Consumer spending, recent trading, Cineworld, Hollywood Bowl & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

Right, well that’s the first of a number of long weekends out the way and very nice it was too.

The weather held up for the most part. At least it did until thunder storms nearly swept us from the A1079 back from Hull to York but the sector’s tills should have been singing, dogs will have been walked and a bundle of grass will surely have been cut.

And the mighty Hull City, thanks for asking, had pulses racing, well, some pulses anyway, in their 4-4 draw with Sunderland at the Stadium of Light, which was followed up by a victory vs Millwall.

Anyway, back to reality and shrinkflation is getting real. The Pint may still be a Pint but Twining has moved down from 100 and 160 tea-bags in their boxes to 80 and 120, so how are we going to cope.

On to the news:

PUBS & RESTAURANTS:

Barclay’s Consumer Spending Report:

Summary: Barclays reports that consumer spending on plastic was up 4.0% in March this year against March 2022. This is less than half the likely rate of inflation. In mitigation, there may be some (small) swing back to cash from plastic but that does feel rather like clutching at straws….

• Barclays interprets the data as negative for spending. It headlines ‘Brits cut back on groceries and eating out in March, yet digital content & subscriptions sees resurgence thanks to latest TV releases.’

• The bank reports ‘Brits continue to find ways to reduce the cost of their weekly shop, with grocery spending tracking far below food price inflation.’ There will be both a modest volume change and perhaps a more pronounced mix change going on here. Spend was up 7.1% but the ONS recently reported food inflation to be around 18.2%.

• Hospitality: Barclays’s Silvia Ardagna says ‘inflation remains stubbornly high, with food and beverage prices up notably in February, and driving the sharp acceleration in prices set by restaurants and hotels.’ She says ‘it is not surprising that consumers are moderating spending in these categories.’

• Re the outlook, she says ‘with the decline in energy prices, we also expect a fast deceleration in food prices, which should provide some support to households’ consumption, and allow the UK to experience just a mild recession in H1 23.’

• Barclays reports that ‘Gen-Z consumers are spending more of their income on discretionary purchases compared to older age groups, including spending twice as much on takeaways.’ It says ‘conversely, older age groups spend nearly six times more (488 per cent) than Gen-Z on ‘Home Improvements & DIY’’.

Recent trade:

CGA by NIQ’s latest Drinks Recovery Tracker shows that average sales by value in managed venues were down by 3% YoY in the seven days to 25 March, marking the poorest performing week so far in 2023…

• The weather will have influenced sales but these were non-Easter weeks in both years and should have been otherwise comparable. Sales rebounded to +4% YoY for the week ended 1 April.

• Sales have been heavily influenced by the temperamental Spring weather, with rain and low temperatures compared to sunny weather the year prior. CGA says ‘small differences in temperature can make a big difference to sales at this time of year—and that’s how it proved in the last two weeks of March.’

• CGA’s Jonathan Jones adds ‘a difficult third week of March was followed by a much better final week, highlighting the fragility of year-on-year growth in 2023. Operators and suppliers will be pinning hopes on sunshine over the Easter weekend to bring consumers out to drink and loosen their spending despite the ongoing cost of living challenges.’

Easter comment:

Payments company Dojo reports that the Easter bank holiday will drive a rise in sales volumes for small high street hospitality businesses, but that consumer spending will flatline…

• Jon Knott, Head of Customer Insight at Dojo, said ‘With the cost of living remaining high, and economic growth fairly stagnant in recent months, we’re expecting consumers to display a level of caution when it comes to Easter spending.’

• Mr Knott continues ‘that said, our data suggests we will see increased numbers of diners treating themselves over the long weekend, especially with the sunshine forecast.’ He says ‘over half of consumers now prioritise spending on experiences as opposed to things, and with competition rife, the challenge for merchants this Easter will be about delivery. Those that can provide meaningful experiences, personalised to the consumer and aligned with their heightened expectations will win the race.’

Springboard reports that Easter Friday shopper numbers were ahead of expectations (up 18.6% year on year) but they remain 11% lower than pre-pandemic levels.

Consumer sentiment:

The Spring Consumer Sentiment Survey by PwC has found that consumer sentiment has recovered slightly from the low seen last autumn (minus 44) but still remains in negative territory at minus 25…

• The most optimistic age group is the under 25s, with over 65s coming second. Overall, almost a third of consumers polled say their finances are ‘healthy’, with 90% saying they do not consider themselves to be struggling.

• PwC’s Lisa Hooker says ‘it is encouraging to see how consumers are responding to the changing economic environment. While sentiment is still negative, it is beginning to recover.’

• She continues ‘it is interesting to see how those, particularly in the under 25 and over 65 category, want to spend again on “luxuries” like going out and spring fashion.’ Ms Hooker continues ‘time and time again, consumer sentiment continues to show me how resilient this sector is – both business and consumers have been savvy during the last 12 months. That innovative thinking has laid the foundation for what we hope will build more sector success in 2023.’

UKHospitality claims a Home Office consultation on extending the levy to apply to late night refreshment providers is based on an impact assessment and proposals from 2016 which is now out of date. CEO Kate Nicholls said ‘The entire notion of the levy has already been discredited by a House of Lords committee, who described it as unsuccessful, and it continues to take away hard-earned money from strapped venues.’

Pub closures:

Analysis of official Government data by real estate intelligence firm Altus Group has suggested that 153 pubs have closed for good in England & Wales in Q1 2023…

• Altus reports that numbers closed for demolition or redevelopment are up around 60% against last year. Altus says that the rate of closures is running at 51 a month compared to 32 a month last year.

• Altus’s Alex Probyn says ‘pubs have seen their values for the business rates tax fall 17% overall and, with measures taken at last year’s Autumn Statement, that will mean a tax saving of £5,500 for the average pub.’ He adds ‘that simply won’t compensate for the energy support being lost, making plots even more attractive for alternative investment.’

Other news:

Scottish Licensed Trade News reports Glasgow City Council is changing the way it structures its fees for outdoor areas, with local operators labelling the changes as a ‘nightmare’…

• From this month, the fees for using pavements and other public spaces for outdoor seating will change from a flat fee to charging by the square metre. An operator in the west end said ‘We used to pay around £220 for a whole year – at £30 a square metre this will be increased to around £1200 per year’.

The FT reports that some English fish and chip shops may begin to sell small sharks (known for culinary purposes as ‘rock salmon’ but otherwise called dogfish) as a result of fisheries problems post Brexit and the Ukraine war.

Shepherd Neame CEO Jonathan has told the FT that ‘it’s hard to conceive of a sector that’s taken more of a hit’ as a result of Covid and subsequent events including the Russian invasion of Ukraine. He says the sector is ‘energy intensive, food intensive and people intensive.’

CGA comments on US trading saying that ‘around 7 in 10 consumers have visited restaurants and/or bars for food-led occasions in the past 2 weeks, while 2 in 5 have visited for drink-led occasions.’

The US Bureau of Labour Statistics reports that the leisure and hospitality sector added 72,000 jobs in March.

COMPANY NEWS:

The BBC reports that the CBI business group is in a ‘very difficult place’ as it faces several allegations of sexual misconduct. The group has essentially halted its lobbying work in order to conduct an internal investigation. CEO of Adnams Andy Wood said he had held discussions with his leadership team over potentially leaving the group.

Flower Power Group, operator of Patisserie Valerie since it collapsed under its previous management, reported turnover of £25.3m for the period ended 27 March 2022, up from £10.2m the period prior….

• EBITDA at the 25-strong business was £3.3m (2021: loss of £1.6m), and operating profit was £2.48m (2021: loss of £3.14m). The future outlook will be focussed on the growth of online and wholesale channels.

JD Wetherspoon’s recent price rises – by around 7.5% on average – have been highlighted as leading to some odd price points. TikTok users have pointed to £4.03 for soup and 81p for a side of chili.

Red Oak Taverns has purchased the freehold of the Thomas Wolsey pub in Ipswich with new pub operator Damon Jeffery taking over as the tenant. The pub is  located in St Peter’s Street which accommodates a ‘vibrant number’ of hospitality venues.

SushiDog plans to open 30 new sites across London after receiving investment of over £500,000. The Japanese QSR’s funding round was led by family investment office Middleton Enterprises.

Lavazza reports revenue up 17.6% YoY to €2.7bn for the year to 31 December 2022 with strong retail sales growth in Poland (28%), Germany (18%) and the US (14%). The coffee roaster also posted a 1.5% and 6.1% sales recovery in Italy and France respectively, following declines in both markets in 2021.

Constellation Brands has reported adjusted earnings per share of $1.98 per share for the quarter ended Feb. 28, beating analysts’ expectations of around $1.82 per share. The company has edged up its full year guidance.

Craft Union has opened its 500th pub with a unit in Leicester.

HOLIDAYS & LEISURE TRAVEL:

Strikes in France created more disruption for flights and train services to and from the country on April 6. The strike was held in protest at plans by the French government to increase the pension age from 62 to 64.

Figures from ACI Europe show that total passenger traffic across the continent in February was still 12% lower than pre-pandemic levels. European passenger numbers rose by 48% YoY in February, with the highest increases coming from airports  in Cyprus, Malta and Austria.

European commissioner for transport, Adina Ioana Valean, told the Airlines for Europe summit in Brussels that ‘We are out of the crisis, but we are not out of the woods. The good news is travel is up and likely to reach 95% of the 2019 level this summer. The bad news is this will only increase the risk of delays as the skies become more crowded.’

A spokesperson for French border control authorities has said that every booth it operates was manned “continuously” and says that the problems with delays arose on “the British side”.

OTHER LEISURE:

Cineworld has updated again on its Chapter 11 situation, saying that its plan of reorganisation does not ‘provide for any recovery for holders or Cineworld’s existing equity interests’. It says the plan ‘is supported by lenders holding and controlling approximately 83% of the Group’s term loans due 2025 and 2026 and revolving credit facility due 2023 and approximately 69% of the Debtors’ outstanding indebtedness under the debtor-in-possession financing facility pursuant to the restructuring support agreement entered into between the Group Chapter 11 Companies and such lenders on 2 April 2023…’

• CINE says ‘the Proposed Restructuring does not provide for any recovery for holders of Cineworld’s existing equity interests.’

• It adds that it ‘expects to emerge from the Chapter 11 cases during the first half of 2023.’ There are a number of factors that could delay this. Re trading, CINE says it ‘continues to operate its global business and cinemas as usual without interruption. Cineworld and its brands around the world – including Regal, Cinema City, Picture House and Planet – are continuing to welcome customers to cinemas as usual.’

Hollywood Bowl has updated on trading for the first six months of its current financial year (the period to 31 March) saying that it has seen record H1 revenues of £111.1m, up some 10.9% against the same period last year…

• BOWL points out that this comprises 3.5% like-for-like revenue growth and says that revenues of £12.2m from the Canadian business is ‘in line with management’s expectations.’ The company says it had net cash of £44.1m at end-March.

• CEO Stephen Burns comments ‘our improvement on what was already an impressive prior year reflects the huge customer appeal of our great value for money offer at a time when many consumers are being more selective with their time and money.’

• Mr Burns adds ‘we are excited about the significant growth opportunities ahead – our highly cash generative business model and insulation from cost of goods and energy inflationary pressures, leaves us well-placed to continue to expand and invest in our portfolio, both in the UK and Canada. We were thrilled to see so many families enjoying themselves at our centres during February half term and were pleased to welcome many more over the Easter break.’

FINANCE & MARKETS:

The IMF has said that the global economy will grow at roughly 3% per annum over the next five years. This is the slowest pace since 1990…

• Head of the IMF Kristalina Georgieva says the path ahead is “rough and foggy.” She calls on richer countries to provide support for less well-off nations. Last year, global growth was 3.4%. It averaged 3.8% over the last two decades.

The US economy added 236,000 jobs in March. The jobless rate held at 3.5%.

The Halifax House Price Index for March has shown that average prices rose by 0.8% in the month after a 1.2% rise in February. This takes the annual rate of growth to 1.6%…

• The Halifax says ‘predicting exactly where house prices go next is more difficult.’ It says ‘while the increased cost of living continues to put significant pressure on personal finances, the likely drop in energy prices – and inflation more generally – in the coming months should offer a little more headroom in household budgets.’

• The Halifax adds ‘while the path for interest rates is uncertain, mortgage costs are unlikely to get significantly cheaper in the short-term and the performance of the housing market will continue to reflect these new norms of higher borrowing costs and lower demand. Therefore, we still expect to see a continued slowdown through this year.’

Sterling $1.2407 and €1.1397. Oil $84.72. UK 10yr gilt yield 3.41%. Markets strong yesterday & London set to open up around 40pts.

RETAIL WITH NICK BUBB:

• Today’s Market: Wall Street (as measured by the Dow Jones index) was flat at the end of trading on Thursday, before the Easter break, but edged up by 0.3% yesterday, so the stockmarket in London should open on the front foot this morning, after the Easter break.

• BRC-KPMG Retail Sales figures for March: We thought that the overnight BRC-KPMG Retail Sales survey for March (the 5 weeks to April 1st) would again look reasonably good, given the positive BDO High Street Sales Tracker weekly figures and the boost to supermarket sales from food price inflation, and total sales were indeed 5.1% up on last year (after +6.9% in December, +4.2% in January and +5.2% in February). However, Paul Martin of KPMG highlighted that “Many retailers will have been disappointed with overall sales growth of just 5% in March, against a backdrop of rising inflation running at more than 10%. High street retailers saw some limited growth across most categories in March but as consumers cut back on eating out, spending on home comforts, accessories and furniture saw the biggest growth with people looking to entertain at home instead”. The key Food/Non-Food split for March
is buried, as usual, in the 3-month moving averages (of +8.5% and +1.8% respectively, in terms of total sales growth), but we think that Food sales were at least 10% up last month and that overall Non-Food sales were only flat, given the pressure on “big ticket” sales. Total Online Non-Food sales were 2.1% down in March, although overall Online penetration was still a chunky 38.4% of all Non-Food sales.

• Thursday’s News: Back on Thursday, the second-hand car supermarket chain Motorpoint issued an update for y/e March, flagging that there were record revenue of c£1437m, up c9% helped by vehicle mix and price inflation, but that profit before taxation was only “broadly break even”. And there was also an update from THG, to announce that the finals (for y/e Dec) and Q1 update will be on April 18th and that it had secured a 10-year partnership deal to provide platform services to the rival beauty e-commerce retailer Maximo (the home to destination sites including allbeauty.com and fragrancedirect.co.uk).

• Friday’s Press and News (1): The FT was not published on Good Friday, but the front pages of several other papers carried the story of King Charles’s support for research into the historic links between the monarchy and slavery. The Daily Telegraph reported that the King has not ruled out the possibility of paying reparations, but, in its main story, the paper looked ahead to US President Joe Biden’s arrival in Belfast to mark the 25th anniversary of the Good Friday Agreement (“IRA terror threat fear ahead of Biden visit”). The main story in the Times was about the prospect of “overwhelmed” A&E departments during this week’s junior doctor strikes. The Guardian led with comments made by the House of Lords Speaker who is calling for more independent, expert peers in Parliament’s second chamber.

• Friday’s Press and News (2): In terms of Retail stories in Friday’s papers, THG’s tie-up on Thursday on ecommerce services for its rival Maximo went down well in the City, as flagged by the Times, inter alia (“Beauty group attracts new partner”). The Times also highlighted the optimism about Easter trading on the High Street (“Retailers pray for big holiday weekend”), on the back of the news that weekends are proving to be the most popular shopping days, according to new footfall research from the British Retail Consortium (BRC). The stockmarket report in the Times noted that the musical equipment retailer Gear4Music “struck the wrong note” on Thursday, when it warned that its full-year performance would fall short of expectations.

• Saturday’s Press and News (1): The front-page headlines on Saturday were mixed: the Daily Telegraph led on the shooting of two British-Israeli sisters in the West Bank, describing it as “an apparent revenge attack” by a Palestinian militant. The Guardian flagged that personalised vaccines for skin cancer could be ready in as little as five years, potentially saving millions of lives. The Times warned of a house-building crisis, saying that 55 local authorities have scrapped their planning targets. The FT’s main story was about how a London-based firm helped Russia around sanctions (“Exports stir Russia sanctions fears”), but it also ran this unusual front-page story: “Chip shops battered by high cost of cod put fried shark fillets back on the menu”.

• Saturday’s Press and News (2): In terms of Retail news, on Saturday  the FT had a feature about the skills shortage in the French luxury goods industry (“Wanted: people to make €22,000 hand¬bags”), noting that the luxury goods sector confronts a shortage of trainee artisans, despite booming demand, as older craftspeople bow out. The Times had a feature interview with Tom Molnar (“Gail’s Bakery boss is ready to rise to the occasion and sell more sourdough”), flagging that a passion for fresh food has driven the former McKinsey consultant’s High Street ambition.

• Sunday’s Press and News (1): On Sunday, no one story dominated the front pages, although a couple of the headlines in the Tory tabloids looked ahead to King Charles’ coronation next month. The Observer, however, looked ahead to the disruption likely to be caused by the junior doctors’ strike this week (“Hospitals in frantic bid to fill gaps left by doctor’s strikes”). The Sunday Telegraph focused on the battle to replace the SNP in Scotland at the next Election (“Tories at war over pact with Labour in Scotland”) and the Sunday Times also had a pre-Election story about a controversial Labour Party attack ad (“Labour’s dirty tricks here to stay, says memo”). In terms of Economics comments in the Sunday papers, we give our usual shout-out to the column by the Sunday Times Economics correspondent, David Smith (“Housing is still adjusting to the interest rate shock”), in which he noted that
“the adjustment to a higher interest-rate regime is probably not yet over. A house price crash is unlikely but…they are likely to remain flat or soft for some months to come”.

• Sunday’s Press and News (2): On Sunday, Tesco was in the spotlight, ahead of the finals, with the Sunday Times flagging that Tesco is looking to squeeze suppliers again (“Tesco eyes supplier price cuts”), which, as noted by the Deputy Business Editor, is potentially good news if you’re a hard-pressed consumer, but not so welcome if you’re a struggling food producer hit by soaring costs. The Mail on Sunday had a feature interview with the Waterstones boss James Daunt (“Covid made people pick up books again”).

• Monday’s Press and News (1): Easter Monday’s papers had a mixture of leads, including follow ups on a controversial attack ad campaign by the Labour Party on Rishi Sunak, with the Times’ front page reporting that Labour is planning more “provocative and aggressive” adverts, blaming the PM “for crashing the economy and for soaring mortgage and council tax rates”, whilst the Daily Mail flagged that Keir Starmer is making “absolutely zero apologies” and is backing Labour’s stance on crime. As for the four-day strike by junior doctors in England, the i reported that “GPs, pharmacists and matrons are being drafted in” to help cope with the disruption, whilst the Telegraph also flagged that “GPs scrap services to cope with strike”. The Guardian led with the results of “the biggest and most comprehensive survey on race inequality in the UK for more than 25 years”, whilst the Financial Times
flagged the paper’s own research showing “the world’s leading economies are showing surprising resilience” and an expectation that “the global economy is set to avoid a sharp slowdown this year”.

• Monday’s Press and News (2): In terms of Retail stories in Easter Monday’s papers, the only real news focus was on the fact that Tesco is expected to report a fall in profits when it announces its finals on Thursday.

• Today’s Press (1): Leading on an issue that dominated many of today’s front pages, the i warned that Tuesday’s junior doctors’ strike in England could see “thousands more patients than expected” have operations cancelled. The Daily Express screamed “Don’t get ill! Doctors’ strike “going to hurt”, whilst the Times flagged that “NHS strike will cause a month of disruption”. The Daily Telegraph focused on President Biden’s imminent trip to Belfast (“ Biden will push to unite all Stormont parties”) . Joe Biden’s trip to Northern Ireland was also a focus of the Financial Times, with the paper leading on a parade that took place in Londonderry on Monday, organised by Republicans opposed to the Good Friday Agreement, but its main story was about new IPOs in China (“First batch of IPOs under stream¬lined China list¬ings rules soars 96% on debut”).

• Today’s Press (2): In terms of Retail stories in the papers today, the overnight BRC-KPMG Retail Sales figures for March get a fair amount of coverage, eg the Times flags that “Rise in food sales revenue owes debt to inflation”.