Langton Capital – 2021-05-24 – PREMIUM – Indoor trading, staffing, inflation, holidays, staycations, Cineworld etc.:
Indoor trading, staffing, inflation, holidays, staycations, Cineworld etc.:
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A DAY IN THE LIFE:
Not cutting the grass for a few weeks due to lawnmower issues has encouraged a level of dandelion growth that needs to be seen to be believed.
Add in an accelerated life-cycle, a single dry afternoon, a bit of sunshine, a modest breeze and little else and the air over the weekend was thick with dandelion seeds as, blizzard-like, the little germs wafted around before finding their way into every nook and cranny in our garden, the cracks in our paving, every speck of mud or dollop of rotted leaves in the gutters and pretty much everywhere else, including the mud under my fingernails.
All of which promises a monster surfeit of the weeds later in the year and, when you take into account just how many of the seeds had their flights cut short when they alighted in our water butts, you have to envision me, watering can in hand, sprinkling them liberally onto our sad looking flowerbeds come the summer.
Anyway, dry weather on the horizon. On to the news:
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PUBS & RESTAURANTS:
Indoor trading, the first week:
• Morning Advertiser suggests trading has been ‘quiet’.
• Although a number of operators and industry analysts have suggested that Monday and the early part of last week was good (CGA said Monday’s trade, admittedly on only one days’ trading, was ‘24.9% higher than on the equivalent Monday in May 2019. Food sales jumped 29.6% as consumers took advantage of the opportunity to eat inside again for the first time this year in England and Wales, while drinks sales were up by 21.2%’), the Morning Advertiser quotes operators as saying trade has been quiet (one saying “shockingly quiet”). The MA quotes on operator as saying he had just registered the ‘quietest day in five weeks’ and another as saying its unit had been ‘busier with only the outside open’.
• Langton comment: Nate Silver’s book, The Signal and the Noise, makes the good point that we can drown in data and, if we are unable to discern the signal for all the noise that surrounds it, too much data can be a bad thing. That’s maybe particularly true when ‘data’ comprises sound bites from single-site operators who may have local issues to contend with or who may simply have unrealistic aspirations. We haven’t seen data for a full week yet and, with pay week and a Bank Holiday coming up, there are grounds for both holding back on conclusions and for moderate optimism. The Euro football and more seasonal weather along with a busy staycation market could also be positive factors.
• The Telegraph reports that ‘as pubs and restaurants throw open their doors, Britons prove too scared to enter.’ It seems a little early to be making such suggestions but the paper quotes a number of operators as saying they were quite. The sample size is too small to make sweeping conclusions. The Telegraph says ‘with its reliance on the West End, city centre shoppers and tourists, Covent Garden is perhaps likely to be a laggard as the recovery gets underway.’ It says ‘in the first few days of indoor dining, OpenTable numbers indicate pubs and restaurants nationally had more customers than they did in the pre-Covid era, though sites in the capital are struggling more.’
• We mentioned this a while back but staffing issues have gone mainstream with the Sunday Times and the BBC both suggesting that hospitality is having some difficulties sourcing staff. The Sunday Times says ‘pub and restaurant bosses are pushing ministers to introduce a “coronavirus recovery visa” to persuade foreign workers to return, as they resort to increasingly desperate measures to attract staff.’ It says ‘bosses are offering generous perks to tempt workers. Steak chain Hawksmoor, which has eight restaurants in the UK, has offered employees up to £2,000 if they recruit friends. Caravan, the London restaurant chain, last week emailed customers to offer a £100 gift card if they successfully recommend staff.’
• UKH says ‘the government urgently needs to review the ‘shortage occupations’ list. We’ve also suggested an Australian-style coronavirus recovery visa for lower-skilled workers who don’t meet the point-based system [but] who are crucial to the recovery.’ The minimum required salary for allowing recruitment from overseas is too high to allow hospitality to recruit on existing salaries and there have been problems tempting Brits to do the jobs. The BBC says ‘pub chains Marston’s and Mitchells and Butlers both warned last week that they were finding it hard to recruit workers, blaming overseas staff returning home and the stop-start nature of lockdown forcing people to give up on the sector.’
• Langton comment. If it looks like inflation and acts like inflation, it’s probably inflation. Dusting off our economics text books from the 80s we note that inflationary pressures are like pushing on a piece of string. The force is going in the direction that you think it is, but the outcome is uncertain. If you have too much money chasing too few goods (or services), then prices will rise but, if there is a pool of unemployed labour, the forces will be mitigated.
• And there are lots of other reasons why people might suggest that inflation will not lead to inflation but, as the sentence suggests, it usually does. If Hawksmoor and Caravan are paying hiring bonuses, they will want to recoup this from customers via higher prices as they are unlikely to want to take the margin hit. If new employees need to be brought in on higher salaries than existing staff, this will cause ructions within the workforce and we could even get comparability tantrums and demarcation disputes, just like in the olden days. See also comments on discounting below.
• Some similar trends are evident in the US. The BBC reports on a restaurant in Texas offering ‘a $300 (£211) sign-on bonus for cooks and $150 for waiting staff.’
Covid variants, etc.:
• The race between the vaccine rollout (which should limit the damage caused by any further waves) and variants continues. The Guardian suggests that data suggests ‘Covid infection levels are showing early signs of an increase in England.’ The ONS says ‘there were early signs of an increase in the percentage of people testing positive in the north-east, Yorkshire and the Humber and the south-east in the week ending 15 May 2021.’
• A poll by Ipsos has suggested that families remain concerned that the pandemic will adversely impact their finances. The poll finds that one of the major attitudes (‘the important thing is to enjoy life today, tomorrow will take care of itself’) has shifted a bit due to Covid.
• Landlord Grosvenor’s investment fund is supporting expansion by its tenant Atis, a healthy salad bar concept. Grosvenor says ‘atis is an exciting newcomer to the grab and go food market who has innovated to adapt throughout the last year. Supporting businesses with significant potential, a clear growth strategy and values is exactly why we established our Tenant Investment Fund. We look forward to continuing this partnership as they grow.’
• The Telegraph reports that ‘just 15 people have tested positive for Covid-19 following government-run live event trials organised to see how mass gatherings can resume safely’. It says that this has raised expectations that all restrictions will be dropped on 21 June. The approximate 58,000 people in total who attended the events were required to take both a PCR test and a lateral flow test both before and afterwards. Multiple sources told the publication that 15 positive coronavirus cases have so far been detected.
• The Markit flash PMIs for May (see also Finance & Markets below) reports ‘the strongest upturns in demand were reported for hotels, restaurants and other consumer-facing services, though improvements were reported across the board in all sectors.’
• KAM Media says its research conducted before the 3rd lockdown was lifted suggested that 63% of customers expected price rises. It says ‘50% of UK pub customers said that it was ‘acceptable’ for pubs to increase their prices for the 1st month after they re-open from lockdown and 1 in 4 told us that they were happy to accept the price increase indefinitely.’ It will be interesting to see whether operators attempt to put prices up when VAT increases, first to 12.5% on 1 October and then to 20% on 1 April next year.
• Discounting. None to be seen on vouchercodes.co.uk and the like. Discounting had been endemic pre-Covid. Langton comment: When asked about price increases, operators have pointed out that the lack of promotional activity is the same as a price increase. This is inflation by another name. As more venues open and the ‘wall of money’ is tested (or starts to fade), discounting may return but, for the time being, there is none.
• Grocery deliveries. The Guardian reports that seven key players are competing to delivery groceries. Deliveroo has also entered this market. it says most operators are currently focused on London.
• PM Boris Johnson has told Tory MPs that it is still the government’s intention to scrap the ‘one-metre plus’ social distancing rule on 21 June. The Times quotes one MP who was at the 1922 meeting as saying of the PM ‘he seemed very upbeat about removing the one-metre-plus rule next month. He told us he fully realises that it is the biggest difference the government can make to letting pubs serve customers in reasonably normal conditions and that means getting rid of any capacity restrictions.’ The news will be a comfort to trade operators and bodies.
• A new Gen Z healthy food platform has launched in bid to tackle youth obesity. London-based SMASH has today launched an app that partners with food brands to offer discounts to under 25s as part of an initiative to increase demand for healthier food.
• Hospitality venues in Northern Ireland open today for indoor dining.
• TGI Friday is set to IPO later this year with a potential value of around £275 million says it private equity owner Electra plc.
• Admiral Taverns is reportedly interested in buying rival Hawthorn Leisure, which has been put up for sale by its current owner, property group NewRiver and comprises just under 700 pubs. NewRiver could IPO if it is not bought outright.
• Stonegate Group reports that it has appointed David Roberts to the role of Property Director.
• In the US, Entertainment Studios and Weather Group, parts of Byron Allen’s Allen Media Group, have filed a lawsuit against McDonald’s alleging a pattern of racial stereotyping and refusals to contract with some minority-owned businesses. Restaurant Dive points out McDonald’s ‘currently dedicates 4% of its national advertising spending to Black-, Hispanic-, Asian Pacific American-, women- and LGBTQ-owned platforms, but plans to boost that figure to 10% by 2024.’
• In the UK, animal rights protesters have tried to blockade four McDonald’s distribution centres across the country. They are calling on the company to commit to becoming fully plant-based by 2025.
• The Telegraph reports ‘Marks & Spencer is poised to start buying more food from countries within the European Union’ because it has faced problems transferring goods to Northern Ireland.
HOTELS & LEISURE TRAVEL:
The new normal:
• A YouGov poll suggests only 11% of UK adults were confident of having a ‘normal’ summer holiday abroad this year. It says that only 8% of respondents have an overseas holiday booked despite a large number of bookings being rolled over to this summer from 2020. Some 20% of respondents had a domestic holiday booked with 71% having no booking for the summer either in the UK or abroad.
• Langton comment: With 71% of the market to aim at, there is plenty of potential in the holiday market. But the critical question is whether a larger chunk of the 71% will opt for overseas holidays or for a staycation. The overseas tour operators and the UK hotel and hospitality industries will be hoping for different outcomes. See our comments on Spain below. However, the recent comments on amber countries and the suggestion that the number of ‘green’ countries will not increase much, if at all, in the short term, weigh in favour of the domestic market.
• Spain has said UK residents will be allowed to enter the country from today. The Spanish Tourist Office says travellers from the UK are allowed to “freely enter Spain for non-essential purposes, such as tourism and any other purpose” from May 24. As we have mentioned before, it takes two to tango and, with Spain being on the amber list as regards UK regulations, the official advice is not to travel there other than for emergency reasons. Holidays, whilst not banned, would appear to be banned. UK residents returning from Spain would have to quarantine for 10 days at home and take two PCR tests.
• The BBC looks at the other side of the coin, saying that ‘the owners of hotels and holiday cottages in Somerset are warning their summer bookings may not be as high as expected, after the government lifted restrictions on foreign holidays.’ It says Somerset operators ‘are reporting that many people are cancelling bookings in Somerset when they manage to secure a holiday in Portugal or Spain.’ We have commented previously that some would-be holidaymakers are booking both UK and overseas holidays in the knowledge that they will ultimately be cancelling one of them.
• Heathrow has said it will open Terminal 4 to deal with arrivals from red list countries. This should restrict mixing in arrival halls. Heathrow says ‘red list routes will likely be a feature of UK travel for the foreseeable future as countries vaccinate their populations at different rates. We’re adapting Heathrow to this longer-term reality. While opening this facility will be logistically very challenging, our hope is that it will enable Border Force to carry out its duties more efficiently as passenger volumes increase in line with the green list. Until then, the current red list system will remain in place.’ Langton comment: This makes sense but Heathrow is one of a limited number of airports that is big enough to segregate arrivals on this basis. For many airports, preventing arrivals from mixing in arrival halls, baggage reclaim and at the UK border may be effectively
• Eurocontrol says it does not expect Europe’s air traffic to return to its 2019 level until 2025. It says ‘we’ll probably have around 50% of 2019 traffic in 2021. Traffic will only recover to 72% of 2019 levels by the end of next year, and will only get back close to where we were pre-pandemic by 2025.’
Other travel news:
• STR reports that the US hotel market demand was at its highest level in more than a year in the week to 15 May. STR says ‘hotels [in the US] sold more than 22.4 million rooms — nearly 1 million more than the previous week.’
• STR says bad news trading had kicked in by this time last year. It says ‘in April 2020, U.S. hotels set a record for a year-over-year decrease in revenue per available room. In the same month in 2021, hotel RevPAR rose by more than 200%.’ It says, reasonably, that ‘given the wild swings in data, it’s more insightful to benchmark U.S. hotel performance in 2021 against 2019 numbers. Since the start of the year, monthly U.S. hotel RevPAR change has stayed negative compared to the same months in 2019, but the decreases are lessening.’
• Cineworld has updated on its reopening saying it is ‘pleased to report a strong opening weekend in the UK, led by the success of Peter Rabbit 2: The Runaway.’ The company says ‘this weekend’s performance went beyond our expectations as customers were eager to return to the movies and enjoy the full movie experience, including the traditional popcorn which led to strong concession income.’ The company says ‘in the US, following the opening of additional 167 cinemas, over 97% of our cinemas (502 sites) have resumed operations. In ROW, Poland and Israel will be opening at the end of the coming week and the company anticipates that most if its cinemas will be open by the end of the month.’ CEO Mooky Greidinger says ‘we are thrilled to have our cinemas back in business in the US and UK and to welcome movie fans back to the big screen for an exciting and full slate of films.’ He says ‘we are
• The Sunday Telegraph reports that customers seem to be showing some caution when it comes to returning to theatres, cinemas and even pubs & restaurants. It says ‘for the first three days cinemas were able to open in England, Wales and Scotland, box office takings came in at just under £2m, compared to £4.7m on the equivalent days in 2019 – although cinemas were only able to operate at 50pc capacity since the reopening.’ A poll undertaken by pollsters Find Out Now, ‘showed one in three were less likely to socialise indoors over the next week following the Prime Minister’s remarks. Among the over-65s, a crucial group spending more on leisure and a demographic that has accumulated more lockdown savings, the proportion rises to 40pc.’
• Techcrunch points out that Spotify is moving further into audiobooks. It says a new partnership will allow existing Storytel subscribers to connect their account through Spotify to access their audiobooks within Spotify’s app.
FINANCE & MARKETS:
• Flash PMI’s for May point to a further recovery in the UK economy. Markit says ‘the rate of expansion was the fastest since the UK Composite Output Index began in January 1998, reflecting strong contributions from both manufacturing and services activity.’ The Composite Output Index rose to 62.0 in May, from 60.7 in April. Manufacturing was 66.1 in May, up from 60.9 in April and the Flash UK Services PMI was 61.8 in May, up from 61.0 in April.
• Markit says ‘the UK is enjoying an unprecedented growth spurt as the economy reopens. Factory orders are surging at a record pace as global demand for goods continues to revive, and the service sector is reporting near-record growth as the opening up of the economy allows more businesses to trade. Business confidence has meanwhile hit an all-time high as concerns about the impact of the pandemic continue to fade.’
• It adds ‘the output and order book growth seen in May, and record level of business optimism, are consistent with GDP rising sharply in the second quarter and for strong momentum to be sustained through the rest of the year, albeit with the current quarter likely representing a peak in the growth rate.’
• The UK has offered a free trade deal to Australia despite the impact on UK farmers.
• The CBI has said business and government should put the bitter divisions of Brexit behind them and focus on building a fairer economy.
• Sterling mixed at $1.415 and €1.1613. Oil up at $67. UK 10yr gilt yield down 1bp at 0.83%. World markets mixed on Friday. London set to open up around 17pts.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were dominated by the backlash against the BBC over the Princess Diana interview: eg “Spencer: Now police must probe the BBC” in the Daily Mail, ”My pain over Diana” in the Times (focusing on the latest outburst by Prince Harry), “BBC faces shake-up in wake of Bashir row” in the Telegraph and ”Fears of BBC “feeding frenzy” over Diana report” in the Guardian. The FT ran with an interview with the CEO of AstraZeneca, defending the Covid vaccine (“Soriot lashes out at “armchair generals” attacking AstraZeneca”) as its main story, but it also highlighted that “Diana revelations offer opening to BBC’s enemies”.
• Saturday’s Press and News (2): In terms of Retailing and other stories, the better than expected ONS Retail Sales figures for April got plenty of uncritical coverage, eg with the FT flagging “”Fast and full” recovery in prospect as shopping hordes pour back into stores” and a big spread in the Times headlined “Spend, spend, spend: watch this space as shoppers fuel recovery” (noting that the April rise was “pegged on Clothing sales”). There were also plenty of upbeat previews of the M&S results on Wednesday, eg with the Times flagging “Online boost set to get the sparks flying at Marks”, whilst M&S was the “Share of the Week” in the Daily Mail. The Daily Mail, however, had a bigger investment feature on Next (“What’s NEXT for retail champ?”), arguing that “Next may never be another Amazon. But it could be a big British tech success story”.
• Saturday’s Press and News (3): The Telegraph went to town on a feature interview with JLP boss Sharon White, highlighting her view that Business Rates should be replaced by a land tax as its main Business story, whilst the main feature was headlined “Adapt or die: the woman leading John Lewis out of its nightmare”, although the Telegraph had a comment column underneath flagging that “White needs more than optimism to keep the High Street darling afloat”. The Times had a feature interview with the American boss of the fast-growing burger chain Five Guys, John Eckbert, flagging that his mentor is Charles Dunstone, of Carphone Warehouse fame. Talking of restaurants, the FT and the Telegraph highlighted that the Electra investment trust is planning to float both TGI Friday’s and Hotter Shoes later this year, with Lex column in the FT looking at the background to the move by the once mighty
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were written well before the news of the UK’s dismal performance in the Eurovision Song Contest on Saturday night: the Observer ran with the BBC independence worries (“We must act to tackle appalling failures at BBC, warn ministers”), the Sunday Telegraph went with ”Vaccines effective against Indian variant”, whilst the Mail on Sunday also highlighted that “Minister: Jab beats variant” and the Sunday Times flagged that “Herd immunity was UK policy, says Cummings”.
• Sunday’s Press and News (2): In terms of Retail stories, the main focus was on Marks & Spencer: the Sunday Times flagged that the final results on Wednesday will reveal that it is pinning its hopes on the new “MS2” fast fashion operation to reverse the profit slump, the Mail on Sunday highlighted that M&S increased its Online clothing market share in the second half of last year and the preview in the Observer was headlined “Marks & Spencer has battled through the storm, but is far from home and dry”, whilst the Sunday Telegraph noted that M&S is set to buy more food from the EU, “as it battles red tape in Northern Ireland”. The Questor investment column in the Sunday Telegraph was headlined “Yet another top team is trying to revive M&S. Will they succeed where others have failed?” (concluding that M&S shares are a Buy). The Sunday Telegraph also had a feature
• Sunday’s Press and News (3): In terms of the annual Sunday Times “Rich List”, the key findings were actually leaked on Friday, in the Times, but if you’re interested in knowing why Philip Green’s estimated fortune has only fallen from £930m to £910m, despite the final collapse of Arcadia, you’d have found out nothing from the lame commentary in the full magazine supplement. Nevertheless, Philip Green still fell from 154th to 177th position in the ranking, putting him well behind his friend and rival Mike Ashley, on £2.718bn. Other Retail fortunes of note: the Issa brothers (of EG/Asda) on £4.68bn, Tommy Morris and family (of Home Bargains) on a hefty £4.36bn, Simon Arora and family (of B&M) on £2.524bn, Chris Dawson and family (of The Range) on £2.05bn and Mahmud Kamani and family on £1.422bn. Interestingly, the fortune of the Perkins family behind Specsavers was “re-set” from
• Sunday’s Press and News (4): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“Furlough worked. Now it will be hard not to make it a habit”), in which he noted that “the Chancellor’s successors may feel they have to intervene too”, to prevent unemployment rising too far. We would also give a shout-out to the column by the Economics correspondent of the Observer, Philip Inman (“Johnson’s chief legacy may well be to pave over England”).
Today’s News: Ted Baker has announced that it has had to put back its finals for y/e Jan for 2 weeks (from this Thursday to June 10) for audit reasons, although it has been able to confirm that the “full year results will be in line with consensus expectations”. Frasers Group has announced that its share buyback programme continued on Friday, but it has made no comment so far on the weekend press speculation about a bid for Hugo Boss and there is no news so far on the rumoured IPO of Made.com.
This Week’s News: The latest monthly Kantar grocery sales figures are out tomorrow morning, shortly after the Mothercare pre-close update and the interims from the West End landlord Shaftesbury. Wednesday brings the much-awaited M&S finals and the British Land finals, whilst we get the Pets at Home finals on Thursday.