Changes to Tier II compensation, S Yorks, G4M, trading etc.:

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A DAY IN THE LIFE:

So, as we consider whether Lockdown II is on the cards, what jobs did you get done during the Great (as WW1 was known before it was clear that it was only the first) Lockdown?

Did you clear out the garage? The shed, the attic?

Not even the spare room but did you remodel the garden? Learn a language, do a Coding course or reskill as a dressmaker as Rishi Sunak’s job-swap algorithm has advised Langton to do?

Or did you do none of the above?

Did you read a bit, max out on Netflix and potter around aimlessly in your slippers only jumping to attention every now and again for the odd Zoom call?

Yes, we know the feeling and, though no stats are available, I’d suggest we’re not alone. And the waistline has probably expanded a bit, the store of human capital maybe not increased but that’s life. On to the news:

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MORE ON CURRENT TRADING: New rules have moved Liverpool, Manchester and now South Yorkshire into Tier III, London, York & other areas into Tier II. So what are the early signs? 22 Oct 2020:

Introduction:

• Households can’t mix in pubs or restaurants (indoors) in Tier II and wet led pubs cannot remain open in Tier III.

• These moves a) reduce the ability of customers (within the law) to frequent pubs & restaurants and also b) probably reduce their willingness to do so (at least in the short term).

Our early views:

• We tweeted yesterday that ‘Aug was good, but Sept saw sales ease back to perhaps 10% to 15% down. The Rule of Six & 10pm may have knocked another 10pps off LfL sales. Tier II another 10pps and Tier III a further 10pps. My maths is so-so but soon, there will surely be nothing left.’

• This gives perhaps minus 35% in Level II and minus 45% in Level III. See below. These numbers may have to be adjusted down a tad.

• We had to stick to 280 characters in the Tweet. If we had been allowed more, we may have added ‘in the early days we could see a greater impact than this and, as consumers become more familiar with the rules, a modest return of trade’.

• We would have also said that ‘because of weather, sporting, and other comps, not much can be said about short period of trade versus last year’.

CGA’s comments:

• CGA has reported that, in the first few days of increased regulation at least, the result has been a little worse.

• CGA sees early evidence, admittedly only one weekend, of Level II being minus 50% and Level III being minus 61%.

• It says ‘pubs, bars and restaurants in areas that are in the upper tiers of the government’s new COVID alert system have suffered an immediate drop in sales.’

• It says ‘businesses in the ‘Very High’ alert tier in England…saw their daily sales drop between 60% and 62% year-on-year from last Thursday to Saturday…This represents a 26% fall on sales compared with the previous Saturday, driven primarily by drinks sales, which fell 43% on the week before.’

• It says re Tier II that ‘businesses in these areas also saw a significant drop in trading, with sales down between 46% and 54% from Thursday to Saturday.’ Tier I reported that ‘sales were still down between 22% and 28% year-on-year between Thursday and Saturday.’

• CGA says its ‘data indicates a particularly steep drop in drinks sales in top-tier areas, where alcohol can only be served with substantial meals.’

• This is not surprising as it is no longer legal to serve drink alone. Drink is usually a slightly higher margin product than is food.

• CGA says ‘businesses in these areas saw drinks sales fall by 73% year-on-year last Saturday, compared to a 59% fall in second-tier regions and a 31% drop in all other places. Having already been impacted by the 10pm curfew, the spirits category has seen the sharpest fall in sales, which were down by 83% in ‘Very High’ areas.’

Implications & further thoughts:

• The furlough ends in a week’s time.

• Unless operators can see a little light at the end of the tunnel (or at least a blip up from the CGA numbers above), they may have to consider redundancies.

• Wet-led venues (shut in Level III) can break even at maybe a third of normal sales (if they are freehold) whilst food-led units (more labour etc) may need nearer to a half.

Christmas:

• Halloween, the kids’ half term and Bonfire Night are maybe write-offs.

• But Christmas, if the government (and, interestingly, the governments of the Republic of Ireland, Scotland and Wales) get their timings right, could be ‘saved’.

• Just what that will do to infection rates immediately thereafter remains to be seen but, for the mental health of the nation, rescuing Christmas would surely be no bad thing?

Other comments:

• CGA doesn’t comment on regional differences.

• There are no regions in the South in Level II, but it would be interesting to contrast London with, say York, both of which are in Level II.

• We believe that central London, where operating costs are painfully high and revenues are lower than those seen elsewhere in the country, remains very difficult but that the London Villages are relatively buoyant.

• When, or if, things settle down, we would suggest that minus 35% (maybe minus 40%) in Level II and minus 50% in Level III would be deemed a ‘good’ result

• There could, should and probably will be further help coming from the Chancellor. It is certainly needed because, as CGA’s Phil Tate says, ‘these figures lay bare the instant and seismic impact of the new tiered system on hospitality.’

• Tate says ‘the loss of nearly two thirds of daily sales in top-tier areas like Liverpool is catastrophic for local operators, and with Greater Manchester [and now South Yorkshire] set to join them there is a lot more hardship to come.’

• There will also need to be help for ONO sites (open in name only) in Level II. CGA says ‘it is also alarming to see a sharp drop-off in second-tier areas, where businesses are battling relentless challenges without financial support. Urgent government help is needed if businesses and jobs are to be sustained through this rapid downturn in sales.’

PUBS & RESTAURANTS:

UK Covid tiers, the latest moves:

• Manchester is to go into Tier III on Friday and South Yorkshire will follow on Saturday. Some 1.4m people are impacted by the upcoming South Yorkshire move. Some 13% of England’s residents will be under Tier III by the end of the weekend. Regional mayor Dan Jarvis says that ‘collective action was the only practical choice to keep everyone in our region safe.’

• Scottish first minister Nicola Sturgeon has said that tighter regulations across the Central Belt of Scotland, which had been due to expire on Monday, will be extended for a further week at least. Wales goes into lockdown for 17dys tomorrow, Friday.

• The British Beer & Pub Association says ‘a stronger package of financial support is vital not just for pubs, but also brewers and their wider supply chain in South Yorkshire, if they are to survive the further devastating trading restrictions or full closure they face.’

• CEO Emma McClarkin says ‘pubs, brewers and their wider supply chain in South Yorkshire face an existential crisis with these tier three restrictions coming in.’ She says ‘a far bigger package of financial support, with wider eligibility for all businesses impacted in the region, is needed if our sector is to survive this crisis.’ McClarkin says that around 1,000 pubs and around 18,000 jobs could be impacted.

• McClarkin says ‘support also needs to be made available to brewers and the wider supply chain businesses’ and adds ‘the restrictions must be reviewed on a frequent basis – at least every two weeks – and re-categorised as soon as deemed appropriate. To do this the Government must clarify what criteria the decisions for transitioning in and out of the tiering system will be based on.’ When pushed on this at PMQ yesterday, Boris Johnson said a downward move in the alert rating would depend upon a number of factors.

• SIBA, which represents independent brewers, says ‘the new Tier 3 restrictions in South Yorkshire and extension of the lockdown in Scotland to November will further drive hospitality over the edge; and without Government support for the independent breweries that supply 80% of their beer to pubs which are being forced to shut we are likely to see continued brewery closures.’

• SIBA says ‘it is now absolutely essential that the Government extend the hospitality industry support to the UK’s independent breweries, which are closely linked with the fortunes of our pubs. Without further support this Government could be driving out independent brewing across the UK.’

Impact to date:

• We tweeted yesterday that ‘Aug was good but Sept saw sales ease back to perhaps 10% to 15% down. The Rule of Six & 10pm may have knocked another 10pps off LfL sales. Tier II another 10pps and Tier III a further 10pps. My maths is so-so but soon, there will surely be nothing left.’

• CGA has reported that, in the first few days of increased regulation at least, the result has been a little worse. It says ‘pubs, bars and restaurants in areas that are in the upper tiers of the government’s new COVID alert system have suffered an immediate drop in sales.’

• It says ‘businesses in the ‘Very High’ alert tier in England—where pubs and bars can only remain open if they serve substantial meals, and people cannot meet with anyone outside their household—saw their daily sales drop between 60% and 62% year-on-year from last Thursday to Saturday (15 to 17 October). This represents a 26% fall on sales compared with the previous Saturday, driven primarily by drinks sales, which fell 43% on the week before.’

• It says re Tier II that ‘businesses in these areas also saw a significant drop in trading, with sales down between 46% and 54% from Thursday to Saturday.’ Tier I reported that ‘sales were still down between 22% and 28% year-on-year between Thursday and Saturday.’

• CGA says ‘these figures lay bare the instant and seismic impact of the new tiered system on hospitality. The loss of nearly two thirds of daily sales in top-tier areas like Liverpool is catastrophic for local operators, and with Greater Manchester now set to join them there is a lot more hardship to come. It is also alarming to see a sharp drop-off in second-tier areas, where businesses are battling relentless challenges without financial support. Urgent government help is needed if businesses and jobs are to be sustained through this rapid downturn in sales.’

• CGA says its ‘data indicates a particularly steep drop in drinks sales in top-tier areas, where alcohol can only be served with substantial meals. Businesses in these areas saw drinks sales fall by 73% year-on-year last Saturday, compared to a 59% fall in second-tier regions and a 31% drop in all other places. Having already been impacted by the 10pm curfew, the spirits category has seen the sharpest fall in sales, which were down by 83% in ‘Very High’ areas.’

• Real estate investor Avison Young has said that ‘the rising ‘second wave’ of Covid-19 infections is blowing the UK’s recovery off course.’ It says ‘the restrictions introduced in the new three tier alert system, as Covid-19 cases increase across many parts of the country, will have negative impact on the economy. Their effect is already being seen in the high frequency indicators in our Recovery Index.’

• Avison Young says ‘the pace of the economic recovery was already slowing. The economy grew by 2.1% month-on-month in August, lower than gains of 9.1% and 6.4% in June and July and output still remains significantly (9.2%) behind February. The slowdown was inevitable to some extent, even without the ‘second wave’. Its impact and the policy response is now a top priority for government.’

• It says ‘with the current ‘second wave’ seriously jeopardising the recovery, it seems likely the Chancellor will explore a return to more aggressive response options, despite the marked change in his rhetoric over September and early October.’

Government support:

• Press reports that Chancellor Rishi Sunak may be working on a compensation package for operators that are ONO (open in name only). The Treasury says there will be ‘evolving and comprehensive’ support for business amid backlash from pubs and restaurants as Chancellor is ‘acutely aware of financial costs’ on those firms.

• It would have been helpful if the implications of stopping people from mixing had been considered before such large parts of the UK population were put into Level II and Level III lockdowns.

• After further leaks, Chancellor Rishi Sunak is now believed set to reveal a new support for workers in parts of England under tier two restrictions later today. Critics have said that some pubs in Tier II are ONO (open in name only) and they need more support.

• A spokesperson for no11 said ‘what we have always said is that our package of support is always flexible, and always up for review, to make sure that it is dealing with the situation as it evolves.’

• As it stands, the furlough scheme ends this month. It is currently proposed that the government pay 67% of workers’ wages in Tier III areas going forward but employers in Tier II areas would get nothing.

Other news:

• Commenting on footfall in general, Wireless Social says that the ‘UK as a whole this week has seen a 5% drop in footfall from the previous week, no doubt due to the announcement of local tier 2 and 3 lockdowns across the country.’ It says ‘this weekend saw footfall across the UK at minus 47% of the footfall seen in February when times were ‘normal’.’

• Wireless Social says that Saturday footfall in London (retail in general) was down by 45% on February totals. The previous Saturday was down 41%.

• Coca Cola HBC has announced that Ben Almanzar will join the Company in the first quarter of 2021 and will be appointed Group Chief Financial Officer with effect from 1 April 2021.

• Chipotle in the US has reported sales up 14.1% in its Q3 although it says the move to more delivery held back profits. Same store sales were up by 8% but the company saw its shares decline 4% on fears that margins may be lower over the medium term.

• City AM reports data from Fable Data as suggesting that ‘spending at restaurants, pubs and bars in London climbed above 2019 levels for the first time during the coronavirus pandemic before new restrictions were put in place.’ This may come as news to some of the operators themselves.

• Of course, location is everything. Central London is very quiet but the London Villages are (or were) busy. Fable Data reports that food and beverage spending was 1.7 per cent higher in September than a year earlier. Given what has happened since, Rule of Six, 10pm curfew and now moving into Level II and a ban on households meeting each other in pubs, City AM says that regulation has dealt hospitality operators ‘another blow’.

• ‘Business lunches’ may allow households to mix. Carrying on a works meeting in the pub might, just might, fall into the same category. Downing Street has said such meetings are permitted so long as they are for “work purposes”.

• Hospitality technology company Airship has launched a £10k grant scheme to support hospitality businesses through its Professionals network. CEO Dan Brookman says ‘it’s been an incredibly difficult year and hospitality has arguably borne the brunt of the ongoing lockdown measures. We’ve proudly supported the industry for over 18 years and want to do all that we can to help restaurants, bars, cafes and pubs to survive the pandemic.’

• Waitrose and Co-op have announced they are cutting food prices

• Sky is to open a number of retail stores on he high street to showcase its products

HOTELS & LEISURE TRAVEL:

• Stay in a Pub has launched its new website with a focus on Great British Stays. The online platform features boutique pubs, traditional coaching inns and affordable pub accommodation across the length and breadth of the country.

• Founder Paul Nunny says ‘our ambition is to have 125,000 unique visitors to the site per month and to generate in the region of 37,000 bookings per year for our pubs by 2022.’ CEO Charles Cryer says ‘domestic travel and staycations are, not surprisingly, in great demand and we are appealing to people to consider staying in a pub as an authentic alternative way to stay. The platform makes booking simple and accessible; helping pubs with rooms to increase their room booking revenues and lower their online distribution costs.’

• Silver Travel Advisor has said that older travellers will need reassurances as to their safety before they have sufficient confidence to travel in the volumes that they did earlier again post-Covid.

• EY’s latest quarterly analysis of profit warnings shows that there were 53 profit warnings from travel and hospitality companies in the first 9mths of this year, more than any other sector.

• EY says that ‘Covid-19 has hit the travel and leisure sector exceptionally hard, both operationally and financially.’ It says ‘ongoing local and national restrictions and unpredictable demand continue to severely hammer the sector.’

OTHER LEISURE:

• Gear4music has updated on H1 trading saying that revenues rose by 42% to £70.2m. It says gross margin improved by 330bps to 28.5% and gross profit increased by 60% from £12.5m in FY20 H1, to £20.0m. it says the ‘strong trading momentum has continued into October ahead of our traditional Christmas peak season.’

• G4M’s CEO Andrew Wass says ‘I am pleased to report that following an exceptional trading period in Q1 FY21, these strong trading patterns have continued throughout Q2 resulting in revenue growth of 42% for the first half.’ Wass says ‘building on the significant progress made during FY20, our focus on gross margin improvement, proportionally lower marketing spend and tightly controlled overhead costs is delivering tangible results.’

• G4M concludes ‘we are mindful of the uncertainties posed by Brexit and COVID-19, but are confident in the actions we are taking and the ability and commitment of our amazing staff, to ensure that the business is well positioned to overcome any potential short-term challenges. As such, the Board is confident that results for the full financial year will be ahead of previous consensus market expectations.’

• Premier League team Manchester United is reported to have lost £70m in the period to 30 June 2020. Revenue fell 18.8% to £509m.

FINANCE & MARKETS:

• Despite having ended them last week, the government says talks between the U.K. and the European Union will resume and intensify from today.

• Sterling up at $1.3133 and €1.1086. Oil down at $41.58. UK 10yr gilt yield up 5bps at 0.24%. World markets mostly lower yesterday with London set to open down around 10pts.

• The UK inflation rate blipped up in September to an annual 0.5%, partly as a result of the ending of cheaper restaurant meals. The rate was 0.2% in the year to August.

• The NIESR says ‘our measure of underlying inflation, which excludes extreme price movements, moderated to 1.2 per cent in September, and we assume that headline inflation will follow suit in the coming months. The imposition of further local lockdowns will weigh on already weak demand and employment prospects and are likely to keep inflation below 2 percent next year.’

• UK government borrowing was £36.1bn in September as a result of Covid-19 support. The amount is around quintuple the £7.7m borrowed in the same month last year. National debt is now 103.5% of UK GDP.

RETAIL WITH NICK BUBB:

Today’s News: Today brings the Superdry AGM at 11.30am, but there has been no trading update and indeed there can’t be, as otherwise the boss, Julian Dunkerton, would be in trouble for buying shares during close season: he has stepped into the market a couple of times in recent days, notwithstanding the concern about the sudden resignation of FD Nick Gresham. There has, however, been a full-year profit upgrade from the building and DIY merchanting giant Travis Perkins, on the back of a strong Q3 sales update: strong demand through domestic RMI sales has continued, driving the strong performance of Wickes(+18% LFL) and Toolstation (+25.5% LFL), notwithstanding a lag in the recovery of larger customer activity, including new housebuilding and larger construction projects. And the embattled Motor dealer Pendragon has reported a big profit surge in Q3, albeit in this case it was driven by
much improved gross margins and lower costs, rather than by revenues (which were broadly flat overall).

News Flow This Week: Tomorrow first thing brings the much-awaited GFK Consumer Confidence index for October, followed at 7am by the belated ONS Retail Sales figures for September.