Langton Capital – 2021-06-10 – PREMIUM – Inflation, 21 June, Euros, labour issues, Comptoir, staycations etc.:
Inflation, 21 June, Euros, labour issues, Comptoir, staycations etc.:
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A DAY IN THE LIFE:
There was a traffic jam on London Wall yesterday and I stopped to take a photo.
Cars were sounding their horns at each other, vehicles couldn’t get out of Blomfield Street and bicycles were swerving in and out of the traffic and banging on car rooves, it was just like the good old days.
Sadly, though the tumbleweed didn’t make an appearance until gone 6pm, the busy-feel didn’t last and, by the evening, it was back to ‘normal’.
A mixture of Covid, a desire not to commute and the sticky, thirty-degree heat keeping people off the streets, no doubt but, for the pub, bar, café and sandwich shop owners in the area, the precise reasoning may be academic.
Still, if Langton liked a bet, it would say that the heat, Covid and the desire to work from home will disappear slowly and in that order. On to the news:
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• To a computer, inflation is no big deal. You increase input costs and output prices by 2%, 3% or whatever but, in practise, it’s a real problem.
• The strong (be they labour unions or companies) push through price increases and resist cost pressures in order to widen margins and the ‘weak’ (i.e. individuals – or indeed capital – on fixed incomes or without labour representation or companies with strong suppliers and bullying customers) suffer what they will.
Where are we now?
• Putting all of the ‘it’s different this time’ comments to one side, stimuli (some hanging over from the banking crisis 12+ years ago and some more recent) mean that, in simple, 1970s jargon, we have ‘too much money chasing too few goods’ (or services).
• Whether caused by external shocks such as war, famine or pestilence, or be more insidious internal factors, this has always led to inflation. And there is no particular reason to think that this will not happen now.
• At the Bank of England, Haldane (who is leaving and who may be freer to speak his mind than he was before) thinks inflation is a problem and Bailey (who may be under some pressure not to ‘rock the boat’ re prices, Brexit or anything else) thinks it isn’t.
• Langton (where every pound is a prisoner) knows where it would put its money.
• The problem with anecdotal evidence is that it can be rubbish. But, sadly, ditto for official stats and government prognostications.
• And anecdotal comments are useful because they’re quick and real-world (in that much-quoted Hancock phrase).
• Chinese producer price inflation is running at 9%. China is big. It is also the workshop of the world and, as such, if its products cost more, it will raise prices. Furthermore, as the workshop of the world, if China is paying more for its copper, steel and other commodities, then so are all the rest of us (see below).
• Nearer to home, The Daily Mail among others has reported that lorry-driver wages are up 20% as a result of Brexit-related labour shortages. Transport costs (as we have seen with previous oil price hikes) feed through to inflation fairly rapidly. The paper says ‘Covid-19 has seen no new British truck drivers trained within the past 12 months.’
• Commodity prices have risen sharply. Many commodity prices have seen sharp increases over the course of the last year, causing concern that this will lead to higher levels of inflation.
• These price increases will eventually funnel through the food and drink industry and onto the consumer. Lean hogs have seen the most startling price rise – up 149% over the last year, followed by corn up by 102%.
• Other food source materials such as soybeans are up 79%, sugar has risen by 46% and wheat is up 41%.
• Drinks such as coffee also face climbing prices, with Arabica increasing by 67% and Robusta up 40% in the space of a year.
• These significant price rises will eventually have to feed through to the consumer, and general consensus seems to be that they are going to continue to rise, at least in the near term.
• We might be pushing on a piece of string, here, but we are definitely pushing.
• Politicians aren’t talking about inflation. Perhaps just as well. At the Bank, Andy Haldane says things are ‘pretty punchy pressures on prices’.
• Haldane says that could lead the Bank to cut QE. Cutting QE stops downward pressure on interest rates and, if QE is actually reversed, then interest rates will be under pressure to rise.
• Haldane told LBC radio ‘we could start tightening the tap on that, slowing down the amount of money we’re printing, and ultimately, perhaps even starting to turn that around.’
• He has also said Britain’s housing market was “on fire”
Evidence of rising prices:
• Input cost increases lead to output price rises. That is unless something like technology or new discoveries (of sources of labour, materials etc) intervenes but, in the short term, that is unlikely to prevent prices from moving from producers to consumers.
• The Telegraph reported last month that ‘shoppers face higher grocery bills as more EU red tape looms.’ It says ‘consumers are facing higher bills for their weekly grocery shop as EU red tape and the commodities boom threaten to push up the cost of food.’
• Companies will try to find alternative sources for their products and they will improve their supply chains – but they will have been doing this for decades anyway.
• In the US, NRN reports that Chipotle bosses have told a broker conference that they have ‘raised their menu prices by 3.5-4% last week to offset the costs of its minimum wage increases. Those will increase to an average of $15 an hour by the end of the month, or a range of $11-$18 per hour.’
• Chipotle said it ‘made sense in this scenario to invest in our employees and get these restaurants staffed and make sure that we have the pipeline of people to support our growth.’ It says ‘we’ve taken some pricing to cover some of that investment.’
• Langton was paying £4 for ice creams last week, £13.95 for pie and chips and £5+ for a pint of beer – and this in the provinces.
PUBS & RESTAURANTS:
21 June concerns:
• Chancellor Rishi Sunak has indicated he is willing to accept a delay of up to four weeks to the final stage of England’s reopening roadmap. This would push the dropping of all restrictions out to 19 July.
• Langton comment: The government has said that unlocking (this time) would be irreversible – but it never promised that there could not be any delays. A decision will be announced on Monday. The Guardian quotes a Treasury source as saying ‘the Treasury’s main thing is that freedoms are irreversible and businesses have clarity.’ That would be helpful. The Guardian says ‘the Treasury is understood to prefer a clean delay to the 21 June reopening rather than a confusing “halfway house” where some measures are lifted but others kept in place.’ This could add to confusion.
• The idea of a two-week delay has also been floated. The prospect of any delay may well prompt howls of protest from some operators, trade bodies and MPs. But, in all honesty, it may not make a huge amount of difference. The spectrum of operators, from the good to the bad to the still shut, is arguably wider now than it has been for many years and the capacity to cope with pandemic problems is similarly stretched between those who will prosper despite problems and those that may fail, whatever is done to help them.
• In the very, very early days of the pandemic, Sunak said he (meaning the taxpayer) could not and would not seek to save every business. He was perhaps slapped down for political reasons and hasn’t made any such frank statements since. But he wasn’t altogether wrong and delays won’t kill good businesses in the same way that a more rapid reopening will not save bad ones.
• The Night Time Industries Association (NTIA) will ‘challenge Government’ if denied opening on 21 June, claiming that any delay will place businesses on a ‘financial cliff edge’.
• Andrew Lloyd Webber has said will re-open his theatres on 21 June, even if he is arrested (and is presumably fined or thrown in prison or both) for doing so. Much as we would like to see restrictions lifted….
• Lloyd Webber told The Telegraph ‘we are going to open, come hell or high water.’ Theatres are allowed to open now but, with restricted capacity, they may not be viable.
Other covid-related issues:
• Responding to changes in licensing regulations that will extend automatic off licence flexibility to end of Sept 2022 and increase the annual Temporary Event Notice allowance from 15 to 20 for 2022 and 2023 and allow hospitality operators to trade more easily as they recover from the pandemic, UKH has said ‘these amended regulations are positive news for businesses that have been hard hit over the course of the pandemic. UK Hospitality has pushed hard for these extensions…all and any support for the sector will be vital on the long road to recovery and these measures mean businesses can continue to be flexible with how they operate and utilise additional opportunities of generating valuable revenue. Temporary Event Notices are particularly helpful for venues that want to hold one-off events or celebrations, so boosting the number permitted over the next two years is very welcome and
• UKH’s CEO Kate Nicholls says ‘we’d urge the Government to go further and also reduce the strict licensing conditions on door supervisors given the sector is facing such an acute labour shortage. We’d also like to see new applications fast tracked and plans for new requirements from October suspended that risk leaving many vacancies unfilled.’
• The BBPA reports that 85% of pub-going football fans believe the current restrictions will negatively impact their experience of watching UEFA Euro 2020. At present, pubs are required to ensure one metre plus social distancing is in place, operate table service only and ensure that face masks are worn other than when sat at a table inside or if outdoors.
• Emma McClarkin, CEO of the BBPA said ‘It is a great shame as we know 91% of pub going football fans missed watching the game at the pub during lockdowns. More and more people are getting the vaccine each day. It’s time for the restrictions on our freedoms to be replaced by the protection of the vaccination’
Staff and labour issues:
• The MA quotes St Austell boss Kevin Georgel as saying that a shortage of staff has obliged it to cut hours and service to customers. Georgel says ‘we’ve been looking forward to welcoming you back to our pubs, inns and hotels for many months and have been overwhelmed at the love and support we’ve been shown since reopening. Thank you so much – it means a lot to us. However, reopening has also presented us with some new challenges and – like so many others – the national staff shortage is having a big impact on us.’ Georgel continues ‘while we hope the worst of the pandemic is now behind us – the most challenging time in our 170-year history – the road to recovery continue to be bumpy for the hospitality sector. For us, and businesses across our wonderful industry, finding staff is a huge challenge at the minute.’
• St Austell tells customers ‘you may therefore notice slight differences in some of our managed pubs, including shorter food service times, seating areas being out of use and reduced opening hours, to give our teams the time off to rest.’ It says ‘we are urging the Government to acknowledge the staffing crisis and to help us find a solution.’
• Impact of staycations. The BBC suggests that housing costs are preventing some, would-be hospitality workers, from travelling to and living in areas where the work is. It says holiday hotspots are particularly impacted. It quotes examples in Newquay, where holidaymakers are willing to pay multiples of what hospitality workers can afford to pay for accommodation.
• The US Bureau of Labour Stats has said that there were 1.3m open job positions in accommodation and foodservice in the US in April, up from around 1.0m in March. Various US operators have made known their intention to hire thousands and, in some cases, tens of thousands of team members. Just where these bodies are going to come from remains unclear.
• NRN, also in the US, comments on a similar topic saying that one McDonald’s franchisee is offering a free iPhone after six months of employment. Poaching is on the up, loyalty bonuses are being offered and wages are rising.
Company and other news:
• Comptoir FY numbers.
o The numbers: Restaurant chain Comptoir Group, which operates 23 restaurants and four under franchise, has reported full year numbers to 31 December 2020 saying that revenue was down 62.6% to £12.5m and adjusted EBITDA was £1.4m against £5.3m in the prior year. The Group made a reported loss before tax of £8.1m against a reported loss of £0.7m in the prior year. The group says that it had net cash and cash equivalents at the period end of £7.8m (31 December 2019: £5.1m). The basic loss per share for the year was 6.6pence (2019: basic loss per share 0.54 pence).
o Company comments: Chairman Richard Kleiner says ‘it has been an unprecedented year that has bought with it considerable challenges.’ He says ‘during the periods of closure, costs were minimised, suppliers and landlords actively engaged and more importantly, the relationship with our restaurant team and our customers remained as strong as ever.’ Mr Kleiner adds that the brand has ‘cemented its strength during the pandemic’ and says ‘I am encouraged by the strong performance of our eat-in business since the limited reopening of sites and with the government roadmap set out and the vaccine roll-out continuing at a pace I’m optimistic for the coming year post-lockdown.’
o Current trading and outlook. CEO Chaker Hanna says that, since reopening, ‘ttrading has been extremely encouraging since reopening the 21 managed sites on the 17th May in compliance with the government guidelines for group sizes and social distancing, as well as continuing to offer takeaway/click and collect and delivery services.’ The CEO says ‘as a result of this trading performance, the Group continues to plan the opening pipeline for the next three years.’
• Drake & Morgan has seen their CVA approved which will leave the bar and restaurant group with 19 venues in London, Manchester and Edinburgh with three sites permanently closing. Jillian MacLean, founder and CEO of Drake & Morgan, said ‘The approval of the CVA means we can look forward to strong growth and begin rebuilding the business on a positive financial footing.’
• Ganan Kanagathurai, CEO of Itsu, claims the company plans to add a further 150 sites to its UK estate.
• In the US, a report by Datassential claims that as of June 1, 299,564 U.S. restaurants—132,525 of which are chain restaurants—are open for dine-in.
• The Datassential study showed that 30% believe retail and restaurant workers can stop wearing masks immediately, another 22% said workers could do so in another three months and 21% said masks should stay in play until the end of the year. The percentage that wanted to see masks worn forever was notable, at 19%.
• Punch Pubs & Co is set to support publicans during the Euros, with marketing & strategy director Russell Danks saying ‘It will provide a vital boost for many businesses, and we have really got behind the Euro’s campaign providing our Publicans with fantastic support‘.
• The legal precedent seems to have been set and employees on sick leave are able to go to the pub after Judge Andrea Pitt ruled that an employee was unfairly dismissed after he was seen drinking at a social club while off sick.
• Just Kitchen has announced it is to raise $20 million to help fund its expansion plans into the U.S. The company’s first sites in the US will be in Seattle and in several California cities.
• Livekindly Collective is set to acquire The Dutch Weed Burger, a plant-based meat alternative company that uses seaweed. Livekindly Collective intends to scale internationally in the UK, Nordics, and the US and Canadian markets; as well as enter into Asia.
HOTELS & LEISURE TRAVEL:
• Per The Telegraph, cities are set to miss out on the summer staycations, while seasides and the West Country benefit, with just over a fifth of holidaymakers planning to go to the South West. Wales, Scotland and Yorkshire and Humber are the favoured destinations for more than one-tenth of Britons.
• Ahead of the House of Commons debate on support for the travel, aviation and tourism industries tomorrow, UKinbound has written to more than 90MPs, highlighting the challenges, opportunities and key demands of the sector. The lack of clarity regarding countries on the government’s green list, the frequency and cost of testing and no recognition of fully vaccinated arrivals are all highlighted as ‘fundamental barriers’ within the sector.
Air inclusive holidays & aviation:
• Grant Shapps has said that restarting international travel could “screw up” the UK’s recovery from the pandemic. He told Sky News ‘I think most people agree that we’ve got to be cautious. I am the transport secretary, I want transport to happen, I want international transport to happen, but I think most people appreciate that what we need to do is open up cautiously.’
• IATA reports that the recovery in global international air travel stalled in April due to continued (and sometimes tightening) border restrictions – but, interestingly, domestic air traffic continued to recover relatively strongly. IATA says domestic demand in April was c26% down on 2019 levels but some 6pps better than the number in March. International travel, on the other hand, was down 87% on 2019 in April and 88% down on 2019 in March. IATA DG Willie Walsh comments ‘the strong recovery in domestic markets tells us that when people are given the freedom to fly, they take advantage. Unfortunately, that freedom still does not exist in most international markets. When it does, I’m confident we’ll see a similar resurgence.’
• Forward Keys has said that international air travel this summer may be only around 23% of its pre-pandemic levels. Outbound bookings from Germany, France and the US are the best of the bunch at 37%, 42% and 24% of 2019 levels respectively. Forward Keys says ‘it is now clear that for most of the world, a summer holiday abroad is a dream; and a staycation is the reality. Travel businesses in general, and airlines in particular, will face more substantial losses, as many countries combat Covid-19 by closing their borders and imposing severe restrictions on flying internationally.’
• Travel Weekly reports that ‘airports alone stand to lose at least another £2.6 billion in revenue in summer 2021.’ This, of course, after a dreadful 2020. The Airport Operators Association has pointed out that the UK’s green list covers only 1.7% of 2019 passenger numbers. TW says that last year, ‘even with the more liberal travel approach in 2020, UK airports lost out on £2.6 billion revenue between April to September.
• Norwegian Cruise Line has said that it believes Britons wish to catch up on lost holidays. The key here will be whether or not the wish was father to the thought. A poll commissioned by the operator suggested the average would-be customer will spend an extra £167.40 per year on international trips as travel resumes.
• The retail investor frenzy in AMC continues as the volatile stock is up nearly 3,000% since the start of the year. Retail investor enthusiasm and memes surround the heavily shorted stock, with its CEO Adam Aron saying ‘Watch out naysayers, AMC is going to play on offense again. Here we come!’
FINANCE & MARKETS:
• The World Bank says that the emergence from the current recession (globally) could be the fastest in more than 80 years. It believes the world economy will grow at 5.6% this year, up on estimates made in January for growth of 4.1%.
• Bank of England economist Andy Haldane has said tax breaks mean that the housing market in Britain is “on fire.”
• Sterling weaker at $1.4107 and €1.1596. Oil lower at $71.76. UK 10yr gilt yield down 5bps at 0.73%. World markets lower yesterday but Far East up in Thursday trade. London set to open up by around 9pts.
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