A Day in the Life:

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

I think sharing platters have been growing in popularity across the UK’s restaurants and food-led pubs for a number of years.

But the concept brings with it a number of problems perhaps the most acute of which is how do you ensure that you get your fair share when your erstwhile friends and colleagues have turned instantly into speed-eating machines?

Well it can be tough and, as I use to regularly ‘share’ platters with a colleague known (admittedly not to his rather large face) as ‘the Washing Machine’, I can only sympathise with those hungry, would-be diners out there.

Because said Washing Machine simply scooped all of the ‘sharing’ plates nearer to himself and shovelled all and sundry, mains, sides, cutlery, you name it into his gob with minimum decorum and maximum speed.

And distracting him was no solution because he’d mastered the art of talking whilst eating and if you engaged him in conversation then you’d simply be hungry and spattered with chewed up food rather than simply hungry and that raised the misery to an altogether new level so I had to conclude that sharing was my new diet and simply get on with it. On to the news:

Retail Roundup from Nick Bubb:

Carpetright: Today’s interims look god in many ways, although the £1.9m “exceptional” stores write-off is a blot on the P&L and the 3.7% LFL sales growth reported for the UK for the 26 weeks to Oct 31st compares with the 4.0% growth for the 25 weeks to Oct 24th reported in the pre-close update (implying a poor end to October…). Still, there is significant 34% growth in Group underlying pre-tax profits to £9.0m, “continuing the journey to transform the business” and CEO Wilf Walsh talks well in the statement about his strategy to “make buying floor coverings a hassle-free experience, eliminating potentially confusing or irritating elements from the process”  and he is able to conclude that  “Our full year profit expectations remain unchanged” (which is not what many of his predecessors have been able to say at this stage of the
year). There is no current trading update, but no doubt the analysts at the 9am meeting in the City will prise something out of the management on the subject…

Dixons Carphone: Ahead of tomorrow’s interims, the hard-working IR team at Dixons Carphone has kindly circulated the City consensus on Q2 15/16 LFL revenue (the 13 weeks ended 31 October), which, given the tough comp, is Group +0.8%, UK +1.5%, Nordics -1.0% and Southern Europe +1%, with H1 PBT expected to be £111m (vs £78m for the 31 week period last year for Dixons Carphone, the newly merged group). Nick Bubb – nicholas_bubb@hotmail.com

The News:

Pub, Restaurant & Drinks Producer News:

• AlixPartners + CGA Peach Market Growth Monitor says only 36% of British towns have seen reduction in no. of licensed outlets over 12mths

• Growth Monitor: Suggests ‘growth is being driven by casual dining restaurants in particular’. Says 86% of towns seen increase in last year.

• Growth Monitor: Says its ‘figures are more evidence that the licensed trade is back in growth after years of steady decline’. This has been ‘mostly driven by the closure of drink-led pubs.’

• Growth Monitor: UK has total of 124k licensed premises including restaurants, bars, pubs & clubs, up 0.6% on 12mths

• Growth Monitor: No. of licensed units growing but pace slowed in last 3mths. Says Southport & Solihull have seen most openings at +4.1%

• Growth Monitor: Says Milton Keynes has been the fastest grower over 5yrs with the number of licensed premises +37% in the period

• Growth Monitor: Peter Martin says ‘this is more welcome news for the eating and drinking out sector. Our first Market Growth Monitor showed that many large UK cities are sharply increasing their numbers of restaurants and bars, and this latest data shows the pattern is fanning out to suburban and market towns too. It is particularly pleasing to see the growth extended well beyond London and the south east, with more and more operators recognizing potential in the regions. While capacity remains an issue, it is encouraging to see the sector firmly on the front foot.’ AlixPartners managing director Paul Hemming said the monitor ‘illustrates that few corners of the land remain untouched by Britain’s eating out revolution.’ He adds ‘there are positive signs on drink-led venues too, with well over half of Britain’s leading towns showing at least
flat drink-led site numbers. What is clear is that the general buzz around the quality of new offerings across the UK eating and drinking out market is set to continue.’

• UK coffee market set to be worth £15bn by 2020 says Allegra World Coffee Portal. It expects c30k outlets. Allegra’s Project Café 2016 UK report shows branded coffee chains grew outlet numbers by 12% (+714 stores) in 2015 and delivered sales growth of 15%. It expects the segment to open another c8,500 outlets with turnover of an additional £5.7bn by 2020. Costa Coffee (1,992 outlets), Starbucks (849) and Caffe Nero are the UK’s leading brands with a c53% share of the branded market.

• Food inflation is expected to rise slightly to 0% and soft drinks should reach 0.5% in 2016, although alcoholic beverages will fall 1%, according to Prestige Purchasing. This compares to headline food inflation for 2015 of -3.1%.

• Waitrose is on course for its biggest year ever for English sparkling wine, with sales up by 188% and trade set to remain strong over Christmas.

• Nisa has announced record Black Friday sales after a range of special deals drove an 11% rise in sales year-on-year. However, some have said that sales were still not as high as expected.

• Franco Manca and Jamie Oliver’s Barbecoa are two of the latest concepts to sign up to the Nova development in Victoria, reports Peach. More names will be confirmed next year to set up shop alongside operators including D&D London and Bone Daddies.

• Strada is entering a partnership to become the official food partner of the 2016 ‘Dry January’ campaign, which continues to gain in popularity. Operations director Tom James commented: ‘We’re thrilled to be involved in this campaign for 2016. Dry January is a fantastic initiative by Alcohol Concern and we’ve been blown away by its growth over the last couple of years. We’re relentlessly committed to what we call ‘the good life’—proper wholesome food created from some of the best quality ingredients in the market, and Dry January perfectly embodies this.’

• The Regulatory Policy Committee has suggested that the NLW will cost industry around £804.4m in extra wage costs. One can only conclude from this that the Government expects industry to try to put up prices. The RPC also sees a further £234.3m of ‘spill-over’ costs as the wages of other workers are increased in order to maintain some sort of pay differential. Various industry bodies have called for more tax cuts in order to offset some of the above though, in a way, the outlined move will ensure that companies such as Starbucks etc. do pay more by way of ‘taxes’ in that they will have to pay their staff more, but they will not benefit materially from any further reduction in the rate of corporation tax.

• 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% whilst visits to all shops, including shopping centres and retail parks, dropped 2.1%.

Travel & Hotels:

• Air Berlin has begun to operate an inflight 3G connectivity service.

• Travelodge is to open 3 hotels in shopping centres across UK. The units will open in Wood Green, Burgess Hill & Bromley

• 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

Finance & Markets:

• World markets: UK and Europe down yesterday (UK driven by weak miners) whilst US higher and Far East up in Tues trade

• Oil price little changed at c$37.70 per barrel, an 11yr low

• Seasonally adjusted industrial production rose by 0.6% m-o-m in October across the Eurozone

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:

BDO predictions for 2016:

• The problem with identifying your top ten predictions is that there need to be 10 of them.

• This risks obscuring the fact (or Langton’s belief) that you really believe in six or seven of them – but have put the other three or four in simply to make up the numbers.

• Hence it seems reasonable to suggest that grab and go will expand and that prices will, at some point, begin to edge up.

• But the idea that there may be more IPOs is a hostage to the state of the market (D&D may be pulled if Sky News has got its facts right) and the imposition of a sugar tax is in the gift of your local politician.

• London may or may not remain strong but it’s surely unlikely that 2016 will see the end of tipping in the UK.

• Similarly, we consider that ping pong, trampolining and other activity-based units may have a limited appeal.

• Likewise tapas. Unless one means by tapas ‘sharing dishes’, which we consider likely to continue growing in popularity.

• Not featured are suggestions such as a property cost backlash or permanently lower margins driven by the NLW, new entrants and the occupancy costs just mentioned

• Not mentioned either is the potential for a crowd-funding scandal, bust or blow-up.

• Corporate activity, we would suggest, is likely to remain a feature as new entrants bulk up and some of them choose to exit via sale.

Merlin – continues to recover:

• Share price continues to recover.

• It was one of only 4 stocks in the FTSE100 to finish in positive territory on Friday.

• See earlier emails for fuller comment but we would expect the shares to recover to last year’s highs in the next few months.

• Alton Towers’ accident may have caused shares to give back a year’s movement – but that’s not the case on the ground where real progress will have made.

• Would not therefore be surprising to see the pace of share price move pick up slightly to make up the they year in the doldrums.

• We maybe shouldn’t mistake this for a new normal as growth (at least in the share price) could slow a little thereafter.

Fosun:

• Found him.

Random information, hopefully not all of it useless:

• Tesco shares trading at 18yr lows. At some point they will offer good value. However, at the moment, the caution that one should not attempt to catch a falling knife seems somehow appropriate. See earlier emails for comments on Tesco’s largely loss-making attempts to diversify away from mainstream grocery retailing.

• Evolution continuing (both ways) with Domino’s looking to build a 60-seat restaurant.

• Greene King shares gave a meaningful bit back last week. They weren’t alone.

• Tesco has joined Morrison’s & ASDA in offering petrol at less than £1 per litre. Should help consumers conserve cash

• Sterling down a little vs US$, up vs Euro. All eyes on the Fed meeting later this week.

• Oil blisteringly low. Trading at around $37.70 early doors, 11yr lows. RDSA share price etc. says it all. Big questions being raised about sustainability of dividend across a number of players in the sector.

• Of the best ten performing FTSE100 shares on Friday, only four actually posted share price gains.