Langton Capital – 2019-10-04 – PREMIUM – Income sources, beer, BrewDog, T Cook etc.:
Income sources, beer, BrewDog, T Cook etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I sometimes feel as though it would be better if we could live our lives through an Avatar and this for a number of reasons.
For example, you might want to look at the view from the top of a hill but be reluctant to climb it. You might like to have a few more letters after your name but be reluctant to work, you like to party but dislike hangovers etc. and, in the non-physical world, it would be useful for perfecting your calculus and for learning languages.
Because, whilst you might think that you speak a language pretty much perfectly, that’s only in your head and I for one find that what tumbles out of my mouth is somewhat different to what I’d expected to say.
This not least as I’m a vocabulary and speed operator. ‘Fish and chip hungry now we is’ will do perfectly well as far as I’m concerned but, if you’re speaking to a German and ignore verb endings, tenses, genders, plurals, adjectival endings and most pronouns, then you’ll get all sorts of funny looks. On to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
ALTERNATIVE SOURCES OF INCOME: When or if the going gets tough, it’s a good idea to look for other sources of income. This spreads the risk, keeps the tills ringing and, hopefully, keeps the bailiff from the door. 4 Oct 2019:
Pubs are more flexible than restaurants (or cinemas, bowling alleys etc.)
o Arguably pubs, which sometimes seek to trade as a ‘third space’ (after work and home) for customers to hang out, are more flexible than restaurants.
o Pubs have (usually) more (and more versatile) space. The more frequently have a garden, they are often on two or more floors and they are (often though not always) to be found where customers live and work rather than on retail parks.
o And the flexibility of pubs vs cinemas or bowling alleys is pretty obvious. Few people got to one-activity-based leisure assets to simply hang out. Certainly, cinemas may offer (Everyman) or be near to (all the others) food – but their raison d’etre is to show films.
o This can lead to volatile trading for reasons beyond the control of the venue owner, not least, the upcoming new release film schedule (or, more widely, fashion)
• Coaching inns are as old as the bible. These served drink but majored on food & accommodation
• Many pubs, those springing up in working class communities to serve drink to factory, dock or warehouse workers not least amongst them, moved away from food and accommodation but many have spent the last couple of decades moving back
• Gaming machines, coffee, breakfasts and other products are now offered by pubs on a regular basis
The current position:
• Managed pubs can be formulaic but, as McDonald’s will testify, that’s not altogether a bad thing
• Tenants can arguably be more inventive & may sniff out income more readily than, perhaps, managers
• Caravan pitches and beer gardens may be hired out, etc. Pubs may hire out parts or the whole of their buildings for weddings, social occasions and B2B functions
• But it would be wrong to suggest that managed sites are totally inactive
A word on experiential:
• Pubs should arguably play to their strengths. People will be willing to linger in a way that they are not at a restaurant. The mind-set of the customer is different – perhaps more malleable
• Re experiential, pub games are as old as pubs. Dice have been around for thousands of years and, though traditional games may struggle to keep a pub going on their own, pool, darts, beer garden games, leagues, fantasy leagues and even ping pong & crazy golf could have a part to play
• As an addition to existing revenue streams, such income is usefully incremental
• Also, where space is available, pop up (or permanent) facilities could drive sales. Pop up escape games could have a role to play. Some are B2b, used for team building etc. Such functions could be accompanied by food, drink (obviously) and perhaps also accommodation.
• Laine Pub Co amongst others is mining this seam of income
For the future:
• The choice re diversification should be seen as a ‘problem’ of success and flexibility rather than a bad thing
• Arguably drink, food & accommodation (probably in that order) remain the core of the pub
• But, if sales are 50:30:20, then > half the income of a ‘future pub’ will be non-drink-related. Indeed, the drink element is unlikely to rise over time.
• Switch ‘other’ for ‘accommodation’ and pubs may be obliged to (and should wish to) look further & wider for sources of revenue
GENERAL NEWS – PUBS & RESTAURANTS:
o The British Beer & Pub Association has been able to confirm that beer remains the most popular alcoholic drink in the UK after 8.5 billion pints were sold in 2018. The BBPA’s new 2019 Statistical Handbook reports that the equivalent of 7.4 billion 175ml glasses of wine and 1.2 billion pints of cider were sold over the same period.
o The BBPA reminds readers that ‘Brits pay a staggering 11 times more beer duty than drinkers in Germany or Spain – paying 54 pence in beer duty on a 5% ABV pint of beer.’ The BBPA says ‘this is despite beer being vital to the UK’s manufacturing sector, with 82% of the beer brewed in the UK being drunk in the UK.’
o CEO Brigid Simmonds says ‘it is clear from these numbers that beer is the most popular alcoholic drink, but it is without doubt overtaxed.’ Ms Simmonds says ‘should tax on a pint continue to rise then drinking in the pub will no longer be affordable for many British beer drinkers, meaning pubs will continue to close.’
o The British Beer and Pub Association and UK Hospitality ‘have joined forces to unveil guidance for tackling under-age gambling in pubs.’ The two trade bodies say that there should be ‘collaboration across the sector to address under-age gambling’ with support given to staff to ensure they understand and meet their legal responsibilities.
o The BBPA says ‘our members are committed to keeping the pub a safe and friendly environment for families, so we have taken concerns raised by the Gambling Commission seriously.’ UK Hospitality adds ‘pubs are, by and large, safe and supervised environments in which to relax. It is increasingly obvious, though, that pubs can and should be doing more to tackle to under-age gambling on their premises.’
o Brewdog Retail, the retail arm of BrewDog PLC, has reported numbers to end-Dec 2018 to Companies’ House saying that revenue rose to £38.9m (2017: £24.2m) with PBT losses expanding to £235k from £45k in the prior year.
o BrewDog Retail says ‘2018 was another busy year for the company as we continued our mission to make other people as passionate about great craft beer as we are’. The company says ‘we opened 12 sites in 2018 and continued improvement in performance across all our bars’.
o BrewDog Retail says ‘we have loads of exciting plans for 2019. So far, we have opened another 8 sites with plans to open several more throughout the year’.
o BrewDog’s gross profit margin improved from a increased from 36.4% to 36.6%. This is low by some standards but will be impacted by accounting policies, which can differ across companies. The Company has retained losses since incorporation of £3.3m and positive shareholders’ funds of £6.7m.
o Prezzo has more than halved its operating losses in 2018 after undergoing a CVA that included exiting unprofitable sites and rent cuts of up to 50% at some remaining stores.
o Prezzo reports revenues down to £157m from £212m (on closed stores). Executive chairman Karen Jones reports that the company had opened too many units in the past and this had ‘distracted from its mission of hospitality’.
o Stonegate’s new We Love Sport pub-finding app locates the best sport pubs in the operator’s 722-strong UK pub estate – including Sports Bar & Grill and Walkabout sites. It offers a loyalty scheme offering rewards for each visit and incentives to visit a pub to watch niche sport. The group says ‘sports lovers want venues to be fan-friendly zones where they can watch live sports with fellow supporters.’
o Mintel has reported that affluent British consumers are attracted to chicken restaurants where they believe the animals that end up on their plates have been treated humanely. Mintel says that 45% of ‘affluent’ customers have visited a chicken restaurant in the last year. It says that they are after a ‘guilt-free indulgence.’
o The company behind Rick Stein’s seafood restaurant group halved its profits in 2018. Blaming headwinds experienced across the whole market. The company says PBT fell to £489k from over £1m in 2017 with gross margins down from 72.7% to 70.9%.
o Chapel Down wine MD Mark Harvey has said that demand for English wines is at an all-time high. Mr Harvey was reacting to suggestions that we may be nearing saturation. He said ‘our wine business is dead exciting at the moment…the headline numbers in the UK in terms of total sparkling wine consumption are so high that you’ve got to think that England should be pretty confident in its domestic market to able to sell to the levels that are being forecasted. If there’s 30 million bottles of Champagne, 100m of Prosecco and 170m bottles of sparkling wine, for England to be able to grow to 40m bottles by 2040 I feel is achievable.’
o A new Community Access to Cash Delivery Fund is to make £1m available to install between 40 and 50 cash machines at the request of areas with poor access to ATMs across the UK.
o The US is to impose $7.5bn (£6.1bn) of tariffs on exports from the EU including scotch whisky and French wine. PM Boris Johnson is said to be ‘disappointed’ with the move.
o Vacancies in US shopping malls are reported to be at eight-year.
o As we reported Tuesday, Brand Finance has estimated that plain packaging on drinks bottles could lead to a loss of brand value across the global drinks industry of some £350bn. We would suggest that 1) that’s rather a large number and 2) if the labels are really worth so much more than blind testing, this may be a misallocation of value by consumers.
o Blind tests have frequently shown that less well-known brands could in some cases be favoured by consumers who, once told what they were consuming, moved back to more heavily-branded competitors. Pepsi vs Coke and New Coke (a marketing disaster) vs traditional Coke are two cases in point.
o Brand Finance says that, if brand values were diminished, jobs would be lost in creative industries such as advertising. It’s not clear quite how much sympathy comments such as that are capable of generating.
o The Food & Drink Federation has commented on HMG’s proposals re the Irish border saying it ‘applauds the Government’s attempt to find a creative replacement for the backstop’ but says ‘unfortunately these proposals don’t work for shoppers and consumers. That’s because they ask food and drink businesses operating in Northern Ireland to pay – through new bureaucracy and costs – for the Government’s inability to agree a comprehensive exit deal.’
o The FDF says ‘it is a fallacy to suggest that there would be a small number of physical checks on food travelling across the Irish border. Ireland is the UK food and drink industry’s largest export market. More than half of all poultry, and fresh produce would require physical checks, with samples taken and sent to a laboratory.’
o Constellation Brands, which owns the Corona beer brand, has announced that it lost $525.2 million, or $2.52 a share, in the quarter to Aug. 31 after income of $1.149.5 billion, or $5.41 a share, in the year-earlier period.
• Early reports indicate Burgundy’s 2019 harvest will be much smaller than last year as an uneven flowering and high summer temperatures have affected the crop. Guillaume Deglise, CEO of Albert Bichot, told the drinks business that volumes may be down as much as 30-40% in some areas.
• SSP Group has added 22 new locations to its motorway sites that it operates alongside Tank & Rast in Germany this summer. Tank & Rast says ‘we are pleased to continue and deepen our successful cooperation with SSP, which has been a strong and long-standing partner for Tank and Rast. Our cooperation stands for brand diversity and high service quality. We meet our customers’ demands with a manifold gastronomic offer.’
• Clodagh Moriarty, chief digital officer at Sainsbury’s, announces the supermarket’s Nectar loyalty scheme has become fully digital.
HOLIDAYS & LEISURE TRAVEL:
• The CAA is combining flights near the end of its repatriation programme meaning some remaining Thomas Cook passengers may not return to their original departure airport. CEO Richard Moriarty said ‘With just four days until the end of our flight programme and 19,000 people left to bring back to the UK, we are beginning to combine more Thomas Cook flights into single CAA flights.’
• The latest IHS Markit PMI for September suggests that the UK Services sector is in decline in the run up to the latest Brexit date of 31 October. See Finance & Markets below.
• The TSSA Union reports that the liquidator dealing with the affairs of Thomas Cook has paid out more than £18 million in “interim” redundancy payments.
• Spain is said to be putting together a €300m package to support inbound tourism businesses in the country’s resorts in the aftermath of the Thomas Cook collapse. Tourism is responsible for 11% of Spanish GDP, rising to 35% in the Canaries and 45% in the Balearic Islands.
• Per HotStats, European hotels saw RevPAR up 0.9% yoy in August, with ADR up 0.6% to €167.72 and occupancy up 0.2% to 79%. However, rising costs ate into profit with payroll on a per-available-room basis was up 1.1% YOY and overheads were up 2.3%.
• Blackstone will acquire 65% of Great Wolf Resorts from Centerbridge Partners, forming a new $2.9bn joint venture to own the company. Great Wolf is a leading owner and operator of family-oriented entertainment resorts, with 18 resorts around the US.
• Despite making an estimated £700m from British subscribers last year, Netflix received a £51,000 tax rebate from the UK government. Netflix’s UK subscription revenues are estimated to rise by about a third again this year to just short of £1bn.
• Microsoft unveils its new Surface Earbuds, featuring built-in microphones and 24 hour battery life.
• Gfinity has reported that it has been reappointed by Premier League and that it will be operating a second season of the ePremier League
FINANCE & ECONOMICS:
• The IHS Markit Services PMI for September came in at 49.5, down from 50.6 in August. Any number below 50.0 implies contraction.
• Markit says ‘the overall reduction in service sector output reflected lower volumes of both new and outstanding business.’ It adds ‘the service sector labour market weakened notably in September’ and ‘business expectations weakened for the fourth month running.’
• Markit’s UK All Sector Output Index is a weighted average of the UK Manufacturing Output Index, the UK Total Construction Activity Index and the UK Services Business Activity Index. It fell to 48.8 in September, from 49.7 in August, indicating a second successive decline in total private sector output. This marked the first back-to-back contraction since the final two months of 2012.’
• Markit says ‘only the collapse in confidence immediately following the 2016 referendum has seen a steeper overall deterioration in the economy during the past decade, but September’s decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock. At current levels the surveys point to GDP falling by 0.1% in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession.’
• Sterling mixed at £1.2333 and €1.1238. Oil up slightly at $57.98. UK 10yr gilt yield down 1bp at 0.48%. World markets mixed, with Far East up in Friday trade.
• Brexit & politics:
o PM Johnson has told the Commons that his proposals are reasonable. Early signs are that the EU remains sceptical as the 300 mile border would be an open back door into the single market.
o A majority of MPs may support the deal – but it is (arguably) aspirational rather than achievable.
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• Mr Bubb is taking a well-earned, short break. Back on Monday.