Langton Capital – 2020-08-27 – PREMIUM – Administrations, EOTHO, footfall, London, office workers etc.:
Administrations, EOTHO, footfall, London, office workers etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Bit busy today as we got back from our trip to the coast a little later than planned yesterday evening.
Robin Hood’s Bay was as pleasant as ever though we were somewhat chagrined to be told that the meal we’d ordered in the pub there wasn’t covered by EOTHO because the venue hadn’t bothered to register.
Nor was the coffee shop down the hill taking part. We’re busy anyway, they said. I think that kind of missed the point. Putting the venue’s own dislike of a little extra admin ahead of providing a 50% discount to team Langton was not, in our opinion, a sensible move.
Anyway, busy, busy.
It’s a long-weekend coming up and the out-of-office replies are increasing in number. However, we’re battling on so let’s move on to the news:
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A COUPLE OF COMMENTS:
• Administrations, pre-packs & busts to date. What is the data telling us? Why are the less good restaurants dying like flies whilst the better operators and pubs aren’t?
• EOTHO. An extension? Any chance of a DIY version? The pros and cons of adopting discounting by another name.
ADMINISTRATIONS, CVAs AND OTHER RESTRUCTURING MOVES:
From time to time it’s worth standing back and trying to look at a situation in context.
Since March, we’ve had CVAs or pre-pack administrations or plain vanilla administrations or ‘emergency-rental discussions with landlords or the catch-all notice of the appointment of advisors from:
• Benito’s Hat
• Food & Fuel
• Restaurant Group’s leisure business
• Casual Dining Group
• Le Pain Quotidien
• Blackhouse & Newgate (Living Ventures)
• Azzurri (ASK & Zizzi)
• Pizza Express
• Pret a Manger
• Gourmet Burger Kitchen
• Pizza Hut UK
• Coco di Mama
• Yo Sushi
We haven’t included any general retailers. Other leisure companies include:
• Travelodge (CVA)
• Buzz Bingo (was Gala Bingo)
• Cruise & Maritime (administration)
• Ahoy Cruises (ceased trading)
• STA Travel (ceased trading)
Any ‘learnings’ from the above?
1. The list isn’t exhaustive. There will be some that we have missed. Comments and additions welcome.
2. The preponderance of restaurants (rather than pubs) is very clear. In fact, where are the pubs? We believe their absence suggests:
a. Wet sales bounced first upon reopening.
b. But more than that, food operators were in a worse state than pubs to begin with. There was overcapacity, thin balance sheets, PE ownership (leading often to thin – or ‘efficient’ – balance sheets) and there was little by way of support structure.
c. Also, restaurants are more likely to be leasehold and have fewer alternative sources of income (accommodation, gaming machines, rooms for hire etc) and have less outside space than do pubs.
3. The data is all the more remarkable because much of the Treasury’s help has been directed towards food rather than drink.
a. The furlough, protection from eviction, VAT payment deferral & business rates suspension apply to pubs & restaurants equally
b. But the 5% VAT rate and the EOTHO schemes apply only to food and soft drinks and, though most pubs provide these products, drink will be their main source of income and that has received no state aid.
4. It’s hard not to conclude other than that the restaurant industry was in dire straits before Covid-19 arrived on the scene. Noisy (but not necessarily good) operators had crashed on the scene and had provided Langton with much interesting knocking copy (on discounting, lazy, me-too products, overrenting, and the 2018 CVAs to name but a few topics) over recent years.
EAT OUT TO HELP OUT: THE ODDS ON AN EXTENSION?
• See also general email below.
• The scheme will end on Monday unless there is an announcement from either a) the chancellor or b) a large number of companies individually, in the next day or two.
• The odds on an official extension are perhaps lengthening, not least because the number of companies saying that they will extend the deal themselves is increasing.
The addiction to discounting:
• For the last couple of years, we have been banging on about discounting, saying that, more often than not when discussing the casual diners, these came from a place of weakness
• And we maintain that view though the caveats that were always present are more important now, than ever
• We commented yesterday in a cross of emails ‘there are a very few, specific occasions, when discounting may make sense. Prime among them ‘if you can damage competitors or help yourself at minimal longer term cost’.
• We said we thought ‘EOTHO fits that bill. And extending the offer just might, too. There are many thousands of marginal restaurants out there, even in a good year. This isn’t a good one.’
• ‘There are a lot of me-too, lazy, entitled offers, often funded by PE. If a stronger operator can move the revenue curve to the left for many of the above and drive them out of business, they could make an absolute fortune in the medium term.’
• We concluded ‘not what Rishi is after, perhaps.’
• But we stick by our suggestion that either the Chancellor will extend the deal or a number of (mostly stronger but some panicked) operators will extend it themselves – and make announcements to that effect in the next day or two.
The case against extending:
• As we were infuriatingly told by more than one operation, the admin is considerable. This is a particularly feeble excuse.
• More credibly, deals attract ‘a different sort of customer who see it as their right to get a discount.’ This can be unhelpful longer term. But in the short term, it brings cash through the door.
• The danger is that the ‘right price’ may be seen to be half price
• People who pay full price (say on a Thursday) may feel foolish. But ‘dynamic pricing’ is a feature of many other markets, including hotels and airline tickets.
• This is one of those very rare opportunities for strong operators to slot in a hatful of goals while there is no defence on the pitch
• We would expect to see the better players extend the deal for September at least
• Weaker operators will re-close some of their iffier sites and the future for them does not look good
OTHER THEMES TO BE PICKED UP ON WHEN WE HAVE TIME:
• When is a failed restaurant not a failed restaurant? Perhaps when it has changing hands and reopened post a rent reduction & various other inducements from the landlords but, in all honesty, it’s failed really, hasn’t it?
• Dead companies walking? Many companies were in a poor state last year. Covid will have made this worse. It’s hard to see them surviving.
PUB & RESTAURANT NEWS:
Eat Out to Help Out:
• Still no word, at least at the time of going to press, as to whether the scheme will be extended. If it isn’t, there’s only one day left.
• Some anecdotal evidence that restaurants and pubs serving food were extremely busy yesterday. Feels as though some records have been broken.
• The number of operators saying that they will extend some form of early-week discounting into September is growing. There is one day left, Monday, for Chancellor Rishi Sunak’s scheme. But operators such as M&B’s Toby Carvery and Harvester have said that they will continue the scheme whilst Pizza Hut and Tesco Cafes will offer the Monday to Wednesday discount for September. There will be more to follow with announcements expected before Monday.
• The BBC has some UK restaurants saying they will continue the Eat Out to Help Out scheme into September with their own cash because it has been so successful. This is not a surprise. The BBC quotes the help that Grosvenor Estates is giving to tenants that extend the scheme – see prior emails.
• Oakman Inns says it has chosen to continue the EOTHO scheme through the whole of September. The 28-strong operator says ‘with table-only service, their restaurants were often fully booked during the first two weeks, with many of the customers making their first visit to an Oakman Inn.’
• Oakman CEO Dermot King says ‘there is no doubt that the Eat Out to Help Out scheme has been a major factor in helping us get back on our feet after several months without any revenue at all.’
• King says ‘it has been a very encouraging start, but the road to recovery is going to be a very long one and it is going to take much more than a few months of offers to get the hospitality sector back to where it was before lockdown.’ He adds ‘we urgently need a review of the fiscal disparity between supermarkets and the hospitality sector with a specific focus on VAT. We would like to see 5% VAT extended past the January deadline.’
• Other small businesses have been urging chancellor Rishi Sunak to extend the Eat Out to Help Out scheme beyond next Monday. The Federation of Small Businesses says ‘the Eat Out to Help Out scheme has been an overwhelming success in getting people back on their high streets and in their town centres.’ He says ‘we now need to see it extended to continue the critical support that it is providing for small firms as we enter a period of economic make or break.’
Other Covid-19 news: Footfall, furlough and fast-casual.
• Germany is to extend its furlough scheme. This had been due to expire in March 2021 but will now continue until the December of that year.
• Wireless Social says ‘UK footfall on the streets continues to get busier, with the biggest jump in four weeks on Saturday.’ It says ‘Oxford Street saw growth Monday and Tuesday, however footfall fell again on Wednesday – Likely due to the heavy rain in London on that day.’
• This week’s Customer Sentiment Tracker, with Feed It Back, shows that the ‘fast casual’ sector is seeing customer satisfaction going backwards. “Social distancing” in these generally smaller venues is the key issue for many customers. Only 78% feel safe enough to return (much lower vs the industry average of 94%.)
• The conundrum that fast casual operators face is how to encourage customers to come out because they feel safe, but also to offer a service that is attractive and is provided at the right price and in the right manner.
• KAM says ‘the ‘fast casual’ sector continues to underperform in comparison with other hospitality sectors in terms of customer confidence. It’s seen a significant drop in confidence even since re-opening.’ KAM says ‘speed of service is of course also especially important for these customers, so operators have a particularly tricky conundrum. How do they distance their customers and ensure they feel safe without it impacting service time, or perceived service time? Not an easy task.’
• CBRE has commented on the recovery of the UK hospitality sector saying that there is some evidence that it is lagging behind other European countries.
• Credit agency Moody says that the swing towards online ordering across the UK grocery market may not unwind in a hurry. It says ‘the rapid increase in online sales is credit negative for the large incumbent UK grocers including Waitrose, Tesco PLC, Wm Morrison Supermarkets, Asda Group Plc and J Sainsbury plc because their online operations are less profitable than their traditional brick & mortar ones.’
• Moody says ‘that means that even as sales volumes rose in the first half of the year as lockdowns and then social distancing measures meant people purchased more food to eat at home — and more of that purchasing was done online — profit did not rise in tandem.’
No rush back to the office. Not good news for coffee shops, lunchtime grab n go & other operators in, near or around commuter hubs.
• The BBC reports that fifty of the biggest UK employers it has spoken to have said they have no plans to return all staff to the office full-time in the near future.
• The BBC says ‘many companies said they were offering choice and flexibility to those who want to return, particularly in the banking and finance sectors.’
• The Telegraph and The Times yesterday carried similar stories. The papers report JP Morgan has told staff that many will be able to work remotely on a part-time basis and separately there are concerns that central London and Canary Wharf could soon have a surplus of office space.
• The FT reports that a majority of UK civil servants are expected to continue working from home until at least the end of the year. This despite calls from No10 that they get back to the office.
• Reports have suggested that commuters in the UK have shown a greater reluctance to return to the office than have their peers in France & Germany.
• Trades Union the PCS has written to the government saying the move away from homeworking was a mistake given the incidence of local virus outbreaks
• Head of the CBI Dame Carolyn Fairbairn has said that city centres could become “ghost towns” if the PM does not to do more to get workers to go back to the office. Dame Carolyn tells the Daily Mail that UK’s offices were “vital drivers” of the economy, supporting thousands of local firms, from dry cleaners to sandwich bars. She says ‘the costs of office closure are becoming clearer by the day. Some of our busiest city centres resemble ghost towns, missing the usual bustle of passing trade. This comes at a high price for local businesses, jobs and communities.’
• Mexican operator Wahaca reportedly emailed staff yesterday to tell them that the company is looking to close a third of its estate as a result of the Covid-19 outbreak. The company says that it has raised fresh equity capital as its reserves have depleted. The firm has said it will ‘try and save jobs’ wherever possible.
• Wahaca says that rent, as a percentage of sales, in its city centre locations, had increased and a number of restaurants are ‘untenable’ as a result.
• D&D London has said that it is ‘confident about the future despite the undoubted challenges ahead’. It intends to have its entire UK estate reopen by 10 September. The company has already opened 17 select sites in London, Manchester and Leeds on 4 July, particularly those with outdoor terraces or set in residential areas.
• London wine delivery service Top Cuvee is to open a high street store after having closed its unit previously in March.
• McDonald’s Corp has expanded its probe into the behaviour of sacked ex-CEO Steve Easterbrook. It says ‘the Board will follow the facts wherever they may lead.’ The company now says that the ex-CEO’s corporate misdeeds include covering up ‘improprieties by other employees alongside allegations of potential misconduct within the human-resources department’ says the WSJ.
• Nut prices are reported to have fallen to multiyear lows as demand from pubs, hotels and airlines has plummeted.
HOLIDAYS & LEISURE TRAVEL:
• The WTTC has said that the UK could lose up to £22bn in tourism revenues this year because of reduced visitor numbers due to the Covid-19 pandemic. London has been hit hardest. See yesterday and Tuesday’s Premium Emails.
• The WTTC says ‘the economic pain and suffering caused to millions of households across the UK, who are dependent upon travel and tourism for their livelihoods, is evident from the latest figures.’ It adds that the UK could take ‘years to recover’. International visitor numbers are reported to be running 78% down.
• The WTTC says the Covid-19 pandemic ‘could also threaten London’s position as one of the world’s premier hubs for business and leisure travel which could see other destinations take over.’
• This is not what hoteliers, whose assets are not portable, want to hear.
• Carnival brands P&O, Carnival and Princess Cruises have all announced this morning that they have extended the pause in their operations.
• The Telegraph warns that Italy faces a ‘catastrophe…as tourisms vanish’.
• ABTA has warned the travel industry not to expect a rapid relaxation in travel restrictions. ABTA says ‘none of the possible solutions are going to occur overnight.’
• Gatwick is to cut a quarter of its workforce due to Covid-19. Some 600 jobs could be lost. Passenger numbers are down 80%.
• Flutter Entertainment has reported H1 numbers saying that it has had a ‘positive first half performance’. It says it is ‘maintaining momentum as integration progresses.’ Revenue for the period, after the combination with The Stars Group, was up 49% at £1.5bn with adjusted EBITDA up 59% at £342m and EPS down 81% at 18.1p. Net debt is up to £2.9bn from £356m a year ago.
• Flutter says it has seen ‘encouraging trading H2 to date, benefitting from condensed football fixtures, favourable sports results and ongoing resilience of gaming.’ It says, however, that ‘the outlook remains highly uncertain, due to potential further Covid-19 related disruption and possible regulatory change across various markets.’
• Flutter CEO Peter Jackson says ‘the first half of 2020 has been defined by the outbreak of the global Covid-19 pandemic.’ He adds ‘the Group’s first half financial performance exceeded expectations as we benefitted from geographic and product diversification.’ Jackson says ‘we have also made good progress since May on the integration with TSG.’ He concludes ‘the second half has started well, with good sports betting performance following the return of major sport events, whilst gaming performance has remained resilient. Looking ahead, we have identified promising opportunities to increase investment across the Group and, while the outlook with respect to Covid-19 remains highly uncertain, the diversification of our Group means we approach the future with confidence.’
FINANCE & ECONOMICS:
• The OECD has said that Covid-19 has hit the UK economy hardest across major economies from April to June. The UK economy over the quarter was down 20.4% compared to a 9.8% drop across the OECD as a whole.
• Bulls have said that the July bounce-back in the UK should be amongst the highest in the OECD.
• By comparison, French GDP dropped by 13.8% and German GDP was some 9.7% lower over the period.
• Sterling up at $1.3212 and €1.1161. Oil lower at $45.75. UK 10yr gilt yield up 4bps at 0.31%. World markets. UK & Europe higher yesterday but US down. Far East lower in Thursday trade. London set to open little changed.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
Nick is back after the Bank Holiday.