High Street, finance, new normal, Carnival, the consumer & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

I must have dropped a morsel of food from the dinner table some time in 2012 and, as a result, the dog has laid in the same spot for eight years waiting for me to do so again.

And, much to his disgust, I haven’t – or rather I should say hadn’t because, over the weekend, a gravy covered potato skidded off my plate, did that slow motion thing where it bounced of my trouser leg and then, bam, it was in the dog’s mouth.

So, like a cricketer in the slips with the openers on 180-0, his persistence paid off and, in his tiny little brain, all sorts of self-congratulatory fireworks must have been exploding because it was all he could do to stop himself from doing a victory lap of the living room before he got down to the serious business of waiting for the next bit of food to head in his direction.

Hence, with yesterday’s introduction in mind, whilst he thinks now that patience is indeed a virtue, he needs to be told that a rolling stone gathers no moss. Follow us intra-day on Twitter (@brumbymark) and see yesterday’s tweets at the foot of the email. 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.

SEE PREMIUM EMAIL.

• Signs that the politicians ‘get it’.

• Changing shape of the High Street.

• Seasonal issues & Covid-19.

• Analyst comment

DO POLITICIANS REALLY GET IT? Or do they think that getting ‘back to normal’ will be as easy as flicking a switch? 5 May 2020:

Bish, bash, bosh. Job done?

It’s easy to imagine that politicians do not comprehend the scale of the task facing the hospitality industry when it tries to get back to anything like what used to be called ‘normal’. 

• And that may be pretty much the case but there are a few positive signs.

• As mentioned below, some 85 Conservative MPs have written to Chancellor Rishi Sunak to call for an extended package of support measures to be made available for hospitality and tourism businesses.

• The letter calls for extended business rates support, VAT rebates and an adaptation of the furlough scheme to allow a partial return to work.

• There may be some ‘playing to the gallery’ going on here. The MPs, after all, are promising magic money from one third party to a bunch of other third parties but, with trading currently suspended, the sector may have to take its good wishes where it can find them.

• And Ed Miliband made a half-way decent request of business secretary Alok Sharma when he asked him to confirm that he would put some sort of smoothing mechanism in place.

• Mr Sharma declined to do so. But politicians are past masters when it comes to stealing each other’s clothes and it is to be hoped that Mr Sharma’s civil servants are on the ball.

The hurdles faced in order to achieve a political solution:

• This seems to be pushing in a sensible direction.

• But there needs to be the political will to do something to help.

• This will be faster transition of the money already ‘promised’ alongside some major smoothing so that the sector doesn’t suffer a fatal shock when it tries to get back to work

• And then the promises need to be enacted. Not, perhaps, like the ‘£330bn of government support’ mentioned in the early days. This may take some political guts as the costs will be significant.

• Finally, we need the UK to still have a functioning tax base and / or government debt market in order to be able to fund the support.

THE CHANGING SHAPE OF THE HIGH STREET: Much will be changing at the moment due to the coronavirus shutdown. But LDC comments on trends last year & has the following to say. 5 May 2020.

• The Local Data Company has updated on the shape of the UK retail industry saying that some 54,052 units shut last year and 44,883 opened. The gap, a negative 9,169, widened from negative 7,550 in the year before. The vacancy rate has edged up from 11.5% in H2 of 2018 to 11.7% in H1 last year and to 12.1% in the second half of 2019.

• CVA activity slowed somewhat. Approximately 2,594 units shut as a result of CVAs in 2018 but this fell to 2,018 units last year. Net new ‘leisure stock’ coming on to the market fell sharply from 1,040 units in 2017 to 883 units in 2018 and then to only 65 units last year. The long lead time from inception to the opening of units means that the decision to slow supply took place perhaps a couple of years ago.

• The LDC reports on the most prolific new openings by genre and also updates on which unit-types are closing.

• Barbers shops, male grooming, were the biggest takers of units at +782 nationwide last year. Beauty salons took 473 units, cafes 275, nail bars 250 and health shops a further 205. None of the above can be disaggregated by the internet.

• Unlike the following unit-types. The ‘losers’ in terms of site numbers were estate agents, down 827 units, bookies, down 459, chemist’s shops, 455 lower, travel agents, down 411 units, banks, down 403 and pubs, down 393.

• LDC comments on the types of restaurants opening (at least during last year) saying that there were 30 vegan restaurant sites, 23 Korean food outlets, 21 serving African cuisine and 17 Nepalese units.

KEEP AN EYE ON SEASONAL FACTORS. Losing December is a bigger deal than losing February. Where are we with seasonality?

Pubs and restaurants:

• December is the best month, January, February and November are amongst the worst. Summer is good for beer gardens.

• So, when looking at the lockdown to date, we’ve excluded the outliers at both the good and the bad ends of the spectrum.

• But the shutdown could drag on – and the ‘good months’ of the summer could be a virtual miss with even Christmas far from certain.

• Pubs have lost a very warm Easter and they are about to lose two Bank Holiday weekends.

• Hospitality in general had a far from good Valentine’s Day, a poor Mothers’ Day and has missed Easter. In a couple of weeks, it will miss Half Term.

Any good news?

• It really is like looking for a modest silver lining in a rather big cloud but staycations will be on the up – if only because holidays including a plane ride will be on such a downer. Nonetheless, this should benefit domestic venues

• Spain is talking about allowing the use of outside seating before it allows diners to eat indoors.

• The sunshine here isn’t as reliable but at least the partial re-opening could be over a period of relatively good weather

Other operators:

• Cinemas will not be amongst the first venues to reopen. Film studios (as Universal has just done) may bypass them & go straight to the small screen.

• The latest James Bond film is due for release in November.

• Hotel Chocolat concedes that it missed Easter – though it does say that its online business has seen strong growth

• The holiday companies, truth be told, are in a very tight spot. Time and tide will wait for no man.

ANALYST COMMENT: Industry analyst Peter Backman has updated on his views re the industry. 5 May 2020:

A three-stage event:

• As mentioned briefly below, analyst Peter Backman has suggested that the impact felt by the foodservice industry from Covid-19 could fall into three stages. The first is the lockdown, the second is the stage between the lifting of the lockdown and anything approaching normality and the third stage could be the ‘new normal’.

• Backman says that ‘the first moment of truth will arrive at the end of June when rents are due. In March, a large percent went unpaid: will those landlords who were somewhat understanding last time, remain so?’ This is somewhat unlikely as landlords have bills to pay too.

Corporate failures?

• Backman comments on the number of companies, particularly those that had undertaken CVAs in 2018, are currently calling in advisors.

• This could be and often is a precursor to appointing the same advisor as administrator.

• This after an attempt to refinance or sell the business, both of which are difficult in this market – and especially so for a company that may have what we have previously referred to as ‘comorbidity issues’.

The moment of truth:

• One of the biggest questions is ‘do restaurants risk opening when they don’t know what the demand is going to be?’

• This will depend partly on what the choice is. Is it to keep the staff on furlough or will furlough be stopped? In the latter case, operators may have to open even if it is only to mitigate losses rather than to actually make a profit.

• Backman says the third stage, the ‘happy one when the threat from the virus is extinguished’ may be ‘many months, probably years away, and a lot of damage will have been done.’

Other courses of action:

• These are limited but are essentially 1) life with reduced covers, 2) delivery and 3) takeaway.

• Backman says the performance of delivery ‘has not been stellar since the lockdown – it has certainly not emulated the growth of retail delivery.’

PUB & RESTAURANT NEWS:

Government and other aid:

• The BBPA has said that ‘pubs [are] in desperate need of access to finance now, with 75% still waiting on loans and more than 50% yet to receive grants.’ It is urging the faster delivery of the Government backed loans and grants

• The BBPA has surveyed its members and finds that ‘thousands of the UK’s pubs are being left without the financial support they have been promised to get them through the COVID-19 lockdown, leaving many under intense strain and in real jeopardy of closing.’ It says 58% of leased and tenanted pubs were yet to receive a £10,000 grant they were eligible for and 61% of pubs hadn’t yet received a £25,000 grant they were eligible for. The payment here has been patchy across local authorities.

• Only 25% of applicants for government backed loans have been told that their applications have been successful. Individual pub lessees have had even less success with only 11% of them so far being told that they will be able to access loans.

• The BBPA’s CEO Emma McClarkin says ‘more than half of pubs are yet to receive the grants they are eligible for and 75% are still waiting on a decision on the Government backed loan they have applied for. Pubs and breweries have large costs to cover, so they are experiencing significant cash flow issues. How can the Government expect them to survive the COVID-19 lockdown without this vital financial support?’

• It says ‘if the Government doesn’t take decisive action now to both widen and speed up the delivery of grant payments and their loans, then pubs and breweries are at real risk of not surviving the lockdown and jobs will be lost across the UK’ and concludes ‘the UK’s 47,000 pubs urgently need the support they have been promised. The Government must deliver it now.’

• Some 85 Conservative MPs have written to Chancellor Rishi Sunak to call for an extended package of support measures to be made available for hospitality and tourism businesses.

• The letter calls for extended business rates support, VAT rebates and an adaptation of the furlough scheme to allow a partial return to work. This seems to be pushing in a sensible direction but the key problems and issues will be 1) the political will to continue supporting some but not other sectors and 2) the financial ability, drawing from a reduced tax base, to be able to do so.

The new normal:

• Pragma Consulting says that some F&B operators ‘are adapting in the short-term through switching to a purely takeaway and delivery service’ whilst others are ‘focusing efforts on trial re-openings.’

• It could be that there simply isn’t enough money in delivery and takeaway for businesses with a predominantly dine or drink in business model to stay in business. Pragma points to re-openings of 100 KFC restaurants, a number of Pret sites and other grab and go outlets.

• It is not possible for dine-in restaurants and pubs to reopen although some are delivering to customers and many are using this as a way to stop much of their physical and mental machinery from rusting up.

• Pragma (and many others) point to the difficulty of making a decent return from a unit where customers have to try to keep 2m distant from both each and from staff. Pragma says ‘it is uncertain when non-essential retailers and eat-in restaurants will be able to reopen in the UK, and once the case, it will likely be a slow road to recovery to `normal’ levels of trading, as lockdown measures are gradually lifted. Consumers will likely remain cautious and show resilience for some time and consideration must be given to how quickly full store and restaurant portfolios should reopen.’

• Analyst Peter Backman has suggested that the impact felt by the foodservice industry from Covid-19 could fall into three stages. The first is the lockdown, the second is the stage between the lifting of the lockdown and anything approaching normality and the third stage could be the ‘new normal’.

• Backman says that ‘the first moment of truth will arrive at the end of June when rents are due. In March, a large percent went unpaid: will those landlords who were somewhat understanding last time, remain so?’ This is somewhat unlikely as landlords have bills to pay too.

The consumer:

• It’s perhaps easy for us to concentrate too much on the supply side. How can restaurants cope during the lockdown, how will pubs restock their cellars etc.? But it may, ultimately, be consumer rather than supplier behaviour that determines the longer-term impact of Covid-19.

• The Bank of England reports that households turned against debt in March, both to fund house purchases and to boost day-to-day spending. Households made net debt repayments of £3.8bn on the month.

• The government is now paying up to 80% of the wages of the wages of 6.3 million workers under its furlough scheme at a cost of £8bn. This averages out at £1,270 per person, per month, which seems a little low. That would equate to 80% of a salary of only £19k against an average salary in the UK of around £29k. Langton had a guestimate of around £40bn for the 3mth minimum period that the furlough will be in place.

• Just how the above will impact customers is unclear. Tips are not covered. Employers may or may not be making the 80% up to 100%. Consumers (workers) may therefore be moving gently backwards in terms of savings and they may have to cut back on some spending going forward.

• And the above number does not include out-and-out redundancies. British Airways, various shop chains that have called in administrators, Ryanair and Rolls Royce have all announced staffing reductions.

• The TUC is warning that it may oppose a return to work unless staff (and presumably commuters) can be offered some protection. TUC boss Frances O’Grady says that her body cannot back government advice in its ‘current form’.

• We will get details of the UK’s proposed exit from lockdown on Sunday. We are beginning to see the first moves from Italy, Spain, Ireland and others.

Company news:

• In the US, Denny’s Corp has announced that LfL sales were down by 76% in April. The company says ‘the COVID-19 pandemic and various related government mandates restricting dine-in restaurant service have continued to disrupt domestic and international operations for Denny’s Corp. and its franchisees.’

• Texas Roadhouse in the US has reported that ‘for the January, February and March periods, comparable restaurant sales at company restaurants increased 8.0%, increased 4.2% and decreased 29.7%, respectively.’

• The company says ‘the March period was negatively impacted by the onset of the COVID-19 pandemic. For the quarter, comparable restaurant sales decreased 8.4% at company restaurants and 8.5% at domestic franchise restaurants.’ CEO Kent Taylor says ‘I have no doubt we will emerge even stronger than before.’ The company says ‘during the March period, with the onset of the pandemic, all domestic restaurants transitioned from full-service dining to an expanded To-Go operating model over the course of several weeks which impacted average weekly sales.  For the period, comparable restaurant sales per week and the average weekly sales and To-Go sales for all company restaurants, were as follows:’

• Constellation Brands has increased its stake in cannabis company Canopy Growth to some 38.6% of the business.

Other news:

• Fiona Dickie commenced her job as the new pubs code adjudicator yesterday. The Morning Advertiser quotes her as saying ‘I am acutely aware of the stress and uncertainty tied pub tenants are facing at this time, and of the potential for a long-term impact on their businesses and their relationships with their POB of large rental debts from the period of lockdown. My involvement in promoting code rights as the industry pulls itself out of the impact of the outbreak will be sustained for as long as it takes.’

• The IHS Markit Services PMI for April is announced at 9.30am this morning.

• Down day yesterday with DP Eurasia, Flutter, Hostelworld, Marston’s down 5%, Gregg’s, Hollywood Bowl, Gym Group and Rank down 6%. Wizz Air was 7% lower, Cineworld down 8%, New River down 9% and SSP was 11% lower.

HOLIDAYS & LEISURE TRAVEL:

• The cruise line body CLIA has said that 61% of consumers who had never cruised before would be ‘very likely or likely’ to take a cruise in the next two years. That seems rather optimistic. The 61% is down from a figure of 71% in autumn last year.

• CLIA says this is ‘not a massive drop and so suggests that cruising is still robust. Once the time is right and people can travel again, this shows that people will cruise again.’

• Carnival Cruises, which is being investigated by the US congress over the way in which it dealt with disease outbreaks on its ships, had said it plans to resume services on 1 August. With fixed costs at the levels that they are, one can see why the company would say that.

• This morning, the company has announced that it has ‘issued the following update to our news release today concerning a further delay of operations for most of our fleet until August 31.’ It says ‘some of the media reports have not fully conveyed the contents of our previous media statement and why certain itineraries were not being cancelled. Carnival reiterates that this is our current plan contingent on a number of factors.’

• Carnival says ‘any resumption of cruise operations – whenever that may be – is fully dependent on our continued efforts in cooperation with federal, state, local and international government officials. In our continued support of public health efforts, any return to service will also include whatever enhanced operational protocols and social gathering guidelines that are in place at the time of the resumption of cruise operations. We are committed to supporting all public health efforts to manage the COVID-19 situation and will continue to keep our guests, travel agent partners and other stakeholders informed.

• The company’s P&O subsidiary has said that it is pausing operations in Australia and New Zealand until at least 31 August.

• Travelodge has asked its landlords for £146m of rent reductions over the next two years. The FT has seen a letter in which the group tells its landlords that it expects to lose some £350m in revenue this year with a slow recovery thereafter. A group of 82 landlords has reportedly written to the company rejecting earlier requests for a 50% reduction in rents. Travelodge is owned by New York-based Golden Tree Asset Management and Avenue Capital alongside Goldman Sachs.

• Investors in airline Norwegian Air Shuttle have supported debt-for-equity swap. This should open the way for state aid.

• Hotel company Loews has said that its hotel division lost $38m in Q1.

OTHER LEISURE:

• Ride Electric, an electric bike specialist in the North East of England, has launched a crowdfunding campaign to fund growth.

FINANCE & ECONOMICS:

• Accountant Deloitte has said that business confidence at British companies has sunk to an all-time low as a result of Covid-19.

• The head of the EU’s agency for disease control has said that the UK is one of a handful of European countries yet to lock in a downward trend in coronavirus victims.

• China has published a short cartoon poking fun at the US’s handling of the coronavirus outbreak. Several versions are available on YouTube entitled ‘Once upon a Virus’. It may do little to defuse trade & virus blame game tensions

• There were 1.8m additional claims for welfare payments in the UK between 16 March and the end of April says the government.

• Trade talks between the UK and the US will commence today. Observers say the deal could take many years to complete.

• New car registrations in the UK fell by 97% in April compared with the same month a year ago per the SMMT.

• Sterling stronger at $1.2462 and €1.1424. Oil higher at $28.27. UK 10yr gilt yield down 2bps at 0.23%. World markets mixed yesterday. UK & Europe lower but US higher. Far East mixed in Tuesday trade. UK market set to open up around 85pts.

START THE DAY WITH A SONG:

The song has been furloughed. See you on the other side.

RETAIL WITH NICK BUBB:

• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda win again, for the eighth week in a row, but by a much narrower margin. The overall Asda basket cost £69.22, with Tesco £1.24 behind, on £70.46. Morrisons was on £71.62 and Sainsbury was on £72.88, but Waitrose was miles behind on £83.02… The separate and newly extended Grocer “Mystery Shopper” weekly survey on Store Service and Availability was again won by Tesco, as its well-organised 36,000 sq ft superstore in South Queensferry in Scotland came top, with a huge 92 points out of 100, in a high-scoring week.

• News Flow This Week: The pace of Retail company news should be slower this week, ahead of the rescheduled Bank Holiday on Friday (aka VE Day) and today has been quiet, but tomorrow brings the Ocado AGM trading update, whilst on Thursday we get the Superdry pre-close, as well as the Howden AGM update, the pre-close from The Works and (in Europe) the Zalando Q1. And GFK will be issuing a “flash” UK Consumer Confidence survey first thing on Friday.