Langton Capital – 2018-02-07 – EAT, discounting, food inflation, beer sales & other:
EAT, discounting, food inflation, beer sales & other:A DAY IN THE LIFE: Don’t you think the 1960s and 1970s have a lot to answer for? I mean that hair. And those clothes, that architecture etc. but surely the seeds were sown in the 40s and 50s when a feeling of entitlement morphed into a desire for major changes that were then enacted whilst the communal brain remained in neutral. Exhaustion perhaps diminished the capacity to object to the introduction of final salary pensions, jobs for life, retirement at 55, index-linked benefits and all the rest and now we’re facing the reality that our kids will be worse off than our parents and, with a big world full of hard working people out there, that we can’t make it as a country without effort. We can’t all win X Factor & make millions singing off-key but perhaps Brexit will put all that right, there maybe is gold at the end of the rainbow. On to the news: PUB, RESTAURANT & DRINK PRODUCERS: • Sky reports that sandwich chain Eat is considering closing a ‘substantial’ number of its c100 sites and has brought in KPMG to advise on its restructuring options. Rising high street costs have forced many to push back store opening programmes and even enter into company voluntary arrangements (CVAs) in recent months, including Byron and Toys R Us. • Discounting still a feature with as much as 50% off (Frankie & Benny’s, Bella Italia, Las Iguanas) & loads at 30%, 33% or 40% – Prezzo, Chimichanga, ASK, Loch Fyne, All Bar One, Café Rouge, Belgo, Domino’s, Zizzi, Chiquitos. • All good stuff when it comes to getting the tills ringing. But 1) you may be giving the same people the same food at a lower price and 2) what’s the road back? • CGA Prestige reports that food price inflation stood at 5.1% in the year to December, up from 3.4% in November • CGA Prestige reports the rise in food price inflation is ‘a sign of continued volatility in the market despite the easing of some pressures.’ It says ‘the slackening of inflation in November had suggested some respite from major impacts including the weakness of sterling against the Euro and dollar following the UK’s vote to leave the European Union. But December’s increase indicates that instability in foodservice pricing is likely to continue into 2018.’ • CGA Prestige reports that inflation ‘is running high in most of its ten food and beverage categories.’ Prestige Purchasing says ‘while we have seen more reaction from the markets this past month as the government began to clarify its position and desired direction for Brexit it did not prevent the continuing correction from the price peaks that followed the referendum.’ • CGA reports ‘after relatively modest inflation in November, December’s Foodservice Price Index returned to the trend of substantial pricing pressure that dominated 2017. With many important areas of the market facing sector-specific challenges and the value of sterling still low, the Index confirms that any lull in inflation is likely to be short-lived. For all foodservice businesses, it emphasises the vital importance of staying on top of price trends and setting purchasing strategies accordingly in 2018.’ • Deloitte has predicted a more stable year for the hospitality industry in 2018 in its latest consumer tracker. It says ‘in the year ahead, consumers expect their spending on many habitual leisure activities, such as drinking in pubs and eating out, to remain unchanged. In a sign of improved confidence, big-ticket leisure items, such as holidays and theatre trips, are likely to see an increase in spending compared to this time last year.’ • Barclaycard reports that consumer spending grew by 3.9% in January ‘as essential expenditure rises to seven-month high’. It says spending on ‘everyday essentials’ rose by 4.1%. • Barclaycard reports ‘spending growth on non-essentials was [up] 3.8%, down from 4.2% in December, with clothing and travel recording weaker growth than the month prior.’ • Barclaycards reports ‘entertainment remained a bright spot, driven by double digit growth in pubs (12.8%) & restaurants (10.5%), as Brits cured the January blues with meals and evenings out with family and friends.’ • Barclaycard reports ‘consumers’ confidence in the UK economy fell to 29% – the second lowest level seen in the past 12 months.’ It says ‘confidence in the UK economy is also deteriorating; just 29% of consumers say they feel confident.’ Barclaycard adds ‘January’s uplift in spending represents a strong start to the year. But faltering confidence levels across the board suggests that consumers are feeling the effects of a post-Christmas slump, as well as the wider impact of inflation, on their everyday lives.’ • EI Group has bought back another 239,424 shares at 131.75p each. • BBPA reports on-trade beer sales fell by 2.4% last year but beer as a whole saw an increase in demand towards the end of the year. Beer sales rose by 0.7% in volume terms in the year as a whole. The BBPA says ‘whilst there has been an increase in overall beer sales, sales in pubs and bars still fell by 2.4 per cent, the biggest drop since 2013.’ CEO Brigid Simmonds comments ‘whilst it is encouraging to see beer sales rise slightly in 2017, it is still hugely concerning to see on-trade sales fall for the seventeenth year in a row. This shows just how important the decision to freeze beer duty in the Autumn Budget was, particularly after an inflation-busting 3.9 per cent rise in the Spring Budget. Cutting beer duty is hugely important to community pubs where on average seventy percent of alcohol sold is beer.’ • Chipotle Mexican Grill has reported stronger-than-expected fourth quarter sales with revenues up 7.3 % (5% due to price) and a 0.9% rise in LfL sales. Consumer traffic slipped again in Q4 and Chipotle’s shares fell by c6% in after-hours trading. • BrewDog is setting up its new Australian brewery in Brisbane. Total investment in the 3,000 sqm Aussie site could reach as much as $30m and is expected to create 150 jobs over the next five years. The brewer’s local head, Zarah Prior told Brews News: ‘We’ve been so humbled by the support from local businesses as well as the local community who have shown a real passion for BrewDog to call Brissie home.’ • Ei Group’s Ei Commercial Properties business has agreed a commercial free-of-tie lease for the former Pageant pub in Southport, Merseyside, which has been reopened as its seventh Hickory’s Smokehouse. Greg Parkes, Commercial Property Director at Ei Commercial Properties, said: ‘Our aim is to maximise the value of Ei Group assets using our commercial property expertise and partner with exciting high-quality operators.’ • Unique Hospitality Management has added three new pubs to its portfolio, including its first in London, meaning the group now has ten sites. The company, which operates Epic Pubs, Heroic Pubs and new company Aspley Pubs, has taken on its second Star Pubs & Bars lease – The Imperial in Chelsea. Andrew Coath, the company’s managing director, said: ‘We are really excited to have taken on our first pub in London which will be a flagship for the company. The Imperial Arms is a fantastic Victorian building of merit in a vibrant location. We look forward to working with Star Pubs & Bars to re-establish the venue as a pub at the heart of its local community.’ • Casual Dining Group has agreed a partnership to operate DUBL wine bars in the UK and will focus on airports and travel hubs. The first site is set to open in Luton this month. • Upham Pub Group oversaw a 25.1% increase in sales to £15.6m in 2017, while trading EBITDA doubled to £1.26m. The release of new products, including the business’s first craft beer, UB5 helped drive the strong performance. • Kantar Worldpanel reports British grocers relying on price inflation to deliver 3.4% growth in the 12 weeks to January. Last month, grocery price inflation was recorded at 3.6% which saw customers spend £1.6bn less in the industry. • Dunkin’ Donuts’ strategy to focus on beverages and morning trade have been key drivers in recent same-store sales gains of 0.8% in the US and 1.6% internationally. • In the US, Rave Restaurant Group reported falling LfLs of 13.7% in Q2 ending December 24. Net stores in Pie Five units fell by three, with five closing and two opening. • Bed-maker Warren Evans has collapsed into administration leaving 300 jobs at risk. HOLIDAYS & LEISURE TRAVEL: • The European Hotel Lending Survey 2018 shows that financing banks are concerned about possible oversupply in the UK but still view it as their most preferred hotel lending market, along with Germany and the Netherlands. • The number of UK travellers to Cyprus climbed 8% in 2017 to 1.25m. • A travel alert has been issued for British holidaymakers to the Maldives following recent political unrest resulting in a state of emergency. • EasyJet has stated that January passenger numbers increased 8.7% y-o-y with the budget airline carrying 5,159,860 passengers last month. • The government has announced that Stagecoach can only continue with their East Coast Mainline Franchise agreement ‘for a small number of months’. The Government had previously stated that Stagecoach and Virgin could pull out of their franchise agreement three years early. • Marriott International has announced that it will remove all plastic straws from its c 60 Uk hotels. OTHER LEISURE: • US casino mogul Steve Wynn has resigned as chairman & CEO of Wynn Resorts in the wake of sexual harassment claims. • Walt Disney reported quarterly earnings yesterday showing revenues up 4% y-o-y but revenues in its movie division down by 1%. The group’s shares rose by more than 2% in after-hours trade. FINANCE & MARKETS: • NIESR comments on UK growth saying it should hit 2% this year and next. It expects two one quarter point base rate rises per annum. • NIESR says ‘the economy has strengthened in the second half of 2017. Preliminary data shows quarterly growth of 0.5 per cent for the final quarter of 2017 and 1.8 per cent for the calendar year. Activity has been supported by the weaker exchange rate and by a buoyant global economy. These two factors have helped rebalance the UK economy away from domestic growth and towards net trade.’ • NIESR reports the global economy is growing at its fastest rate since 2011 with growth of around 3.7% last year. The NIESR says ‘but with many economies operating at close to full capacity, some slowdown in the pace of expansion is likely unless productivity surprises on the upside. In the medium term the outlook remains for growth of around 3½ per cent a year.’ • US trade deficit widened to $53.1bn in December. • Bitcoin price bounces to around $7,400 having sunk below $6,000 yesterday. • Sterling down vs dollar at $1.3961 • Pound lower vs euro at €1.127 • Oil price up to $67.37 • UK 10yr gilt yield down 4bps at 1.52% • World markets: UK & Europe down yesterday in the wake of earlier US losses. US bounced around 2.3% with Asia higher in Wednesday trade • Brexit, politics etc.: o Mrs May’s Brexit sub-committee meets today & tomorrow. At some point, HMG will have to say what it wants. o Anna Soubry suggests Tory Party may lose members (including MPs) if the PM doesn’t get a grip on extreme Brexiters ADMIN ETC. • Langton is between offices. Please communicate via email. MIFID II is now in operation. PRIOR DAY LATER TWEETS: • Later tweets: Some job losses beginning to appear, Lloyds 900, Homebase 2,000, Carillion 800. Also M&S closures, Morrison’s, Sainsbury • Sterling sharply down with oil down, equities down etc. Bonds rising today on ‘safe haven’ qualities. • UK government in shambles but here’s an idea; have a plan. Irish Times says PM May’s ‘humiliation is excruciating’ • Some Zombie companies are still shambling along post the credit crunch. Betting is that Zombie PM Mrs May will not last as long • Labour remaining silent on Brexit & on details re, well, everything. Just wants more services, higher earnings, more jelly & custard etc… • Anonymous cabinet ministers say Zombie PM May’s strategy planning is ‘pathetic’. Includes platitudes such as ‘tackling injustices…’ • Discounts continue. 50% off: Frankie & Benny’s. 40% off: Prezzo, Chimichanga, Café Rouge. 30% off: ASK, L Fyne, Belgo, Zizzi, Chiquitos START THE DAY WITH A SONG: Yesterday’s song was Sittin’ on the Dock of the Bay by Otis Redding. Today, who sang: You tried to pull the wool I wasn’t feeling too clever, And you take all that they’re lending Until you need amending now RETAIL NEWS WITH NICK BUBB: • Games Workshop: Rather oddly, there was a trading update at just after mid-day on Monday from the fast-growing Games Workshop, to say that following on from the group’s update on 9 January, “the good growth trends have continued to the end of January. Sales and, given the high operational gearing of the business, profits for 2017/18 to date are therefore slightly above expectations”. On the back of that the company also announced that the Board had declared a dividend of 35p per share. Games Workshop have a habit of paying out dividends as they go along, rather than in simple half-year intervals (like every other company), which is why they seem to come out with these random trading announcements… • John Lewis Watch: We flagged last week that John Lewis ended January in quite good form, but yesterday’s weekly sales update from JLP (for w/e Feb 3rd) revealed that the new month/new year did not start so well, with gross sales down by 0.2% versus last year or c1% down on a LFL basis. In terms of sales mix, Electricals were up by 4.2% (helped by strong demand for TVs and smart speakers) and Fashion sales were up by 2.3% gross, but Home sales were down by 6.9%. The H2 cumulative sales run-rate was +1.5% gross (slightly up LFL): the bottom-line impact will be revealed in the JLP final results on March 8th. • Waitrose Watch: Over at Waitrose, last week was a bit brighter, with gross sales up by 1.6% in w/e Feb 3rdh (c1.5% up LFL), very much in line with the cumulative run-rate of +1.5% for the previous 26 weeks of the second half (c1% up LFL). Interestingly, to emphasise that it is one business, JLP is not including the usual charts of total absolute sales in value broken down by the John Lewis and Waitrose divisions in its weekly overview from now on.
• Ocado: Yesterday’s results presentation by Ocado was bullish in tone, inevitably, but the analysts at the meeting were quite picky about the “profit warning” for the new financial year and the credibility of the forecast of a sharp rebound in EBITDA in the year after that. There were some tense exchanges therefore in the Q&A with the FD Duncan Tatton-Brown, but none of it really mattered because all the shorts who had been caught out by the sharp rise in the share price after the 2 Overseas licensing deals were always bound to be looking to cut their positions and the 31.5m share placing was the ideal opportunity to do that. We haven’t seen the final details of the placing but according to Bloomberg it was more than 3 times oversubscribed, despite the slump in global stockmarkets, and the share price, having hit 450/455p in early dealings rallied to close only 3% down on the day at
• Amazon UK Market Share Watch: We flagged yesterday that BRC-KPMG Online Non-Food sales growth last month was “only” 5.3% and that might reflect the relatively poor representation of “pure play” retailers in the BRC-KPMG Online sample…So we are grateful to the research group Verdict (now part of GlobalData) for pointing that Amazon UK’s impressive revenue increase of 19% to $11.4bn last year didn’t warrant a mention in Amazon’s Q4 press release last Thursday, nor in its conference call discussion with analysts (it was buried in the 10-K document). The UK numbers are even more impressive when its revenues are converted back into sterling (using average daily exchange rates), as that implies that its rate of growth has been accelerating for the third year running, and in 2017 grew at 25% to £8.8bn, the fastest rate for six years. And that might even underestimate the growth in Amazon’s
• Grocery Market Share Watch: We noted yesterday that the latest monthly Kantar and Nielsen grocery sales data that came out at 8am covered almost exactly the same period as the BRC-KPMG figures, ie the 4 weeks to Jan 27th/28th, but a day can make a big difference to the reported outcome, given the calendar distortion around trading over the New Year…Nielsen said that shoppers spent 4.2% more on groceries during the four weeks ending 27 January versus the same period a year ago (although excluding the discounters, sales rose by only 2.7%). “Inflation and New Year’s Eve falling within the reporting period – which benefited alcohol (spend up 10%) and soft drinks (8%) in particular – helped supermarkets start 2018 in an encouraging fashion, following an extremely good Christmas” according to Mike Watkins, Nielsen’s UK head of retailer insight. By contrast, Kantar said that industry growth • News Flow This Week: This morning ScS are taking analysts to see their new Chelmsford store (and the concession in House of Fraser in Lakeside) and then tomorrow their rival DFS issues a pre-close trading update. |
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