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PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

So, as regards the dates yesterday:

Smoking was banned on UK tube trains in 1987, the year of the King’s Cross fire. It was banned on planes in 1990 and on UK trains in 2005. Smoking was banned in pubs (and in workplaces) in 2007.

Anyway, we’re scooting around here and, it would seem, we’re putting years on the hire car.

Not, it must be said, because of bad driving, scrape-riddled parking attempts or the like but rather because the roads here are absolutely appalling with potholes, no word of a lie, maybe six or eight inches deep.

No joke for car drivers but potentially fatal for motor-cyclists and, rather than fix the roads, it seems like the cheaper alternative is to stick up ‘Strada Desestrata’ signs and reduce the speed limit, sometimes for miles at a time, to 30kph (or 19mph).

Which, as you might imagine, is widely ignored with tourists who try to stick to double the speed limit being overtaken by honking locals doing maybe 80-90kph and the side of the road littered with exhaust pipes, mudguards and wheel trims.

Anyway, which country is that? On to the news.

PUBS & RESTAURANTS:

Lumina Intelligence forecasts the total UK eating out market to reach a value of £95.2bn in 2023, up 4.6% YoY….

• The research suggests the market will grow to £102.4bn by 2026, equivalent to a +2.5% compound growth rate. Outlet numbers are forecast to see a compound annual growth rate of +0.3% from 2023F – 2026F – on the back of three years of outlet decline.

A survey by CGA by NielsenIQ has found that hospitality leaders are ‘struggling to remain optimistic’ about the future of their business over the next 12 months….

• A majority of hospitality firms (86%) were concerned about energy costs going forward after energy prices increased by 81% over the past year.

• A group of trade bodies including the British Institute of Innkeeping, UKHospitality, the British Beer and Pub Association and Hospitality Ulster have issued a statement to government saying ‘The Energy Bill Relief Scheme has provided a short respite but with that falling away last month businesses are back to paying high costs…Left unresolved it will have a lasting wider impact long into the future, impacting local employment, supply chains and removing essential community hubs from villages, towns and cities across the whole of the UK.’

CGA has ‘launched an exclusive new PubTrack survey, revealing the performance of top pub groups across Britain against a wide range of key metrics.’ It says that it can reveal ‘that Brunning & Price [owned by Restaurant Group] is currently the top pub operator based on a combination of revisit, recommend and satisfaction scores. It is followed by McMullen & Sons, Brakspear, Daniel Thwaites and Everards in the top five….’

• CGA says that on value for money ‘JD Wetherspoon comfortably leads the rankings by percentage of consumers who strongly agree that their recent experiences represent good value for money, followed by Amber Taverns and Cameron’s.’

• It says its surveys ‘reveal what consumers really think about the pubs they use, and unlock the doors to better reputation, greater loyalty and higher sales. With the pub market so competitive, and spending under such pressure, it’s never been more important to know precisely what guests want, and PubTrack is here to help every pub business get even better.’

Other news:

The Telegraph reports the CEO of British plant-based burger chain Neat Burger as saying that people have become ‘fatigued’ with the ‘hype’ surrounding plant-based foods.

SOME CLARITY ON COVID:

This is an expanded version of a note that was sent to clients earlier in the year. The theme being that, as time was now passing, the impact of Covid – social, financial, cultural etc – was becoming a little clearer and the ‘new normal’ likewise.

On the other hand, other events, such as the war in Ukraine and the attempt to reverse QE have impacted trade, disaggregating the various factors has become difficult. Nonetheless…

Summary:

• The pandemic caused significant and rapid change in the hospitality industry.

• Some of these impacts disappeared almost as soon as lockdowns were lifted whilst other impacts are linger.

• Still other changes could be permanent.

Today, we’ll consider a number of the longer lasting or permanent impacts of Covid:

• Introduction:

o Separating the ‘long-lasting’ from the ‘permanent’ may not be either possible or useful.

o Because if a ‘long-lasting’ impact lasts 5-10yrs or more, it may in many ways just as well be permanent and, in either case, business models may have to be changed.

o And, with that in mind, it’s worth considering that there are a material number of factors in this category.

• Flexible working:

o WFH is no longer 100% but nor is it 0% and, on best estimates, it probably never will be.

o This has implications for operators catering to office workers as well as for their revenue projections and the rents that they may be willing to pay.

o Not particularly with ref to WFH, we have suggested before that returning to 80% is quick but it may take a year to halve the difference between where you land and 100%. This is a curve, suggesting that we may never get back to where we were pre-Covid. WFH looks to be markedly slower than this.

o The flip side of the above is that it may benefit suburban operators. However, it is likely that this benefit will be somewhat smaller than the negative impact mentioned above.

• Plastic over cash:

o The stats here are pretty stark. The BRC reported as long ago as 2021 that cash now is ‘accounting for just 15% of all transactions in 2021.’

o It adds that ‘90% of retail spending, and 82% of transactions, used debit or credit card.’

o This trend was in place pre-Covid. It was accelerated and it certainly hasn’t reversed.

o The number of card-only or card-preferred sales points is considerable (e.g. LNER’s onboard coffees etc)

o The use of plastic may remove an inhibition to spending (temporarily, at least) but the BRC says that ‘retailers spent £1.3bn to accept payments from customers in 2021.’

o Cash handling doesn’t come free, of course, but this could be a permanent ongoing cost of doing business.

• Use of outdoor space:

o This rose sharply during Covid not least because, in the early stages of un-lockdown, it was all that was allowed.

o Operators secured pavement licenses or they spruced up their beer gardens, often adding furniture, overhead cover, heating, lighting and TVs.

o A large element of this may be good housekeeping and, as such, it isn’t clear if it is demand pull or supply push.

o Not that that really matters. Many operators and the trade bodies that represent them have pushed to keep permits in place.

• More to come tomorrow but comments as to what other factors have been retained are welcome.

COMPANY NEWS:

DP Eurasia has updated on the four months to end-April saying that it has increased its number of stroes from 644 to 714. It says system sales are up 19.5%. LfL growth in system sales is 17.1% for continuing operations…

• CEO Aslan Saranga comments that ‘we have started the year well and successfully implemented our targeted action plan despite the ongoing macro challenges. Management is extremely experienced in navigating volatility, and Group system sales remained strong overall with LfL growth.’ He adds that ‘the impact of the earthquake in February was devastating, and our thoughts and condolences remain with all of those who have been impacted.’

• Mr Saranga says ‘since the beginning of 2022, we have implemented and operated a targeted strategy that focuses on three areas – strategic pricing and product innovation, continued digital innovation, and operational efficiencies to generate sustainable profitability. This approach has enabled us to combat the high levels of volatility in the regions in which we operate, and the impact of our efforts continues to be visible through volume generation and customer acquisition.’

• The CEO concludes ‘overall, we are pleased with the good start to the year and will continue to deliver on our targeted strategy in order to make the most of what continues to be a significant growth opportunity.’

DP Poland yesterday updated on trading saying that ‘current trading remains strong, with double digit sales growth continuing and higher order counts.’ It said ‘LFL Sales increased by 18.4% year to date in 2023 vs. corresponding period in 2022, with the growth split between sales channels. LFL Sales in April 2023 were up by 16.6% vs April 2022….’

• The company reported that ‘inflationary costs have begun to show a positive downward trend which should support profitability in coming quarters. Energy costs are beginning to abate and food costs began to drop in May 2023, however, labour inflationary pressures have remained.’

• Regarding its final Dec-22 accounts, the company says Group Revenue will be between £35.6 – 35.9m and Group Post-IFRS16 EBITDA will be between £1.6 – 1.8m. it says that ‘Group Pre-IFRS16 EBITDA will be between £(1.3) – (1.5)m’ and says that ‘EBITDA is slightly lower than previous expectations due to settlement of higher utilities costs for the year as well as accrual cost adjustments.’

Pizza Union Ltd reports revenue up 43% YoY to £8.0m for the period ended 1 January 2023, with the increase driven by lower levels of Covid restrictions impacting trading….

• The restaurant chain operated 6 sites during the period, 1 of which was opened on 17 January 2022. Adjusted EBITDA recovered to £372k for the period, up from £276k the year prior. The company’s loss before taxation increased to £368k from £34k the year before due to impairments and the gradual removal of various government pandemic supports.

• The London-based restaurant chain noted that there was a gradual return to the office YoY, albeit more towards 3.5 days a week as compared to the full 5 days pre-pandemic. The company reported bank loans down significantly to £841k from £1.6m the year before, and ended the period with £2.7m in cash, slightly down on £3.0m as at the end of the prior year. The ultimate controlling party of the company is Mr B Hashemi.

Cooks Coffee, which is listed on the Aquis market, yesterday reported full year revenue for the year to end-March down by 10%. The group reported losses before tax of NZ$3.2m (£1.7m), ‘reflecting the combined NZ$3.2m write down of receivables and impairment….’

• The company chairman Keith Jackson said ‘we are pleased to report strong sales growth across our existing estate of coffee stores as we continue our expansion programme of new store openings.  Whilst the delay in certain store openings, particularly in the Triple Two business and the consequential impact of the loss of capital related revenues, has impacted the Group’s financial performance for the year ended 31 March 2023, this has been a transformational period for the Group.’

• The chairman says ‘we have emerged strongly from the pandemic, which clearly impacted our business.  We look forward with confidence to an improved financial performance in the current financial year and to updating on further progress, in particular in relation to the numerous store openings we have planned.’

The FT reports that Neat Burger’s new funding round has increased the London-based vegan fast-food chain’s valuation to $100m….

• The plant-based restaurant business has eight outlets in London and opened its first in New York last month, with plans to open a further US site and up to three more in London by 2025.

Asda has acquired EG Group in a £2.3bn deal which sees the Issa brothers consolidate both businesses under the Asda brand. The deal includes around 350 petrol stations and over 1,000 food-to-go sites in the UK and Ireland. The firm said proceeds from the deal would be used to repay its debts as rates continue to rise.

HOLIDAYS & LEISURE TRAVEL:

Heathrow faces increasing levels of industrial action as around 600 more security officers voted to join strike action over the summer, joining 1,400 colleagues at Terminal 5 and airport campus security, who are taking industrial action.

The Scottish Parliament has formally published a ‘tourist tax’ bill that would give councils the power to impose a levy on overnight accommodation….

• The rate would based on a percentage of the cost and set by each individual council. UKHospitality Scotland executive director Leon Thompson said ‘The introduction of the visitor levy will leave hospitality businesses frustrated that yet another cost is being lumped onto a sector already challenged by record costs.’

OTHER LEISURE:

Entain has updated on the HMRC investigation into its Turkish-facing online business, saying that it ‘understands that the HMRC investigation, which is ongoing, includes a review of its former Turkish-facing business and acknowledges that historical misconduct involving former third party suppliers and former employees of the Group may have occurred….’

• Entain says it ‘continues to co-operate fully with HMRC and the CPS’ and says ‘negotiations remain ongoing and any resolution would be subject to judicial approval.’ It adds ‘while the Company cannot say at this stage what the consequences of the investigation will be, it is likely that they will include a substantial financial penalty which is yet to be determined.  The Company cannot identify reliably at this stage the size of any financial penalty.’

• Despite the uncertainty, Entain reassures, saying ‘since the investigation first commenced, the Group has undertaken a comprehensive review of anti-bribery policies and procedures and has taken action to strengthen its wider compliance programme and related controls.’ It concludes saying ‘whilst the discussions with the CPS remain ongoing, the Board is content with progress to date and looks forward to pursuing an orderly conclusion to this matter.’

FINANCE & MARKETS:

The Telegraph reports that Goldman Sachs predicts that the Bank of England will not get inflation back under control until the end of 2025….

• The Wall Street bank blamed a ‘more gradual decline in food inflation’ and the UK’s tight jobs market for the slower decline. It expects food prices to keep rising at an annual pace of at least 2.5% until 2026.

Zoopla reports that agreed home sales reached their highest point of the year in May, as more prospective house sellers returned to the UK’s property market….

• However, the property website warned that the rebound in activity could be knocked by rising mortgage rates and the increased expectation of further rate rises. Recent moves in the bond markets suggest that participants expect at least two more rate rises before the end of Q3 this year.

Sterling up at $1.239 and €1.1583. Oil lower at $73.35. UK 10yr gilt yield down 9bps at 4.24%. World markets down yesterday & London set to open down around 30pts as at 6.30am.

RETAIL WITH NICK BUBB:

• Today’s News: The B&M finals (for y/e March) report that adjusted PBT fell back by 13% to £459m, but the statement is headlined “Strong growth and disciplined delivery in FY23, excellent profitable momentum into FY24” and Alejandro Russo, the new Chief Executive, says “We expect to grow sales and profits in FY24, despite economic uncertainty”. The company says that “We will accelerate our new B&M UK store openings back towards 40 stores per annum, with c30 expected in FY24” and that in the first 9 weeks of FY24, B&M UK LFL sales have run at +8.3% and that France and Heron Foods continue their trading momentum. Current trading is even stronger over at WH Smith, thanks to the big Travel recovery, with Q3 (the 13 weeks to May 27th) seeing 18% LFL revenue growth in the Travel Division and 3% LFL revenue growth in the High Street Division. The group is said to be “in a good
position as we approach the peak summer trading period” and the outlook is encouraging: “Since our interims announcement on the 20 April, our expectations for the full financial year have modestly improved”. The latest Nielsen monthly grocery sales figures (for the 4/12 weeks to May 27th) should be out at c8am today. The quarterly FTSE index review to be announced early this evening is widely expected to see Ocado (with its market cap down to only £3.3bn) ejected from the FTSE 100 index.

• Asda/EG Merger Watch: As we said yesterday, the planned acquisition by Asda of the EG petrol forecourt business in the UK is probably more to do with easing the funding pressure on the heavily indebted EG group than anything else, but there is also a commercial rationale, helping to accelerate the roll-out of the fledgling Asda Express convenience store format. Asda has always been under-represented in the convenience store market, but this deal will give them c350 petrol filling station sites and over 1,000 food-to-go locations. P&L synergies of c£100m are expected to be generated for Asda over the next three years, but “these synergies mainly arise through economies of scale of the combined entity, higher volumes and cross-selling opportunities from a large and highly complementary customer base” and Asda emphasise that the deal will be “a net jobs creator” and that they will
bring down petrol prices at the EG forecourt sites…As for EG, the proceeds, together with the net proceeds of $1.4bn from the recent sale and leaseback transaction in the US, will be used to repay debt and the group’s net leverage will fall to below 5 times, in line with the recently announced financial deleveraging strategy…

• Today’s Press: According to the invaluable Guardian morning email briefing, “Government accused of cover-up over battle for Covid evidence” is the Guardian front-page splash headline this morning. The Daily Telegraph goes with “Cover-up row over ministers’ WhatsApps”, adding “Government is withholding messages to protect Sunak and MPs, says Johnson ally”. “Running & hiding” – the Daily Mirror shows Boris Johnson out for a jog and reports that his notes and WhatsApp messages have gone missing in a “Johnson Covid cover-up”. “AI pioneers fear extinction” – stark stuff in the Times, echoed by the Daily Mail (“AI ‘could wipe out humanity’”) and the i, which says “AI creators fear the extinction of humanity”. And today’s Financial Times leads with “Western nations raise pressure on Erdogan to admit Sweden into Nato”.

• News Flow This Week: With the skools on half-term, things are fairly quiet on the company news front as May draws inexorably to a close, but the Dr Martens finals are out tomorrow.