The ‘new normal’, rental debt, Krispy Kreme, 17 May holidays etc:

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A DAY IN THE LIFE:

I was ticked off the other day for not mentioning that the Mighty Hull City had been crowned champions of Division One with a whole one game remaining.

And no small thing that was too. Our first silverware since Adam was a lad (actually, since 1966) and the first time we’ve won anything worth winning since decimalisation.

Although that’s not quite true because, since I started taking our lads to City matches, we’ve been promoted seven times (including three times into the Premiership) and have been demoted four times – and that’s more than bigger teams such as Arsenal, Liverpool or Everton can say. 

I took them to see us beat York 2:1 and then put five divisions between us over the next ten years. They were mascots at Barnet, we’ve been given strong advice on where we should go and how we should do it by opposing fans at Craven Cottage, The Emirates, Wembley and Upton Park and still my daughter hasn’t seen them win a match.

Or even score a goal, she tells me. Of course, she’s only fifteen and these things take time but it does bring home to us that, in a season when we won more game than any other season in living memory, we haven’t been to a single match.

Anyway, here’s some Hull for you:

• Is Glare Bull Worming a veterinary procedure or the product of too much CO2 in the atmosphere?

• Is Earl Fur the ermine they wear in the House of Lords or a TV channel?

• Is Kirker Curler a north of England churchman’s hair positioning device or a can of soft drink?

And we could go on but we won’t. Here’s the news:

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PUBS & RESTAURANTS:

Returning to more ‘normal’:

• Getting out of the house. Nielsen has reported that supermarket till sales grew in April whilst online sales growth, although still positive, slowed to 25% up year on year in April versus up 92% in March. Before reading too much into the slow-down, it’s worth pointing out that the comps for online sales will have got much more challenging next month. Public transport stats are edging higher.

• Less working from home. See section below:

• Social contact. Demand, although buffeted by the weather, has been generally good – at least for operators that have outside space, particularly those who made dome effort – since pubs and restaurants were allowed to serve customers outdoors on 12 April. Last Monday, quite literally in many cases, was a washout, but stats, particularly in the first and second weeks of reopening, were relatively buoyant.

• Ordering at the bar. The Telegraph reports ‘JD Wetherspoon, Greene King, Slug & Lettuce owner Stonegate and Young’s are all plotting a return of bar service from June 21, the earliest date that Covid restrictions are expected to be lifted.’ JDW’s Tim Martin says table service could be a ‘legacy of the pandemic’ with customers continuing to order from online apps.

• Langton comment: The pub operators are cranking up the pressure here in order to try to prevent any backsliding. Whilst there is no suggestion (at present) that 17 May or 21 June are under threat, Young & Co CEO Patrick Dardis said Mr Johnson had made a “commitment to the nation”, adding: “He must honour that commitment. Boris will really struggle to persuade the British public, if the statistics and the data continue as they are, as to why June 21 can be anything other than freedom day.”

• There are plenty of similar comments elsewhere. The overseas holiday industry is adding its own voice to the calls for more freedom but, whether stated or not, most of the domestic industry is probably aware that the biggest left-field risk is from the importation of a new strain that could push the vaccination programme some or all of the way back to its starting position. Langton’s view is that overseas holidays might and possibly should be discouraged by government this summer. Keeping more money (and people) in the UK this summer would not be a bad outcome financially and it would reduce the risk of new and exciting variants showing up in this country.

Working from home:

• Some companies are asking their staff to return to the office. Bloomberg reported earlier in the week that Goldman Sachs has told its bankers in the US and UK that they should return to the office next month. The bank stresses the importance of ‘coming together’ saying in a memo ‘we look forward to having more of our colleagues back in the office so that they can experience that once again on a regular basis.’

• Langton comment. The battle lines are being drawn and the future of office rents, sales for Pret and other city-centre operators and the like will depend on the outcome. The BBC reports that ‘almost all of 50 of the UK’s biggest employers questioned by the BBC have said they do not plan to bring staff back to the office full-time.’ Some 43 of the firms said they would ‘embrace a mix of home and office working, with staff encouraged to work from home two to three days a week.’ The should / may work for established staff but it may make recruitment and job swapping a little more difficult.

• Amongst big employers, it’s reported that KPMG has told its 16,000 staff they can leave early one day a week as part of a move towards more flexible working after lockdown. KPMG says ‘we trust our people. Our new way of working will empower them and enable them to design their own working week. The pandemic has proven it’s not about where you work, but how you work.’ At the other end of the spectrum, Goldman is asking people to come back in from next month and JP Morgan has said much the same thing. JPM boss Jamie Dimon has said he wants people back by early July. He says he will no longer hold meetings on Zoom. Speaking of his staff, Dimon says ‘and yeah, kind of they like it at home, stuff like that, but it doesn’t work really well.’ He does concede ‘there will be more hybrid work, it [the Covid-19 pandemic]’s accelerated that.’

• In the UK, there is more sign of flexibility. Sky reports Barclays as saying that it is expecting more and more people to return to its offices in Canary Wharf and in New York from June. NatWest and the accounting firms PwC and Deloitte have said they expect to make permanent adjustments. Sky goes on to say that solicitors Linklaters are offering redundancy to 225 secretaries and administrative assistants as workers have been doing their own admin from home.

• Whilst the jury is very much out, the result matters. CVAs and liquidations could result if demand does not return to city centres at some point in the future. If that demand ‘partially returns’, as is looking likely, then CVAs and liquidations are still likely as it may always have been the last 10% of revenue that produced nearly all of the profit. Rents could, should and almost certainly will, come down. This will be a life-saver to companies that have been left only viable on the margin but it will be a huge boon to some other, already successful, companies.

Other Covid news:

• Rental debt, one of the elephants in the room: UKH has said that the £2.5b rent debt overhanging the hospitality industry threatens thousands of businesses and over 330,000 jobs. The current eviction moratorium expires at the end of next month. The government had solicited comment on any potential solution with comments to be in by Tuesday this week. UKH says 52% of the 730 companies that it contacted had not been given any extension on rental payment terms with 73% either unable to or unaware how they can pay their rent arrears.

• Langton comment: Companies that have paid their rent are at a cash-flow disadvantage when compared with companies that have not. If there is some sort of widespread debt forgiveness mandated by the government, then operators that are paid up to date will feel foolish and hard done by. Maybe that is a price worth paying to save jobs. But it would be going against the market in that weak (or parsimonious) tenants would be supported and stronger competitors would be punished. Some sort of credit payable on rateable value, paid both to operators that owned their freeholds and to tenants – both those that had paid and those that had reneged on their rents – might be a fairer solution.

• Another solution could be to keep VAT on food (and maybe also drink) at 5% until a certain amount of cash had been paid back (or rather not collected) from operators. This would then pump money into the industry without rewarding failure and punishing success. The ‘have money, keep money’ attitude that the pandemic brought about was understandable – but keeping hold of cash simply because you want to isn’t the same as not being able to pay rent. The above proposed solutions may be a tad on the harsh side and, if weaker companies are pushed too much, the number of CVAs could balloon. That, however, is an eventuality that could develop whatever happens.

Company and other news:

• Anheuser-Busch InBev has reported Q1 numbers saying ‘our business is off to a very strong start in 2021. We delivered top-line ahead of pre-pandemic levels, as beer volumes were up by 2.8% versus 1Q19 with healthy revenue per hl growth. EBITDA increased by 14.2% year-over-year, even in the context of ongoing COVID-19 related restrictions.’ The company has further announced that CEO, Carlos Brito, is to step down after 32yrs with the company. He will be succeeded as CEO by Michel Doukeris.

• AB InBev reports that total volumes grew by 13.3%, with own beer up by 14.9% and non-beer up by 4.0%. The group says that total Revenue was up by 17.2% with revenue per hl growth of 3.7%, ‘driven by ongoing premiumization and revenue management initiatives.’ The company is reporting an underlying profit of $1.099 billion. The company says ‘its Board of Directors has unanimously elected Michel Doukeris, President of AB InBev’s North America Zone, to succeed Carlos Brito as Chief Executive Officer effective 1 July, 2021. Brito will step down after 15 years as CEO and 32 years at the company.’

• Puttshack has announced it has completed a growth capital round of $60 million led by Promethean Investments. The company says the funds will continue to support the company’s booming growth, bringing this one-of-a-kind experience to more cities in the U.S., UK and around the world. Puttshack CEO Logan Powell says ‘we are thrilled to continue our partnership with Promethean and others as we look to continue our growth in the U.S., UK and beyond.’

• Virgin Wines UK plc has updated on trading to date for the year ending 30 June 2021 saying ‘the strong levels of customer demand experienced in the first half of the Company’s financial year have been maintained in the second half of FY21 so far [benefiting from pleasing order frequency among existing customers and good levels of new customer acquisitions].  As a result of the continued strong performance, the Board anticipates revenue and profitability for FY21 will be ahead of its previous expectations, with turnover for the year expected to be no less than £73m and an improvement in EBITDA margin.’

• The company says ‘whilst remaining mindful of the potential impact from the easing of lockdown restrictions on consumer spending patterns over the coming months, the Board remains confident that the underlying growth drivers, which the DTC wine sector is experiencing, alongside the accelerated shift in consumer behaviour towards online retailing, will continue.’ CEO Jay Wright says the strong performance has been ‘driven by the ongoing shift in consumer behaviour towards online retailing.’

• Krispy Kreme, which is owned by German food conglomerate JAB Holdings (which also owns Peet’s Coffee, Douwe Egberts, Dr Pepper, Panera Bread and Pret a Manger), has filed a draft registration for an initial public offering in the US with the Securities and Exchange Commission. JAB took the company private some 5yrs ago. NRN in the US reports that the number of shares Krispy Kreme will offer and the price range for the IPO has not yet been determined. The IPO will take place after the SEC completes its review process of the draft registration. Restaurant Dive reports that ‘the company’s financial circumstances improved under JAB Holdings, increasing global sales by 58% to $960 million since 2015.’

• Walgreens Boots Alliance is to partner with DoorDash Inc, Uber Technologies Inc and others to launch same-day, under 2hr delivery, in the US. Deliveroo has said that it sees some areas of general retail in the UK as potential areas for further expansion.

• New World Trading Company is to open a second venue in Sheffield. The Furnace will open later this year.

• The BII has awarded Kate Nicholls, CEO of UK Hospitality, its Franca Knowles Live your Life Award ‘for devotion of energy, spirit and life to the hospitality sector.’

HOTELS & LEISURE TRAVEL:

• Possible 17 May restart. Travel Weekly reports a ‘leading industry source’ as saying that the reopening of the travel sector is due to gather momentum this week despite cautious words from government. Traffic light colours will be ascribed to countries at the end of this week. Some two weeks’ notice should then be given if a country is to lose its ‘green’ status. TW says its source believes ‘the restart “will be cautious”, but said: “We’ve heard there will be reviews every one, two or three weeks. We’d hope for a review more often than three weeks, but one or two weeks wouldn’t be an issue.’

• Langton comment: you need both supply (from the industry) and demand (from consumers) if the industry is to pick up again. Operators are keen to supply holidays. Of course they are but, from the point of view of the holidaymaker, there are still a lot of unknowns. Which country will be on which list? Can we get insurance in case a destination shifts from one colour to another between holiday booking and departure? What will be open in resort? What happens if the colour changes while we are out of the country etc.?

• Carnival has announced that it will commence cruising once again from Greece from 15 August. Bookings will be available from today. The company says ‘everyone at Holland America Line has been preparing for our return to service, and we are grateful to the government of Greece for allowing us to show that we can safely operate our cruises.’

• Uber has had to ‘set aside $600m to resolve “historical claims” relating to its private hire drivers in the UK after it lost a legal battle over their employment rights’ reports Sky. Workers are now eligible for holiday pay and a pension scheme, as well as sick pay and the entitlement to be paid at least the national living wage. Uber Eats delivery workers were not included in the settlement.

• The TTG reports that ‘despite hopes of take-off this month, a TTG poll of 700 readers found just 40% were confident of a stronger summer this year than last year.’

• Langton comment: This is understandable because, when we consider demand, many holidaymakers may have already had to plump for a break in the UK this year for fear that capacity would have disappeared before they got around to booking if they waited for too long. And it would not be sensible -and maybe wouldn’t even be possible – to book an overseas holiday before its clear whether or not flights will recommence and which country will be allocated which colour.

OTHER LEISURE:

• Exercise bike and treadmill company Peloton has recalled about 125,000 treadmills in the US after the death of a six-year-old child and up to 72 reports of injuries ranging from cuts and bruises up to broken bones.

FINANCE & MARKETS:

• Chancellor of the Exchequer Rishi Sunak has ruled out a wealth tax. City AM suggests he is also watering down suggestions that he may crank up the take from Capital Gains Tax. Speaking of the general economy and the tax take therefrom, Sunak says ‘as we look forward to reopening over the coming weeks and months, there are signs to be cautiously optimistic and we can see that in the data. I’m hopeful that will be sustained through the rest of the year.’

• Sterling little changed at $1.3901 and €1.1578. Oil a shade lower at $69.22. UK 10yr gilt yield up 2bps at 0.92%. World markets stronger yesterday with London set to open up by around 10pts.

RETAIL WITH NICK BUBB:

Next: The much-awaited Next Q1 update is strong, although all the focus is on sales versus 2 years ago. On that basis, sales in the 13 weeks to May 1st were only 1.5% down, versus expectations of -10%, but that is heavily skewed by the c20% surge in the last 2 weeks post-lockdown. Next don’t think that surge will last, so they have maintained their sales guidance for the rest of the year and merely added the £20m outperformance in Q1 to their full-year profit forecast, for y/e Jan, to push it up to  £720m.