Langton Capital – 2019-10-25 – PREMIUM – Discounts, Book Review, AB InBev, beer duty etc.:
Discounts, Book Review, AB InBev, beer duty etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Walking in the rain, how English.
So, it’s Friday, it’s the kids’ half-term and we’re heading to the North York Moors for a few days walking between Levisham, the Hole of Horcum, across via Rosedale to Blakey Ridge and then – just maybe – back again.
And that could be rather an ordeal because heavy rain is forecast for this afternoon and evening, it might turn to snow on Sunday and stickability whilst walking past a host of inviting pubs is going to be something of a challenge.
Besides which, perambulating from a parked car to the pub is ‘walking’ in its strictest sense, is it not? And why get to a moorland pub wet, exhausted and thirsty when you can cut out the first two?
Admittedly some of the pubs remind one of the opening scenes from An American Werewolf in London but they’ve got fires, they’ve got beer, what more do you want? Questionable Wi-fi might compromise the email slightly Monday Tuesday but we’ll do our best. On to the news:
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BOOK REVIEW: OUTLIERS – MICHAEL GLADWELL. Behavioural economist Malcolm Gladwell wrote Outliers in 2008. In it, he suggests that, despite various protestations, there is generally a ‘reason’ (or a number of reasons) for success. 25 Oct 2019.
• We are attracted to stories rather than facts. We like the idea of people being ‘self-made’. But Jeb Bush, Donald Trump etc. didn’t get where they got to on their own.
• There are exceptions but Gladwell says there is almost always a ‘hidden’ or ‘accumulated’ advantage. It’s not just the ‘hardy seed’ that makes good. It needs sun, water, the absence of pests, other problems etc.
• President Obama, coincidentally and after this book was written, said there was no such thing as a ‘self-made man’. This provoked outrage but the fair questions are: did you invent the English language? Did you create property law? Did you create the infrastructure (including education etc.) that made your success possible?
The 10,000 hour rule:
• Gladwell suggests that very few, if any, successful piano, violin or hockey players got to where they were without 10,000 hours of effort. That’s >5yrs plus of solid work.
• Thomas Jefferson said ‘I’m a great believer in luck, and I find the harder I work the more I have of it’.
• Gladwell says there were no ‘naturals’ that he came across and nobody who put in 10k hours of effort failed. Of course, the 10k hours weeded out those without dedication.
• Gladwell says you need to be brilliant – but that’s often not enough.
• You also need to give yourself the opportunity to be brilliant – and that’s where the 10,000 hours come in.
• Gladwell says the Beatles, hailed as ‘naturals’, played 1,200 sets in 7yrs. They could play great riffs in their sleep – because they had put in the hours.
The role of intelligence:
• Gladwell says that successful people need to be intelligent ‘enough’ rather than super intelligent. The 10,000 hours does the rest.
• He says achievement & intellect are not perfectly correlated. Some intelligence is genetic – but practice isn’t.
Nature v nurture:
• Books have been written on this topic but, as Gladwell suggests 10,000 hours trumps all, it’s not surprising that he favours nurture over nature.
• Disintermediating the two (middle class parents may be more involved rather than genetically any different) may be impossible in any case.
• Timing can be critical. People can be presented with an opportunity – but it is up to them to seize it.
There’s a reason for (nearly) everything:
• Gladwell says that air crashes involve an average of seven errors combining in a fatal mixture
• Typically, the pilots have been awake for >12hrs, they may not know each other, the weather will not be good & they will be running late.
• Overly subordinate subordinates will not question orders. And sometimes they should.
• There is a strong and perhaps unsurprising link between hard work and achievement. Gladwell suggests that cultivating rice is harder work than is growing traditional western crops
• Gladwell suggests that the problem with school is that there isn’t enough of it. He says lower income kids backslide – but not when they are in school.
• Longer school days (and terms) would give kids more time to learn and less time to unlearn what they are taught. That, as they say, could be a tough sell.
GENERAL NEWS – PUBS & RESTAURANTS:
• Discounts hitting 50%. Consumer can be forgiven for asking ‘what is the real price?’ Prezzo offering 50% off mains. Bella Italia offering second meal for £1.
• Customers not using vouchers may feel a little foolish. Those using them may be either smug or embarrassed. The operator’s margins go down and he/she may stand accused of ripping off customers when full prices are charged.
• The road back? It’s difficult to row back from discounting. Customers expect it. And it can be contagious meaning that, if your rivals discount (maybe because you started doing it yourself), then operators may have little choice but to follow suit.
• Whilst it did not get particularly involved in discounting, The Restaurant Group several years ago realised that it had pushed price too hard. It had advanced down a dead end and had to reverse. That is still proving something of a challenge.
• Reversing price rises. The only thing the operator can be sure of is that margins will fall. Volume may or may not rise and, even if footfall rises, sales may not. Costs will clearly rise in this instance as meals still have to be prepared and cleared away etc.
• Best idea? Don’t push price too hard and don’t discount. CPI rises aren’t sufficient to erode high menu prices with any degree of rapidity so price cuts may be necessary. However, looking at Nando’s, McDonald’s, Franco Manca, Wagamama and others versus Prezzo, Pizza Express & some other brands, it’s tempting to say that there is a correlation between good performance and a lack of discounting.
• As always, it’s tough to identify which is the chicken and which is the egg.
• Anheuser-Busch InBev has reported Q3 and 9mth numbers saying that revenue grew by 2.7% in the quarter, with revenue per hl growth of 3.0% ‘as healthy growth from ongoing premiumization and revenue management initiatives was partially offset by advances in our smart affordability strategy.’
• In the 9mths to date, ‘revenue grew by 4.8%, with revenue per hl growth of 3.7%.’ Volumes were down by 0.5% in Q3 with beer volumes down 0.9% and non-beer volumes up by 4.0%.
• AB InBev says ‘solid growth from markets such as Mexico, South Africa and Colombia was more than offset by declines in China and the US, both primarily driven by shipment phasing impacts.’
• AB InBev says ‘the third quarter of 2019 was challenging, primarily driven by three anticipated factors: shipment phasing into 2Q19 in China ahead of summer activations, higher cost of sales per hl from significant commodity and transactional currency headwinds, and the year-over-year phasing of our sales and marketing investments driven by the 2018 FIFA World Cup. In addition, price increases implemented in South Korea and Brazil drove volume declines, which were exacerbated by softer consumer demand in light of difficult macroeconomic conditions.’
• AB InBev recorded a sharp decline in profitability with earnings due to shareholders down by 24% to $251m in the quarter. China is down slightly with AB InBev conceding that the huge Chinese is extremely competitive.
• Coaching Inn has reported LfL sales up by 5.5% in the 6mths to end-September reports Propel. The company says ‘we always knew trading this summer would struggle to hit some of the highs seen last year but, again, we feel the results we have seen are testament to the quality of our product offering and the robustness of our business model.’
• Pub licensees have handed in a petition containing over 200,000 names to no10 Downing Street calling for a cut in beer duty. Whilst a cut would be welcome, it may be politically difficult to employ fewer nurses in order to make beer cheaper.
• Research from KPMG has found that the number of restaurant, pub and club companies entering into administration during Q3 2019 almost doubled, from 14 in Q2 to 26. Restaurants insolvencies were the most numerous accounting for 14 of the Q3 administrations.
• Paul Berkovi, director in restructuring at KPMG, commented ‘it is no surprise that in today’s economic climate, customers are being more cautious about how they spend the pounds in their pocket. On top of dwindling consumer confidence, the hospitality industry also has to contend with rising overheads, fluctuations in exchange rates and increasing employments costs. Combine this with general political uncertainty making future planning extremely difficult and it is a perfect storm which is hitting the sector hard’.
• Bleecker Burger has opened a unit at Westfield Shepherds Bush. The operator now has four outlets.
• Research from Marston’s has found that 700,000 more pints were sold in the off-trade than through the on-trade for the year to March 2019.
• Drynks Unlimited, the Manchester based non-alcoholic drinks company has invested £1m into building a de-alcoholisation kit to improve the quality of its 0% ABV beer and cider.
• The Japanese cafe company, % Arabica is set to open its first UK sites in Covent Garden and Broadway Market.
• Thai restaurant group Busaba has announced a rebrand to celebrate its 20th anniversary. Neve Rabbou, Busaba’s marketing director commented: ‘As a 20-year-old brand with plenty of history, we needed an evolution rather than a revolution. The creative process has rejuvenated the brand, making it fresh and beautiful with a clear personality that is true to what we have always stood for’.
• Broadline Wineries is installing a new state-of-the-art production line, capable of producing up to 20 millions cans a year.
• Salcombe Brewery announces its first low alcohol beer, Salcombe Lite (2.5%), set to launch in January.
• Enova, owner of QuickQuid, will leave the UK market due to ‘regulatory uncertainty’, leaving thousands of complaints about its lending unresolved.
• More holes in the High Street. Supercuts hairdressers has been put into administration by owner Regis UK, putting 1,200 jobs at risk. Regis has appointed Deloitte as administrators following a failed attempt at a CVA.
• Amazon forecasts Q4 sales to be between $80-86.5bn, short of analyst’s expectations of $87.4bn. The online retailers expects Q4 operating income to be between $1.2-2.9bn, again shy of analyst’s expectations of $4.2bn. The forecasts sent shares down by as much as 9%.
HOLIDAYS & LEISURE TRAVEL:
• Club Med plans to open its first resort near Kota Kinabalu, Malaysia, in late 2022.
• Boeing expects the 737 Max aircraft to return to the skies by the end of the year.
• A national strike in Italy means airlines face major disruption tomorrow, impacting airports such as Heathrow and London City.
• STR reports US hotel occupancy down 0.9% to 72.4% in the week ending 19 October, with ADR up 0.2% to $135.99 but RevPAR down 0.7% to $98.51.
• Twitter reports weaker than expected Q3 revenues of $827m, up 9% yoy, leading to shares falling in pre-market deals. However, ‘monetisable daily active usage’ increased 17% yoy to 145m users.
• Ofcom suggests the BBC is at risk of losing the next generation of licence fee payers, as fewer than half of 16 to 24-year-olds tuned into watch BBC programmes on an average week in the year ending March 2019.
FINANCE & ECONOMICS:
• The ECB has left Eurozone monetary policy unchanged. It has, however, left the door open to more stimulus should the ECB believe it necessary.
• Sterling lower at $1.2841 and €1.1564. Oil up at $61.30. UK 10yr gilt yield down 5bps at 0.63%. World markets mixed.
• Brexit & politics:
o PM Johnson going for a 12 Dec election. Or else…
o Or else what, says the opposition. Signs are it will vote down the proposal on Monday.
o Next moves. PM Johnson has threatened to bring work in Parliament to a stop until he gets an election. Opposition parties could try to amend a proposal – for example to give 16yr olds the vote either permanently or just for this election.
o The FT jokes ‘my father was a Brexit negotiator, and his father before him’.
START THE DAY WITH A SONG:
Yesterday’s song was Mirror in the Bathroom by The Beat. Today, who sang:
“What a hell of a man,
This cat of the slum
Had a mind, wasn’t dumb
But a weakness was shown
Cause his hustle was wrong”
RETAIL WITH NICK BUBB:
• BDO High Street Sales Tracker: We noted on Wednesday that the John Lewis sales figures for last week were good again, because of the Fashion Sale promotion and today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting surprisingly good progress in recent months and could be over-weighting Online sales) is also good, despite strong comps…In w/e Sunday Oct 20th, BDO Fashion sales were up by 4.8% LFL (+2.7% excluding Online). And total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion) were up by 5.3% last week (up 1.9% in Store sales and up by 20.3% in Online sales).
• Trade Press: The front page headline of Retail Week magazine today is “Upcycled Retail”, to flag up the main feature on “From Asos to Iceland – the businesses putting sustainability top of the agenda”. RW also have features on “HMV changes its tune” (HMV boss Putman unveils landmark store and promises profit), “High Street’s Star Baker” (CEO Roger Whiteside on building a £2bn business) and “Bold or Baffling?” (Making sense of the John Lewis management shake-up). And in his column the Editor looks at WH Smith and says that “The state of WHSmith’s carpets might prompt mirth on social media, but there’s nothing shabby about the legacy of departing chief executive Steve Clarke”, thundering that “Clarke’s WH Smith legacy is one for the books”.
• News Flow Next Week: It looks like Brexit won’t now happen on Thursday, notwithstanding the expensive Government advertising campaign about Oct 31st…but whether the EU will grant a 3 month extension and whether on Monday MP’s will vote in favour of Boris Johnson’s offer of a General Election on Dec 12th is unclear…One thing that is clear is that Next will set the scene for the Retail sector next week, with their Q3 trading update on Wednesday. And the end of the month is definitely coming up quickly now and, after the CBI Distributive Trades survey for “October” is published this morning, we get the GFK Consumer Confidence survey for October first thing on Thursday…