Trading, discounts, VAT, Azzurri, Pat Val, cruise holidays etc.:

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A DAY IN THE LIFE:

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CURRENT TRADING: Pubs, bars & restaurants have been open for a fortnight now. How is trade shaping up? 20 July 2020:

Introduction:

• Pubs, bars & restaurants, other than some late-night venues, reopened for business on 4th July. So, what’s happened?

Number & timing of openings:

• Firstly, they were given the option rather than the order to reopen. There have been a number of excellent surveys covering the number of units opened (see below and earlier emails) but it feels as though just a little over half of units have opened

• The low number (Young & Co initially said they would open in early August though it has lately said ‘we will be re-opening all of our pubs from Monday 20th July’) was something of a surprise as it was believed that units would race to open

• On reflection, it is a sensible move. Opening a half in the first fortnight, perhaps a half of what’s left the month after that and a half of the rest on an ‘as and when’ basis could be the way forward.

• For the mathematically inclined, the above leaves 12.5% (a purely arbitrary figure) whose reopening may not happen at all

• Restaurant Group, for example has shut a number of units permanently (along with Carluccio, Pizza Express, Casual Dining Group, ASK, Zizzi, the list goes on) and it says it will not be opening 10% of its retained units until 2021

Level of trading:

• There were few riotous scenes the first weekend. The Press, and they’re only doing what they do here, like action rather than boring, steady build) but there was little to write home about

• Trading, we perceive, was very mixed.

• Community areas and pubs (fewer commuters) did well, wet outperformed food, there were some units that benefited from the continued closure of competitor sites, etc. etc.

A few worked examples:

Community vs city centre:

• See the surveys for the broader picture.

• One mixed-site operator says community pubs have outperformed those in city centres. A few, typically those near commuter rail stations, have not reopened or are trading very poorly

• The view that outlets in residential and rural areas have done well is widely supported. One operator says ‘some previous dormitory villages will now have people working from home for the long term.’

• People are not travelling as far from home as usual. Furloughed workers are boosi

• There is some concern re the autumn & winter. January was mentioned by a couple of operators. Christmas is an unknown. More units will be open and beer gardens may be shut. There has thus far been a desire to stay outdoors (at least more than usual).

Costs & prices:

• Staff costs are higher.

• Price, at the moment, is not seen as the key determinant in demand. This may change as more pubs & restaurants reopen and competition intensifies.

• Most prices have been ‘nudged up’. For comment on VAT, see below.

• Several operators will review pricing after the summer.

Wet sales vs food:

• Comment that ‘initially drink has outperformed food, which was to be expected.’ There is some early evidence that food is coming back. Many customers are relieved not to have to cook. Here covers are well down but spend per head is up

• Many operators kept take-out going in order to keep the rust from accumulating on kit and staff. This has (probably) helped

Intentionally crowded venues:

• These have been hit hardest by the need to socially distance

• One operator says there is a ‘customer desire to avoid crowded places.’

Other comments and overall trading:

• Bowling alleys, gyms and the like will tell us about trading when they have been able to get some under their belts

• See the surveys but opening weekend sales were perhaps 50% to 65% of normal with big variances between city centres and residential areas

• Big nights can’t be big anymore because of distancing – but this is less of an issue for trading sessions such as Monday afternoon or Tuesday lunch. Hence ‘quieter’ periods might look stronger than the big nights

• Operators are understandably keen to identify an upward trend. It might be there if you look hard enough. But there probably isn’t enough data in yet.

• Welsh and Scottish operators are understandably frustrated

VAT cut:

• This is a big and divisive issue

• Cutters (Costa, JDW, Starbucks and many others, mostly large operators) have made a bit of noise about it whilst those that want to keep the VAT reduction in order to rebuild margins have been understandably quiet

• There are allegations of virtue-signalling from the one corner and greed from the other. Those alleging virtue signalling are particularly exercised about the cross subsidisation of alcoholic drinks, saying such operators should consider paying back their furlough cash and should not accept the retention bonus

• Our poll was not large enough to judge the overall market but we would estimate that most operators will keep some or all of the VAT reduction in the till

• Menu engineering and cross subsidisation may help some of those passing the cut on to maintain margins. JDW’s price cut for alcoholic drinks has come in for some criticism as the rate of tax was not cut for those products

• Some operators say they will gratefully take the extra income to pay for PPE and, in any case, they are reluctant to change menus and prices on a temporary basis

• The ‘priority #1 from the onset has been to stay in business.’ Many companies are still burning cash on a monthly basis

• Some operators say, simply, ‘we need the money’. They may look ‘at targeted promotions after the summer.’ Others may begin some discounting Monday to Wednesday. One says the bills can’t be paid by ‘likes on Instagram’.

• Whether or not to pass the cut on has divided some boards. Some will tweak but many maintain that price is not the issue at present.

• Much of any ‘windfall’ will simply go to pay accumulated VAT and rent bills

PUB & RESTAURANT NEWS:

Covid – the new (ab)normal:

• CGA and UK Hospitality’s latest Future Shock report says ‘consumers are returning cautiously to hospitality, but rigorous safety measures, industry collaboration and government support can speed the sector along the road to recovery.’

• It says ‘only one in six (16%) leaders are optimistic about the prospects of the market in the next 12 months. It also outlines the size of the challenge to bring people back to hospitality, with a quarter (23%) of consumers only returning to venues with caution, and a third (33%) only doing so if they are sure that added precautions were in place.’

• CGA says ‘the last four months has been the most difficult period of trading that most of us in the industry have ever seen.’ UKH’s Kate Nicholls adds ‘there is still a huge amount of graft to be done if we are to make it through this crisis in one piece, but if any sector can emerge stronger it is hospitality.’

• CGA’s latest Consumer Pulse survey suggests that ‘consumers are putting much more planning into their eating and drinking out since lockdown eased.’ It says there has been an increase in forward-bookings across the industry but says that no-shows have also risen sharply.

• CGA says 28% of consumers visited venues with no reservations in the 10 days after hospitality reopened on Saturday 4 July. It says visits are shorter than they were pre-Covid. CGA says that ‘5% of all adults in England have made a table reservation and didn’t turn up, without informing the venue’. It says that ‘another 5% made a table reservation, only to cancel – so among those who have gone out around one in six has failed to fulfil a reservation.’

• Some operators, such as Arc Inspirations, are demanding reservations with a non-refundable deposit. Indeed, CGA goes on to say: ‘the survey reveals an acceptance among consumers for mandatory deposits on pre-booking, in what may come as reassuring news to hospitality operators apprehensive about potentially putting off would-be visitors by charging up-front.’ It finds that ‘58% of English adults would be happy to pay a £5 per head deposit when making reservations, a figure that, surprisingly jumps to 78% for those consumers who had admitted to cancelling or not showing up for a reserved booking.’

• CGA says ‘the pandemic has triggered a seismic shift in consumer behaviour from spontaneity to planning.’ It adds ‘this has positive implications for operators who can provide a smooth booking process and great experience—but unfortunately it will also increase the number of no-shows.’

• CGA also finds that just over a third of English consumers returned to restaurants, pubs and bars in the first ten days of reopening.’ Consumers are staying closer to home, partly because they want to and partly because public transport is not yet thought to be running at a sufficient capacity to ensure that they can get home.

• The Observer gave space to ongoing concerns re no-shows.

• The Crown Estate is reported to have written to some tenants offering to move rents to a share or turnover. The Sunday Times says it has seen one such letter suggesting 9% of turnover, or a percentage of what it would normally receive in quarterly rents, on a scale starting at 0% for the current period and rising to 75% by next March.

• KAM Media reports on a number of trends that it has identified as emerging during lockdown including a move towards delivery and dining in (even for special occasions) and the move towards home working (and the consequential shift of revenues from city centre venues, once they were allowed to reopen, to those in community areas). More work, ordering, payments and billing will be done online than was the case in the past.

• Greene King is offering 20% off the price of meals to some customers. Domino’s is offering discounts based on order size and Pizza Hut is offering discounts to students. Greene King additionally says if customers ‘book a hotel stay online directly through Greene King Inns and you will receive 20% off food at our hotel restaurant throughout your entire stay.’ GNK says ‘simply book your hotel stay online and you’ll receive your voucher in your confirmation email. Bring this with you during your visit to receive 20% off food.’

• Discounting has not been deemed necessary across the industry to date as 1) not all units are open and supply is constrained and 2) most operators do not think that price is the deciding factor when consumers make their minds up either to come out or to stay at home.

• Councils in England now have the power to close venues on a local basis in response to spikes in Covid-19 infections. The Local Authority that decides to take action must review a direction given under these Regulations at least once every 7 days and withdraw/amend the direction as necessary.

• Face masks will not be compulsory in pubs per environment secretary George Eustice. They will be mandatory in shops and supermarkets from this Friday.

• The BBPA has welcomed the 1st August go-ahead for indoor performances to a live audience, small wedding receptions, bowling, casinos and other leisure activities. However, re the news that councils now have the power to shut down the on trade, it calls for safeguards to be put in place. CEO Emma McClarkin says ‘pubs must be properly consulted ahead of local powers being used or Ministerial decisions being taken to close down their businesses or restrict trading beyond the already agreed COVID-secure 1 metre plus mitigation measures.’

• Ms McClarkin says ‘any closure direction must be accompanied with a compensation package to support pub businesses held in lockdown. Local pubs have already been hit hard by more than three months of closure and are only now just at the start of their long road to recovery. Any further setbacks without additional financial support may lead to local pubs and local jobs being lost for good jobs.’

• A poll undertaken by MCA Insight & HIM has found that only ‘just over half [58%] of restaurant and pub businesses say they will participate in the Government’s Eat Out to Help Out scheme.’

• The Telegraph says that ‘the death of the commuter is an extinction-level event for London.’ It says ‘this was the week when the penny finally dropped. The prevalence of coronavirus may have collapsed across Britain, but we are not returning to our old, carefree ways for the foreseeable future. This will have immense, permanent consequences for our economy and way of life.’

• New York bars are to be banned from offering ‘walk up bar service’ says Gov. Andrew Cuomo. Patrons will have to be seated

Company news:

• Azzurri (ASK & Zizzi) has been sold to TowerBrook Capital in a ‘£70m prepack administration deal’ that will see 75 units close and 1.200 staff lose their jobs. The FT reports ‘Azzurri’s private equity owner Bridgepoint, which bought Ask and Zizzi for £250m in 2015, will lose the equity it invested, under the new deal.’

• Companies where we are awaiting news (where advisors have been appointed, where negotiations with landlords are underway etc.): Busaba, Byron, Gourmet Burger Kitchen, Pizza Express, Pret (talks with landlords), Prezzo, Wasabi and there may be others.

• The Sunday Times reports ‘liquidators to Patisserie Valerie are preparing to take legal action against Grant Thornton, which audited the cake-shop chain for 12 years until it collapsed because of suspected fraud.’

• FRP Advisory seems to believe there were ‘significant failings in its [Grant Thornton’s] auditing of Patisserie Valerie, which went into administration last year after the discovery of a £40m hole in its accounts.’ Any claim is said to be worth ‘tens of millions of pounds against Grant Thornton.’

• There has been no word on the criminal proceedings that were initiated over a year ago against a number of parties with regard to the firm’s collapse. The Sunday Times reports ‘Patisserie Valerie’s executive chairman was Sunday Times columnist Luke Johnson, who had a stake worth £165m when trading was suspended. He is a creditor alongside HM Revenue & Customs.’ It says ‘the [criminal] investigation is thought to be ongoing.’

• Creditors to Go Outdoors may get only 1p in the £1 says Deloitte.

• The Riley’s snooker hall chain owner has gone into administration. Four sites have been closed and 17 remain in operation for the time being

• Casual Dining Group has reopened a number of its concession sites situated at Center Parcs villages in the UK.

• Compass Group is reported to have said that it will not accept job retention bonuses from the government. Primark, John Lewis and Rightmove have made similar comments.

• Constellation Brands has acquired a minority stake in Booker Vineyard.

The consumer:

• The British Chambers of Commerce has said that a mass return to work is unlikely in the near term. It says its members need ‘crystal-clear official guidance’ on safety.

• The IoD has said ‘there is a significant amount of caution out there’. The BCC says companies should get tax breaks to re-open offices. The TUC has backed calls for more help for business.

• Working at home remains a reality for many millions of workers despite calls from government for workers to return to their workplaces.

• Sky reports that M&S will announce hundreds of job losses ‘within days’. The FT reports that universities are to cull ‘thousands’ of academic posts. The FT goes on to report ‘more than half of UK manufacturers expect to make job cuts over the next six months as large employers across automotive, aerospace and other core industries brace themselves for a sustained downturn in demand during the pandemic.’

Other news:

• Hugh Osmond is reported to be considering listing a cash shell in the UK. Sky says the listing could take place in New York.

HOLIDAYS & LEISURE TRAVEL:

• Royal Caribbean Group has extended its cruise suspension to October at the earliest.

• The conference and events sector can resume in the UK from October.

• BA has told thousands of cabin crew, ground staff and engineers that they have three weeks to accept redundancy or reapply for a job on lower pay.

• June airport activity across Europe was up on May but only ‘marginally’ reports ACI Europe. ACI Europe sees a return to 2019 levels of traffic only by 2024.

• The Department for Transport has confirmed that advice not to take ‘sea going’ cruises applies also to domestic cruises in UK waters.

• The BGTA reports that fewer than one if five corporate travel buyers expect to be paying for business trips in the next three months.

• Scandic Hotels has reported a Q2 sales reduction of 86%. It says ‘occupancy continued to rise as the summer vacation period started, but we’ve seen significant variations in the hotel portfolio.’

• STR comments on US hotels saying ‘room demand in the U.S. has grown steadily since its low point in April, but weekly data…shows that growth is slowing as more states are seeing spikes in coronavirus cases.’

OTHER LEISURE:

• Hollywood Bowl Group has announced that it will reopen all of its English centres on 1 August 2020. The company says it ‘will begin the process of un-furloughing its team members and will provide training on the new COVID-secure operating procedures.’ CEO Stephen Burns says ‘we welcome today’s announcement which will enable us to reopen all of our English centres on Saturday 1st August.’ He says the group’s units ‘are ready to reopen and we look forward to welcoming back our team members and customers who will once again be able to enjoy a safe and enjoyable entertainment experience.’

• Tik Tok’s reported plan to base its international HQ in the UK is said to be in doubt as tensions mount between the UK and China over Huawei’s 5G participation.

• Kobiton has reported that one in four apps is abandoned after its first use.

FINANCE & ECONOMICS:

• UK safety experts are asking that American cars be excluded from trade talks on safety grounds. There is concern that US vehicles have been engineered to protect passengers but not pedestrians.

• Sterling lower at $1.2524 and€1.10957. Oil down at $42.84. UK 10yr gilt yield up 3bps at 0.16%. World markets mixed. London set to open around unchanged.

START THE DAY WITH A SONG:

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

RETAIL WITH NICK BUBB:

• Today’s News: There have been no formal announcements from the embattled Boohoo this morning, but on Friday evening it published a letter the CEO had sent the Home Secretary about “Protecting people being exploited in UK garment factories”, backing the BRC move to create a licensing system for factories in Leicester and trumpeting that “we’re committed to playing our role in ensuring ‘Made in the UK’ is a label of pride”. Otherwise there has been no real new news out today, although the Irish-based motorway service station operator Applegreen (which owns Welcome Break) has published its Annual Report, along with a statement confirming its July 1st update that Q2 trading was ahead of expectations, but stating that the business might not survive another national lockdown if there was a second wave of the coronavirus…

• News Flow This Week: A quieter week kicks off at c8am tomorrow with the latest monthly Kantar/Nielsen grocery sales figures. There are a couple of AGM’s (Ted Baker on Tuesday and Kingfisher on Friday), along with a trading update from Hotel Chocolat on Friday, but the only company results scheduled are the Howden interims on Thursday, although the hapless Frasers Group (aka Sports Direct) is due to announce its finals soon and we are still waiting for the delayed McColl’s interims. The timing of the widely followed monthly GFK Consumer Confidence index is not as predictable as it used to be, but the latest edition should be out first thing on Friday, along with the ONS Retail Sales figures for June.

• Saturday’s Press and News (1): The headlines on the front pages of the Saturday papers were generally about the news that the PM has urged people to stop working at home and head back to the office, eg “Johnson urges return to the office” in the FT (which had an excellent article about the political “coronavirus blame game” in the Weekend magazine) and “PM: We’ll be back to normal by Christmas” in the Telegraph, although the Guardian took a more critical line with “”Normal by Christmas”: PM’s claim sparks row”. The Times, however, made a spirited entry for “The Most Bizarre Headline of the Year Award” with “Botham given peerage as reward for Brexit loyalty”…On the back pages, as it were, the big story in the Saturday papers was the return of Leeds United to the Premier League after a 16 year absence…

• Saturday’s Press and News (2): In terms of Retailing stories, the embattled Boohoo remained in the spotlight, with the Guardian highlighting that the company has written to the Home Secretary to call for a licensing system for UK clothing factories, whilst the Daily Mail flagged that the view of Credit Suisse that Boohoo should move more sourcing Overseas. The Times and the Telegraph noted that losses at the Iceland supermarket chain widened in y/e March, after a “sluggish Christmas”. Several of the stockmarket reports highlighted the useful increase in the Homeserve share price on Friday after its reassuring trading update, as well as the rally in the AO.com share price after the share buying by founder John Roberts. The Daily Mail had an investment feature on Tesco, flagging that the share price may do better under the new CEO Ken Murphy than under Dave Lewis. Finally, the Guardian
and the Times both had prominent articles about the closure of c75 Ask and Zizzi restaurants with the loss of 1200 jobs.

• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were mostly about the continuing row with China: the Sunday Times led with news about the Chinese social media giant TikTok (“TikTok shelves plans for global HQ in Britain”), whilst the Observer went with “Pressure from Trump led to 5G ban, Britain tells Huawei”. The Sunday Telegraph, however, ran with a line from an “exclusive” interview with the PM to mark one year in office: “Johnson: we will not need another national lockdown”.

• Sunday’s Press and News (2): In terms of Retail stories, the Sunday Times Business section maintained its recent focus on the poor working practices in clothing factories in Leicester by flagging that Boohoo had bought a site in Leicester to build a “model factory” before the recent row erupted and that it uses Leicester suppliers for “speed, not price”. However, the Sunday Times turned its main guns on the shadowy EWM retail group run by the controversial entrepreneur Philip Day, highlighting the devastation to a clothing factory in Hungary caused by a cancelled order (“Woollen tycoon lets suppliers feel rough side”) and the weakness of EWM Group in having little Online business. The Sunday Times also flagged that JD Sports boss Peter Cowgill faces a shareholder revolt at the upcoming AGM and that Ted Baker is set to lay off at least 500 staff, although it gave more prominence to a
story that Harvey Nichols is also set to make redundancies. The Mail on Sunday highlighted that although the kitchen trade business Howden hasn’t said much about recent trading, ahead of its interims on Thursday, the City expects it to be taking market share. And the Mail on Sunday had a feature interview with the former Greggs boss Ken McMeikan, who is now head of the biggest motorway service station group, Moto, in which he called for a VAT cut on fuel “to help get Britain moving again”. 

• Sunday’s Press and News (3): In terms of all the Economics columns in the Sunday papers, we would as usual highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“How Covid and Brexit put the kibosh on investment”), in which he focused on the neglected topic of falling business investment (and also highlighted some ideas used by retailers in the past to attract footfall), as well as the column by the Observer Economics correspondent Philip Inman (“Johnson is asking Santa for a Christmas recovery”), in which he said that there is little chance of the economy staging a full recovery by the middle of the decade, let alone by Christmas, as the PM believes is possible.