A Day in the Life:

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Well having got drenched on the way into the office, I suppose I should at least be thankful that they haven’t been banging on about a severe dry spell this year.

Because, unless I’m very much mistaken, the last two or three droughts have drowned to death as the heavens opened whereas this year we’ve gone straight to the heavens opening and skipped the drought part.

Which is unpleasant but somehow more honest and for the water itself, I suppose, we should be grateful.

I mean we don’t need some bunch of ‘lost-all-our-water-to-the-solar-winds’ aliens coming through a wormhole to earth to steal our resident H2O just to prove its worth. However, my imagination has always been both a blessing and a curse and, in the here-and-now, when water is falling in bucket-loads onto your bare head and running down your neck, it’s hard always to remember just how valuable it is. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Gordon Thompson has joined Surrey-based Hogs Back Brewery as its sales director.

• Majestic Wine launches own-label wines. Says ‘Definition range showcases…the most important wine styles in the world’. It adds ‘each wine represents the definitive style of its region and they’re produced by some of the world’s leading winemakers.’

• Wilson Drinks Report says total volume of wine sold online in UK in Q1 rose 9% with sales value +11%. WDR says ‘the sparkling wine surge has continued into 2015, with total sparkling wine value up 16%. Not only have sales of Italian wine grown strongly, we have also seen a massive jump in sales of other French sparkling wine other than Champagne. Both Champagne and Cava, however, saw sales fall back 5% in Q1.’

• WSTA says majority of British wine drinkers have little or no brand loyalty. It says it is ‘interesting to see how highly drinkers of all products place emphasis on recommendations from friends and family, alongside the traditional of factors such as quality and value for money. This suggests that marketing approaches that take this into account will be most successful.’ The WSTA Report suggests 79% of British wine drinkers regularly feel little loyalty for any one brand. The survey found that British wine enthusiasts are experimental and prefer to try a variety of brands.

• Exports of Czech beer to China rose by 79% in 2014

• Diageo is at risk of losing around £315m worth of shares from its Indian subsidiary, United Spirits, if ‘adverse’ rulings are taken on legal proceedings. Diageo purchased over 10 million USL shares from holding company UBHL last year for R32.35 billion (£315m), completing its £1.85bn takeover. However, this final share purchase is facing legal challenges by lenders to UBHL who argue that UBHL has defaulted on its loans.

• Wiltshire brewery Wadworth & Co has appointed Chris Welham, MD of Spirit Pub Company’s Spirit Leased division, as CEO.

• E&J Gallo is aiming to capitalise on the growing trend for single-serve wine SKUs with a range of 187ml bottles for its Barefoot brand.

• Restaurant operators in New York are facing a new requirement to label dishes that are heavy on salt.

• Mitchells & Butlers has rolled out a new ‘Green Card’ app intended to increase loyalty among sports-watching customers. The app will provide consumers with discounts and free offers on food and drink during televised matches.

• Harry Ramsden’s, the fish and chip shop chain, has posted a 10.1% rise in like-for-like sales to £13.3m. One-off costs including a programme to close some of its under-performing restaurants ensured a pre-tax loss, however. Chief executive Joe Teixeira commented: ‘We continue to engage with our traditional customer base and perhaps even more significantly, are successfully attracting a whole new generation of fans to the brand. The underlying results positively reflect the ongoing repositioning of the brand, which remains cash generative and on target to achieve planned budget.’

• Healthy fast food brand Leon has hired Tamara Griffin, previously of Nando’s, as its director of people. Leon co-Founder and chief executive John Vincent said: ‘When companies grow fast, culture can suffer. One of the things we think about in the shower is how to improve how we live at Leon as we grow. We knew we needed someone world-class to help us do that. Tamara is the one.’

• ASK Italian, Zizzi and Carluccio’s have all signed up to Qkr! With Masterpass, an app that allows customers to pay their bill at any point in the meal. Doug Wooten, head of IT for the Azzurri Group (parent of ASK and Zizzi), said of the MasterCard-powered: ‘Our customers are great at giving feedback and we know that they are looking for faster and more convenient ways to pay. By working with MasterCard and implementing Qkr! our restaurant teams can focus on delivering great service to customers and serving our fantastic food. We know that splitting bills is pain point for our customers and if they choose to pay with Qkr! It offers them a convenient solution, together with paperless receipts on the app for easy reference.’

• Booker’s acquisition of Londis and Budgens has completed.

• Ocado saw Q3 group sales rise by 17.3% to £272m for the 12 weeks to 9 August as average orders per week increased 16.6% to 190,000. However this was on the back of a 1.1% decline in average order size and, on a PER of 250 falling to 152, the expanding online grocer does not have much scope for disappointing investors – like ASOS last year, its shares could halve and it could still be viewed as expensive. At the time of writing, the group had cash and cash equivalents of £51.8m and £44.4m of debt.

• More from Ocado: Tim Steiner, Ocado’s Chief Executive Officer, said: ‘We are pleased with the continued steady growth of our business in a retail environment that remains tough. We believe our commitment to improving what we offer to customers through innovation and our proprietary IP will support further growth.  Notwithstanding the competitive nature of the marketplace, we expect to continue growing slightly ahead of the online grocery market.’ See also Nick Bubb below.

• Sainsbury’s is to work with Chinese e-commerce giant Alibaba to sell a number of products in the country. A spokesman for the supermarket said: ‘We are trialling a small number of ambient products for sale on the Alibaba platform, including So Organic and Taste the Difference lines, for sale through the Chinese online market.’

• Alibaba has been forced to deny that its share price is about to halve in value. The company raised $25bn last November in what was the largest IPO in history

Holidays & Leisure Travel:

• Barclaycard reports ‘spending growth [on leisure] slows in August as Brits head abroad to escape summer washout’. It says ‘overall spending growth falls to lowest level in 14 months, with in-store growth almost flat at 0.3 per cent’ but adds it saw a ‘surge in last-minute travel, as consumers supplement their already-booked breaks with additional shorter trips, sees travel spending up 7.0 per cent in August’. It says the number of travel transactions rose 28% in August, with hotels bookings up 10.5% and airline spend +4.4%. Barclaycard COO Chris Wood reports ‘even accounting for seasonal fluctuations August saw weaker than expected growth in consumer spending at home, as households countered a wet and cold British August by heading abroad.’ He adds ‘restaurants, supermarkets, clothing stores and household stores all saw lower
levels of transactions compared to last year’. Mr Wood concludes ‘with the country forecast to experience an Indian Summer this month, it’ll be interesting to see whether spending levels recover.’

• A group of Mexican tourists have been accidentally killed by Eypt’s military police, who were pursuing ‘terrorist elements’ at the time.

• Ex-Thomas Cook boss Harriet Green is expected to be confirmed as a new divisional head at tech giant IBM.

• Wizz Air has signed the purchase agreement for 110 Airbus A321neos at a ‘significant’ discount to the order’s current list price of $13.7bn. Due to the size of the transaction, the company must seek the approval of shareholders. József Váradi, Wizz Air CEO said: ‘This order will help us to build on our strong market position in Central and Eastern Europe. It also provides significant flexibility to match our fleet to our growth requirements. The new aircraft will enable us to sustain our cost advantage through cabin innovations, the latest engine technology and other efficiency improvements, while enhancing our customer offering and experience.’

• Flybe has called for APD to be either scrapped or ‘dramatically reduced’ in an open letter to the chancellor.

• Easyjet is scrapping its Gatwick to Moscow route in March 2016 following a lack of demand due to the weakened Russian economy. The service will be kept under review should demand pick up.

Finance & Markets:

• World markets: UK markets down yesterday ahead of Fed decision Thurs night. Europe + US down but Asia up in Tues trade

• Oil lower at around $46.30 per barrel of Brent crude

• India’s inflation rate fell to 3.66% in August amid increasing calls for a cut in interest rates.

• The Malaysian government is spending 20bn ringgit (£3bn) on supporting shares and is cutting taxes for manufacturers. The country’s currency has lost 20% of its value against the dollar this year, languishing at near 18-year lows, and its economy has suffered from falling prices in its commodity exports.

• UK lenders including Santander and Nationwide have returned to selling mortgage products at 95% loan-to-value.

• China has revealed details of how it would restructure its state-owned enterprises (SOE), including partial privatisation. The official Xinhua news agency said the guidelines issued by the Communist Party’s Central Committee and the State Council included plans to ‘clean up and integrate’ certain SOEs.

Langton Food Retail Index – The Grocer’s Dozen

The FRI had a week to forget with just three of the 12 companies posting a rise in share price as the index fell 1.6% compared to the FTSE’s 1.24% rise. This week saw the return to the market of Conviviality Retail, fresh from its £200m acquisition of drinks wholesaler Matthew Clarke.

Grocers: It was a poor week for the grocers, who were all down save for Marks & Spencer, whose marginal 0.5% rise to 505p was not enough to match the wider indices. Tesco, which has been questioned in the press for its board’s lack of share purchases, fell 1.37% to 183.41p while the volatile Ocado dropped by 4.41% to 312.68 – its lowest level so far in 2015.

Discounters: B&M Retail retained its price of 314.9p per share but has lost around 10% of its value over the past three months. The ambitious retailer currently has a £3bn market cap and shares are priced at 30 times earnings, falling to 25 times earnings next year. Poundland fell 5.88%, more than any other company in the FRI, while Mccoll’s also fell by 1.9%.

Specialty/Wholesale: As mentioned above, Conviviality returned to action and its shares jumped by more than 20% to a new level of 183p as the market reacted bullishly to its announcement of the Matthew Clarke acquisition. The group’s shares are now up by nearly 50% since its 2013 IPO, giving it a dividend yield of 4.5% and a PER of 15.

Conviviality is aiming to triple its sales across its c600 stores to £1.1bn over the next three years and has already grown its net profit from £4.8m in 2013 to £11.2m in 2015. Increasing scale should also allow the company to improve its operating margins, which currently stand at 2.5%. However, considering the placing shares to finance its recent purchase were sold at 150p, potential investors might be put off by its current levels.

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

Retail Roundup from Nick Bubb:

Kingfisher: We highlighted yesterday that there has been a revival of interest in the City in Kingfisher, ahead of today’s interims for the half-year to Aug 1st, and the company trumpets “solid early progress on the journey to ‘ONE’ Kingfisher”, with Retail profit up 5% at constant currency and LFL sales 2%. But adjusted PBT of £384m is down by 2%, despite strong UK profit growth, given a £29m adverse FX movement on the translation of non-sterling profits, so the FD’s boast that the interim dividend has been increased by 1% seems a shade over-the-top. And the comment that “In the short term, whilst we remain encouraged by the macroeconomic backdrop in the UK, we remain cautious on the outlook for France” is a bit of a downer…The analysts meeting is at 9.15am

Ocado: The Q3 update today (for the 12 weeks to 9 August) from Ocado is not exactly bang up to date, but it is a bit better than expected, with Retail sales up by 15.3% and some signs of the decline in average order value starting to stabilise. However, although such deals are hard to coordinate with the timing of a planned trading update, the City will be disappointed to see no mention of the much-vaunted Overseas licensing deal…

Weather Watch:
The weather this week will be good for Fashion retailers, as it will be wet and windy and very unsettled and distinctly autumnal…and there is little sign of the “Indian Summer” that undermined High Street trade in September/October last year (although the weekend will be calmer). Of course, many retailers have complained about the wet and cool weather in August…but memories about “the weather” are notoriously short-term, so we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month “should” have affected the High Street. And given that August last year wasn’t exactly great, although August this year was “another cool and rainy month” it was actually still warmer than last year (by 0.3C on average). All in all, Planalytics said that “weather driven demand” for
T-shirts should therefore have been 7% higher than in 2014 in August, other things being equal, with demand for boots down by 11%…

John Lewis Sales Watch: We noted last Friday that the great High Street bellwether John Lewis had a bumper week to kick off September, with a lot of lost ground regained, as the key “back to skool” trade kicked in at last on the back of the wet Bank Holiday (helped by the calendar shift, sales were c10% up “LFL” in w/e Sept 5th). However, after a poor August, the first 5 weeks of H2 were, nevertheless,  cumulatively c1% down LFL, so it will be interesting to see whether momentum was maintained last week, w/e Sept 12th. With the cloudy weather a lot more helpful to Fashion trading than last year and against a soft comp overall, we’d expect trading to remain quite good and, ahead of Friday’s official figures, would pencil in c4%/5% LFL sales growth.

Nick Bubb – nicholas_bubb@hotmail.com

Monday Wrap:

This was produced for distribution yesterday 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:

Interest rates etc.:

• There’s small news (that could be part of a bigger trend, e.g. consumer confidence at 3mth high) and there’s big news.

• Interest rates going up for the first time in 9yrs (in the US, 8yrs in the UK) is definitely in the latter category.

• The Fed will announce its Sept decision whilst the UK is in bed, the early hours of Friday morning.

• The betting, just, is on an eighth of a percentage point rise.

• This would 1) not really make any difference to anyone but 2) would send the clear message that rates are not a one-way bet.

• Whatever the Fed does, it will be blamed for something but, as the ‘natural’ level of rates is arguably between 3% and 5%, the sooner it begins the process of normalisation, the better.

• NB – it’s always worth remembering that the ‘average’ rate implies that the spot rate spends half the time above it and half below. That has pretty far-reaching implications if the ‘normal’ rate should be 4%. Inflation could be an issue at some point but, in politics, tomorrow is never.

Evolution continues apace, corporate actions a-plenty:

• So MOD is to bring DIY pizza to London? Could be interesting but 1) haven’t we got rather a large number of pizza operators already and 2) how’s DIY working out for Vapiano?

• Yo Sushi may soon join Las Iguanas, La Tasca, Spirit Group (finally) & other chains in having a new owner this side of Xmas. Moto is also expected to change hands, Sportech has announced a bid-approach and other betting & gaming operators have been combining their businesses furiously (or have been trying to) over recent months. This may be indicative of a number of markets where organic growth is relatively hard to come by and where the temptation to acquire growth has become irresistible.

Commodity prices etc.:

• The annualising of major changes can have what shouldn’t be (but often are) far-reaching implications.

• When wet-led pubs lap a World Cup, for example, it’s to be expected that sales will come under pressure but, whilst this is widely-known, it can still lead to easy-copy headlines – ‘sales sharply down in June’ or whatever.

• This will be happening with commodities, soon. Arabica Coffee, for example, is down by around 35% over the last 12mths but, as the majority of the fall happened a little less than a year ago, it is around flat over the last 6mths.

• The same is broadly true for such widely-varied commodities as pig meat, Brent Crude & feeder cattle.

• Hence we may shortly be getting headlines – crude up over last 12mths or lumber higher on one year view.

• Indeed Wheat (see below), despite being flat on its backs, looks to be already fractionally up on a 1yr measure:

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

• Oil price down a little, seems to be having trouble getting through $50 and, with China slowing, shale oil and Tehran coming on stream etc., it may continue to do so.

• Sterling is rallying against the US$; good news for commodity importers.

• Lidl has said that it is going to make a push into London, intends to have c300 stores within the M25. Should give all of those fully-priced Tesco and Sainsbury outlets a bit more of a run for their money.