Langton Capital – 2020-01-13 – PREMIUM – City Pub Group, Wm Hill, Just Eat, London hotels etc.:
City Pub Group, Wm Hill, Just Eat, London hotels etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The English word with five consecutive vowels that we mentioned last week was ‘queueing’. We also dug up ‘rhythms’ which, though it does use sometime vowel the letter ‘y’, has six consonants and not a single vowel.
Anyway, a bit of a tech theme today because, having endured a series of patronising smirks as our thirteen-year-old tried to teach us how to use Pinterest, it became even more obvious that technology continues to evolve.
This is no doubt of great benefit to humanity but it does bring with it new problems, tennis elbow from typing, strained thumbs for those gamers out there etc., as well as the problem of how to remember web pages that you’ve visited without dragging out a pen and paper or cutting and pasting the link into some sort of online diary.
Enter financial unicorn Pinterest and its useful Boards and the rest but, to me, it was all Greek and I needed to learn how to use it.
Still, the world’s not likely to stand still for any one of us. On to the news:
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EVOLVING TRENDS – THE DESIRE FOR IMMEDIACY: Each generation seems to demand product & services be delivered more rapidly. We all ‘want it now’ but, with IT having made a leap forward, this is more acute than ever. 13 Jan 2020:
The demand for immediacy:
• This century, consumers have increasingly demanded instant gratification and industry has strived to provide this.
• Examples of this are numerous, from TV streaming to food and grocery delivery.
• This thirst for instant gratification has also seen the prevalence of phenomena like clickbait articles and loot crates in video games.
• Furthermore, the nature of the internet has solidified existing subcultures and created many new and unique ones.
• Can this impact hospitality? Well yes because the above means that many consumer facing companies face shorter business cycles.
• The information age has meant that consumers have become fickle and tend to evolve quickly.
• Perhaps business has always complained about this but information travels quickly, and going ‘viral’ is seen as a success – at least in marketing terms.
• Social media sites show the quick evolution cycle. First, we had Myspace, then we had Facebook, now Instagram is the ‘in’ form of social media and tomorrow maybe it will be TikTok.
• The day after that, who knows?
What does this mean?
• Long-term loyalty is scarce and the rate of change leads to several implications for businesses.
• Firstly, short business cycles mean that the longevity of capex is much shorter.
• Secondly, businesses must pay close attention to the consumer ‘fashion cycle’, i.e. the new viral trends or avoiding sharp backlashes.
• Thirdly, businesses have to provide much more customer engagement through mediums such as Twitter. One example of this is the way in which the American fast food chains’ tend to have brand banter on their Twitter accounts.
• Certainly food and drink operators have to provide ‘instagrammable moments’ – but these may change from one year to the next
• Taking amusing photographs whilst in a ball-pool or whilst axe-throwing is likely to happen only once per customer
• In the casual dining scene, some food types will be eternally popular – Pizza, Chicken & Burgers, to name a few.
• YUM Brands, which should know more about the industry than we do, has recently seemed to confirm this. It has operated in the pizza and chicken space for years and now it has moved into burgers.
• However, in the environment described above, more niche cuisines may suffer or prosper at the whims of the consumer.
The question of longevity:
• Take Mexican cuisine in the UK, Langton previously found that eight Mexican chains had lost around £13.5m annually and had accumulated losses of £74m. It looks like a disaster area
• Since Mexican is more of a fringe food in the UK, changing consumer tastes have led to a challenging market for the operators.
• However, some recent trends may turn out to be ‘eternal’. For example, the move towards veganism is a trend that looks set to continue as consumers get more active about the environment.
The impact on capex:
• Langton, decades ago, commented on the video rental industry. It said that, since the hiring of videos fell some 90% plus in the three months following release, why should the cassettes be depreciated in a straight line over ten years?
• The rationale being, no matter how long the product (or the restaurant refurb) lasts, if it is shunned by consumers after the first 24, 12 or 6 months, then it may have to be scrapped.
• That could put EBITDA, which takes no account of the impact of capital spending, in a whole new light.
• Setting up an axe-throwing business on a shoestring may not be possible. Spending hundreds of thousands of pounds on capital to facilitate trading, maybe should be carefully thought through
PUBS & RESTAURANTS:
• City Pub Group issues slightly cautionary profit update.
• The City Pub Group has updated on trading saying that its 47 premium pubs across Southern England and Wales saw total sales rise by 31% on the prior year as a whole with LfL sales up by 1.7%. The company says ‘the board is pleased with the overall performance of the Group for 2019.’
• City Pub Group says ‘having traded well over the majority of the year, frustratingly, a number of one-off factors combined in the latter part of Q4 which subdued trading over the important festive period. The Rugby World Cup did not have the impact that we expected. Political uncertainty culminating in the December Election held back sales until the result was known and unhelpful weather during November and December dampened trading further. There were also disruptions on South West trains throughout December due to industrial action, which had an impact on our London Estate.’
• City says 2018 Christmas provided tough comps. It says ‘adjusted EBITDA (before exceptional items) for the year ended 29 December 2019 is now expected to be slightly below market expectations at between £9.1m and £9.2m, approximately 15% ahead of the prior year.’
• City says ‘we remain confident in delivering continued growth and performance in 2020 and beyond.’
• Dutch company Takeaway.com has won the battle for Just Eat with a £5.9bn all-share offer. The merged entity will create one of the world’s largest meal delivery companies.
• Lidl has said that sales rose by 11% over Xmas. Sales of alcoholic drinks were especially strong. Wine sales were up 20%.
• Per MCA, 24% of consumers said they were drinking less alcohol compared to the last six months, with nearly a third saying the price of alcohol had forced them to cut back.
• KAM Media has suggested that 18% of customers would be prepared to pay more for a low or no-alcohol drink than they would for an alcoholic drink. It is perhaps less surprising that 63% of consumers would expect such drinks to be cheaper. Given the way that alcoholic drinks are taxed, this is perhaps understandable.
• KAM Media reports that 35% of the 1,000 consumers that it interviewed said that they would be ‘willing to pay more for an ‘adult’ soft drink, such as ginger ale, kombucha, etc. over a more traditional soft drink such as cola or lemonade.’
• Investment company Imbiba has invested £1m into hospitality tech business ‘Wireless Social.’ It reports that ‘Wireless Social is the UK’s leading guest Wi-Fi provider. Having operated in the hospitality sector for over six years the business now works with over 4,000 client brands & businesses in the UK and US.’
• Imbiba reports that the specialist technology developed by Wireless Social ‘is now embedded into the daily operations of many leading brands, such as Heineken, Carluccio’s, Young’s, TGI Fridays, Bella Italia, Frankie & Benny’s, Revolution Bars, Leon, Itsu, and Wagamama.’
• Further to our comments last week, the FT has run with the story that property agent Colliers International believes that over a half of companies undertaking CVAs in the 2016 to 2019 period have subsequently collapsed.
• This despite the paid work done by the companies in question and their advisors to shore up the company and cut costs, often at the expense of staff, landlords and other creditors. Colliers gives the examples of Toys R Us and Jamie’s Italian. Colliers says CVAs ‘are a sticking plaster on a life-threatening ailment. They look to shave costs in a business and in this trading market the real issue that distressed businesses face is that they don’t generate enough revenue.’
• MeatLiquor has told Propel that sales are ‘well ahead of last year’ and that the company is eyeing expansion. Co-founder Scott Collins says that revenues this year (to June 2020) should be more than £18m. Collins said the company was also keen to add to its 11-strong portfolio, with a search for more locations under way.
• Beales, the department store chain that started trading in 1881, has said that its 22 stores could be at risk if it cannot find a buyer for the business. The BBC reports that it is in talks with two potential buyers, a ‘rival retailer and a venture capital investor.’
• Springboard reports that high street footfall was lower over the Christmas period than it had been the year previously. The decline represents the eighth December in a row where overall footfall fell. Once again, heavy discounting associated with Black Friday and Cyber Monday brought sales forward from Christmas into November.
• A small sample, admittedly, but the town centre & high streets in York were deathly quiet over the weekend.
• Brewhouse & Kitchen reports wet and dry LfL sales were up 7% over the Christmas and new year period.
• Ei Group’s monthly supplier ‘Open Morning’ sessions have seen over 100 suppliers give 20-minute pitches over the last 18 months. Those that have been successful include a range of brewers, snack manufacturers, spirits producers, catering equipment providers, and POS and menu suppliers.
• Halo Burger, a plant-based fast-food brand, will open a second London site in Shoreditch later this month.
• Carlsberg Nordic will replace the Carlsberg’s existing 0.0% beer.
• Per solicitor Poppleston Allen, ‘The London Borough of Redbridge’s Licensing Committee approved the introduction of the Late Night Levy (Levy) last night, 9th January 2020, with no exemptions’. The levy is expected to be implemented on 1st May 2020.
• Benuga has won a 10-year £60m London Zoo contract to operate five restaurants and cafes around the site.
• The vegan confectionary brand, LoeRaw has raised investments from the backers of Beyond Meat, Blue Horizon Ventures.
• HK bars and restaurants have seen sales plummet due to the fall in tourism numbers following turbulence in 2019.
• Tdn2k in the US has called December trading (down 2.1% LfL) ‘abysmal’ and says that, despite Thanksgiving being partly responsible, they still suggest an ‘uncertain’ start to the current year.
HOLIDAYS & LEISURE TRAVEL:
• Travel Weekly has reported that the industry has begun to recover from Brexit uncertainty and the fall-out from Thomas Cook.
• The Post Office reports that the bounce in Sterling is making overseas holidays markedly cheaper. The ONS towards the end of last year highlighted holiday costs as one of the factors putting upward pressure on prices across the economy.
• STR says December occupancy for London hotels fell. It says supply was up 2.1% but demand rose by only 1.1%. Occupancy was down 1.0 percentage points. Rate was up 2.6% and REVPAR was up by 1.5%.
• STR reports that US hotels increased occupancy and rate in the week to 4 Jan. It says that REVPAR rose by 4.3%.
• London’s Crossrail is now expected to be fully operational only in mid-2022.
• More than five million passengers travelled through London City Airport last year, making it the busiest year for the airport.
• Amsterdam has introduced a tax on tourist accommodation including holiday rentals on January 1 on top of the city’s existing tourist tax.
• The Australian wholesaler, Excite Holidays has ceased trading.
• Sky reports Flybe has declined to update following media comment that it is in survival talks less than a year after being bailed out by a Virgin Atlantic-led consortium.
• William Hill has updated on full year 2019 trading saying that it was ‘a year of transition’ and that profit is ‘ahead of expectations.’
• Wm Hill says ‘the Group’s full-year adjusted operating profit for 2019 from continuing operations is expected to be in the range of £143m to £148m, ahead of market and management expectations, driven by favourable sporting results through the year end.’
• The company says the retail business has been stronger than anticipated with online growing broadly in line with previous trends. CEO Ulrik Bengtsson says ‘the Group has delivered a strong operating performance, ahead of our expectations and against a challenging regulatory backdrop. We made good progress on a number of fronts, including our Retail business, Online and in the US, enabling us to deliver on our long term strategic ambitions. We look forward to building on these efforts in 2020 with a strong focus on customer, team and execution.’
FINANCE & ECONOMICS:
• The Telegraph reports that ‘Boris Johnson’s election triumph has sent business confidence rocketing to a record high.’ It reports a Deloitte survey as saying that ‘top finance directors reported the biggest jump in confidence on record during the fourth quarter after the election broke the Brexit deadlock and ended the threat of a far-left government.’
• Deloitte says confidence is now at the highest level recorded during the 11 years in which it has conducted this survey.
• Another Bank of England MPC member, Gertjan Vlieghe, has said that he will consider voting for a rate cut if economic growth does not pick up.
• The US economy added fewer jobs than expected in December. It added 145,000 remunerated positions compared with 250,000 in November.
• Sterling lower at $1.303 and €1.1706. Oil lower at $65.06. UK 10yr gilt yield down 4bps at 0.78%. World markets modestly lower on Friday but Far East higher in Monday trade.
• The head of MI5 has said he does not expect the UK’s relationship with America to suffer if Britain uses Huawei technology in its 5G infrastructure.
START THE DAY WITH A SONG:
Friday’s song was Sail by Awolnation. Today, who sang?
The headmaster’s had enough today
All the kids have gone away
Gone to fight with next door’s school
Every term that is the rule
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): There was a ton of Retail news for the Saturday papers to chew over and the best coverage was probably the double page spread in the Times: on the Joules profit warning, the strong performance of JD Sports, the sluggish sales report from B&M, the decent 5% sales growth reported by Selfridges and the impressive 11% growth reported by Lidl UK. The main focus, however, was on the Superdry profit warning and the Times had a couple of articles about it, including a photo of CEO Julian Dunkerton on holiday with his wife in the Maldives over the New Year. The Business editorial in the Times noted that the Superdry FD was also allowed to swan off on a three week holiday to New Zealand last month and mocked the fact that Julian Dunkerton was so bullish in October that he had rescued Christmas for Superdry, whilst the Times also thundered that “Mr Dunkerton
• Saturday’s Press and News (2): In other news, the Guardian had a scoop that Asda has begun consultation on removing as many as 2,832 back-office store jobs, as part of a big cost-cutting drive. The John Lewis Partnership was also in the news, with the Telegraph flagging that it may sell freehold properties to improve its balance sheet, whilst the Daily Mail highlighted that Waitrose has lost its Shop Trade Director, Mark Gifford. And the FT market report noted that Watches of Switzerland was hit on Friday, as its former private equity backer Apollo took advantage of the recent rise in the share price to dump 33m shares at 360p.
• Saturday’s Press and News (3): In terms of features, the Guardian had a review of “Tinsel and turkeys”, ie how retailers fared over Christmas, with M&S and John Lewis seen as losers, inter alia, and Next and Dunelm seen as winners. The Telegraph had a feature on the problems of the John Lewis Partnership, ahead of the arrival of Sharon White as Chairman next month, quoting our view that clouds are gathering above Waitrose too, given the cost of the upcoming battle with Ocado/M&S Online. The FT had a feature on Christmas trading, flagging that “Retail sector’s squeezed middle feels pain”, highlighting the success of the likes of Lidl and Selfridges at the expense of the likes of M&S and Superdry and noting the disastrous impact of Black Friday on trading in December. And the Business editorial in the Daily Mail looked at “A tale of two High Streets”, noting that despite
• Sunday’s Press and News (1): The problems of the John Lewis Partnership were the main focus in the Sunday papers, with the Mail on Sunday quoting our view that profits at John Lewis itself could be as low as £30m this year and that the collapse in the profitability of John Lewis is the reason why the Partnership Bonus has been mostly blown away. The Sunday Times ran a front page Business story that the John Lewis MD Paula Nickolds has left with a one year pay-off, despite claiming that she was unhappy at being “demoted” to be Head of Brand in the new management structure, and it had a separate background article headlined “John Lewis…never knowingly in such trouble”. The Business Leader column in the Observer looked at the management vacuum at the top of JLP and thundered that “John Lewis top brass leaves its partners and customers seriously underwhelmed”, whilst the Business
• Sunday’s Press and News (2): In other news, the Sunday Times flagged that the struggling Beales department store chain is racing to secure a rescue deal to avoid collapse, but that the owner of the struggling Snow & Rock and Cotswold Outdoor chains is confident that the business is still a going concern. The Sunday Telegraph highlighted that the shopping centre business Hammerson is being targeted by short sellers again, but, on a happier note, it also had a feature on the turnaround of Homebase , thanks to the “one-stop shop” plan of MD Damian McLoughlin. The Mail on Sunday had a feature on the controversial Retail entrepreneur Philip Day, highlighting that he has lined up a prime West End site for a London HQ and flagship store for his upmarket Jaeger brand. In terms of previews of this week’s news, the Sunday Times flagged that the City expects Boohoo to be “crying
• News Flow This Week: After the flurry of news on Thursday and Friday, things quieten down a bit in terms of company news this week and there has been no real news today (although Heathrow has announced a strong December for passenger traffic (+3.1%), which will boost WH Smith, whilst the embattled Joules has announced a logistics deal with Clipper Logistics). Tomorrow brings the Boohoo trading update, the Games Workshop interims and the DFS trading update. Then Thursday brings The Works interims, the ABF (Primark) update, the Halfords Q3, the N Brown Q3 and the Signet (US) update. Friday brings the ONS Retail Sales for December.