Langton Capital – 2021-06-08 – PREMIUM – Trading, consumer spending, growth, staffing, delivery, WFH, hols etc.:
Trading, consumer spending, growth, staffing, delivery, WFH, hols etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Langton is back in London for a spell and, whilst ‘normality’ is perhaps more relative than it is usually, a short period of walking around in the blazing sun suggests that King’s Cross is still mostly deserted, Tubes are quiet and footfall, though building, is low. But the number of street people and Chuggers is perhaps running at 150% of 2019 levels. Maybe that’s a lead-indicator, let’s hope so.
Anyway, that’s not at all like the delightful (not to say twee and vaguely Hot Fuzz-like – where the neighbours ring the police if you don’t have ‘your man’ cut your grass weekly) Yorkshire villages that we spent much of last week driving and walking around.
We were in Osmotherley but does anyone know Yarm? Surrounded on three sides by Country Durham, it’s a bit of a find. Langton did audit work up there in Stockton, Stokesley and the like) when Adam was a lad and remembers the town, twinned with Eaglescliffe and Egglescliffe (I kid you not) just on the other side of the river.
And, nearer to our dear home town of Hull, Londesborough? The kind of village where there’s no parking on pain of death and they put bulls in the surrounding fields to stop you walking there. No pub, but pretty.
And, talking about the North East, just how many calories are there in a Chicken Parmo? There must be four thousand. It’s like a pizza with every topping you can think of and double cheese – but then the base is a flattened chicken breast or two (or maybe three), instead of dough. Anyway, enough of that. On to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
CHANGED EMAIL FORMAT:
The Premium Email is unchanged. The Free Email is written and pre-sent the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email.
PUBS & RESTAURANTS:
• Insolvency specialist Cork Gully has suggested that the number of business failures could be elevated once government support is withdrawn, before returning to normal, pre-covid levels in the year to March 2023. In the near term and the recent past, the accountant points out that the number of insolvencies was 52.6% lower in Q1 this year compared with last. There were some 307 insolvencies in the hospitality industry in the UK in Q1. In April, some 128 insolvencies are thought to have taken place, a rise on earlier monthly numbers. Interpreting the data and looking forward, Cork Gully says that ‘two peaks in the numbers of insolvencies are expected in July and October, caused by the end of the temporary measures contained in the Corporate Insolvency and Governance Act 2020 on 30 June, and the end of the CJRS on 30 September. In July, we forecast 222 hospitality insolvencies (68.1%
• Langton comment: Cork Gully says ‘high numbers of insolvencies are also forecast in November and December 2021, as the impacts of the end of government support measures continue to feed through.’ It says that ‘316 and 288 hospitality insolvencies are forecast in November and December, respectively.’ These numbers are clearly considerably higher than both last year and 2019.
• Interestingly, Cork Gully says that insolvencies in the food service sector, including pubs, could total around 1,400 compared to just 109 in the accommodation sector. This is partly as a result of tougher trading but is also due to there simply being far more pubs, restaurants, cafes, bars and coffee shops than there are hotels. Cork Gully concludes ‘looking ahead to forecasts for insolvencies in late 2022 and 2023, the number of hospitality business failures is set to return to near pre-covid levels, with an average of 233 per month in the 12 months to March 2023.’
• Lumina Intelligence has said that the UK eating out market should have made a full recovery by the end of 2022. It says that the UK eating out market will grow by 33.4% in 2021, to £63.6bn. The market should increase in size by a further 44.5% in 2022 to exceed its previous peak in terms of size (£91.3bn in 2019). The forecast (in common with all forecasts) is very dependent on its inputs. Lumina says ‘with all restrictions on the hospitality sector set to end in June, attention now turns to market recovery.’ It says ‘in the interim, we will see slight polarisation between channels, with on-the-go and relatively low-ticket solutions well placed to continue to capitalise on demand for takeaway, as well as combat any recessionary trading.’
• Langton comment: The GIGO rule holds but, on central assumptions, the exit rate (i.e. numbers in December) in 2022 should be higher than 2021. And 2022 should (we hope) be a full year whilst 2021, to all intents & purposes, started in April – and then only at half speed. The key point may be that the assets generating the £91.9bn mentioned above, could be owned by different people to those that held them in 2019. Shareholders have been diluted by Rights Issues and placings. We may, at some point, see some more debt being swapped for equity and landlords and the government are owed substantial sums by business.
• Barclaycard’s latest consumer spending report suggests that spending rose by 7.8% in May versus the same month two years ago. It says this is the highest rate of growth recorded since the start of the pandemic. It says that spending on both essential and non-essential products rose as footfall increased. Spending in supermarkets rose by 17.7% and by 25.5% on resorts and accommodation. It reports that spending in restaurants and bars rose from last year but were still down on 2019 by 53% in the case of restaurants and by 19.4% in the case of bars.
• Langton comment: This is perhaps broadly as expected. Hospitality could not really be up or indeed level with 2019 as it only opened for indoor trading mid-month. The drop in food is greater than that in drink. This is again as expected though, in this case, it may have been skewed if Barclaycard did not pick up that cash transactions will have been replaced by plastic (with order at table apps etc) in the case of pubs more than it did in restaurants. Meals will have been paid for on plastic in the past more than drinks at the bar. The bottom line, however, is that, though hospitality is not yet fully benefiting, the consumer is spending once again.
• The British Institute of Innkeeping released yesterday the results of its latest survey of members showing that ‘74% of survey respondents are trading at less than 75% when compared to 2019 figures with trading restrictions, meaning they are loss-making or break even at best – not a sustainable position for any business.’ The BII says that ‘staffing continues to be one of the main challenges, with 53% saying they cannot recruit enough staff to cope with the additional workload created by Covid restrictions, and 35% say they have lost staff as soon as they have returned from furlough.’
• The BII also covers the debt position, saying that ‘to enable their survival over the course of the pandemic and the months of closures for their pubs, nearly 60% [of respondents] have had to take a Bounce Back loan to survive and 24% still have unpaid rent debt that they are now also facing.’ It says ‘almost 50% have pandemic specific debts of over £20k per pub and despite using their reserves, in many cases using their savings and borrowing from their own pensions, half of these have debts of between £40k and £80k per pub.’
• Further comment. The BII goes on to call for restrictions to be fully lifted from 21 June. It says, if this does not happen, then ‘11% of businesses will fail, 43% will be loss-making and will continue to take further debt, whilst 34% will only manage to break even with current regulations in place.’ It calls for an extension in the reduction of business rates and an extension also in the 5% rate of VAT. BII CEO Steven Alton says ‘without real certainty of trading once again, free of restrictions, the vital role they are able to play at the heart of our nations’ recovery is in jeopardy. We are calling on Government to now deliver against its roadmap, allowing our pubs to begin their long road to recovery, before it’s too late.’
• In the US. Investment analyst Jefferies says that casual-dining chains are poised for “golden years” of growth in market share and LfL sales. This because a number of operators have failed and the pie will be shared out across survivors. The same will likely be the case in the UK.
• London. Union Unite has said that the staff shortage in the London hospitality industry is “largely a self-inflicted crisis of the industry’s own creation.” It points to low pay and zero hours contracts (rather than Brexit & Covid) as the main causes of the shortfall in staff numbers. This seems a bit of a stretch. Unite does say ‘many furloughed workers went back to their country of origin and have decided not to come back’. So far, so good. But it goes on to say ‘…to a sector which previously treated them so badly.’
• Langton comment: Unite calls on Sadiq Khan to do something. This isn’t massively helpful but it does hit the button when it says that ‘large numbers, who found temporary work in other sectors, have decided there are better options available to them.’ High staff turnover is a feature of the hospitality industry. This arguably isn’t because the jobs are awful but rather because many of the staff are very young (they may still be at university) and they have not yet alighted on (or even chosen) their ideal career. Langton is aware of two, just-post-university age bar staff who have taken jobs in coding and in the NHS respectively.
• Inflation. We are a bit of a stuck record but, if Unite is even partially successful in its lobbying, hospitality wages are likely to rise and increased costs will, where possible, be passed on to customers. Unite says ‘visas granted for hospitality jobs should be conditional on pay rates of at least the London Living Wage and guaranteed contractual hours.’ It’s economics 1.01 that, if you can restrict supply, you can push up prices. Unions seek to do this through closed shops (or by lobbying against immigration or free movement) and professional bodies do it through exams and high entry standards.
• The Telegraph reports that ‘labour shortages are spilling into the retail sector’. Sadly, reduced demand could take care of that problem. The same solution, hopefully, is not likely for hospitality.
• In the US, the Bureau of Labour Stats says that food and drink venues added 186,000 jobs in May. This is the fifth month of growth. The jobs market Stateside is tightening and some commentators have suggested the ‘crisis’ is due to benefits being provided by the state.
• Restaurant Dive in the US reports Paytronix as saying that around 25% of online orders placed in 2020 were for delivery. It says ‘restaurants that used their own couriers reported about 44% of orders were for delivery, while operators that exclusively use third-party delivery platforms only had about 12% of orders placed for delivery.’ Spend per head is higher for delivery. RD says ‘delivery customers spent 21% more at restaurants with self-delivery than takeout customers on average except for spring 2020, when takeout orders surged due to the onset of the pandemic. When ordering for delivery through third parties, delivery guests spent about 32% more than takeout patrons before the pandemic.’
• We would suggest this is:
o A large and growing market.
o But it is unclear as yet just who is going to make money in it (if anybody).
• The ‘loyalty’ conundrum. Competition is intense across delivery platforms in certain markets in the UK, leading to questions as to whether loyalty is a real thing or whether demand will, ultimately, be determined by price rather than delivery branding. In the US, RD quotes Paytronix as saying ‘delivery, however, has more loyal customers, according to Paytronix. The average delivery customer orders 2.5 times per month compared to the average takeout guest, who orders 2 times per month.’ Maybe loyalty and stickiness will differ over time. The above comments are made from the perspective of the restaurant rather than the delivery platform (to which the operator may be largely indifferent).
Demand (working from home):
• Apple CEO Tim Cook has told staff that, by September, they should be working at least three days a week in the office. The BBC reports that ‘staff are demanding more flexibility, according to an internal letter obtained by news site The Verge.’
• The BBC reports the Centre for Cities as saying that the five-day office week could become the norm again within two years. This is all well and good but operators depending on commuters to buy coffee, sandwiches and a drink after work may not be able to last that long.
• Langton comment: Telling a drowning man that he can come up for air in an hour or two is no good in practical terms. If the patient is to be kept alive, then some help may be needed from landlords and the government. The Centre for Cities told Radio Five that it expects we ‘will see three or four days a week in the office as the UK recovers.’ Paul Swinney, director of policy and research, says ‘over the longer term, I’m quite hopeful that we will see people return five days a week. The reason for that is, one of the benefits of being in the office is having interactions with other people, coming up with new ideas and sharing information.’
Company & other news:
• The Restaurant Group has announced that chair Debbie Hewitt is to step down from the board and leave the company at the end of the year. CEO Andy Hornby says ‘I would like to thank Debbie for the significant contribution that she has made to the business. She is a proactive Chairman who has built and led a high-quality Board and proactively engaged with all stakeholders throughout her tenure.’
• Nightcap has updated on sales saying it is seeing ‘strong trading despite restrictions.’ The company says sales ‘for the three full weeks since the reopening of indoor hospitality, being 17 May to 6 June 2021 inclusive, saw growth of 92% when compared to Group revenues recorded in the equivalent weeks in the calendar year 2019 (16 of the 19 premium bars had been established and were open at that time) and a 53% growth when compared to Group revenues on a like for like basis for the same time frame. The strong sales performance since re-opening is significantly ahead of the Board’s expectations, given that the bars have restricted capacity due to social distancing requirements.’
• Further comment: Nightcap, which listed earlier this year, says ‘on the back of the strong recent trading performance, the Group continues to expand its opening pipeline for the next three years. Our management teams are travelling around the UK looking for new properties and we have a number of sites that are currently in legal negotiations across several of the Group’s brands.’ The company says ‘whilst we look forward to all COVID-related restrictions being lifted on 21 June 2021, in line with the government’s previous guidance and the bars being able to trade to their full potential, we now have confidence that all sites will continue to trade well even if the current capacity restrictions remain in place.’
• Remy Cointreau has reported that profitability during its financial year to end-March 2021 was ‘close to all-time highs’ and says that it is increasingly confident in its guidance. In the year to end March 2021, Rémy Cointreau posted sales of €1,010.2 million, up 1.8% on an organic basis (at constant currency) and down 1.4% on a reported basis. The company says ‘this performance demonstrates the Group’s resilience amid the Covid-19 pandemic.’ Re the outlook, the company says ‘in a still fragile and uncertain public health, economic and geopolitical environment, the Rémy Cointreau Group has emerged stronger from the Covid-19 crisis. For financial year 2021/22, the Group is confident in its ability to continue to win market share in the exceptional spirits sector. In particular, the Group is anticipating an excellent start to its financial year, underpinned by very favourable base
• Brand Finance has released its estimates as to the world’s most valuable spirits brands and beer brands. Corona heads beers, followed by Heineken, Budweiser and Victoria and Chinese brands dominate the spirits category with Moutai, Wulianove and Yanghe in numbers one, two and three positions respectively. Jack Daniels is no6 and Johnnie Walker is no10.
• Boxpark is to open a site in Bristol.
• UKH CEO Kate Nicholls has said that the government risks ‘”long Covid for the economy, if you’re not very careful”.
• See comments on customer credit notes re travel below. Thankfully this isn’t much of a problem for domestic foodservice outlets (although hotels, some wedding and event planners etc will have held customers’ money over – and, quite possibly, they will have spent it).
• Cain International-owned Prezzo is to open its first site since 2018. The site is in Islington, North London.
• The latest IWSR Drinks Market Analysis report suggests that ready-to-drink products will be bigger than wine in the US shortly.
• Surrey-based Hogs Back Brewery is offering drinkers a free pint of Three Hogs, its beer specially brewed for the Euros, if the England squad lift the nation’s spirits by reaching the tournament final in July.
HOTELS & LEISURE TRAVEL:
• These matter as a poll of more than 5,000 UK adults undertaken by You Gov has found that 43% of respondents ‘definitely would not’ go on holiday to a destination that moved from the government’s green list to amber. Only 5% said that they ‘definitely would’ go on holiday to a country that moved in the opposite direction. Sky amongst other media outlets reports ‘furious’ Britons returning in a hurry from Portugal in order to miss its move to Amber (as this would involve a period of personal quarantining). Whether this leads to consumers taking ‘revenge’ UK breaks remains to be seen.
Implications & complicating factors:
• The Guardian reports ‘more tourists are scrapping plans for this year – and saving up for a bigger trip in 2022.’ It blames uncertainty. Travel Weekly quotes Blue Bay Travel as saying some holidaymakers are already booking 2023 trips.
• Staycation demand is likely to be buoyed. Accommodation may sell out and day trips may be a big part of many families’ summer plans. This will be positive for the UK’s hotels, pubs & restaurants.
• It takes two to tango. You may be allowed to visit some destinations – but they won’t let you in. Similarly, both Spain and France have moved to ease access for Brits but, as both destinations remain on the amber list, travel to them is meant to be only for emergency reasons or for work.
• Carnival Cruise Line has confirmed that it plans to re-commence US ops from Texas early next month.
Other travel news:
• You Gov reports that around 851k would-be travellers in the UK are currently holding credit notes totalling £781.5 million.
• Langton comment: This is debt by another name and it is a massive number. It represents cancelled holidays from periods during lockdown where customers have either not asked for or have not been given their cash back. The data, which was commissioned by On the Beach, suggests that 8.1 million people had a package holiday cancelled due to the pandemic with around half receiving a full refund and about 11% accepting a credit note. The remaining balance of people, presumably, has taken a delayed holiday or is shortly to do so. On the Beach says that owing money to customers isn’t good for confidence.
• On the Beach CEO Simon Cooper says ‘we’re over 14 months on now and yet the knock on impact of refunds on consumer confidence continues to affect the industry. Even now, only a third of people say they would consider booking a holiday to a green list destination, so we have to do something to restore their confidence. Without it the industry will continue to be in trouble. There are millions of people still holding these IOUs, in some cases over a year later with very limited opportunity to go on holiday. This is all because some travel companies actively avoided offering cash and used their customers’ money for future holidays as cash flow. No one would expect to receive a loan for this long and pay no interest, so why should these companies continue to hold onto their customers’ money for future holidays?’
• Travelodge officially opened seven new UK hotels yesterday.
• US journal Destination Analyst reports ‘fuelled by feelings that the worst of the virus is behind us, a pandemic record-breaking 80% of American travellers now say that they are ready to travel.’
• Tech Crunch points out that Facebook is buying Unit 2 Games.
• Google has been fined €220m by French authorities for the abuse of its advertising power.
FINANCE & MARKETS:
• Accountant BDO reports that UK business confidence in May was at its highest level since June 2014. Business optimism (hopefully) leads to investment, jobs, consumer confidence and spending in roughly that order.
• The Halifax has reported that UK house prices rose by 9.5% in the year to May. It says ‘there’s greater demand for larger properties with more space.’
• Sterling little changed at $1.4155 and €1.1622. Oil down at $70.95. UK 10yr gilt yield up 2bps at 0.81%. World markets down for choice yesterday with London set to open down around 2pts.
RETAIL WITH NICK BUBB:
• BRC Retail Sales Watch: We said yesterday, ahead of the overnight BRC-KPMG Retail Sales for May, that with (compared to April) a tougher comp of “only” c6% down last year, we looked for a bounce of 9%/10% in total sales, but we were much too gloomy, as the growth was nearly 17% (to deliver impressive 10% growth on 2019, even higher than the 7.3% growth in April on 2019). The key Food/Non-Food split for May (the 4 weeks to May 29th) is buried in the 3-month moving averages and the 2 year comps, but it looks to us as if Food sales were broadly flat year-on-year, despite the return of hospitality, given the Bank Holiday warmer weather boost at the end of the month. That means all the growth last month came from Non-Food and, although Furniture and Homewares remained the key sectors on a 2 year view, the year-on-year recovery was clearly driven by Clothing, post-lockdown.
• Today’s News: Watches of Switzerland (which has a market cap of £1.9bn now) has announced that along with its finals on July 8th (for y/e April) it will also be issuing “an update on the Group’s long-term strategic direction and priorities”, with a separate presentation and call with analysts. And yesterday morning, Tesco chose the odd time of 7.30am to issue a short statement to announce that it was ending its 3-year-old buying alliance with Carrefour, without any further explanation.
• This Week’s News: Thursday brings the delayed Ted Baker finals, the delayed Card Factory finals, the Morrisons AGM and the Signet Q1 results (in the US). On Friday we get the Naked Wines finals and the start of the European Football Championship in the evening.