Langton Capital – 2021-07-26 – PREMIUM – Pingdemic, trading, Hawthorn Leisure, passports, High Street etc.:
Pingdemic, trading, Hawthorn Leisure, passports, High Street etc.:
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A DAY IN THE LIFE:
So, a question for you, which hurts the most, standing, barefoot, on a Lego brick or stamping down on an upturned plug?
This asked because, though the former was common when the kids were young, the latter is fresher in the memory – due to regular repetition – and ‘recentism’ does skew one’s thinking towards, well, whatever’s happened recently.
And this goes both ways as, in the same way that a 40yr marriage that ends in 2yrs of acrimony and divorce is a ‘bad marriage’, a fifteen month litany of failure fighting a pandemic that (hopefully) ends with a rapid vaccine rollout is a deemed a ‘success’.
But, whilst the above are very human and understandable interpretations, they don’t tell the full or even the ‘right’ story.
Rather they highlight the potential differences in interpretation that might be expected between a relieved crowd on ‘Freedom Day’ versus the findings of a long, hard, cold-light-of-day and forensic, Public Inquiry.
Easy to see why the one is being encouraged and the other isn’t but enough of that, on to the news:
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PUBS & RESTAURANTS:
• CGA Drinks Recovery Tracker shows that the reopening on 19 July gave bars an injection of sales, after another week of trading well below pre-COVID levels for this time of year. Drinks sales at a GB level were down by only 5% on the same day in July 2019. Jonny Jones, CGA’s managing director, UK and Ireland said ‘the more normal conditions should provide a steady lift in the weeks ahead, and the hot weather and staycations will work in favour of venues with outdoor space in particular.’
• JD Wetherspoon boss Tim Martin told The Times that ‘Britain is being “laid waste” by the NHS Test and Trace app, which is causing pubs and restaurants to shut temporarily due to severe staff shortages.’ The Sunday Times says ‘Martin, 66, said 5,000 of his 40,000 workers were “pinged” by the app last week alone, forcing them to stay at home for 10 days to self-isolate.’ Martin adds ‘the pingdemic is affecting every aspect of the hospitality business — from production, to maintenance, to deliveries, to the directly employed and the customers.’ He says ‘the country is being laid waste by yet another failed IT system to which naive politicians are in thrall.’
• Meanwhile, there are concerns that the pingdemic will slow the UK’s economic recovery and there is some confusion as to who can be exempted and who cannot. The list of exempt workers includes frontline workers as well as supermarket depot workers and suppliers. Food manufacturers should also be exempted but industry can only move at the speed of its slowest part and, silly though it sounds, if cardboard, tin cans, petrol, labelling supplies or many other ancillary services are not available, then there will still be shortages.
• The Guardian writes ‘food bosses say ministers are making England’s Covid ‘pingdemic’ supply chaos worse.’ This because ‘the measures had been so badly mishandled and poorly communicated’. The Federation of Wholesale Distribution sats ‘it’s total chaos. There are 15 businesses who were part of the initial run through [of the scheme] on Friday, but there’s supposed to be 500 businesses in total, it’s entirely opaque.’ The Cold Chain Federation adds ‘several days after the prime minister told us the food supply chain was critical and would be exempt, we still don’t have a definitive list of who will be exempt and what is required of them. Businesses are fighting to keep food on shelves, and I regret that despite the best intentions in some places, government has done more harm than good.’
• Further comment: We have feedback from a number of operators suggesting that the pingemic is less bad than it was. This due to a mix of lower infection rates (they have virtually halved in a week) alongside an understanding that the ping is only advice. In addition, many people will have deleted the app or will have turned off their Bluetooth or tracing function. This may not be the ideal outcome but, for the moment, it seems to be securing better access to labour. From 16 August, people who have had two jabs will not be advised to self-isolate but will be able to take tests instead.
• Transport: A number of trains and tubes were cancelled on Friday (and presumably since) causing Langton amongst others some difficulties in getting back up north for the weekend. And, after months of having a double seat to oneself, it was something of a jolt to the system to be sat next to a fellow passenger along with others sitting on their suitcases in the vestibules and in the carriages between seats. Mask wearing (this seemed to be a drinking and singing stag-party in York, Newcastle or Edinburgh heavy train) was down to around a quarter or so of passengers. Maybe not the outcome that whoever sent the pings (and knocked out several drivers of trains around the time of the crowded one we squeezed onto) perhaps had in mind.
• Impact on in-restaurant demand. If a large number of would-be diners are being told (or advised to) not leave their house, one would imagine the pool of potential customers for pubs & restaurants has shrunk. The Telegraph says Broker research suggests that ‘the number of seated diners has also fallen for four consecutive weeks since the reopening of indoor hospitality on May 17, while travel data showed people still shunning public transport despite the end of restrictions.’ The flip-side is presumably something of a benefit to the delivery operators.
• The Huffington Post pointed out before the weekend that an answer from Nadhim Zahawi ‘gave a very strong hint that it was not just nightclubs that would require the NHS Covid pass as a condition of entry. He said indoor music venues, as well as “large unstructured outdoor events such as business events”, “music and spectator sport events” were “the ones that we are most concerned about”.’ This has been picked up on across the board. The Mirror says ‘vaccine passports set to be introduced at football matches could result in 210,000 fans being red-carded each week.’
• Hospitality leaders have written to the health secretary, Sajid Javid, to say that introducing vaccine passports without “a proper and adequate consultation process” is “highly likely to be unlawful”. They argue the plans could have “a discriminatory effect on grounds of race”, and risk encouraging illegal raves that lack safety measures. The Telegraph writes that the letter was written by Hugh Osmond, founder of Punch Taverns and director of Various Eateries, and signed by Michael Kill, Peter Marks and Stephen Thomas, who head the Night Time Industries Association, Rekom and The Jam House respectively. Details of the scheme have yet to be released.
• Further comment: Meanwhile, public health physician Dr Gabriel Scally, who is a member of the Independent SAGE panel, has suggested the government is going for herd immunity and says this reopening nightclubs is “immoral and unethical” as it will mean more coronavirus cases, hospitalisations and deaths. Scally tweets ‘I think it’s justifiable to open nightclubs but only if you believe this government policy that it’s good to have infection, and it’s good to have illness, and it’s good to have death during the summer rather than trying to prevent or postpone those into later in the year. So there is a case for it, but that case is immoral and unethical.’
• This is an understandable medical opinion but, as the politicians are looking also at the economy, mental health, the degree to which people are fed up and other issues, the view that it is better to do this sort of thing in the summer rather than the winter, seems to have got the upper hand.
Working from Home – the High Street:
• The move back to the office seems to be a drift rather than a stampede. This will impact city-centre hospitality outlets such as coffee shops, cafes, restaurants and transport hub bars etc. Meanwhile, the Telegraph suggests the some shoppers are shunning the High Street due to Covid concerns. Barclays data suggests a 5pc rise in online shopping since the end of June, alongside a similar fall in high street shopping.
• Further comment. Barclays’ latest Spend Trends report showed the move away from in-store spending to online purchases coincided with the upsurge in cases due to the Delta variant. Barclays says ‘this is typical lockdown behaviour. It might not be imposed by the Government, it might just be individuals applying social distancing all over again. We’re basically seeing some of the lockdown behaviour come back.’ It’s not clear whether, in light of the fact that infections are falling, this will be short-lived. Footfall in the week to 17 July fell to 75% of its pre-pandemic level, down from 86% in the first week of June.
• See comments on inflation under Markit’s PMI in Finance & Markets below.
Other staff issues:
• The proportion of EU workers in hospitality is at its lowest since Fourth began recording workforce data in 2016, with the proportion of British workers rising substantially over the past two and a half years. EU workers made up 37% of the hospitality workforce in June 2021, compared to 43% in June 2019. British workers made up 51% of the workforce in June 2021, compared to 46% in June 2019.
• Fourth’s data also showed that 45% of payroll staff remain on full or flexi-furlough, the smallest proportion of workers since the scheme was introduced. The number of hours worked in June 2021 increased by 378% compared to June 2020, yet this was still down by 26% compared to June 2019.
• The government has said that workers from sectors including energy, waste, water, essential transport and emergency services can apply to be exempt from self-isolation rules, but has not included the hospitality sector. A general rule change will come into force on 16 August but around 60% of the hospitality workforce is under 30 years old and may not have had the opportunity to be fully vaccinated by this point.
• Per Morning Advertiser, Peter Borg-Neal, founder and chairman of Oakman Inns, told the MA that staff shortages had cost the company more than a quarter of a million in sales and that the group currently has three sites closed, despite only one person in the company testing positive for the virus.
Company & other news:
• NewRiver sells 674-strong Hawthorn Leisure REIT Ltd for £222.3 million.
• Further comment. The company has announced that it has agreed to sell its tenanted pub business to Admiral Taverns, saying ‘over recent years, we have grown Hawthorn to become the UK’s leading community and wet-led pub business. As a consequence of this, we received significant interest from a range of potential buyers for Hawthorn, following the divestment plan we announced in April 2021.’ It says ‘we have now agreed the sale of Hawthorn’ and adds this will ‘deliver on our key priority to reset Loan to Value, strengthening our balance sheet and enabling us to focus on executing our resilient retail strategy.’ Hawthorn will be integrated with Admiral’s c1,000 units to create one of the largest leased and tenanted operations in the country.
• A committee of MPs has concluded that the costs of Covid will be being paid by UK taxpayers ‘for decades’. This could put a dampener on investment and consumption over the medium term. The Public Accounts Committee says ‘the ongoing risk to the taxpayer will run for 20 years on things like arts and culture recovery loans, let alone the other new risks that departments across government must quickly learn to manage.’
• Beer delivery drivers at XPO Logistics Drinks are being balloted for industrial action by Unite the union over a ‘paltry’ pay offer. Workers are reportedly disappointed with the 1.4% payrise offered at a time when the current RPI rate is 3.9%.
• Stonegate Group will finance the capex in its pubs by launching a £165m senior secured notes offering. The proceeds will be used for other general corporate purposes and to pay certain transaction feeds, expenses and costs. Stonegate made a loss before tax of £746m in the full year to 27 September 2020, following the acquisition of Ei Group and due to the impact on trading from the pandemic.
• Sky News reports that Bridgepoint Group, owner of Burger King’s UK operations, is holding preliminary talks with investment banks about an auction. The chain is said to have rebounded strongly in recent months, boosted by an expanded portfolio of drive-thru restaurants.
HOTELS & LEISURE TRAVEL NEWS:
• Post Office Travel Money reports that 44% of the families planning to travel abroad this year will budget more to allow for rising resort costs and Covid-19 tests with 82% expecting to pay for tests at an average cost of £349 for a family of four. Over a quarter said that savings made during lockdown have made it possible to set a bigger budget.
• Late bookings for key amber list destinations like Spain and Greece increased this week after the easing of quarantine restrictions for fully vaccinated people. Miles Morgan, owner of agency chain Miles Morgan Travel, told TTG ‘We’re now doing summer 2021 bookings – we were doing next to nothing before this week…It’s nowhere near normal, but it’s a step in the right direction.’
• Gatwick Airport flight data shows that the start to the peak summer season has been muted, recording just over 1,100 departure flights in the week to July 21, 28% up on the previous week, but that compared with more than 5,260 over the same seven-day period in 2019.
• The Rail Delivery Group said that as Covid cases were increasing, more staff were being ‘pinged’ by the app and that train timetables may have to be reduced to cope with the resulting staff shortages.
• US hotel RevPAR was only 13% lower than 2019 levels in June. Jan Freitag, national director for hospitality analytics at CoStar Group, said ‘he current recovery is driven by leisure demand but that after Labor Day, when children are back in school in person, we will see a drop-off in demand’.
• Whitbread’s Premier Inn has opened a new flagship location in Oxford city centre at Paradise Square. The new 90-bedroom unit will include a number of the group’s enhanced Premier Plus rooms.
• Sky reports that, with the schools now broken up, airports across the UK are “total chaos” as hundreds of thousands of people attempt to leave the country. It says there were two hour queues to get through to the ‘airside’ of the terminals at Heathrow on Saturday. The London airport was expecting volumes to be around half of those in 2019.
• Cineworld is reported to be ‘plunged into a fresh court battle over unpaid rents’. The Times says that one of its landlords, Marina Developments Ltd, the owner of its multiplex in Southampton, is chasing around £1m in unpaid debts. Cineworld last year did not enact a CVA that had been proposed to cut its rents.
• Chinese media giant (and sector investor) Tencent has been told it must end exclusive music licensing deals with record labels and was fined for unfair practices in the online music market. The company controls more than 80% of China’s music streaming rights.
FINANCE & MARKETS:
• Flash Markit PMI numbers for July suggest that the economic recovery has slowed, perhaps due to concerns re the Delta Variant and labour shortages caused by the pingdemic. July’s number, of 57.7, still implies growth but is sharply lower than the 62.2 registered in June.
• Further comment: Markit says ‘July saw the UK economy’s recent growth spurt stifled by the rising wave of virus infections, which subdued customer demand, disrupted supply chains and caused widespread staff shortages, and also cast a darkening shadow over the outlook.’ It goes on to say ‘the rate of expansion slowed sharply to the weakest since March. Transport, hospitality and other consumer-facing services companies were the hardest hit, though manufacturing also saw growth weaken markedly during the month.’ Markit says ‘concerns over the Delta variant have meanwhile overshadowed the passing of “freedom day”, and were a key factor alongside Brexit and rising costs behind a sharp slide in business expectations for the year ahead, which slumped to the lowest since last October.
• Markit says its ‘PMI indicates that GDP growth will likely have slowed in the third quarter, after having rebounded sharply in the second quarter.’ Re inflation, it says ‘firms’ costs rose at a rate unprecedented in over 20 years of survey history as supply shortages pushed up the price of goods, suppliers of services hiked prices and employee pay continued to rise.’
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): There were photos on all of the front-pages of the Saturday papers of the Olympics Opening Ceremony in Tokyo, but the News headlines were pretty mixed: the Guardian flagged that “”Pingdemic” chaos likely to last weeks”, the Telegraph ran with “Rewards for healthy shopping to fight obesity” and the Times screamed “Latest wave of Channel migrants to hit 22,000”, whilst the Daily Mail went with its exclusive that Prince Harry has clinched a lucrative four-book deal (“Harry’s deal is Four books”). The FT headline was “Top lawyers pocket £2m as firms ride pandemic dealmaking wave”.
• Saturday’s Press and News (2): In terms of Retailing stories and news, there were plenty of photos of empty supermarket shelves and articles about the negative impact of the “pingdemic” on food supply chains and the economic recovery, whilst the Guardian flagged that Asda, Tesco and Sainsbury are asking suppliers to help pay for higher delivery costs. In terms of the slightly better an expected ONS Retail Sales figures for June on Friday morning, there wasn’t as much coverage as normal, given everything else going on, but the Times flagged “Euro 2020 nets higher sales of food and drink”. The Guardian had a feature on the boom in sales of cargo bikes (for families with kids, as well as delivery firms) and the Times had a feature interview with the Turkish boss of the new fast grocery delivery business Getir, Nazim Salur (“Boss hoping to deliver the next big thing in groceries”). The
• Sunday’s Press and News (1): The front page headlines of the Sunday papers were also very varied: the Mail on Sunday focused in the row about the Health Secretary’s sudden decision to move France into the “Amber-plus” travel list (“France fiasco: Cabinet at war”), the Observer went with “Food bosses: Ministers are making supply chaos worse”, the Sunday Times ran with “Schools lobby Oxbridge for private pupils” and the Sunday Telegraph flagged “Double jab needed to watch Premier League”.
• Sunday’s Press and News (2): In terms of Retail stories, the big focus was on the Morrisons bid situation: the front page of the Sunday Telegraph business section flagged that Andy Higginson of Morrisons has hit back at the claim that the Board is divided over a mooted plan for CD&R to instal ex-Tesco boss Terry Leahy as Chairman if it was to succeed with its bid, whilst the Mail on Sunday Business section noted that the private equity rival Apollo is close to reaching an agreement to formally join the Fortress consortium and the Sunday Times highlighted that the former Morrisons boss Marc Bolland has urged its private equity rivals to respect the supermarket’s heritage and “values”. The Sunday Times interview with Marc Bolland revealed that he still goes on shooting trips in Yorkshire with members of the Morrison family…and that he still defends his record as CEO of M&S for
• Sunday’s Press and News (3): In other news, the Sunday Times Business section went big on the “pingdemic” chaos in the hospitality industry, highlighting the warning from Wetherspoon’s boss Tim Martin that the country is being “laid waste” by the NHS Test and Trace app. The Sunday Telegraph flagged that there is evidence that shoppers are switching back to Online again (“Signs fearful shoppers are shunning the High Street”). The Sunday Telegraph also had a feature on how Mike Ashley was not involved in the revamp of the Sports Direct store in Oxford Street, leaving it to the heir apparent Michael Murray (“New generation’s makeovers at Sports Direct as Ashley steps back”). Mike Ashley also featured in a Mail on Sunday story, that he is having to support his youngest daughter’s struggling cosmetics business, Sports FX. The main Business story in the Mail on Sunday was that companies like
• Sunday’s Press and News (4): In terms of all the Economics comments and columns in the Sunday papers, there was no column by the Sunday Times Economics correspondent David Smith because of holidays, but his slot was taken by the economist Andrew Sentence (“If Sunak really wants to help out he must grasp tax reform”). The column in the Sunday Telegraph by the veteran City commentator Jeremy Warner deserves a shout-out, as usual: headlined “Once again, we are lions led by donkeys. Britain deserves better”, he flagged that “the UK Government’s handling of the pandemic crisis seems to have been particularly inept”. And the column by the veteran Economics commentator William Keegan in the Observer was headlined “Labour has to say it out loud: Brexit needs to be reversed”.
• Today’s News: The Times reports that the billionaire Weston family is kicking off a formal auction of Selfridges through Credit Suisse, to flush out a buyer for the department stores business, with bids of over £4bn expected. Otherwise, there is no retail news this morning, although the community shopping centre landlord NewRiver has announced the sale of its community pub portfolio, Hawthorn Leisure, to Admiral Taverns for £222m in cash.
• This Week’s News: The rest of the last week of July is busy with company news: tomorrow morning brings the final results from Games Workshop, Moonpig and In the Style, plus the interim results from CapCo and Vivo Energy, as well as the latest monthly Nielsen grocery sales figures. And tomorrow evening the Apple Q3 results are published in the US. On Wednesday we get the Music Magpie interims, as well as the Ted Baker and Card Factory AGM’s. Thursday then brings the Pets at Home Q1 update, the Dr Martens Q1 update/AGM and the B&M AGM, plus the Amazon Q2 in the US.