Langton Capital – 2015-12-15 – Daily Wrap: Capacity & new entrants, coffee, Black Friday & other:
Leisure Wrap & Other:
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. As always, contact us if you’d like further details:
The number of licensed units:
• See earlier email for comments re the Alix Partners / CGA Peach Growth Monitor.
• Is an increased number of units a) a sign of robust health or b) an indication that the number of new entrants is something of a problem at a time of sluggish demand and customer retrenchment?
• The monitor suggests ‘the figures are more evidence that the licensed trade is back in growth after years of steady decline, mostly driven by the closure of drink-led pubs.’
• And this is true – but the growth being measured is the number of units open rather than the sales taken per unit – let alone the profitability of the industry as a whole or of the individual players within it
• Because it is perfectly possible for an industry to be in ‘robust’ growth but for all the players within it to be making less money
• A 0.6% increase in the number of units open in a year may not be a big number taken on its own but, if the number of units opening are on average larger in terms of scale than the units closing (and they are), then ‘capacity’ has actually risen by more than the 0.6% suggested.
• This is perhaps indicative of a state of affairs in which the incumbents are there to be shot at but in which nimble new entrants are able to succeed
The coffee market:
• So the UK coffee shop market is huge and growing (see earlier email).
• This accords with the evidence of one’s own eyes though we would suggest that the fact that Costa, Starbucks and Caffe Nero have little more than 10% of the 30k strong market
• Admittedly the three majors have around 53% of the branded coffee shop market but even the market leader, Costa, with 6.6% of the market, could still have room to grow
• We have believed for some time that there may be room for a ‘not-Costa’ brand but, if this were to be artisanal in nature, it may be self-limiting in terms of scale
• An alternative could be to grow an operation without overt branding
• Very different markets, admittedly, but Dignity has managed this with funeral directors and CVS with veterinary practices etc.
The Nudge principle, National Living Wage, payroll taxes, apprenticeship levies and non-tax payers:
• Reducing corporation tax will help tax paying companies.
• Less so those that do not pay tax.
• Whilst the NLW, payroll taxes & apprenticeship levies etc. will be paid by all operators.
• There’s justice of a sort.
Black Friday, good riddance (part II):
• The BRC would have us believe that Black Friday, which featured a large number of online offers, has been responsible for actually reducing High Street footfall in November.
• True, this is part-due to the tough comps caused by a strong Black Friday last year but, with discounts impacting margins and consumers always hard to wean off discounts once they have received them, this is not altogether helpful.
• Any moves to further weaken Black Friday may be welcomed by a number of on-trade, food and general retailers.
Random information, hopefully not all of it useless:
• So food price inflation is set to ‘bounce back to 0%’? For those who can remember the price rises of the early 80s and even the 70s, that’s not saying much.
• Fed tomorrow. Announcement after European markets have closed.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. AlixPartners + CGA Peach Market Growth Monitor says only 36% of British towns have seen reduction in no. of licensed outlets over 12mths
a. Growth Monitor: Suggests ‘growth is being driven by casual dining restaurants in particular’. Says 86% of towns seen increase in last year.
b. Growth Monitor: Says its ‘figures are more evidence that the licensed trade is back in growth after years of steady decline’.
c. Growth Monitor: UK has total of 124k licensed premises including restaurants, bars, pubs & clubs, up 0.6% on 12mths
d. Growth Monitor: No. of licensed units growing but pace slowed in last 3mths. Says Southport & Solihull have seen most openings at +4.1%
e. Growth Monitor: Says Milton Keynes has been the fastest grower over 5yrs with the number of licensed premises +37% in the period
2. UK coffee market set to be worth £15bn by 2020 says Allegra World Coffee Portal. It expects c30k outlets.
a. Allegra’s Project Café 2016 shows Costa Coffee (1,992 outlets), Starbucks (849) and Caffe Nero are UK’s leading operators with c53% share
3. Food inflation is expected to rise slightly to 0% and soft drinks should reach 0.5% in 2016, although alcoholic beverages will fall 1%
4. Nisa has announced record Black Friday sales after a range of special deals drove an 11% rise in sales year-on-year.
5. Franco Manca and Jamie Oliver’s Barbecoa are two of the latest concepts to sign up to the Nova development in Victoria, reports Peach
6. Strada is entering a partnership to become the official food partner of the 2016 ‘Dry January’ campaign, which continues to gain in popularity
7. Regulatory Policy Committee says NLW will cost industry around £804.4m in extra wages with further £234.3m to maintain differentials
8. BRC has suggested that online Black Friday deals led to a drop in High Street visits in November. It says visits fell by 3.4%
9. Accor has reported that it should grow its room stock in the UK by c30% over the next two years. It currently has 30k rooms in the UK