Langton Capital – 2017-10-16 – September Tracker, Lynx on costs, food costs, Brexit etc.:
September Tracker, Lynx on costs, food costs, Brexit etc.:
A DAY IN THE LIFE:
So, we had to pay £27 last week in a South London bar for five 330ml bottles of lager.
Yes, there was a service charge in there somewhere, but this amounts to £9.30 per pint and that, surely, must be a joke.
Indeed, one would have thought that, with such shameless gouging going on, LfL sales would be under pressure as consumers wised up to the prices they were being asked to pay.
But wait, maybe they are. See Tracker & other stories below. Discussion of MIFID II will have to wait. On to the news:
SEPTEMBER TRADE TRACKER:
• September Tracker. Faltering confidence, declining sales, rising prices, tough trading to come. Sept was a ‘dismal month’.
• Coffer Peach Tracker shows ‘tough September trading hits restaurant, pub and bar groups’ with LfL sales down 0.9% vs inflation of 2.7%
• Tracker shows London restaurants down 3.2% on last year. Implies real fall in revenues per site of around 6% with rising costs. Tracker says ‘restaurants in London were worst hit, suffering a 3.2% fall in collective like-for-like sales compared to September last year.’
• Tracker. Regions > London at down 0.7% vs down 1.6% in London.
• Tracker’s Peter Martin says ‘the negative September numbers follow on from generally flat trading across the summer – August was ahead just 0.2%, with London again feeling the pinch more – and will do little to help already fragile business confidence among operators.’
• September weather poor versus September last year. Ironically, this should have been mildly helpful for restaurants.
• Note of pessimism creeps into what had previously been an upbeat tracker as it says ‘While 66% of bosses in the sector were optimistic about prospects for their own company, only a third (34%) were upbeat about prospects for the market as a whole, down from 43% in May.’
• Tracker says ‘rising costs around property, tax, people and raw materials have increased pressure on margins already this year in what is an ever competitive market. Faltering sales will only add to sector concerns.’
• Staycations & rising visitor numbers to London have mitigated what would otherwise have been an even worse number for the capital
• Tracker comments ‘both pubs and restaurants had a tough September, but it is worth noting that pubs and bars in London traded relatively better, down just 0.5%, while restaurants away from the capital actually saw like-for-likes grow marginally last month, up 0.2%.’
• Total sales growth of 2.6% showing that added capacity is still weighing on LfL sales.
• Tracker says sales are poor. Some comfort in that they are not as bad as car sales says Tracker
• Coffer Lyons comments ‘these figures show that the industry is under cumulative pressure not just from the headwinds of increased costs, but also from weakening consumer confidence. The property market for good sites is proving to be resilient at present, however, there is no doubt that the months ahead will be a testing time for weaker operators particularly those in high cost locations. We expect to see an increase in availability of sites generally during the autumn.’
• RSM comments ‘there’s no getting away from the fact that September has been a fairly dismal month for casual dining operators, especially in the capital. These sales numbers continue to be underpinned by the growing influence of food delivery and fierce discounting between brands. Operators will hope that a focus on premiumisation over the festive period will help to claw back some of this lost margin.’
TOUGH START TO 2018 FORECAST:
• Lynx Purchasing cautions on outlook for 2018 saying it is time to ‘start planning for a tough start to 2018’
• Lynx adds that January will follow Christmas, as it always does, and says ‘operators focused on winning their share of customer spend in the run-up to Christmas must start giving serious thought to the bigger challenge of trading through the first few months of 2018’.
• Lynx Purchasing’s ‘Lynxometer’ shows pub & restaurant costs rising by 8% in the year to September. Lynx says ‘hospitality and catering operators are now pretty much geared up to deal with higher prices from food and drink suppliers this Christmas – but very few have started to plan for the challenges of trading in the New Year.’
• Lynx says turkey costs are +6.6% with dairy +18% y-o-y and meat +6%. Fruit & veg is +5%. Bread & water may be no more expensive. Lynx says ‘with industry analysts forecasting that we’ll see increased use of targeted deals, vouchers and special offers in order to encourage customers to eat out in 2018, operators need to look at every area of their spending and be ready to change suppliers where necessary, in order to get the best in terms of both price and quality.’
• Be At One’s ops director Andrew Stones last week told the Pub Goers’ Conference that smart watches for staff were being developed whereby a picture of incoming guests would flash up when said guest’s smartphone location device showed that he/she was entering the bar. They could then be welcomed by name. The operator said that it was in two minds about introducing the technology as it was unsure as to whether it was innovative or just creepy. Or both. See recent Black Mirror, Charlie Brooker.
• Stonegate’s head of marketing Alan Armstrong told the Pub Goers’ Conference that its Common Room units were building their appeal with students. The operators provide bike racks, USB charging, free printing and grab-n-go food as well as a year’s worth of coffee for £15 in order to ‘get themselves into students’ lives’.
• Stonegate says that its analysis of Millennials shows that they can be bitter. Their elders have left them with a hole in the Ozone layer, global warming and now Brexit. They promise to get their own back & elect Corbyn. That’s if they can get out of bed and remember to vote. Politicisation, however, seems to be on the up.
PUB, RESTAURANT & DRINK PRODUCERS:
• Restaurant spending fell by 1% in the third quarter of 2017 versus the second quarter, according to the Cardlytics Spending Index, which is based on the purchase insights of nearly four million bank customers. While grocery share of spend has fallen nearly 1% since 2015, spend on quick-service restaurants grew 5% from Q2 to Q3 this year, and saw a 21% year-on-year increase. Spending in restaurants in Q3 2017 was up 10% on the same period in 2016, and its share of spend increased the most since Q3 2015 (+0.9%).
• Purity Brewing co-founder Paul Halsey has criticised a lack of a ‘clear message’ to the beer industry on Brexit, which is suffering from ‘a lot of uncertainty’ over the issue. Speaking to The Morning Advertiser, Halsey added: ‘All our malt is English and a lot of our bittering hops are local to Worcestershire and Herefordshire but a lot our aroma hops are coming from north-west America or from Eastern Europe, and Brexit has caused some issues for us there. What’s the next effect? There is a lot of uncertainty – people do not know what is happening. There are not enough clear messages from The Government and I don’t think there is a lot of consumer confidence at the moment.’
• Uber’s fast-growing food delivery service accounted for nearly a tenth of the company’s global gross bookings in the second quarter. During the second quarter of this year, UberEats accounted for 8-10% of global gross bookings, which implies $700m-$870m of gross turnover for the unit. Uber’s total gross bookings were $8.7bn for the period.
• The Sunday Times reports that The Restaurant Group is grappling with 41 ‘zombie sites’ and may need to dispose of further units to survive. It is set to slash costs, close dozens of sites and revamp tired brands such as Chiquito and Garfunkel’s but also has to win back and retain customers at lower menu price points as it attempts to rebuild trading momentum.
• Growing pain in the restaurant sector is again demonstrated by Busaba Eathai’s financial restructuring, which sees New York debt fund Muzinich take a slice of the company from its private equity owner, Phoenix Equity Partners. Jason Myers recently stepped down as chief executive of the 14-strong Busaba, which has been forced to shut several sites this year due to price inflation and falling profits.
• Chef Neil Rankin is in advanced talks on a third Temper site, at the Mercer Walk development in Covent Garden, per MCA.
• Soho House has lodged its numbers for the year to 1 Jan 2017 at Companies’ House. Adjusted EBITDA was £10.1m vs £10.0m last year, up 2%.
• Soho House UK Limited reports last year revenue increased to £118.9m from £104.0m in 2016. The group says ‘this represented continued growth of its existing core business as well as full period impact of 2015 openings, 76 Dean Street and Farmhouse.’
• Despite positive EBITDA, Soho House made an operating loss of £2.0m for the year to 1 Jan 2017, up from a loss of £826k last year. The retained loss after tax was £1.3m. Group shareholders’ funds fell from £50.5m to £49.2m.
• West Berkshire Brewery has reported a loss after tax of £737k for the year to end-March 2017 (2016: loss £264k). The group has made a cumulative loss since incorporation of £837k.
• The MCA has reported that the UK faces the greatest threat to the integrity of its food supply since World War II. Professor Chris Elliott has said that a combination of factors such as Brexit and global warming are making the country’s food supply less secure.
• Tsingtao Brewery’s share price has rallied following news that Asahi Group Holdings Ltd. plans to put its $1.2bn stake in the Chinese brewery up for sale. Anson Chan, an analyst for Daiwa Capital commented:’Tsingtao investors are buoyant because the feeling is that if Asahi is now making it public, the sale may be close and there may be a buyer.’
• A North Yorkshire pub has been named the best restaurant in the world by customer review website, Tripadvisor. The Black Swan in Oldstead is run by the 24 year old chef, Tommy Banks, making him the youngest British chef to be awarded a Michelin star.
• Cider group, Westons, will rebrand with a new logo later this month.
• TPG has sold its stake in the Myanmar Distillery Company for an undisclosed fee.
• Sainsbury’s chairman David Tyler has said that food prices will rise if the UK does not secure a trade deal with the EU. Brexit supporters say the UK will simply grow more food.
• Stonegate has asked that comments ascribed to chairman Ian Payne to the effect that Revolution Bars Group would be a ‘broken company’ be ‘disregarded as there is no basis for it.’
• FT reports summer heatwave brought some relief to Chinese beer companies, but it says we do not expect this upturn in their fortunes to last.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• The government has launched a call for evidence to get travel industry guidance on how to tackle the rising number of fake holiday sickness claims. Abta recorded a 500% rise in the number of claims, from around 5,000 claims in 2013 to around 35,000 claims in 2016, leading to the belief that many were fraudulent. Thousands of claims – at an average value of £2,100 – are being disputed by hoteliers and the rise in claims has not been seen from holidaymakers travelling from other countries.
• A couple have been jailed for making holiday sickness claims on holidays to Majorca in 2015 and 2016. Judge David Aubrey QC said there had been ‘explosion’ in gastric illness claims made by holidaymakers from the UK. A Thomas Cook spokesman added ‘The sentences handed down today demonstrates how serious the issue of fraudulent illness claims has become… We hope it sends a clear message to holidaymakers across the UK that the consequences for lying about their experience abroad could be very serious.’
• Marriott reports the owners of Avendra, LLC have reached a binding agreement to sell it to Aramark for $1,350 million. Marriott reports ‘after redemption of management participation rights, transaction costs, and repayment of Avendra’s outstanding debt, Avendra’s founding shareholders, Marriott, Hyatt, Accor, ClubCorp and IHG, expect to receive approximately $1,180 million in cash proceeds from the transaction.’
• STR’s September 2017 Pipeline Report shows 170,199 rooms in 1,103 hotel projects Under Contract in Europe, up 11.5% year-on-year. Meanwhile, there are 585,248 rooms in 4,886 hotels under contract in the US (+6.6%).
• A study has found that Airbnb short-term rentals are less profitable than leasing to long-term tenants in New York. The study was carried out by NYU professors and Airbnb’s internal economists and counteracts criticisms from groups such as the American Hotel & Lodging Association.
• Wizz Air have established a company in the UK to ensure the continuation of flights between Britain and the EU in the event of a no aviation deal Brexit.
• Club Med reports a one third increase in its winter programme sales as UK customers opt for French ski-resorts.
• Uber has filed an appeal against the TfL’s decision not to renew its private hire license. Uber is allowed to operate in London during the appeal process, which could take months.
FINANCE & MARKETS:
• ECB says Euro zone inflation will pick up as the economic recovery continues.
• Fed chair Yellen says US economy remains strong. Rise in rates still likely
• EY Item Club says B of England should hold off from raising interest rates next month. Says UK has ‘fragile economic outlook’. EY says ‘while it is understandable that the MPC will want to gradually normalise interest rates from their current ’emergency levels’, we believe it would be better to do so once the economy is on a stronger footing.’
• Benefit freeze could cut income of poor by £300 per year says Resolution Foundation
• Vauxhall cuts 400 jobs at Ellesmere Port. SMMT has reported on falling vehicle sales for last 6mths
• Oil up over a dollar at $57.78
• Sterling up vs dollar at $1.329
• Pound up vs Euro at €1.1254
• UK 10yr gilt yield down 1bp at 1.37%
• World markets: UK mixed Friday, Europe up, US up. Asia mostly up in Monday trading
• Philip Hammond has said global trade agreements are necessary in order to “rehabilitate globalisation”
o PM Theresa May will fly to Brussels today to try to break the deadlock on Brexit talks
o Chancellor says it is “bizarre” and “absurd” to suggest that he is talking down the economy.
o Philip Hammond adds ‘it is absurd to pretend that the process we are engaged in hasn’t created some uncertainty.’ He says ‘I am committed to delivering a Brexit deal that works for Britain.’
o EU reported to be set to begin preparing for trade negotiations with UK
o Brexit minister Chris Grayling has said Britain will grow more food if prices rise post Brexit
PRIOR DAY’S LATER TWEETS:
• Later tweets: Millennials. Is Instagram a response to poverty? Great (photo of a) pair of shoes. Great (photo of a) meal. Stuff the snapper can’t afford?
• Philip Hammond says a ‘no deal’ Brexit could in theory lead to a suspension of air travel between the EU and UK
• STR says London occupancy fell 1.6% y-o-y in Sept, with ADR +1% & RevPAR down 0.6%. Hoteliers jack rates against backdrop of fall in demand
• Barnier: Not enough progress to move on to trade. Says there is deadlock, lack of movement ‘disturbing’. ‘Impasse’ doesn’t need translating
• Tighter bank credit looming. Caution from B of E & latterly from banks themselves. Rates set to rise next month, albeit modestly
START THE DAY WITH A SONG:
Last Fridays song was the Temptations with ‘Papa was a Rollin’ Stone’. Todays song:
If you should fall short of your desires,
Remember life holds for you one guarantee,
You’ll always have me
RETAIL NEWS WITH NICK BUBB:
• Footasylum: it is a tribute to the strength of the JD Sports fashion footwear market that Footasylum fancies its chances of getting an IPO away in the current High Street climate, although JD may feel a bit sore that its former MD, Barry Bown, is joining Footasylum next year as Executive Chairman. The business is fast-growing but relatively small, with only 65 stores and we think the valuation mooted is about £150m, in line with its turnover last year.
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine was won again by Asda, but more convincingly this time: the Asda basket of £58.50 was a lot cheaper than Tesco (£64.75) at shelf-edge prices, but that was before a £3.68 instant Price Match discount by Tesco and Asda still had to dish out a big £3.41 voucher for failing to beat its rivals sufficiently on price. Waitrose was last, as usual, on £70.59. The separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability was won again by Tesco, as its 42,000 sq ft store in Crediton in Devon scored 76 marks.
• Weekend Press: We haven’t been able to see all the weekend newspapers in Venice, although we did buy the inestimable Saturday FT. The Telegraph had a feature interview with the UK boss of Ikea, Gillian Drakeford, highlighting that it has just got round to selling double duvets in this country. The Guardian flagged that Zara UK profits fell last year and the Times highlighted that Harrods saw a record £2bn in sales last year. On Sunday the cupboard looks to have been very bare, but the Mail on Sunday flagged the secret plans for all Top Shop stores to have a quick revamp at the weekend (with the embattled Philip Green trumpeting that it is a “bold move”) and the Midas investment column tipped SuperGroup shares to rise further.
• Today’s Press and News: There is even less to report in today’s papers, but City AM picks up the latest BRC-Springboard footfall survey showing that footfall continued to decline last month by 1.2% (down 2.2% on the High Street and up 1.1% on Retail parks) and there are a few previews of the ASOS final results.
• News Flow This Week: Things are a bit quieter this week, but we get the ASOS finals and the latest Kantar/Nielsen grocery sales data tomorrow morning and then the Travis Perkins Q3 sales and the ONS Retail Sales figures for September on Thursday.