Langton Capital – 2020-08-13 – PREMIUM – Extending EOTHO; discounting by another name? Tracker, TUI, GVC etc.:
Extending EOTHO; discounting by another name? Tracker, TUI, GVC etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Working From Home is great but, as mentioned yesterday, one’s deliberations are likely to be interrupted by emergency runner bean watering sessions and, as it turned out on this occasion, tasks such as making dog biscuit & gravy lollipops for the mutt.
These were in the freezer for ages (a ‘watched pot never boils’ in reverse) and, when they were shown to the dog, he very much approved.
In fact, he crunched up and swallowed one whole, wooden stick and all and the second, which thankfully didn’t have a stick on, was swallowed without even touching the sides of his throat.
This must have caused some gastric issues but, as it was a ‘food now, problems later’ kind of issue, the dog was OK with it and he spent the rest of the afternoon lying in the shade and occasionally frowning curiously and lifting his leg to break wind as his stomach gurgled.
Anyway, a cooler day today, we’re told. On to the news and follow us on Twitter at @brumbymark.
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EAT OUT TO HELP OUT: A fantastic boost to business – but will discounts be extended into September? 13 Aug 2020:
The impact to date:
• This will vary across unit types. Shuttered units, delivery and takeaway see no benefit. Wet led units will only be able to voucher soft-drinks and high-ticket venues may see the whole thing as rather marginal.
• But in the mainstream casual dining market, the impact of the scheme to date has been profound.
• Week One saw talk of doubled Monday’s with Tuesday and Wednesday similar. There was a bit of cannibalisation, but the weekend (helped by the weather) was quite good and the week as a whole was ahead of last year.
• Week Two say FOMO kick in and some operators talked of trebled early week sales. This, even if it is aided by warm weather, a temporary taxpayer boost and the continued closure of some rival units, is great.
• Week two, with storms to come at the weekend, could still be above the same week last year.
• This has understandably led some operators to consider whether they could, should and would extend the scheme into September out of their own pockets.
• There’s a slim chance that the Chancellor could extend the scheme into September at the expense of the taxpayer.
• This could be spun as an attempt to boost the grey market. There is some anecdotal evidence that the grey market has remained cautious and that the boost to date has been helped by families.
• With the kids back at school next month, an attempt could be made to persuade a different segment of consumers to come out and spend
• The cost of the scheme is low at present. It may cost the taxpayer £250m or so this month.
• Discounting is a complicated area.
• If it is driven by weakness (a crowded market with little differentiation), then it can perpetuate lower margins
• If it is targeted at driving marginal sales, increasing the size of the market as a whole and could hurt weaker competitors, then it may be deemed a ‘good’ thing
• The absolute sweet spot is where a well-funded, differentiated operator with high margins and high potential incidental (non-discounted) spend can drive truly marginal sales in order to both grow the market and take market share
• The drop through to profit in the short term would be considerable and the benefit in the longer term, if competitors went out of business, would be greater still
• Without getting too granular about it, it will favour low-protein dishes, particularly low-meat as the margin on veg (including wheat, dough, pizza bases etc) is much, much greater than it is on steak (or even burgers and chicken)
JULY BUSINESS SALES TRACKER:
• Coffer Peach’s Business Tracker for July shows that Britain’s managed pub, restaurant and bar groups 50.4% on the same month last year in terms of LfL sales.
• The Tracker comments that ‘all parts of the market recorded trading well below July 2019 levels, but restaurants and bars and the London market struggled most.’
• By deduction, pubs, and particularly community pubs, performed relatively well. Wet-led units will have outperformed food-heavy sites (although the above numbers were recorded before the Chancellor’s Eat Out to Help Out scheme came into effect).
• Across pubs, wet sales were down 41% with food sales (pre EOTHO) down 48%.
• Some 76% of units tracked have reopened.
Pubs v Restaurants:
• Bearing in mind the above re EOTHO, the Tracker says pub LfL sales were down 44.7% over the month with restaurant groups down 59.8% and bars down 63.3%.
• Some 94% of managed pubs tracked have reopened but only 62% of bars and 36% of group-operated restaurants are ‘back in business.’
• This could be skewed by the heavier presence of restaurants (vs pubs at least) in travel hubs, shopping centres and the like.
• CGA says ‘even before lockdown the casual dining boom had stalled and a number of groups were closing sites and restructuring.’
• It says ‘the COVID crisis looks to have accelerated that trend, and it is unclear how many of those group-owned restaurants will eventually reopen, certainly under current ownership.’
• Some commentators consider that between a quarter and a third of sites may not reopen.
• Coffer Corporate Leisure comments: ‘the restaurant sector, already under severe pressure pre-COVID has been decimated by the lockdown. The pub sector has proven to be more resilient as expected and is now bouncing back strongly in many areas.
• The Tracker holds that ‘London trading [pubs, bars & restaurants] was down 58.3% in July, with outside the M25 down 48.5%.’
• CGA says London ‘was hit earliest [and is] still struggling to gain traction.’ It’s not just timing here. If London was first in, it perhaps should have been first out but, with commuter levels well down, the Capital is finding the going tough.
• CGA says ‘the figures are a reflection of the fact that reopening of sites has been gradual, and not all by any means are back in business, plus those that are open are in general trading at well below normal levels.’
• The Tracker says ‘delivery accounted for 13.1% of sales among the casual dining groups in the Tracker cohort in July, up from 7.4% in March when the effects of COVID were first felt and 5.9% in February.’
• It says: ‘the growth in delivery has been a marked feature of lockdown, and is likely to remain an important sales component for those food-led businesses that make it through.’
• Coffer Corporate Leisure says ‘despite the fanfare over the July 4 reopening date for hospitality, in reality trade is recovering slowly.’
• CGA concludes ‘these total sales figures for July give us a clear picture, however, of how far the market still has to go to get back to pre-COVID levels of sales and also highlights the areas that remain under severe pressure, especially as working from home continues and footfall in city centres, and in particular central London, remains well down.’
PUB & RESTAURANT NEWS:
• Alix Partners has reported that 62% of Britain’s licensed premises had reopened their doors by the end of July, following the lifting of COVID-19 lockdown restrictions.
• It says ‘the pattern of reopening has been uneven across different segments, with pubs resuming trading ahead of restaurants, and sharp regional variations, with significant challenges for London in particular.’ See also Tracker comments above.
• Alix Partners says there are concerns ‘that conditions will become more challenging during autumn and as winter draws in.’
• Around 6wks after reopening, it is clear that many operators have chosen a ‘staggered rather than wholesale reopening.’ Alix Partners says there has been some ‘hesitancy among the public’ when it came to returning to pubs & restaurants.
• Offering more recent data than the Tracker above, Alix Partners says ‘by 2 August, 63% of casual dining restaurants had reopened, while food pubs had returned to 87% of March numbers.’
• UK Hospitality has said that it is vitally important that hospitality businesses play their part in supporting the test and trace schemes across the UK. A survey undertaken by the body syggests that ‘the vast majority of businesses (more than 9 out of ten) are taking appropriate measures to record customer visits but recent reports of venues flouting the requirements have prompted the trade body to remind operators of the crucial need to do so.’
• Sky recently reported a number of cases in Manchester where customer details were not being recorded. UKH CEO Kate Nicholls says ‘hospitality offers safe spaces for people to enjoy being with friends and family at the centre of our communities and high streets. We have a real responsibility to keep our customers, our teams and our communities safe and well.’
• JDW chairman Tim Martin has called for scientists to publish evidence concerning the possible transmission of the virus in pubs.
• The Local Government Association has called for powers for its members to shut pubs and other licensed premises that do not apply Covid-19 safety measures. Many of the proposals, such as taking customer names and contact details, are thus far advisory rather than mandatory.
• Carlsberg has reported H1 numbers saying that organic revenue fell by 11.6% in the period. Organic volumes were down by 7.7% with adjusted net profit down by only 0.4%. Adjusted EPS is up by 2.8% at DKK 19.5 per share.
• Carlsberg says ‘on 2 April, the Group suspended its outlook for 2020 due to the significantly increased uncertainty concerning the impact of the COVID-19 pandemic on business performance. Although the situation remains volatile and uncertain in many of our markets, the Group today issues new full-year guidance, as we are now well into the peak summer season. Based on H1, July figures and the current COVID-19 situation in our markets, the Group now expects to deliver an organic operating profit decline of 10-15%.’
• Carlsberg cautions ‘it must be emphasised that the earnings expectation is significantly more uncertain than usual, as the development of the pandemic, currently unknown government actions, consumer reactions and the macroeconomic development may have significant implications for business performance in the remainder of the year.’
• The group has paused its share buyback operation in light of Covid-19, the upcoming deal with Marston’s and the potential for acquisition opportunities.
• More signs that consumer behaviour has been changed by the virus with NPD in the US saying that the percent of restaurant traffic sourced to digital increased from 5% in January 2020 to 13% in June 2020. It says digital orders increased by 135% in June compared to a year ago.
• Older Americans are picking up on internet usage with NPD saying that, in June, adults 65 and older increased their digital ordering by 428% and adults 55 and older raised it by 200%. NPD says ‘we’ve seen this not just in food, but across the economy.’
• MeatLiquor is to reopen its Oxford Circus site this Saturday.
• Britvic & PepsiCo have donated over 1m drinks to hospitals, hospices, charities and food banks.
• Wireless Social has reported that footfall this past weekend ‘remains at similar levels of footfall to last week’. It says footfall was ‘stronger at the beginning of the week due to the Eat Out to Help Out scheme, however the hot weather would have also impacted the weekend footfall.’
• Footfall was down 49% on Saturday and down 45% on Sunday. In the depths of lockdown, footfall was tracking some 82% lower.
• Punch reports that its Stansted pub, The Kings Arms, has reopened ‘following a transformational £592,000 investment.’ The pub has four ensuite rooms.
• Other news: Plant-based meat alternative producer This has raised £3.5 million via a crowd-funding campaign on Seedrs. Elsewhere, Florida Food Products has bought tea ingredient supplier Amelia Bay.
• The article below appeared in the Premium Email earlier in the week. It has been updated materially since. See above if you would like to subscribe via PayPal or via a one-year subscription.
EAT OUT TO HELP OUT: Widespread agreement that this is a helpful, but temporary, fix. It has prompted some operators to open more units & many to call staff back from furlough. Included in Premium Email on 11 Aug 2020:
• Chancellor Rishi Sunak’s Eat Out to Help Out scheme will pay half of the cost of meals & soft drinks eaten in pubs & restaurants (up to a maximum of £10) on Mondays, Tuesdays, and Wednesdays during August.
• The deal extends to registered participating venues including food halls and works and school canteens. It does not cover service charges.
• Businesses had to register before the start of August. Some 83,000 outlets have now done so. They will be paid by government direct into their bank accounts within a few days of providing the subsidised meal.
• The scheme suggests relevant venues within a 5m radius of any given postcode HERE.
• The scheme does not extend to alcoholic drinks or takeaway food. There could be some issues with venues, such as Gregg’s and Subway, which offer both dine in and takeaway options.
• It is capped at £10. One respondent reported a number of complaints from customers who had spent £30 or £40 per head and could not get ‘50% off’.
• There have been some issues where the bill includes alcoholic drinks, food and a service charge. The discount will be applied only to the food in this case.
Industry feedback – sales:
• Overall, the scheme has been very well-received. There may be a smidgeon of jealousy from wet-led operators.
• ‘The stimuli has been incredible’ says one operator, who goes on to acknowledge that it is temporary help.
• A number of operators have reported their highest every Monday sales with Tuesday and Wednesday also good. Sales were double or even treble those of similar early-week days last year.
• Thursday was weak, per several operators, but perhaps not as weak as had been feared and the weekend held up well as it may have been ‘a different crowd’.
• Turnover (including the subsidy as revenue) was doubled over Monday to Wednesday in a number of instances.
• Some managed pub operators were ahead of 2019 over the week as a whole. Some operators saw ‘pretty healthy growth over the week as a whole.’ Another was ‘more than 50% up on the week as a whole’.
• With VAT reductions not being passed on, margins should be higher, even taking into account additional cleaning costs etc.
• JW Lees yesterday said publicly ‘sales were up 44%, 42% and 60% on Monday, Tuesday and Wednesday.’ It said ‘Thursday and Sunday were both down on the previous year but the company’s managed pubs saw strong growth on both Friday and Saturday.’
• Some operators are mulling continuing the scheme into September. This will impact margins – but see comments on lower staffing levels and menu-simplification.
Feedback – concerns:
• The scheme is August only, week 2 is an unknown, the VAT cut unwinds on 12 Jan and operators may need to ‘change their model so they can exist on say 75% of previous sales.’
• This may require a discussion with landlords.
• There is some concern that ‘we are in a bubble at the moment’. Others mention that the weather has been helpful and that the kids are off school.
• Furloughed staff, ex-travel expenses and the like, may have more disposable income than usual. Some furloughed customers could lose their jobs.
Feedback – staycations:
• London isn’t busy but many other areas are. Also, ‘the weather has helped hugely.’
• Autumn trading could see the industry ‘brought back down to earth’ but one suggests the current trend towards staycations will ‘run through this year into spring and summer next year.’
• Pubs have adapted more rapidly than restaurants.
• Cost bases may be ‘re-set’. Operators that have not recalled all of their furloughed staff may question whether then actually need to do so,
• Menu simplification etc may mean staffing levels can be reduced.
• It looks like ‘forward bookings for next week appear similarly encouraging and we anticipate further growth in sales.’ Some customers have been into the same venue multiple times already.
• The boost is ‘helping build cash reserves and bringing new customers into our pubs that haven’t been before.’
• The grey market is still hesitant. Many EO2HO customers have been families.
• From a customer perspective, outlets in several instances have been fully-booked (albeit with increased spacing) and scarcity may make customers keener to take part next week.
• Spare a thought for the ‘losers’. These may include pure takeaway operators unable to offer a discount and high ticket venues for whom ten quid off is helpful but not game-changing.
• Very helpful (but temporary) and cannibalisation minimal. Trading in the early-week ‘went berserk’ and sales over the weekend were ‘more normal’.
• Drink sales, though not discounted, have remained strong (the weather will have helped). Customers, at some point, may begin to suffer from wallet-fatigue.
• The offer of cheap food is getting would-be customers out of their houses. There is something of a defibrillator effect.
• A slight negative is that customers may find themselves, come September, in something of a discount-mindset.
HOLIDAYS & LEISURE TRAVEL:
• TUI has reported quarterly numbers for the period to 30 June saying that revenue was down 98% at €75m ‘reflecting business standstill for most of the quarter with partial operations successfully resumed from mid-May.’
• The group says ‘55 hotels reopened in the quarter (~15% of total portfolio) as lockdown restrictions eased worldwide from mid-May. Hotel volumes remain significantly lower than usual summer levels however there were encouraging signs of customer demand with average occupancy of 23% achieved, reflecting the initial restart of operations in Europe, Mexico, the Caribbean and Egypt and the necessary social distancing protocols in place.’
• The group’s cruise operations are suspended but ‘from mid-June, our Summer tour operator programme was partially restarted from Central Region, taking customers to Majorca, Ibiza and Formentera. Operations also resumed from Benelux.’
• The group lost €1.1bn at the EBIT level in Q3. Bookings for Summer 2020 are down 81%. Capacity for the winter and next summer has been reduced by 40% and 20% respectively. The group separately updated on its liquidity position. It says ‘dividend payments and share buy-backs will be restricted for the term of the stabilisation package.’
• TUI is working on its restart at present and says FY21 will be a year of transition with a ‘further ramp up in bookings as more destinations reopen and consumer confidence returns.’ It is aiming for normalisation beyond FY22.
• TUI announced yesterday that it has secured additional state-owned bank funding to the tune of €1.2bn. The company says it has been extended €1.05bn in credit and €150m via a convertible bond issue.
• TUI says ‘the €1.2 billion stabilisation package strengthens Tui’s position and would provide sufficient liquidity in this volatile market environment to cover Tui’s seasonal swing through winter 2020-21 and thereafter and in the case of further long-term travel restrictions and disruptions related to Covid-19.’
• TUI will be obligated not to pay a dividend to shareholders whilst the money is outstanding. TUI says it has managed a ‘partial restart to its summer 2020 programme with an immediate positive effect on working capital.’ It says ‘holidays remain a high priority to our customers and we continue to work through different demand scenarios as we move through the current and upcoming seasons.’
• The World Travel & Tourism Council has called on PM Boris Johnson to work with other countries to “save the struggling travel and tourism sector”.
• Viking Cruises has extended the suspension of its services to the end of the year. It says ‘we believe that our smaller ships – which feature spacious public areas and staterooms – provide a much safer environment than mega liners.’
• Accountant Begbies Traynor has reported that the number of travel and tourism start-ups in “significant financial distress” rose by 21% to almost 4,000 in the last three months. It says 15,000 jobs may be at risk.
• Research undertaken by the Centre for Climate Change and Social Transformations at Cardiff University has found that 47% of people may fly less for leisure purposes post the Covid-19 pandemic than had done so previously.
• ABTA has confirmed that its members must refund the cost of package holidays cancelled as a result of the UK Foreign Office advising against all but essential travel to a destination. ABTA says its ‘board agreed unanimously that ABTA members should offer refunds to their package holiday customers where the Foreign Office advises against travel at the time the customer is due to travel.’
• STR reports that London hotels saw occupancy drop by around 75% in July this year compared with last. Average room rate fell by 52% and the resultant REVPAR was down by 88% on the same month in 2019.
• The US Travel Association has said that 40% of the recent rise in unemployment in the US is down to layoffs in the leisure & hospitality sector.
• The WSJ and others have reported that Airbnb is likely to file for an IPO this month.
• Riverboat holiday company European Waterways has said that travellers are ‘unquestionably optimistic’ about the outlook for holidays. The company says ‘travellers want to travel. For many people, hotel barge cruising is a once-in-a-lifetime experience, and they want to do it at the first opportunity they get.’
• GVC has reported H1 numbers saying that revenues for the period to June fell by 11% to £1.6bn with underlying PBT down to £55m from £212m in the prior year. CEO Shay Segev says ‘given the unprecedented trading environment, GVC has delivered an encouraging performance in the first half, underlining the strength of our diversified business model and the expertise, adaptability and dedication of our people.’ He says ‘these results show that we have a strong foundation.’
• Re the outlook, GVC says ‘the strong performance of the Online business coupled with the return of the sporting calendar and the re-opening of our Retail operations means that the Group is well placed for the balance of the year. The Board now expects the Group to deliver underlying EBITDA of £720m-£740m for the full year, subject to there being no further material disruptions.’ It says ‘net debt is expected to reduce by year end, leaving leverage levels unchanged from the prior year, despite lower levels of underlying EBITDA due to COVID-19 impacts.’
• GVC says ‘with continuing uncertainty around further lockdowns and restrictions as a result of COVID-19, the Board does not consider it prudent to pay a dividend at this time. However, the Board recognises the importance of dividends for shareholders and will consider dividend payments with future results.’
FINANCE & ECONOMICS:
• The ONS yesterday confirmed that the UK was in recession with a 20.4 per cent decline in the size of the economy in Q2. Growth of around 15% could materialise in Q3 as a chunk, but a chunk only, of the promised ‘V-shaped recovery’ is delivered.
• The NIESR says ‘the monthly estimate for June suggests a rebound of 8.7 per cent, reflecting further easing of Covid-19 lockdown measures – though it remains a sixth below its level in February. Despite the recovery noted in June, the path ahead remains precarious. An extended period of growth will be required to make up the ground lost in recent months.’
• Chancellor Rishi Sunak has said the government is ‘grappling with something that is unprecedented.’ He told the BBC this is ‘a very difficult and uncertain time’. Labour shadow chancellor Anneliese Dodds said the downturn, which is the largest across major economies, ‘was inevitable after lockdown – but Johnson’s jobs crisis wasn’t.’
• Various observers pondering ‘where next?’ With the furlough currently tapering, employers will be looking out beyond October and working out what their labour requirements are likely to be. Material redundancy programmes require a 45-day consultation period – so there will be a lot of counting backwards going on.
• Sterling up vs dollar at $1.3053 and down vs Euro at €1.1056. Oil up at $45.31. UK 10yr gilt yield up a further 3bps at 0.24%. World markets broadly higher yesterday but Far East mixed in Thursday trade & London set to open down around 60pts and slipping.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: On top if the scheduled finals/Q1 update from Watches of Switzerland, we have also had an unscheduled (but strong) trading update from Topps Tiles, plus the provisional result of the wretched CMA’s investigation into the funerals market. In terms of the latter, it looks as if Dignity has got away with it, as the CMA’s plan to introduce price controls has been scuppered by the problems caused by the upsurge in COVID-19 deaths and it now merely proposes to introduce more transparency into funeral costs.
• As for Topps Tiles, it has flagged that LFL sales over the last 6 weeks have been up 15.5% and that, as its order book for the last 7 weeks of Q4 is strong, it now expects to make a modest profit in y/e Sept, despite the big hit in March/April.
• Watches of Switzerland also reports Q1 trading ahead of management expectations, with sales growth of 7% in July versus last year, after an 85% slump in sales in the last 6 weeks of y/e April and an 83% slump in May. On the back of the encouraging recovery in July, Watches of Switzerland has even had the confidence to provide detailed guidance for the new year, with sales expected to be up to £840m-860m and EBITDA flat.