Langton Capital – 2022-03-22 – PREMIUM – Consumers, rates, WFH, costs, footfall, JDW, CPC, WYN & other:
Consumers, rates, WFH, costs, footfall, JDW, CPC, WYN & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: I’ve been taking a quick look at NFTs (non-fungible tokens) and have decided that, as it says in the Book of Ecclesiastes (written around 2,500 years ago), there’s nothing knew under the sun. Because, though the tech may change, the ‘let’s buy tulip bulbs’ mentality that we all seem to share, does not. Anyway, I may well be in the process of failing to make a fortune but I’m relatively relaxed about that and there are real world problems out there. Some very big ones, of course, but, at the more manageable end of the spectrum, I have a horrible feeling that, if it stays warm like this, the grass will soon need cutting. On to the news: PUBS & RESTAURANTS: Business rates: Trade bodies have responded to the new report, issued by the All-Party Parliamentary Beer Group of MPs, which called on the Government to ‘urgently address the business rate iniquity which is threatening the future of pubs and their communities while online giants continue to swerve the taxman.’ See yesterday’s email. UKH and the BBPA have both spoken out. • UKH has welcomed the calls, with CEO Kate Nicholls commenting ‘business rates in its current form is a fundamentally unfair tax for pubs and the wider hospitality sector.’ She maintains that the rates system ‘actively works against Government’s levelling up agenda by suppressing and deterring investment in skills and local communities.’ • Ms Nicholls says ‘in order to safeguard jobs and businesses, and to support a fully recovered and thriving hospitality sector, business rates must be reformed, with a fairer system that does not disproportionately penalise businesses that bring people together and create jobs. There must also be a fully functioning infrastructure to ensure that valuations are accurate and that appeals are accessible.’ She adds ‘more widely, the pubs and hospitality sector needs a fairer tax system. These businesses, when compared to other sectors, are significantly overtaxed, which stifles investment, growth and jobs creation.’ • The BBPA’s CEO Emma McClarkin says ‘the current business rates system places disproportionate burden on pubs and brewers which is stifling their recovery and return to sustainable growth. Reform is needed to create a fair system which accounts for how the economy functions in the modern day.’ She adds ‘we welcome this timely report from the All-Party Parliamentary Beer Group following our submission to its inquiry, and hope its recommendations are seriously considered by the Chancellor ahead of this week’s Spring Statement.’ • This is tomorrow, so Mr Sunak may not have had time to digest the contents. The BBPA continues ‘pubs and brewers are at the heart of our communities and will help to foster social cohesion as we reconnect and recover from the pandemic, and so now it is critical that our sector receives the support it needs so we can deliver jobs and additional economic value.’ The BBPA has commented on the widespread efforts across the pub industry to help those suffering the consequences of Russia’s invasion of Ukraine. It points out that a number of operators, including Hall & Woodhouse, Brewhouse & Kitchen, Brewdog, Carlsberg & Diageo are donating time, products or money to supplying aid. • Many other operators get an honourable mention and CEO Emma McClarkin says ‘our members are finding numerous different ways to help and it is incredibly heartening to see their efforts.’ She says ‘we are also closely monitoring the impact of supply chain disruption on brewers and pubs, which to date has been limited, but in some cases we are already seeing existing supply chain pressures such as energy and fuel pricing being exacerbated and will continue to work alongside our members and the Government to assess the impact.’ Working from home: With the cost of living crisis grabbing the headlines, WFH (and even Covid itself) have taken a backseat but, all things considered, WFH could be one of the factors that continues to influence the sector after (hopefully) Covid, Ukraine and even the consumer squeeze are in the rear view mirror. • Pragma Consulting considers the issue saying that ‘more and more companies are facing the problem of how to adapt to flexible working’ and it appears that ‘hybrid’ is one of the words of the moment. Pragma mentions ‘non-assigned seating’ and it would seem logical that smaller offices could follow if fewer workers are in the office at any one time. • This, of course, has non-positive implications for city centre food & drink retailers. The problem ‘needs’ rolling down hill (to landlords, banks and government) as rapidly as hospitality companies can manage. This may not be easy (or, indeed, possible) but landlords as the first port of call must surely accept (at least over time), that rents will not return in some areas to their previous highs. See also comments in today’s email from Shelley Sandzer. Analyst Peter Backman comments on WFH saying that commuter numbers are down by 20-30% from pre-covid times. He said earlier in the pandemic that ‘this reduction in worker numbers has caused caterers to rethink their working models by reducing costs and increasing flexibility.’ He says that ‘responses to changes in commuting patterns are very noticeable – from the development of the Pret subscription model to the growth of delivery services, such as Deliveroo for Business, aimed at office workers.’ • Subscriptions are open to abuse. From the Tube user lending his or her pass to friends right through to Pret finding it has to counteract the risk of providing coffees for most of a single-subscriber’s Halls of Residence. But they do provide some certainty of income. They use inertia in a positive way and effectively purchase brand loyalty. Interesting to note that, whilst it has put its prices up, Pret has not yet made any moves to retire the offer. Shelley Sandzer managing director, Ted Schama, has said leasehold premiums are now ‘almost non-existent’ and the pandemic has given landlords a ‘greater understanding’ of restaurant business models. • Mr Schama says ‘whether that means landlord involvement or more realistic rents, there’s certainly been more of a partnership approach and more understanding of restaurant businesses model than landlords ever had.’ He adds ‘and the more they understand the more they can structure deals that are more sustainable.’ Near term cost problems: There is something of a cliff edge or brick wall or screeching halt, pick the metaphor to suit, coming up in April. Foodservice analyst Peter Backman points out that the sector is ‘going to have to cope with higher prices – in cases much higher prices – food and fuel (and labour) which account for about 80% of the sector’s costs.’ He says ‘and then there is an increase in the rate of VAT – from 12.5% to 20%. Not to forget the removal of the rent moratorium which means that some landlords will be knocking on doors demanding their unpaid rent be put right.’ • Mr Backman says ‘and then there is the customer whose spending power will be diminished by the rising costs of food and fuel, and rising taxes.’ This may outweigh some of the other factors. He says ‘the outlook is bleak – or perhaps it is just very uncertain and, like it always has, the foodservice sector will fight its way through to the other side.’ He concludes that he thinks it will. • We would suggest that hospitality has existed since biblical times and it has survived fire, plague, famine, flood and war in the past. And it will do so again. But not all of the companies currently in existence will. Winners will take market share. They will do very, very well relatively and some will perform well even in absolute terms. • The devil, as always, will be in the detail, namely, in picking the winners from the losers. Wagamama, Nando’s and Franco Manca should be in the former category. We’re too polite to try to pick out the losers. At least in writing. But the winners, with noodles, chicken & pizza, are keeping it simple (and high margin). There should be room for a burger operator. McDonald’s may take share. High-cost, relatively low margin ‘better burgers’ may find the going more challenging. Rising prices are benefiting some companies. Agricultural supplies company Wynnstay says that its ‘fertiliser operations…have continued to experience one-off gains from the exceptional current trading environment that has been sustained into the current financial year.’ • Wynnstay says ‘market volatility across most commodities has persisted, with material price increases since the start of the calendar year.’ It says it has managed cost increases well and, as farm gate prices are rising, its customers are able to pay up for supplies. WYN says it ‘has managed these difficult circumstances well, and once again the Group’s broad spread of activities is proving a major strength. Farmgate prices have remained strong, enabling customers to absorb elements of this inflation, although higher prices are expected to curtail some demand.’ Prices on the march: The Express and Star report that Marston’s has increased the price of a pint of beer by between 20p to 45p on average, in the past week. The price of a pint of beer has also increased at Wetherspoons, by between 10p and 20p – with the 20p addition being added to drinks at its London venues. • A spokesperson for Marston’s told the paper that the price increases were the ‘direct impact of the soaring energy prices and operating costs as being experienced by all businesses and households across the country.’ Many companies have decided to move ahead of the VAT rise next month even though, in this case, VAT will not have an impact on the retail price of alcoholic drinks. VAT: Ahead of the Budget (tomorrow), JDW has criticised the current proposals to put VAT up again in just over a week’s time, with chairman Tim Martin saying that it ‘doesn’t make economic sense that food bought in pubs, restaurants and cafes attracts VAT of 20 per cent, when food is VAT-free in supermarkets.’ • Mr Martin adds that ‘pubs, restaurants and cafes form integral parts of high streets, whereas supermarkets are often in edge-of-town or out-of-town locations. Favouring supermarkets over pubs is bad for high streets and town centres.’ He says ‘tax discrimination creates economic distortions’ and adds that ‘supermarkets have clearly used their favourable tax treatment to subsidise the price of beer, wine and spirts over recent decades.’ • Budget plans for tomorrow may well have been set by now but Mr Martin says ‘pubs, restaurants and cafes play an important role in the social fabric of the nation, as well as generating employment and vast amounts of taxes for the Treasury. The hospitality industry understands that governments need tax – but there should be a sensible rebalancing, so that all businesses selling similar products are treated in the same way.’ Footfall: Last week footfall rose in all town types, with an uplift in coastal towns that was double that in any other type of town centre, due to the good weather. • Springboard says ‘the favourable weather from Thursday onwards had a positive impact on footfall across UK retail destinations last week; footfall rose from the week before in all three destination types, but particularly in high streets which is typically the destination of choice for shoppers when the weather is warm and dry.’ It says ‘footfall rose in all town types, with an uplift in coastal towns that was double that in any other type of town centre, not a surprising result in light of the good weather.’ • Springboard adds that ‘footfall rose from the week before on five of the seven days last week, with drops on Sunday and Wednesday when in rained across much of the UK. There was a surprisingly strong uplift in footfall in high streets on Friday given that it was a working day, which was more than five times as large as the rise on Saturday. This suggests that hybrid home/office working may be making it more feasible for consumers to make spontaneous trips to destinations outside of the weekend.’ Springboard’s index shows footfall up 32.1% vs lockdown-impacted 2021 footfall. It remains down 4.2% vs 2019. Footfall is down 0.1% week-on-week. Other news: Night-time economy adviser for Greater Manchester Sacha Lord has said that the sector needs help bouncing back from its ‘perilous financial position’ in Wednesday’s Spring Statement. Pubs and restaurants are seeing difficulties across the board, from tax hikes, inflated price rises for produce and ingredients and surging energy costs, on top of existing Covid debt. Data from Experian Catalist shows that the average price of petrol was 167p a litre on Sunday, compared with 166p on Friday, despite ‘plummeting’ wholesale prices. The BBC reports that unions are set to push for pay rises of around 10% this year. Unison, the UK’s biggest union, urged Chancellor Rishi Sunak to fund an above-inflation pay rise in the public sector. And another union, Prospect, predicted ‘conflict’ with firms and the government if there were large falls in real-terms earnings. • As we have mentioned before, Andrew Bailey at the Bank of England was saying until recently that inflation was transitory. This wasn’t true. He may well have been trying to talk inflation down by suggesting that workers should not take action to secure pay-rises. Someone will have to take the hit but volunteers to do so could be in short supply. This was never either a) likely to be the case or b) a secret that it wasn’t. Sky has partnered with PubAid to create a new programme to recognise and reward pubs across the country who support grassroots sport. Once enrolled, pubs will receive a free marketing pack of staff T-shirts and window stickers to help them shout about their support for the sports they are involved in. COMPANY NEWS: Wetherspoons chairman Tim Martin has told the MCA that the post-lockdown boom predicted by many has not yet materialised. Martin said ‘“Lockdowns were paid for by central banks printing money, which has led to severe inflation. Let’s hope governments copy Sweden’s approach next time. They stuck to the original pre-Covid plans, with better health outcomes than most.’ • Mr Martin has suggested that older customers have been slower to return to pubs than have their younger peers. He reiterates comments made by RTN in saying ‘given that we’re comparing sales with three years ago, it’s important to get above pre-pandemic levels, especially since there has been considerable cost inflation.’ Just matching 2019 sales means failing to recoup perhaps 15% or so in cost increases. All UK free-range eggs will now have to be reclassified as ‘barn eggs’ due to outbreaks of bird-flu keeping birds inside for more than 16 weeks. About 55% of all eggs produced in the UK are free-range, says the RSPCA. Pub company Portobello Starboard has announced that it has separately bought five pubs from The City Pub Group PLC and a further pub, the Grand Victorian pub in Worthing from Dominion Hospitality, an affiliate of Stellex Capital Management. • Portobello says it is ‘planning an extensive refurbishment programme for the Worthing pub as well as development of the adjoining disused nightclub to create a flagship site with 36 ensuite bedrooms later this year, bringing the total number of bedrooms across the estate to 58.’ Chairman Mark Crowther says ‘we are delighted to announce these acquisitions as we progress our strategy of acquiring predominantly freehold managed pubs across London and the South East. The south coast sites will give us scale in that geography whilst also growing our London presence. We look forward to welcoming our new colleagues into the Portobello family, whilst bringing our award-winning beers to the customers of these new pubs.’ The City Pub Group says of the transaction that ‘these five pubs, which had a net book value of approximately £17.1 million as at April 2022 and recorded unaudited aggregate site EBITDA of £0.7 million for the year ended 26 December 2021, are being acquired by Portobello Starboard Limited for cash consideration of £16.2 million.’ • City Pub Group says the transaction is expected to complete on or around 11 April 2022, subject to successful lease assignment of the Brighton Beach Club. Clive Watson, Chairman, says ‘we have achieved a good price for these assets. The capital realised makes us debt free and in an excellent position to take advantage of the current market dislocation to further premiumise our estate and deliver long term growth through selected acquisition.’ In the US, Starbucks hopes customers will switch to reusable cups by 2025. The company aims to cut the amount of waste produced by its coffeehouses in half by 2030. Starbucks is expanding the reusable-cup program, and testing systems that will make the process easier and more convenient for guests. The government has confirmed that pubs will be allowed to stay open until 1am for three nights over the Queen’s 70th anniversary. MatchPint – the fan engagement platform for venues, brands and sports fans – has announced a global rebrand to FANZO after 10 years of operation. The Issa brothers are said to be in the running for Boots. HOLIDAYS & LEISURE TRAVEL: Angela Day, founder and CEO of Affordable Car Hire, has put the company into voluntary liquidation. Day said ‘ We worked tirelessly to try and get all the refunds through but there are still some agents who haven’t had their money back because we just could not get it from some of our suppliers.’ FINANCE & MARKETS: Sterling mixed at $1.3122 and €1.1941. Oil price up around $8 at $119.30. UK 10yr gilt yield up 11bps at 1.61%. World markets mixed to down a shade yesterday. London set to open down around 4pts as at 7am. RETAIL WITH NICK BUBB:
• Today’s News: Over in the US mighty Nike announced their Q3 results after-hours last night, and the shares traded over 5% higher in extended trading as the results topped analysts’ estimates due to robust demand in North America, despite the company declining to offer any forward guidance, given the uncertainty about supply chain issues and its business in China. Over in Germany, Nike’s great rival Adidas holds a Product Innovation Day at its HQ today. Closer to home, we have had the Kingfisher finals (for y/e Jan) and the ScS interims (for the six months to end Jan) this morning, but there has still been no response so far to the Sunday press comment that Pendragon, the Motor dealer, has rejected a secret £400m takeover approach from Hedin Group, its largest shareholder, ahead of the final results scheduled for tomorrow. The big news though is that the embattled THG has found a |
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