A Day in the Life:

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

So is it true that 10 people or so will complain for every one that will heap praise on a restaurant, pub, other leisure operator or, indeed, a parent, sibling or child?

Well, sadly, it probably is because, on the numerous times that I’ve taken the M1, the A1 or the M11/A1 from London to Yorkshire, it’s never occurred to me to tell anyone that would listen that the journey was uneventful, efficiently-managed or otherwise smooth whereas, on the handful of occasions when I’ve been seriously inconvenienced, the whole world has known about it pronto and it’s the same, it would appear, with restaurants.

Because a survey we covered last week or the week before suggested that, whilst >90% of diners would moan to friends about a bad meal, less than half would either complain at the time or, if the meal was good, say that it was good.

And, presumably, an infinitesimally small number would feel the need to say that the meal was average, okay or simply hit the spot suggesting that bad news travels more rapidly than good. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• BBPA CEO Brigid Simmonds has called alcohol’s perceived impact on emergency services ‘a myth’ following a recent study.

• A report from global research company IRI suggests that deals offered in UK grocery stores are failing to work as they should. While 54.6% of the volume of product sales in the UK were bought on offer in 2015 (compared to 28.6% for Europe overall), the industry’s penchant for promotions is struggling to drive up sales.

• The number of new wine producers in the UK rose 41% last year, with the HMRC receiving 65 applications. According to national accountancy group UHY Hacker Young, the growing demand for UK produced wine has been fuelled by an increasing call for locally-sourced produce.

• Stonegate’s acquisition of TCG and NewRiver Retail’s purchase of 158 Punch pubs show that there is still demand for pubs including certain tenancies per report from CBRE

• Mexican fast food chain Chilango, which opens its 10th London site soon, is aiming to raise £1m through a second crowdfunding campaign. The company is giving away a 3% stake in the business to fund its expansion into 20 cities including Manchester, Leeds and Oxford and is targeting 50 sites over the next five years.

• The IEA has noted the fat taxes in Denmark failed to change consumption habits and had a limited impact on public health. Implies that any UK tax on sugar would be similarly unsuccessful.

• Majestic is to drop the six-bottle minimum purchase rule, meaning customers will be able to buy individual bottles from its stores.

• Wal-Mart has applied for permission to test drones for home delivery in the US. It has been conducting indoor tests for some time

Other Leisure:

• 130-strong Bingo operator Gala is being bought by investment trust Caledonia for £241m.

Finance & Markets:

• A CEBR report shows that mortgage activity has picked up this year but that house prices may continue to rise due to limited supply. The CEBR now predicts house prices will rise 5.6% this year compared to its previous forecast of 4.7%.

• New US single-family home sales fell to near twelve-month low in September after two straight months of gains.

• World markets: UK and Europe down yesterday. US down in later trading + Far East down in Tuesday trade bringing 4wk rally to an end

• Oil around $1 lower in last 24hrs. Trading at $47.30 per barrel amid concerns re over-stocking

Retail Roundup from Nick Bubb:

Grocer Watch:
The main focus of Grocer magazine on Saturday was on the news that the highly respected Mark Price is moving on as CEO of Waitrose, with a bold front page photo headlined “Mark Price: the legend and the legacy”, but one aspect of his legacy is Waitrose’s weak price competiveness and Waitrose was again a notable laggard in the widely followed Grocer “33” weekly supermarket pricing survey. This week’s survey was won by the guest retailer Iceland, with a £48.31 basket over £10 cheaper than the Waitrose basket of £58.44, with Asda in 2nd place on £49.85. But the Grocer directed most attention to the fact that even though Tesco’s new “Brand Guarantee” scheme was meant to be “a game-changer” their shopper received a money-back amount of just 17p and Tesco was still off the pace on £51.22. Morrisons was also well behind, on £52.64,
but they did win the separate Grocer “Mystery Shopper” survey on Store Service and Availability, breaking a 5 week winning run by Sainsbury, as the new 28,000 sq ft Morrisons store in Birtley on Tyneside topped the rankings, with an impressive score of 87 out of 100.

Monday’s Press and News:
We haven’t seen all the papers, as we are now in Rome, but there looks to be a fair amount of coverage of the news that Aldi is to leap-frog its supermarket rivals by raising staff wage rates to as much as £8.40 an hour next year, whilst the Guardian flags that Sainsbury CEO Mike Coupe has come out against changing the current Sunday trading laws. The Daily Mail follows up the Sunday press story that Marc Bolland wants to stay on as M&S CEO and the Times highlights that Tesco should get some more cash back from the sale of the old distribution centre of Fresh & Easy in Los Angeles, after the collapse of the rump of the ill-fated chain. In terms of today’s news, Majestic Wine has issued an RNS trumpeting that it has removed its 6 bottle minimum purchase  and introduced a new pricing proposition, whilst DFS should confirm that the placing of 32m shares
(15% of the equity) at 295p by the private equity fund Advent has been completed and FNAC has announced that it expects Eur 85m of synergies from its mooted takeover of Darty and has secured the support of the major holder Knight Vinke.

Grocer Watch:
The main focus of Grocer magazine on Saturday was on the news that the highly respected Mark Price is moving on as CEO of Waitrose, with a bold front page photo headlined “Mark Price: the legend and the legacy”, but one aspect of his legacy is Waitrose’s weak price competiveness and Waitrose was again a notable laggard in the widely followed Grocer “33” weekly supermarket pricing survey. This week’s survey was won by the guest retailer Iceland, with a £48.31 basket over £10 cheaper than the Waitrose basket of £58.44, with Asda in 2nd place on £49.85. But the Grocer directed most attention to the fact that even though Tesco’s new “Brand Guarantee” scheme was meant to be “a game-changer” their shopper received a money-back amount of just 17p and Tesco was still off the pace on £51.22. Morrisons was also well behind, on £52.64,
but they did win the separate Grocer “Mystery Shopper” survey on Store Service and Availability, breaking a 5 week winning run by Sainsbury, as the new 28,000 sq ft Morrisons store in Birtley on Tyneside topped the rankings, with an impressive score of 87 out of 100.

Monday’s Press and News:
We haven’t seen all the papers, as we are now in Rome, but there looks to be a fair amount of coverage of the news that Aldi is to leap-frog its supermarket rivals by raising staff wage rates to as much as £8.40 an hour next year, whilst the Guardian flags that Sainsbury CEO Mike Coupe has come out against changing the current Sunday trading laws. The Daily Mail follows up the Sunday press story that Marc Bolland wants to stay on as M&S CEO and the Times highlights that Tesco should get some more cash back from the sale of the old distribution centre of Fresh & Easy in Los Angeles, after the collapse of the rump of the ill-fated chain. In terms of today’s news, Majestic Wine has issued an RNS trumpeting that it has removed its 6 bottle minimum purchase  and introduced a new pricing proposition, whilst DFS should confirm that the placing of 32m shares
(15% of the equity) at 295p by the private equity fund Advent has been completed and FNAC has announced that it expects Eur 85m of synergies from its mooted takeover of Darty and has secured the support of the major holder Knight Vinke.

Carpetright: The pre-close update today from Carpetright for the 25 weeks ended 24 October is interesting, in the light of last Thursday’s warning from Travis Perkins about slower housing-market related trading in the big ticket market, because things look fine! UK sales are up 4% LFL, despite tough comps, and the recovery in Europe has continued, so there is no change in full year profit guidance. The new CEO Wilf Walsh says “Our aim to revitalise the Carpetright brand is on track.  We have made further progress with the strategy of rationalising and repositioning our store portfolio and are encouraged by the early performance of our four trial concept stores in the UK”.

Shoe Zone also : The discount shoe retailer Shoe Zone has also issued a pre-close update today (for the 52 weeks to 3 October) and although this is brief the news is also fine:  “The Group has traded well in the second half of the year…and expects pre-tax profit for the period to be in line with expectations”.

John Lewis Sales Watch: We flagged on Friday that recent Fashion trading at that great High Street bellwether John Lewis has been boosted by the cooler weather and that should have carried on last week, but given tough comps in Electricals (from the launch of the new iPad Air 2 and iPad Mini 3 by Apple this time last year), we would only pencil in flat LFL sales overall (ex the impact of the new Birmingham store), ahead of Friday morning’s official figures for w/e Oct 24th.

Today’s Press and News:
We haven’t seen all the papers, as we are still in sunny Rome, but yesterday’s news that Majestic Wine has removed its 6 bottle minimum purchase gets plenty of coverage and the FT quotes the new CEO Rowan Gormley as saying “We are going to get a lot more visits from people who want to pick up a bottle of something on their way to dinner”.  And after yesterday’s news that FNAC said that it expects Eur 85m of synergies from its mooted takeover of Darty and has secured the support of the major holder Knight Vinke, the FT flags that the FNAC bid deadline for Darty has been extended from Oct 28th to Nov 11th, whilst Lex column thunders that “Combining the two groups makes sense, but if it wants control, Fnac will have to dig deeper”. In terms of today’s other news, Shop Direct, which claims to be the UK’s second biggest
Online pure play retailer, has announced “a third consecutive year of record profits” for y/e June on the back of the growth of its Very.co.uk brand and mobile commerce.

Movers and Shakers Watch:
We flagged on Friday that the Sainsbury “store of the future” presentation clashed with the publication of the Annual “Movers and Shakers” report on Multi-Channel Retailing by the website RetailInsider.com and a presentation from the Ecommerce guru Andy Harding of House of Fraser. He took on the new role of Chief Customer Officer earlier this year (as part of a management restructuring at House of Fraser, after CEO John King stepped down) and brought in a business change team from Practicology to help find where “channel conflict” existed in the organisation and he said that: “We frequently had two lots of talent [one focused on Online and one on Stores] and the premise was to move them to single roles within a customer-first, customer-centric model”, with this involving 40 people completely changing roles. Given Andy
Harding’s pioneering work in multi-channel retailing, you’re probably wondering where he came in the list…and (although he was one of the judges) the answer, unaccountably, is he didn’t make the top 10! It was no great surprise to see Apple and Amazon come top of the list (via Angela Ahrendts at Apple and Chris North/Ajay Kavan at Amazon), whilst in third spot came Seb James/Andrew Harrison of Dixons Carphone, but the list also tried to recognise the lesser known people who are equally influential in the industry for development of new business models, so there were top 10 places for the likes of Simon Mottram, the founder of the cycling store Rapha, and Anthony Fletcher, the CEO of the snacks business Graze.

News Flow This Week: The Apple Q4 results are out in the US tonight. Tomorrow brings the Next Q3 trading update. With the end of the month coming up fast, the monthly CBI Distributive Trades survey is out on Thursday morning and the monthly GFK Consumer Confidence survey is out first thing on Friday. The Pets At Home pre-close update is also on Friday. 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:

Currency movements favour tour operators:

• M. Draghi maintained his mercurial reputation last week when he said that interest rates across the Eurozone could go up or they could go down.

• His comments have since been followed by suggestions that more QE was needed in the Eurozone and that, with the Swiss currently experimenting with negative interest rates, such a move was not out of the question across Europe.

• Hence the Euro has plunged.

• This makes UK holidays on the Continent cheaper for holidaymakers & it cuts the cost of beds for the UK-based suppliers

• Historically, windfall benefits (cheap oil etc.) have had to be passed on in the most part to customers. Thomas Cook, for example, said recently that c70% of any oil price reduction has to be passed on in the short term (and pretty much all of it over the longer term)

• And cheaper bed prices may be similar but, as the consumer will feel the benefit as soon as he/she leaves the airport, there could be an impact on demand as well as supply costs – and this too should be positive

• Whilst currencies tend to move in both directions, recent ECB comments have been generally helpful to holiday companies TCG and TUI

Sugar vs tax credits:

• So if HM Government needs to back down on either tax credits (cost £4bn to £6bn) or sugar (cost £nil), which is most likely?

• Jamie Oliver may come out of this looking like and individual with the ability to change government policy

Merlin & Parques Reunidos:

• Surely the former would have been the natural buyer for the latter.

• But that’s not happening suggesting that PE was willing to pay a higher price.

• That is what it is but, at the very end of the day, PE owners need to either IPO their businesses or find a trade buyer and, the more iterations the thing goes through, the higher the price needed in order to make the transaction work. 

Sainsbury & micro-convenience stores:

• See also comments on Friday.

• SBRY may be about to follow the opposite policy to MRW.

• Units of 1,000 square feet are pretty small.

• If that’s the gross area, then strip out the tills, the loos and the warehouse (a.k.a. the ware cupboard) and you might have 400 feet.

• Surely this would be an area best franchised to outside operators?

Stock market expectations:

• So we have no inflation.

• We have GDP growth of around 2% (if we’re lucky).

• And we might be nearer the next recession than we are past the last.

• Yet we have double digit forecast earnings growth for many operators going off into the distant future.

• And this off the back of mid-teens PE ratings.

• Hence we have just one question, how’s that going to work?

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

• Evolution continues at a pace. SBRY is trying to find value in micro-units & Debenhams want to derive 10% of sales from food. See earlier email.

• Oil unchanged, orange juice getting more expensive, ditto red meat. Sugar price also off the bottom. Precious metal prices up a bit.

• Friday saw some ‘Day II’ movers. Often share prices react sufficiently on the day of their numbers (or profit warning, or whatever). Last week, however, this did not seem to be the case with ARM (up) and Pearson, Home Retail & Sheffield Insulation (all down) following through for a second trading session.

• Profit warnings coming through in a steady flow.

• China rate cut; 6th in a year.