A Day in the Life:

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Find previous emails at https://www.langtoncapital.co.uk/daily-notes/ 

Bit rushed this morning, speak tomorrow. Here’s the news:

The News:

Pub, Restaurant & Drinks Producer News:

• BDO Restaurants & Bars Report highlights General Election as the event of 2015 with National Living Wage close behind

• BDO suggests ‘the deals market has again proved to be particularly active’ with crowdfunding now a feature

• BDO says ‘rents & and property costs in general are also always forefront of operators’ minds’.

• BDO suggests economy broadly helpful but says ‘the Government cannot afford to rest on its laurels.’ It says ‘whilst employment and wages are rising and prices falling, the picture for overall consumer confidence remains reserved.  After seeing the strongest rise since 1977 at the beginning of the year, the GfK consumer confidence index fell in October to a four month low of +2, bucking economists’ forecasts for a small rise. Whilst consumers’ overall spending power may be higher, overriding concerns about the global economy, the geopolitical situation and domestic austerity measures are impacting consumers’ positivity. Indeed, the most recent survey showed that consumers were now less certain about whether now was a good time to make large purchases such as furniture or electrical goods, prompting many retailers to use more widespread
promotion of Black Friday and Cyber Monday deals.’

• BDO suggests businesses are even more cautious than consumers. However, it says ‘whilst the general economic picture may be rather uncertain, the restaurant and bars sector continues to defy the rest of the economy with steady and consistent growth. Whilst there have been some months which have reminded businesses to remain cautious, the overall trend for eating out continues to be on the rise.’ BDO also highlights strong London performance.

• BDO forecasts for 2016. More IPOs, more grab + go products, the end of tips but the arrival of a sugar tax

• BDO forecasts: Rising prices, a strong London, more tapas and growing numbers of active (ping pong, golf) type venues

• AB InBev has announced its intention to list its shares on the Johannesburg Stock Exchange in mid-January 2016.

• Morrison’s has announced that Greene King CEO Rooney Anand is to join its board as a non-executive director. Morrison’s chairman Andrew Higginson reports ‘I am delighted to welcome Rooney to the Board. Rooney had the vision at the start of the credit crunch to reinvent Greene King as a branded food based pub retailer. He is a widely admired and successful Plc CEO. His experience in retail, in fmcg and in turning around the fortunes of a major retail business, will all be put to good use at Morrison’s.’

• D&D Restaurants has put its IPO on hold until next year after failing to secure adequate fundraising commitments despite ‘strong’ investor appetite. An insider said the group, which owns 34 high-end sites including Quaglino’s and Coq d’Argent and has annual revenues in excess of £100m, will instead aim to float next year.

• C&C Group has entered into a long-term distribution partnership with Pabst Brewing Company to sell its cider brands in the US from 1 March 2016. Under the terms of the Partnership, PBC will have the exclusive license to distribute, market and sell all of C&C’s cider brands in the US, including premium craft cider brands Woodchuck, Gumption, Wyder’s and Hornsby’s.

• New Whitbread CEO Alison Brittain has said Costa needs to upgrade its core systems and is looking at utilising click and collect technology in its stores. Brittain added that keeping prices level for the past four years gives the chain ‘some optionality’ going forward and the impact of its first Costa Fresco site is being evaluated with the potential to set up new stores or retrofit existing sites.

• Mothership Group has acquired the Hoxton Bar & Kitchen from MAMA & Company and says the site will continue to operate under the same model. Commercial director Jon Ross commented: ‘We’ve been huge fans of the Hoxton Square Bar & Kitchen for many years. It’s a great bar in a world-famous square and we’re really excited about taking it on. It has an amazing history with some of the best bands on today’s scene having broken there and we’re looking forward to continuing and adding to that story.’ The site will be run alongside Mothership’s existing bars, which include The Book Club in Shoreditch and The Queen of Hoxton.

• PE group KKR has supported a debt refinancing of 290-strong Casual Dining Group, which will be used to strengthen CDG’s existing capital structure and finance future growth.

• Stonegate Pub Company has sold and leased back three central London freeholds to CBRE Global Investors for just under £30m. The Duke of Wellington on Wardour Street, St James Tavern in Piccadilly and Admiral Duncan on Old Compton Street were acquired as part of a package of 53 sites from TCG earlier this summer and are now operating on 30-year leases.

• Research from the University of Southern Denmark suggests that a pint of beer of a glass of wine a day could lower the risk of death by dementia and Alzheimer’s by 77%. The study analysed alcohol consumption among 321 people with early stage Alzheimer’s disease as part of the Danish Alzheimer’s Intervention Study (DAISY).

• Leisure sector entrepreneur Luke Johnson has told The Grocer that he has no plans to exit Gail’s Bakery owner Bread Holdings. Johnson said of the firm, which saw revenues grow 25% to £45m in the year to 28 February 2015: ‘This is a brilliant business. It’s going to double and double again. It’s far too early for an exit; we’re very patient investors.’

• Spending on cards in the UK doubled in the decade to 2014 to £566bn, with increased use of plastic in pubs and restaurants helping to drive growth.

• Amazon has rolled out one-hour delivery on wine and items from Eataly in New York with its Prime Now service.

• PE group Equistone is in talks to acquire Gaucho in a deal valued at c£100m.

• Walkabout owner Intertain has opened its fourth site of the year in Manchester’s entertainment complex, The Printworks. The group spent over £650,000 on refurbishing the 600 capacity bar, meaning Intertain has put a total of £2.9m into developing new sites in 2015. John Leslie, CEO, said: ‘The Printworks is known for being a fantastic entertainment hub and we believe our new-style Walkabout is ideal for this location and will complement its current offering.’

• Domino’s Pizza Group has submitted plans to open a 60-cover restaurant and takeaway site in Kent.

• Drinking venues across the UK have slipped in their performance re excluding underage drinkers per Serve Legal. It says 70% passed checks in 2015

• Manjit Dale, founder of TDR Capital, has led a consortium of investors to take a majority stake in Cubitt House, valuing the chain at c£12m. Cubitt House operates four pubs in Knightsbridge and Belgravia.

• Odey is reported to have taken a short position against 1.9% of the stock of argos-owner Home Retail Group

Travel & Hotels:

• easyHotel confirms it has received planning permission to build a 77 room easyHotel in Liverpool. It is expected to open in 2016/2017 FY

• The Times writes that the owners of Travelodge have suspended the budget hotel chain’s £1bn auction until after the New Year. Front runners had been said to be Starwood Capital and Apollo Global Management. EBITDA is estimated to hit around £120m next year.

• Intercon has opened its fifth InterContinental hotel in France, Le Grand Hotel in Bordeaux

• Fosun, which owns 5% of Thomas Cook and which is set to buy 5% more of the company, has found its chairman

• Fosun chairman Guo Guangchang appeared at his company’s annual meeting in Shanghai Monday after being reported missing on Friday. Fosun announced that he was assisting authorities with their investigations saying that this concerned Mr Guo’s personal affairs, not company business.

Finance & Markets:

• Oil prices extended losses Friday, doing little better today. Selling at around $37.70 per barrel. Hits 11yr lows

• China data a little stronger. Factory output at 5mth high, up 6.2% in Nov versus 5.6% increase in Oct

• IMF reports UK’s economic growth ‘strong’ but says household debt is still ‘strikingly large’.

• World markets: UK sharply lower on Friday, Europe + US also down. Far East mostly down in Mon trade

• Rightmove reports UK home prices fell back by 1.1% in Dec following 1.3% slide in November

Langton Licensed Retail Index – Major Movers

LRI outperformed market this week, falling 2.65% while the wider market was down 4.18% as commodities and oil price drops drove the basic materials and oil stocks down.

Pubs

The bigger pub groups had a bad week generally with Marston’s down 4.65%, M&B down 5.88% and Greene King down 6.39%.   Greene King arguably had more froth in its shares having risen 17% last week following the group’s full year numbers.

JDW fared better, rising 0.39% last week. The group’s shares tanked following announcement of further margin narrowing, but have since recovered most of their losses, in spite of a recent data hack that may have affected consumer confidence.

In London pubs Young’s was up 2.87%, while Fuller’s was down 2.44%, reversing an underperformance of Young’s shares versus it’s London rival in recent weeks. 

Other Leisure

Whitbread was down more or less in line with wider market following Q3 numbers on Thursday.  Recent trading looks to have been somewhat softer At Alison Brittain’s first outing as CEO.  November in particular looking to have been something of an issue, with trading in the month down to 1.5% versus the c4% the market had been looking for at Premier Inn, and down to 0.5% LfL at Costa.  Despite opening down fairly sharply on Thursday, the group’s shares ended the session unchanged.   Going forward however, there may be some worries that the hotel cycle is reaching its peak.

Cine and SSPG were also down (1.79% and 1.4% respectively) but outperformed the wider market while Merlin was up 1.44%.

Pat Val had second week of gains following strong results a couple of weeks ago which saw PBT grow 29.2% and revenue up 20%.  The group’s shares ended the week up 6.82% having risen 6.95% last week. Will Brumby – will.brumby@langtoncapital.co.uk

Langton Food Retail Index – The Grocer’s Dozen

The FRI conspired to underperform in a week that saw the FTSE 100 drop below the 6000 mark, down a collective 5.25% after shares in Tesco were driven to 18 year lows. Ocado and B&M also had a week to forget, while Conviviality’s continued strong performance was a rare bright spot.

Grocers

Tesco shares were notably down to 144.35p (-10.86%) after it was revealed a second senior director is to quit the beleaguered retailer. HR director for the UK Judith Nelson is following executive Jill Easterbrook, seen as a key part of Lewis’ senior staff, who announced she was leaving on Monday less than a year into her role as head of business transformation.

Tesco shares have tumbled 41% since April as the scale of the group’s turnaround sinks in once more. The retailer has also capitulated on fuel prices, alongside Sainsbury’s, after rival supermarkets Asda and Morrisons both committed to reducing the price of petrol to under £1 a litre. With ongoing investigations, a still significant price premium to the discounters, floundering peripheral businesses and increasingly competitive rivals, Tesco’s shares still do not look tempting.

Elsewhere, highly-rated Ocado’s full year results failed to impress as its international agreement was pushed back. Consensus pre-tax profit remains low at £12.5m on some £1.1bn of revenue. Even with shares falling 14.23% to 324.1p, a considerable amount of profit growth is priced in at a time when the average consumer basket is falling and food price deflation abounds. The looming threat of Amazon launching its own Amazon Fresh service must also provide potential investors with food for thought.

Discounters

B&M (-6.48%) has been in the news for accidentally stocking counterfeit merchandise, with the board game ‘Pie Face’ being withdrawn. The group’s savvy sourcing model is central to its aspirations of out-maneuvering incumbent competitors and so such news may be expected on occasion.

Shares have retrenched from highs of 361p in August to 287p. While this may present an intriguing entry point, recent results showing sales cannibalisation and stock availability issues suggest the general merchandiser’s future performance may be bumpy as it sets out on its path to virtually double its UK footprint to 850 stores. Jack Brumby – jack.brumby@langtoncapital.co.uk

Retail Roundup from Nick Bubb:

Saturday Press:
The Guardian continued its campaign against Sports Direct, flagging that it stripped its USC subsidiary of prime assets in the weeks before its controversial collapse in January, whilst Tempus column in the Times focused on Sports Direct in a piece about companies with poor corporate governance and thundered that “it pays to play by the rules” and the Times’ market report noted that Goldmans has cut its sales growth forecast and price target for Sports Direct. Otherwise, the main focus in the Saturday papers was on the news that Tesco UK has lost its second senior female executive in a week, with HR Director Judith Nelson following Jill Easterbrook out the door, as highlighted by the Independent and the Guardian. The Daily Mail noted that Sainsbury’s pharmacy deal with Lloyds is to be investigated by the CMA and also had an article about a shake-up at
the Paul Smith fashion business. The FT had a big article about how Amazon is getting even more efficient in its logistics operation and planning to beef up its door-to-door delivery service. The traditional gloomy front page story about “the weather” in the Daily Express was banished to the inside pages (the headline was “Fortnight of storms to bring Christmas washout misery”). Finally, the Evening Standard on Friday had several Retail stories, including an interview with Jeremy Schwartz, the CEO of The Body Shop on how the business has “rediscovered its mojo” and the news that foreign investors are flocking to buy Oxford Street property while West End retailers were braced for a £120m shopping spree this weekend as the “big push” for late present buying got under way.

Sunday Press (1):
There were plenty of Retail stories in the Sunday papers and the Observer kept up the pressure on Sports Direct with a comment piece that the non-exec Directors are likely to get a shake up, as well as a Business editorial that thundered that Sports Direct’s advisers need to think about their position, whilst its “Quote of the Week” was MD Dave Forsey saying that “we need to do a better job of getting our side of the story across”. And Prufrock column in the Sunday Times suggested that Sports Direct is looking to change its PR adviser. A front page Business story in the Sunday Times was headlined “Ailing Debenhams makes it easier for bosses to bag bonuses”, noting that Debenhams has lowered its growth hurdles for the new-year after Directors got no performance bonuses last year. The Sunday Times also flagged that Hammerson is close to
buying the Grand Central shopping development in Birmingham and that Waitrose has a bullish store opening programme for 2016 (5 supermarkets and 9 convenience stores), whilst its “Inside the City” column looked at Carpetright ahead of this week’s interims and said the shares are a Sell and it also had a interview with Gary Grant, the boss of the privately owned toy chain The Entertainer.

Sunday Press (2):
The Sunday Telegraph had a front page Business story flagging that the Odey hedge fund has increased its short position in Home Retail because it is a “working class brand”. The Sunday Telegraph also found photo opportunities in the news that the giant advertising screen in Piccadilly Circus is to be taken over by Burberry tomorrow with an interactive campaign that lets passers-by design their own personalised Burberry scarf, the womenswear chain Coast is set to exit the US market and the music streaming service Spotify has opened a shop-in-shop inside Top Shop at Oxford Circus. The lead Business story in the Mail on Sunday was that John Lewis is set to invest £500m more in its Online logistics operation as Online sales are set to overtake Store sales within 4 years…but it also flagged that Sainsbury FD John Rogers is “quietly confident” about having a
good Xmas and that the business is not planning any more store closures. And the Mail on Sunday also noted that sales are booming at the Online fashion business Pretty Little Thing, which is owned by the son of Boohoo’s founder Mahmud Kamani. The Sunday Express flagged that the shopping centre giant Intu Properties has said that Sunday trading hours will eventually have to be extended because of public demand.

Sunday Press (3): In terms of previews of results due this week, the Observer noted that the share price of SuperGroup has doubled over the last year, but the business now needs to show that International expansion will be successful. Otherwise, there was a lot of focus on Dixons Carphone ahead of their interims, with the Observer itself flagging that CEO Seb James is likely to be bullish about the impact of Black Friday and spread some Xmas cheer. The Midas column in the Mail on Sunday looked in detail at Dixons Carphone and said the shares are a Buy, whilst the Sunday Telegraph highlighted that Dixons Carphone is set to launch a new subscription service for customers to help them maintain gadgets and home appliances.

Today’s Press and News:
The Daily Mail follows up on the Mail on Sunday story that John Lewis is set to invest £500m more in its Online logistics operation, as well as the news that the giant advertising screen in Piccadilly Circus is to be taken over by Burberry today, but it also finds room to give a column to Andy Clarke, the CEO of Asda, to trumpet the view that Asda is building the strength to “weather the storm” in the supermarket sector. The Times follows up on the Sunday Telegraph story that the Odey hedge fund has increased its short position in Home Retail. The Telegraph notes the weak November footfall figures reported by the BRC-Springboard and also has a handy “SWOT” analysis of Dixons Carphone ahead of Wednesday’s interims, together with separate previews of the Carpetright and SuperGroup interims. There is no real company news out so far today, apart from
the interesting announcement that the CEO of Greene King, one Rooney Anand, has been appointed a non-exec director at Morrisons and says, excitedly, that “I look forward to working with Andy and the Board to help to contribute to the company’s return to the forefront of the British supermarket industry”.

Grocer Watch:
The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine turned its attention to a Christmas selection of food and Asda won for the 2nd year in a row, although its £119.89 basket was only fractionally cheaper than Tesco’s (after an adjusted £1.95 cash-back via their “Brand Guarantee Scheme”). Morrison’s, however, was cheapest for the frozen turkey (£16) and was joint cheapest (with Sainsbury) for the gammon joint, at £8.25. These pricing surveys are often decided by such “lumpy” items, but although the “Big 4” supermarkets were all reasonably close on price, it is noticeable that Waitrose “was on a different planet” and its basket of £151.131 was over £30 (or 26%) more expensive than Asda…The separate Grocer “Mystery Shopper” weekly survey on Store Service and
Availability was won by Tesco, as their 40,000 sq ft supermarket in Portsmouth topped the rankings, albeit with a relatively modest score of 76 out of 100, in a rather low-scoring but close week (the Waitrose store in Twickenham scored 71, the same as the Sainsbury in Bognor Regis). One of the main news stories in the Grocer is that Tesco is bringing back Kingsmill bread to its stores, after dropping the ABF-owned bread range in a cull of brands earlier this year.

News Flow This Week: Things are again quite busy this week, kicking off with the Carpetright interims tomorrow, which will be closely followed by the latest monthly Kantar and Nielsen Grocery market share data. On Wednesday we get the Dixons Carphone interims and the SuperGroup interims and then Thursday brings the ONS Retail Sales figures for November. 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:

Evolution continues apace:

• Today we have the news that consumers are more likely to drink vodka over Christmas than they are to partake of a sherry or a glass of port.

• That’s likely to be true and, though it is probably a generational issue (auntie Gertie is still likely to bring out the sherry bottle), things do move on.

• And on-trade operators would be well-advised to take note of such changes.

• It maybe doesn’t pay to try to lead consumers in terms of tastes (with the exception perhaps of some sites in Hoxton, Shoreditch etc.), but sites that fail to move with the times are likely to lose business to those that do.

• This will be particularly the case with new entrants.

• They are largely unencumbered by existing estates or by residual issues or by feelings of nostalgia, loyalty etc. and they are generally free to serve customers meals and drinks that they demand at a price that they are willing to pay.

Discounting:

• There is still some discounting going on out there, even two weeks before Christmas.

• This is not a good sign but there are some grounds to hope that the impact is localised and may be confined to those operators that have become associated with heavy discounting over a period of years or those whose brands have become a bit dated such that they need a bit of shock therapy.

• Here we would suggest that Everyday Low Pricing would appear to be the way forward.

• It is less confusing to the customer and, over the last few years, it hasn’t done Aldi or Lidl much harm in their battles with the established grocery majors.

Is this as good as it gets, should we be worried it doesn’t feel better?

• We’re 6yrs or 7yrs from the last recession. We may be nearer the next one than the last one.

• Employment levels are high, real wages are in growth, utility costs are lower than they have been in years and Morrison’s has just cut the price of petrol to less than £1 per litre.

• In addition, supermarket price wars have put money in customers’ pockets, PPI is rumbling on and taxes haven’t been put up as much as might have been feared.

• Yet consumer confidence levels are subdued, corporate confidence is on the wane, Black Friday was a damp squib, general retailers have been moaning, the weather is too warm and a number of on-trade operators have suggested that November trading has been soggy.

• Of course the consumer may be marshalling his/her resources for a Christmas blow out.

• Or he/she may simply not be mentally inclined (even if able) to splurge in the way that they did before the credit crunch.

• It might be as well to hope for the former whilst planning for the latter.

• But either way, good operators will prosper whilst lazy, mediocre or entitled operators may find the going tough and they may struggle to survive.

Random information, hopefully not all of it useless:

• Thomas Cook shares down a little on the Fosun news (see earlier email). We’re a long way from saying that the latter won’t now be buying 5% of Thomas Cook’s shares in the market, let alone suggesting that it may have to place the 5% that it already owns.

• Travel stocks better yesterday, IHG, TUI (on numbers) etc.

• Volumes likely to dry up over next few days. It’s Christmas of course but also we have the Fed meeting next week with interest rates likely to edge higher Stateside.

• Oil price testing 7yr lows at well below $40 per barrel. OPEC turning on the taps, some brokers looking for oil to go considerably lower still

• Markets all lower, some betting FTSE100 will end the years <6,000.

• Sterling better against the US$, level (kind of) vs the Euro.