Langton Capital – 2017-04-27 – Apps in leisure, Richoux, Pepsi & other:
Apps in leisure, Richoux, Pepsi & other:
A DAY IN THE LIFE:
Why do people insist on ripping you off?
I mean there must be some evolutionary merit in it otherwise it wouldn’t happen & take, for example our car.
We’ve been getting the MOT done around the corner in what on a good day could be described as a grotty garage for several years. And it’s been £35 plus perhaps a windscreen wiper or a new tyre for years but the branded (unnamed) garage that sold us the vehicle new has insisted on ringing us three, four times in the runup to the MOT ever since it turned three and, in a moment of weakness two years ago, we booked it in for its test.
Big mistake. We’ll pay up front, we said. Here’s you’re thirty-five quid. No, they said, it might need work done and, six hundred and ninety quid later, we got the car back.
Now perhaps whoever bagged our MOT was on a commission. Perhaps the garage had to hit a target but we won’t be going back, not until long after hell is frozen over.
Get in touch with us on the issues below, we’d love to hear from you. On to the news:
APPS & LICENSED HOSPITALITY:
Apps are important and will only become more so. They come in several shapes & sizes. They allow delivery, collection & payment. Langton has been working in this area for some time. We’d love to hear from you. Whether it’s a need, a comment or a solution, we’d like to be in touch.
The US is ahead of us. US journal NRN says the App phenomenon is ‘arguably amounting to one of the biggest, overall shifts in the way the industry interacts with consumers since the invention of fast food.’
JDW has recently introduced an App that allows customers to order and pay online. This has recently been selflessly road-tested by Langton in York (twice), in London (twice) and in Leeds and our findings, with specific references to the two experiences in York in mid-April, are set out below:
York has two JDW pubs. You know who you are.
The parties were for four people (soft drinks & hot meals, total £34.94 over a lunchtime) and for six people (similarly cold drinks & hot meals, total £57.78 in the early evening).
• Downloading the App: Very easy. Even for me.
• Finding the venue: These Apps are intended, we believe, mostly to be used from table. Not least because you must input your table number and you won’t know that until you find it the site & your seat.
o However, should you wish to know where the nearest JDW is and peruse the menu, the App would work very well.
• Finding the meals on the App: OK but the meals are under heading types. There’s a bit of scrolling around involved if you want to order salads, a grill, a burger and a pub classic. It’s not a big problem.
• Paying: This is ahead of delivery. Not a problem. There shouldn’t be any no-shows.
o Inputting card details was straightforward. One niggle is that the pub takes AMEX but only has a 3-digit security code (OK for Visa & Mastercard but the AMEX code is 4-digit)
o It does lack something along the lines of an idiot-proof ‘you have now paid’ feedback. Langton tried to pay twice on both occasions in York. It would have carried on hitting the ‘pay’ button but for the arrival of the drinks. That kind of proved that payment had gone through. Despite our best efforts to pay multiple times, we were only charged once.
• The delivery: Exceptionally quick. Drinks arrived after two minutes on both occasions. Food arrived after 10 minutes in the first York venue and after 12 minutes at the second (the second was the larger order).
• Food quality: Good.
• Staff interaction: Counter-intuitive that the more pleasant & knowledgeable staff tend to be those at the JDWs of this world, where they don’t have tips built into the system. And we don’t mean to imply that they are trawling for gratuities. The places where 12.5% is automatically added onto the bill sometimes feature waiters & waitresses who seem to consider themselves to be too good to be working in the venue that’s employing them. For some reason in my notes here I have reference to a ‘dozy strumpet’ encountered at another venue. Unnamed.
• Staff feedback: Langton took the opportunity to grill the staff.
o Are many people using the App? Yes, more and more.
o Any drawbacks? Not really. Locals queueing at the bar see staff pour drinks and walk them to table. They get a bit annoyed.
o Langton comment: It does speed things up. Table turn must be improved. This will only be an issue in busy pubs, of course, but at both venues visited our table was re-seated before we were halfway to the door.
• Overall: Worked well, speeded things up. No bad debts, no fumbling for change or cards, no manning the tills, no queueing to pay; what’s not to like.
o JDW has beaten the crowd to market.
o Starbucks (not the same industry, more grab-and-go) also has an App.
o Costa wants one by May.
o But there won’t be room on the average phone for 200+ Apps, we’ll need a couple of consolidators. Think Booking.com or TripAdvisor for the F&B sector.
APPS: THEY DIDN’T USED TO EXIST. BUT THEY DO NOW…
• Contact Langton for further detail.
• NRN in the US reports it’s not much of a stretch to suggest that ‘having an effective digital strategy is a matter of life or death for restaurant chains in 2017.’
• In the US, Panera Bread reports that 26% of sales are via digital orders. Heavier digital stores are growing sales more rapidly than those with a lighter exposure
• Chipotle says digital sales are up 53.5% Q1 on Q1 last year
• Starbucks has said it has so many digital orders flooding in that it struggles to deal with them at busy times
• Aggregators matter. NRN reports that most individual restaurants ‘simply don’t get enough habitual business to warrant valuable space on consumers’ mobile phones.’ A single App for multiple operators (as mentioned above, think hotels.com, TripAdvisor etc.) makes sense.
• McDonald’s is to expand mobile order and payment to all 14,000 of its U.S. locations by the end of this year. CEO Steve Easterbrook said Apps could generate sales for years & be more important that the introduction of a new product.
• Domino’s in the US has seen digital sales increase by 30% over 3yrs
• NRN says that Apps boost take out spending. Whether they are unearthing eaters who would otherwise have gone hungry or are changing the business of existing customers is unclear. It may be a bit of both.
• Analysts NPD say that Apps are boosting casual dining spend. NRN says ‘even at casual-dining chains, takeout is an increasingly important element. It’s the only traffic in that business that’s growing.’
PUB, RESTAURANT & DRINK PRODUCERS:
• Food service price inflation has risen to 6% in March 2017, data from the CGA Prestige Food Service Price Index has revealed. The price increases have largely been led by hikes in fish, sugar, meat cereals and vegetables. Food Service inflation continues to be affected by a weak pound, rising oil prices and lower than usual supply of many items.
• Chief executive of CGA Strategy, Phil Tate, commented on the Food Service Price inflation: ‘The weak pound is causing major headaches for businesses in the supply chain that rely on imports, and various other external factors are adding to the burden. With inflation unlikely to ease soon, foodservice companies will need to adopt smart pricing strategies and stay nimble and flexible in their purchasing in the coming months.’
o Full year numbers from Richoux. Sales +2.2% at £13.3m, EBITDA down to £200k (from £1.64m). Group says ‘the Board led by Jonathan Kaye, has undertaken a strategic review of all restaurants and operations of the Group. As part of this review certain restaurants have been rebranded and/or closed which has led to the significant impairment charge and onerous lease provision.’
o Richoux says ‘like many restaurant groups in the casual dining sector, trading in the first quarter of this year has been difficult. In addition, during this period trading in some of our restaurants was interrupted whilst we converted or refurbished them. The impact of temporary closures will continue during the second quarter. Whilst our new Richoux and Friendly Phil’s restaurants have only been trading for a brief period, the early signs from them are encouraging.’
o Richoux may need cash. It says ‘the cost of converting or refurbishing restaurants and of closing underperforming restaurants, the reduction of income due to temporary closures and the current trading climate have led the Board to conclude that it will need to approach shareholders for further funds in due course. The Board has had informal discussions with a number of the Company’s key stakeholders, who have indicated that it would be their intention to support such a fund raising. We propose to seek the necessary authorities to allot shares in connection with such a fundraising at our 2017 Annual General Meeting.’
• The Food & Drink Federation has called upon the UK’s food producers to target £6bn in exports before the end of 2020
• Nestle is set to cut 300 jobs in the UK & move Blue Riband production to Poland
• Sugar levy moves through Commons (Lords today) & should get Royal Assent before Parliament breaks up next week
• Pepsi reports Q1 numbers, reaffirms 2017 targets. Group reports net revenue growth of 1.6% with EPS of 91c (+43%). Organic revenue growth better at +2.1%. CEO Indra Nooyi reports ‘we achieved solid revenue growth in the first quarter underpinned by global volume growth and positive net price realization, despite challenging food and beverage industry trading conditions in North America and continued volatility in a number of developing and emerging markets.’
• Pepsi CEO reports ‘our Q1 results were in line with our expectations, and we are on track to achieve our financial objectives for 2017.’ The company reports it ‘expects organic revenue growth of at least 3 percent. Based on current market consensus rates, foreign exchange translation is now expected to negatively impact reported net revenue growth by approximately 2 percentage points and the 53rd week in 2016 is expected to negatively impact reported net revenue growth by 1 percentage point. Consistent with its previous guidance for 2017, the Company expects core earnings per share of $5.09’.
• Overall, Pepsi beat Q1 expectations & it seems to have performed more strongly than rival Coca Cola.
o Derby Brewing Co has reported a 25% sales uplift at The Greyhound after relaunching the venue as a smoked food and craft house concept. The group, which is currently raising £500,000 on Crowdcube, wants to further improve the site with a heated garden room.
o US Burger King operator, Restaurant Brands International Inc. (RBI) has reported LfL sales declined 2.2% in the quarter ended March 31st. CEO of RBI, Daniel Schwartz said ‘It’s a competitive industry. It always has been, it always will be. It doesn’t change our focus and our drive, to drive great guest satisfaction.’
o RBI announced in February that it was to acquire Popeyes for $1.8bn, the deal was finalised in the following month. Josh Kobza, CFO of RBI stated ‘Popeyes already has a large, global business. It has built partnerships, supply chain, operations. We have a lot of confidence around where we can take the brand.’
o Britain’s shops are cutting workers in an attempt to reduce costs as they battle rising prices and falling sales. The number of jobs in the industry fell by 2.2% year-on-year in the first quarter, contributing to a 6% fall hours worked, per the BRC, accelerating a trend which was established as far back as September 2015.
• Wildwood operator, Tasty, has put a package of eight sites on the market, reports the MCA. This disposal comes after the group announced it would be cutting its openings programme due to a predicted profit fall in a ‘challenging’ 2017.
• David Campbell, chief executive of Wagamama, has step down with immediate effect, to be replaced by chief operating officer Jane Holbrook. Campbell will remain at the company in an advisory role.
• Soho House has signed a refinancing agreement with Permira Debt Managers, that will restructure existing debt to support future growth. The funding consists of a £275m private senior secured loan alongside an additional £100m, which will be potentially available to finance further global expansion of the business.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• Travelodge reports FY numbers to end-Dec 2016, says ‘we continue to make good progress on our strategy to raise quality levels, increase our share of the business market and deliver excellent value to our customers.’
• Travelodge REVPAR growth of 2.5%. Group opened 19 new hotels last year. Total yearly revenue +6% at £587.7m.
• Travelodge says it ‘delivered good revenue growth and market outperformance alongside strong growth in new openings. Revenue growth was principally driven by good like for like RevPAR growth of 2.5%, the contribution from new hotels, improved conversion rates from our upgraded website, continued growth from business customer sales and increased food & beverage sales.’
• Travelodge 2016 EBITDA £106.4m (2015: £101.9m). REVPAR growth was ‘1.2pts ahead of competitive segment’ with room rate +3.1% and occupancy down 0.5pps.
• On current trading, Travelodge reports ‘it is still early in the year, and we remain relatively cautious about the immediate outlook, in the context of the prevailing economic uncertainty relating to Brexit and the expected cost pressures, including those from the National Living Wage, the increase in business rates and other regulated cost increases. However, we remain well positioned to benefit from demand from value conscious consumers and our strong and growing development pipeline.’
• An EU investigation has approved KKR’s acquisition of Tui’s Travelopia portfolio of specialist operators. Travelopia’s portfolio has an annual revenue of €1.5b, and Tui put the company up for sale with an estimated market price of €500-600m.
• Reportedly, there has been a slowdown in April bookings in the consumer holiday market due to a late Easter and the news of a snap general election. Alan Bowden, legal advisor to Association of Atol Companies, said ‘Historically people don’t spend money when there is an election coming up.’
• According to a survey run by ACTE, 56% of corporate travel buyers say they have seen an increase in business travellers reporting personal safety concerns in 2017. Also, more than half (54%) said that business travellers had expressed concern over travelling to the US due to the heightened security measures being implemented by the current administration.
• Twitter’s number of active users increased in the first three months of the year, narrowing the firm’s losses to US$61.6m (2016Q1: losses of US$79.7m). The company said 328 million people logged in to use the platform in Q1 2017.
o Demand for memory chips and flat screens for televisions and phones has given Samsung Electronics its best quarterly profits in three years, up 48% to $8.8bn in the three months to March. The group expects further growth in memory chip orders and a pickup in earnings from its phone business.
o According to data from the Publishers Association, ebook sales dropped 3% to £538m last year whereas physical books rose 6% to £3.5bn. Non-fiction sales were up 9%, driven by self-help and fitness books, while fiction revenue fell 7%. Exports of books rose 6%, reversing 3 years of decline in part due to the weakness of sterling.
o Gaming realms reports full year numbers, says revenue +60% at £34m. CEO Patrick Southon reports ‘2016 has been another year of progress for Gaming Realms. Rapidly growing revenues, reduced losses and EBITDA positive in H2. Having scaled the business our plan is to be profitable in 2017 by continuing to drive top line growth and allocating our capital towards real money gaming and content licensing, the most profitable parts of our business.’
FINANCE & MARKETS:
• Times reports Tory lead over Labour wide but narrowing. Lead currently 16%
o Deloitte Consumer Tracker suggests UK consumer’s confidence in their disposable income has fallen to its lowest level in more than two years. Deloitte reports ‘since last summer’s EU referendum consumer spending has held up well, but with inflation rising and nominal wage growth starting to slow, consumers are beginning to feel a squeeze on their disposable income.’ It continues ‘in March, the rate of inflation stood at 2.3%, above the Bank of England’s 2% target and the highest in more than two years. There are already some signs that these pressures are contributing to a slowdown in consumer activity.’
o Carpetright yesterday said that trading was tough. McDonald’s (small ticket) on the other hand, said things were OK. UK car factories are reported to be at their busiest in 17yrs
o Times reports majority of Britons now wish to remain in the UK. YouGov poll has 45% wishing to remain, 43% wishing to exit.
o Santander UK reports bank faces a ‘changeable and potentially more challenging’ economic environment.
o Barclays CEO Jes Staley has cautioned on a brain drain saying access to talented workers after Brexit is “tremendously important”
o Seven international banks located in London are reported to be setting up offices in Frankfurt per The Times
• Oil down 40c or so at $51.62
• Sterling up a bit vs US$ at $1.12865
• Pound stronger vs Euro at 1.1798
• UK 10yr gilt yield unchanged at 1.09%
• World markets: UK & Europe higher yesterday but US down. Asian markets lower in Thursday trade
YESTERDAY’S LATER TWEETS:
o Later tweets: CGA reports foodservice price inflation reached 6.0% in March. Points to rises in fish, sugar, veg & meat prices. Everything, really…
o Whitbread’s Costa halo slips but not much wrong. Share price perhaps a tad rich but this is a solid, solid company…
o Gov. borrowings hit target. Adds c£1,000 to national debt for every man, woman, child in the country. Up £52bn & £58bn expected next year
o Boohoo sales soar (+51%). Perhaps justified but m/cap now > Sports Direct. Trades at >7x revenues vs SPD = 55%
o Whitbread Costa demerger deemed to be less likely. Perhaps true but was arguably never very likely in the first place
RETAIL NEWS WITH NICK BUBB:
o N Brown: Ahead of today’s finals, it is said that home shopping rival Shop Direct is being touted around private equity with a price tag of over £3bn (on an EV basis), but poor old N Brown hasn’t made the transition to being seen as a highly rated Online retailer and its market cap trails behind on less than £650m. But its statement today is headlined “Online trading agility drives second half acceleration”, so it is trying hard…Nevertheless, adjusted PBT fell c9% to £80.6m in y/e Feb and CEO Angela Spindler says “The macro-economic backdrop remains challenging for retail”, but she concludes by saying “We are focused on driving the business forward, both in the UK and internationally, and I am very confident in our prospects. Although it is early in our new financial year, performance so far has been encouraging and in line with our expectations”.
o Travis Perkins: The huge builders merchant and DIY business Travis Perkins has a well-deserved reputation for reading the macro-economic outlook and so today’s trading update is interesting and it says “Recent market indicators such as mortgage approvals, housing transactions, house prices and consumer sentiment have given an inconsistent picture of the strength of the RMI market for the balance of 2017”. However, CEO John Carter says that Q1 was in line with expectations: “We delivered solid like-for-like sales growth in the first quarter, with volumes across the Group, as anticipated, broadly flat”. The reported rate of LFL sales growth for the Consumer division slowed in the first quarter at 2.9%, primarily due to the timing of Easter (which fell in Q1 2016, but Q2 in 2017). This timing effect suppressed reported LFL growth by about three percentage points. “Underlying
o Boohoo: It was standing room only at the Boohoo analysts meeting yesterday and it was hard not to pick up the excitement in the management team about the recent, complementary acquisitions of PrettyLittleThing (PLT) and Nasty Gal. PLT is mainly a UK business, but even so it’s amazing that it is already 10th in the latest Hitwise website rankings of UK Online fashion retailers, with a 1.6% market share, ahead of its local rival Missguided on 1.4%. With Boohoo on a 2.5% market share, the group now has a 4.2% total share, which puts it at No 3 on the market, behind ASOS and Next. PLT is growing very quickly and should do c£75m in sales this year, whilst Pretty Gal should do £12m-15m in sales. As for the core business, trading in the first few weeks of the new financial year was said to have been “brisk”, although the year is yet young…
o Next Accounts Watch: A copy of the latest Next Report & Accounts thumped on to our desk the other day, courtesy of the hard-working Next PR advisers, and it is a sign of the times that it seemed to weigh almost as much as a mail order catalogue, with no less than 160 pages (about half of which are devoted to Corporate Governance etc)…
o News Flow This Week: As well as the McColl’s AGM, we also get the CBI Distributive Trades survey for “April” this morning. The monthly GFK Consumer Confidence survey is out first thing tomorrow.