average.’ It says ‘urban areas are the main focus for the new growth, seeing a 2.9% uplift in licensed premises in the year to June, with food-led sites, including restaurants and pubs, increasing 5.9%, while the numbers of drink-led businesses remained largely static. While central London saw a 3.3% increase in licences – and Manchester witnessed a 3.7% jump – others like Glasgow, Newcastle, Leeds, Cardiff, Bristol and Birmingham are outstripping both with growth rates of around 5% or above.’

• S Tel. reports enlarged ABInBev/SABMiller could move to UK in order to minimise tax bill. May be needed to secure SAB shareholder support

• SAB + China business. Any disposal post an ABInBev bid would mean the combined mega-brewer would have to forgo the huge distribution and bottling facilities held by SAB’s China joint venture, CR Snow. Ben Cavender of Shanghai-based China Market Research Group said: ‘The big value of most of these (Chinese) brands is the bottling facilities and the distribution systems they have. With long-term brand building over the next few years, having that access would be very big.’

• MOD Pizza co-founder Scott Svenson has told the M+C that he sees an opportunity for ‘hundreds’ of MODs across UK. The group, which is clearly thinking big, currently has 70 in the US. Svenson suggests he will test a number of locations but says ‘I think the scale and potential for MOD in the UK, is equal if not potentially greater than that of Five Guys. But only the passage of time will prove me right on that point.’

• The ONS has reported that, in Aug 2015, 41p of every retail pound was spent in food stores, 41p in non-food stores, 7p in non-store retailing and 10p in petrol stations

• Soho House launches £200m senior secured notes. It will redeem £145m in existing notes + provide cash for corporate purposes. The group says ‘Soho House expects to enter into a new £30 million revolving credit facility at the time of the issuance of the Senior Secured Notes.’

• M+C reports Millennials now a major market. Frequency of eating out rising but spend per meal down a little

• Luke Johnson tells Sunday Times he believes nightclub market, he has invested in Eclectic Bars, offers opportunities for consolidation

• The MA reports that the HIT Academy has been set up to help train new chefs and address the skills shortage in the industry.

• Research from E.ON suggests that British restaurateurs consume more than £1.3bn in energy each year, £325m of which could be cut out. A survey of 150 restaurant owners, managers and chefs found that while 80% considered sustainability when making business decisions, 75% felt they lacked the tools and knowledge to make changes.

• Shepherd Neame has launched its special edition Late Red Autumn Splendour Ale (4.5% ABV).

• Bath Ales has refurbished its Grapes pub in Oxford into a craft beer and pizza venue called Beerd. The pub is the first Beerd launched outside of its hometown in Bristol.

• Morrison’s has launched a new Lake District cheese brand as part of its package of support for farmers supplying milk.

• Morrison’s has revealed it plans to slash the use of ‘guilt lanes’ and is banning sweets and other unhealthy food from the till. The supermarket will instead offer healthier alternative such as fruit, nuts and bottled water. CEO Dave Potts commented: ‘We have been listening to parents and guardians who have told us that sweets on checkouts can sometimes lead to pestering from their children.’

• BHS is entering the c-store market with the help of wholesaler Booker and is opening six food shops within its department stores.

• The CMA has cleared Poundland’s £55m takeover of 99p Stores.

Holidays & Leisure Travel:

• Chinese tourists are expected to remain the biggest spenders of all international visitors to Spain, according to tax refund group Global Blue. The company said: ‘Even if the economic deceleration currently affecting the Asian giant leads (the Chinese) to ease off with their spending, the average spend of a Chinese tourist will still be around 1,000 euros (US$1,130), so we can affirm they will continue to be the most profitable tourists.’

• Ryanair has not been ‘complying fully with European customer law over flight disruption,’ according to the Civil Aviation Authority. The budget airline disputes the claim.

• The level of satisfaction of airline passengers has dropped over the last year according to a Customer Experience study looking at 14 major industries in the UK.

• Search figures for hotels in Rugby World Cup host cities show a significant year-on-year increase, according to research from Expedia. Hotel searches in Cardiff, where matches will be played at the Millennium Stadium, have seen the biggest increase with 630%, compared to a 50% rise in London.

Finance & Markets:

• BoE chief economist Andy Haldane has said the central bank may have to cut, rather than raise, rates to combat low inflation. Haldane described recent events in Greece and China as ‘the latest leg of what might be called a three-part crisis trilogy,’ adding ‘the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside.’

• George Osborne expressed his confidence in the slowing Chinese economy on Sunday, saying it is still a key driver of global growth. A slew of subdued activity data and an increasingly volatile stock market have raised concerns over the future of the country’s growth. The chancellor, currently on a trade trip to the country, said: ‘China is going through a very necessary and challenging transformation which is essential so that China’s economy can go on creating good careers and good jobs and higher living standards for your 1.3 billion people. I think the message I would say to China is, carry on with the reform, carry on with the change you’re making.’

• ONS figures show the UK was much less productive than the rest of the G7 in 2014, with output per hour some 20% below the G7 average. The UK was behind the US, Germany and France by a large margin and was slightly worse than Italy and Canada.

• World markets: UK down Friday, Wall Street also lower. Far East markets mostly down in Mon trading

• Oil price down a little at just under $48 per barrel

• Worldpay has rejected Ingenico’s £6.6bn cash bid in favour of a stock market flotation which will see it introduced into the FTSE 100.

Langton Licensed Retail Index – Major Movers

The LRI slightly beat the wider market last week, gaining 0.22%, in what was a very mixed week for the index, while the wider market was down 0.21%.

Merlin was down 2.31% last week as the group updated on Q3 trading as trading at the groups resort theme park was down 11.4% as a result of the Alton Towers crash, and a weaker euro impacted trading at the group’s London based midway attractions.  The group has previously said that it expects the fallout from the accident to last somewhere between 6-18 months.

Punch and Enterprise saw a 2.38% and 5.68% drop in their share prices last week.  Both groups are still out of favour with the market, though news that Morrison’s has sold its convenience stores may have raised concerns that there are now fewer buyers of pubs for conversion to C-stores out there.

Domino’s UK and The Restaurant Group ended the week up 3.99% and 1.98% each. 

SSP Group saw a 3.4% gain last week.  Operators are increasingly suggesting that travel out of the UK was higher than last year for the month of August, which would benefit SSP more than it would any of the more domestic leisure groups.

Other companies: Most of the big restaurant and pub companies saw gains with M&B up 2.78%, Domino’s up 3.99%, The Restaurant Group up 1.98% and  JD Wetherspoon up 2.93%.  Marston’s was up just 0.4% while Greene King was down 1.37%, perhaps as the market considers the potential impact of the monster that may be SAB/AB InBev on the brewers beer sales. In London, the pub groups saw a reversal of last week’s gains as Fuller’s was down 4.9% and Young’s was down 0.81%.

Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

The FRI underperformed the FTSE 100 due to a poor showing from its larger grocer constituents. Other notable movers included Ocado, up strongly on its third quarter results, and Majestic Wine, which gave back some of its recent gains.

Grocers

Tesco (-4.78%), Marks and Spencers (-2.75%), Sainsbury’s (-2.46%) and Morrisons (-5.21%) all fell heavily over the course of the week, due in part to the latest BRC-Springboard survey highlighting the low footfall in the retail industry last month.

Morrisons suffered another blow after HSBC slashed its forecasts for 2016-2018 by 20-30%, citing an arduous turnaround that will take ‘years, not months’. The bank concluded that, while MRW has competitive advantages with its freehold estate and vertical integration, it has ‘more disadvantages in a very difficult industry in transition’.

Meanwhile, Ocado bucked the negative trend with a 10.3% rise in its share price to 344.9p after reporting a 17.3% increase in Q3 group sales, which includes the benefits from the company’s agreement with Morrison and retail businesses, to £272m, and average orders per week up 16.6% to 190,000. The group was further helped by a couple of bullish notes from Morgan Stanley and Deutsche Bank.

Discounters

The confirmation of Poundland’s upcoming acquisition of 99p Stores by the CMA was not enough to stop the retail chain’s shares from falling 2.58% to 312.2p over the week, while Mccoll’s dropped by 2.42%. Shares in B&M Retail rose 2.2% to 321.82p.

Specialty/Wholesale

Majestic declined by 8.3%, proving to be the biggest move by some margin in this sub-group. Much has been made of the group’s recent acquisition of Naked Wines and related management changes. Although MJW announced a collection of own-brand wines, it remains to be seen to what extent the retailer is impacted by the supermarket price wars.

Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
After the fall in global stockmarkets on Friday, notwithstanding the news that the Fed had left US rates unchanged, a lot of attention was paid in the Saturday papers to a speech by the Bank of England’s Chief Economist, Andy Haldane, warning that interest rates may actually have to fall to zero because of the worsening financial crisis…In terms of Retail news, the share buying by Morrison’s Dave Potts that was announced on Friday morning got a lot of coverage, with the Business editorial in the Times pointing out that he has lost £0.25m so far on his previous share purchase…whilst there were several snippets about the news that the CMA had finally cleared the takeover by Poundland of 99p Stores. The FT followed up on the news that Lidl has jacked up its staff wage rates and the Times had an interesting story about Ocado’s technology patents being
challenged by the Norwegian firm that makes the Autostore storage and retrieval system. The reopening of Birmingham New Street station and the new shopping centre opening next week was featured in the Times and also merited a photo in the Guardian, whilst the Telegraph, inevitably, leapt at the fashion model photo opportunity provided by the launch of London Fashion Week. The Daily Mail flagged up the Retail Week website story that Dyson is to open a store on Oxford Street, opposite Selfridges. Finally, Philip Green (“The Last King of the High Street”) was profiled in the FT Weekend magazine and although there was a cheeky quote from Stuart Rose (“He’s more of a yesterday’s man than he is a tomorrow’s man. He’s a classic bricks-and-mortar retailer. Time has caught him up”), we found the lengthy article pretty uncritical on the whole,
focusing on the old news about his failed attempt to takeover Marks & Spencer, with little analysis of the poor performance of Arcadia in recent years…

Sunday Press:
The big story was the Sunday Times front page Business lead that the stockbroker Cenkos Securities has approached some of Debenhams’ biggest shareholders with a plan to depose the chairman, Nigel Northridge, and shake up the management. The Mail on Sunday led its Business coverage with the news that over the last year total shop floor space at UK supermarkets has shrunk by over 1m sq ft and it also flagged that the recovery of Dreams, the bed retailer, continues apace and that strong trading has led it to increase its full-year profit forecast. The Sunday Telegraph had an interesting article about the Womenswear design team at Marks & Spencer and their efforts to revive winning lines from the 1970’s. The Sunday Telegraph was also provided with yet another fashion model photo opportunity by the news that the US fashion chain American Eagle is keen to expand further in
the UK, but can’t stomach the high rents in the West End. The Sunday Times noted that Jaeger is in talks to sell its Regent Street flagship store to the luxury business Coach and the Sunday Times’ Diary column flagged that BHS barred its Retail correspondent from attending last week’s Watford store revamp visit because of his previous reporting of the shady past of BHS’s new joint owner, Dominic Chappell. Finally, the Observer had a big article about the impact of the new National Living Wage, after Lidl’s ground-breaking move to raise its wage rates from next month, and the Sunday Times noted that Charlie Mayfield, the Chairman of the John Lewis Partnership, has warned that the National Living Wage will raise unemployment unless it leads to higher productivity.

French Connection; The Spring/Summer season wasn’t easy for many Fashion retailers and, as French Connection had warned back on April 24th, today’s interims (for the 6 months to July 31st) are not very pretty, with losses increasing again, on the back of a 10% slump in Retail LFL sales. But at least current trading is steadier, with Retail LFL sales over the last 6 weeks flat, despite a challenging August on the High Street. “Trading, however, is unpredictable, and we are as ever dependent on the Christmas selling period”, says Stephen Marks, the veteran Chairman and CEO.

AO.com (aka AO World); The sharp spike up in the AO share price on Friday afternoon implied that somebody expected some good news from today’s analyst’s trip up to HQ in Bolton and ahead of that AO has put out a short trading update, trumpeting “Strong UK revenue growth and on track to deliver on long term strategic objectives”, with increased investment driving sales growth of over 30% in the quarter. There has been a huge short squeeze in the share price in recent weeks, from c120p to 170p, but whether that will be sustained remains to be seen…

Grocer 33 Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Grocer magazine on Friday afternoon saw Asda win as usual, thanks to a couple of punchy deals on Kenco coffee and Captain Morgan’s rum! Asda’s overall £85.88 basket was £2.85 cheaper than Morrison’s, with Tesco coming in at £91.71 and Sainsbury at £93.11.The Waitrose basket of £95.83 was way off the pace, as normal. There was better news for Sainsbury in the separate Grocer “Mystery Shopper” survey on Service and Availability, as their store in Cardiff topped the rankings, with a score of 73 out of 100.

Tesco Anniversary Watch: We are reminded by the Grocer’s upbeat profile of what Tesco Product Director, Jason Tarry, is doing with “Project Reset” to edit product ranges, that a year ago he was running the F&F Clothing business…and that today is the anniversary of the start of the great accounting scandal and the revelation that Tesco’s H1 profits had been over-stated. In case you’re wondering, the shares slumped to c175p in the aftermath of that news and, despite the big rally in the spring, they’re now back down to that level again, so the likes of Warren Buffett weren’t wrong to bail out a year ago…

Nick Bubb – nicholas_bubb@hotmail.com

Friday Wrap:

This was produced for distribution Friday afternoon: So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following:

Fed meeting, US interest rates:

• So did the Fed fluff it or did it do the world a favour, stare over the abyss and decide not to risk a rate rise until next month – or possibly next year?

• Far East shares were mixed overnight & we opened down suggesting that many observers see this (rightly) as a rise delayed rather than a rise cancelled.

• Maybe the Fed observed the weird rate rises put through (and almost immediately reversed) by the ECB in 2011 and has decided that it needs (even) more tangible evidence that the US economy is recovering before it ventures out on the ice.

• Or maybe it woke up yesterday and decided to do the world, particularly the EMs out there, a favour?

• Fat chance of that but, if this had been an exercise in magnanimity, then the offer has been thrown back in the Fed’s face with oil and equity markets down a little & traders simply rubbing out Sept and putting in Oct in their diaries.

• So uncertainty – at least as to timing if not to the event itself – remains the order of the day and cheap money is with us for that little bit longer.

• However, doom-mongers may point out that the average is the average because rates spend half their time below the spot rate and half their time above – this would suggest that, the longer rates stay low, the longer they will have to go high.

Retailing trends:

• The ONS yesterday reported that sales volumes rose by 0.2% in August but that prices (including petrol sales) fell by 3.3%

• Deflation remains an issue.

• The ONS points out that Aug was the 14th consecutive month of year-on-year price falls.

• The value on online sales, meanwhile, increased by 7.4% y-o-y.

• Even here (online), sales dropped 2.7% August on July suggesting that a larger than usual number of Brits were on holiday (probably overseas)

Random information, hopefully not all of it useless (re most leisure operators etc.):

• SAB/ABInBev: What do we know, right? This is a mega-billion deal with single-figure billions of synergies at stake meaning that quite a lot of work will have been done back-of-house. Overlap mostly in US but manageable elsewhere (so we are informed).

• The SAB/InBev deal in context. Combined profits are in the region of US$21bn. Combined sales around US$70bn. If synergies were say 2% of sales, that’s around US$1.4bn. But that’s forever, of course. NPV at 10% is therefor $14bn of value. Say 50 ultra-high level lawyers & corporate financiers working 50hrs per week would cost you perhaps $3m per week – or 2bps of the potential benefits. Against this background, it’s likely that quite a bit (millions of $$s worth) of work has already been done behind the scenes.

• Sterling up against US$ and Euro as it’s voted the country with the interest rate most likely to rise

• Corn, copper and cocoa up – is there a C-story out there – and everything else down.

• Travel & travel-type stocks did well yesterday with top-10 performances from Whitbread, SSP, TUI & IAG.

• Morrison’s announces CEO David Potts spent £0.5m buying another 315k shares at c159p. Takes his total holding to c883k shares.

• Punch’s strategy is 1) sensible and 2) very similar to that of Enterprise Inns. We expect considerably more detail with the group’s FY numbers on 12 November

• Merlin. Not cheap but growth (ex the accident) locked in. Not many companies have a decade (or even two decade) flight path to growth.

• Rugby. The ball might be the wrong shape but it is a big deal, right? BBPA says should be worth £68m in incremental sales, presumably most wet