Langton Capital – 2021-08-17 – PREMIUM – July Tracker, Just Eat Takeaway, Fulham Shore, supply & demand etc.:
July Tracker, Just Eat Takeaway, Fulham Shore, supply & demand etc.:
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CGA TRACKER – JULY UPDATE:
• The July revenue Tracker produced by CGA has reported that total (not LfL) pub & restaurant sales were down by 6% on the same month last year. The Tracker reports that restaurants outperformed pubs and bars enjoyed a ‘freedom day’ boost.
• The Tracker says that sales struggled in London but held firm outside the M25. It says that rolling 12mth sales to end July were down 20%
• The Tracker says ‘total sales were just 6% down on the same month in 2019.’
• Restaurants vs pubs. It adds that ‘restaurants had a particularly strong month, with sales only 2% below 2019, while drink-led pubs and pub restaurants were down 9% and 8% respectively.’
• Bars bounce back. The Tracker says that ‘bars benefited from the easing of restrictions on the late-night sector, as sales ended 3% short of 2019.’
• Managed sites & staycations. The Tracker says that ‘managed venues benefited from generally good weather in July and the popularity of ‘staycations’ at the start of the school holidays.’
• London. It adds that ‘domestic tourism contributed to a much better July for regions beyond London than the capital: sales outside the M25 were down by 2% year-on-year, but within the M25 they dropped 15% as visitor and worker numbers remained low.’
• Trading difficulties. CGA says ‘July’s solid performance comes despite a host of challenges for hospitality businesses, including widespread staffing shortages relating to recruitment issues and the ‘pingdemic’, supply problems and ongoing caution among some consumers.’
CGA & other comment:
• Karl Chessell at CGA says ‘while sales are still some way short of what we would expect at this time of year, July was another steady month of recovery for hospitality.’ He adds that ‘not all businesses are out of the woods yet.’
• Coffer Corporate Leisure adds ‘it’s not really like for like because so many factors are different in 2021 against 2019 but these numbers do demonstrate that on a national basis consumers are increasingly confident to go out.’
• RSM adds that there was ‘a further resurgence in July with like-for-like sales closing in on pre-pandemic levels.’ It says ‘given the disruption of staff availability and delivery of supplies caused by the ‘pingdemic’, this represents a real achievement for the sector. As Covid-19 case numbers stabilise, the number of fully-vaccinated adults rises and with a thriving staycation market keeping holidaymakers’ leisure spending in the UK, there is optimism moving into August of a return to trading levels not seen since 2019.’
• It’s heartening to see sales closing in on 2019 levels but, as VAT on food is still only 5%, the amount going through tills will be more than 6% down. It will be a challenge to see how food-led operators and restaurants deal with the rises in VAT expected later this year and early next.
• Furthermore, though some operators are performing very strongly, others are struggling. This will be due to various business models, property tenures and, frankly, the differing amounts of effort being put into recovery.
PUBS & RESTAURANTS:
• Would be customers ‘demand’ hospitality services. But they also need to have the means to spend. The LSE has produced work suggesting that a million workers are employed by businesses at risk of closure over the next three months. The university’s Programme on Innovation and Diffusion finds that one in 16 firms fall into this category. There are also some concerns that the £20 per week cut in Universal Credit could also impact spending. See below for observers’ comments suggesting that ‘most’ companies were not responding to current labour shortages by putting wages up.
• Further comment: Customers need to have money and they must want to spend it. Unemployment – and more widely, the risk of unemployment – will impact both the ability and the desire to spend. There are two forces at work here. Staff shortages are (in some cased – but see below) putting upward pressure on wages whilst there is some concern that not all companies will be able to retain their workforces once Covid support is removed.
• It’s hard – perhaps impossible – to keep politics out of such discussions. The TUC is urging permanent support in one form or another whilst unions such as Unite are supporting strikes where worker shortages mean that labour has the upper hand. Former PM Gordon Brown says ‘a new jobs crisis point is approaching as furlough ends.’ He says government support will be needed to ‘cope with the one million young people not in work and the one million people leaving furlough’.
• Regarding the cut in benefits, anti-poverty charity the Resolution Foundation says that ‘the cut to universal credit for 4 million families in the UK will have a really big impact on those individual families, but also on the economy as a whole.’ It says ‘if we see there are more spending reductions in the budget, that could pose some material headwinds to economic recovery.’ The Treasury says ‘the universal credit uplift was always intended to be a temporary measure to help households through the pandemic, but we are continuing to support people and ensure they have the skills and opportunities they need to get great jobs. We’ve invested billions in our Plan for Jobs, which is already getting people back into employment … and businesses can also continue to access other support including our Recovery Loan scheme.’ Politics, huh?
• This is broadly the capacity of the industry to supply services. It is driven by reopening numbers and, drilling down a bit, by the number of shifts worked and trading periods covered. To ‘supply’ hospitality services, the industry needs to be allowed to open but also requires product and staff. Whilst the first is a tick, the latter two are somewhat problematic.
• Re goods, the shortage of drivers is a problem. See KFC comments yesterday. Responding to reports of forthcoming beer shortages from the global brewers due to planned industrial action, James Calder, Chief Executive of the Society of Independent Brewers says ‘amid fears of taps running dry, pubs, bars and restaurants should look beyond mass-produced beers from the Globals and speak to their local independent breweries. Being local they have the flexibility to brew and get beer directly into venues up and down the UK.’ Whilst an agreeable sentiment, SIBA, of course, has a dog in that fight.
• Further comment: SIBA says ‘distinct, quality local beers could prove more popular with customers than your original offering of global beer, which are available anywhere.’ It adds ‘small independent breweries have suffered massively while pubs, bars and nightclubs have been closed, so now as the UK’s hospitality industry begins on its road to recovery let’s work together and offer customers a great-tasting local lager, craft ale, IPA or stout.’ KFC says it can’t get enough packaging or chicken. Given its business model, that’s a bit of an issue.
• The SLTA has said that lorry driver shortages are leading to delays and cancellations of beer orders across the industry north of the border. It says ‘the full re-opening of the hospitality sector has been hit with two serious issues – a shortage of staff availability and the more recent immediate problems facing the supply chain.’ The SLTA says its ‘members are already reporting delays and cancellations of orders placed with brewers and other supply chain operators and in some instances beer orders that have been delivered fall far short by around 75%.’ This will impact supply and capacity. It says ‘in many cases, packaged goods are not being delivered and we have reports of pub and bar owners travelling the length of the country to source supplies.’
• Supply shortages could lead to price increases. The Evening Standard yesterday covered a number of restaurants and concluded that a combination of labour shortages and difficulties in sourcing product could lead to price increases. The Daily Mail reports Itsu as saying that wages may be increased by as much as £5 per hour.
• Re labour, the Chartered Institute of Personnel and Development says that only 23% of companies contacted said they were going to raise wages to attract staff. This seems a little low.
• Further comment: The 23% may be right as ‘affirmative bias’s may mean that we see pay rises, retention bonuses and the like everywhere, when they are only, really, somewhere. However, these sorts of squeezes do have the capacity to leak out into the wider economy. A site may not have every had many EU workers, for example, but, if a neighbouring pub did – and it has lost them and poaches Pub A’s chef – then the problem is effectively being shared around. Pay rises and retention bribes are an effective, though blunt, instrument. Interestingly, Pret, which is in a bad spot geographically at the moment, was recently in the news for reducing staff wages. It subsequently made staff whole.
• The CIPD says 69% of employers were planning to take on new staff over the coming weeks, compared with 49% this time last year. There aren’t that many staff available and the salaries on offer may not be high enough to allow labour to be bought in from abroad. Rather than raise wages, the CIPD quotes 44% of respondents as saying they will develop the skills of existing staff. That seems aspirational rather than likely probably.
• A basket of actions is perhaps likely. This may involve some more money, reduced menus, automation where possible, reduced trading hours and the like. This still represents a lost opportunity. The CIPD says ‘with difficulty finding labour in some sectors, employers will need to think more long-term about how they meet skills needs.’ It adds ‘it’s important for organisations to look carefully at their recruitment and retention strategies and consider where they need to develop these, for example by increasing investment in training and reskilling.’ It also adds ‘retention strategies should be built with boosting job quality in mind, as employers have a huge role to play in improving working lives.’
• Pinging rules changed yesterday such that double-jabbed individuals no longer have to self-isolate if pinged. The MA says this will ‘alleviate some pressure’ on hospitality businesses. UKH says that around 60% of hospitality businesses have suffered staff outages as a result of the recent pingdemic. It says that 267,000 people (around 13% of the industry’s workforce) have been or are self-isolating. The NTIA says 78% of night-time operators have lost staff and the BBPA says that 1,000 or more pubs may have had to close temporarily as a result of staff shortages.
• When considering the potential for sustained VAT reductions, business rates suspensions etc, it’s worth remembering that the Treasury is not awash with cash. Indeed the reverse is true. Green economy commitments, the cost of Covid and PM Boris Johnson’s ‘levelling up’ promises will likely cost hundreds of billions of pounds. Indeed, Covid has already done so. The Centre for Cities says that levelling up could cost as much as German reunification at around £2,000 billion.
• Pragma Consulting reports on veganism and says that it appears to be setting in. it says ‘veganism has been growing in the UK for many years and 2% of the UK population now practice this way of living (1.36m people), a rise from 0.25% in 2014.’ It adds ‘a growing number of non-vegans have also started supporting vegan products, with an estimated 92% of plant-based meals consumed in 2018 eaten by non-vegans.’ As many as 31% of UK adults plan to eat more meat-free products this year compared to last.
• The MA reports Pernod Ricard UK MD David Haworth as saying that the domestic on-trade has adapted in the face of the Covid-19 pandemic. Haworth says ‘the UK is much more concentrated [than a number of continental countries], as you would expect.’
• Further comment: Certainly, the UK on-trade has made more use of outdoor space (when only outdoor trading was allowed) and some operators have made a major effort to tailor their offers. But you don’t need to lose a leg in order to learn how to hop and under no circumstances could the pandemic be deemed ‘good news’. However, we do believe that the upheaval caused is putting some clear blue water between good, adaptive companies and those that have been slow to react.
• ASDA and National Express are offering rewards to younger staff who get a COVID jab.
• See St Austell’s comments on Staycations under Hotels & Leisure Travel below.
Just Eat Takeaway:
• Just Eat Takeaway.com has reported H1 numbers saying that ‘our consumer base, restaurant selection and order frequency have strongly increased, which will lead to improved profitability going forward.’ The company says that ‘revenue on a combined basis grew by 52% to €2.6 billion in the first six months of 2021, compared with €1.8 billion in the first half of 2020, on a constant currency basis.’
• The group says that ‘adjusted EBITDA on a combined basis for Just Eat Takeaway.com was minus €190 million in the first six months of 2021, representing an adjusted EBITDA margin of minus 1.3% of GTV, reflecting the significant investment efforts of the Company.’ It says it has ‘invested predominantly in the historically underinvested legacy Just Eat markets.’ Revenue in the UK has risen from €303m to €552m but profitability has fallen from a EBITDA of €127m to a loss of €71m. Total revenue is up from €1.78bn to €2.61bn. UK order numbers increased by 76% from 76.8m to 135.0m. The company points out that ‘the Just Eat business was consolidated from 15 April 2020. These figures [mentioned above] are presented as if the combination was completed on 1 January 2020 to provide comparable information for the full six months period.’
• Further comment: Just Eat says that its prices could be increased. It diplomatically says ‘given the widening of the price gap in consumer delivery fees versus its competitors, the Company has more flexibility to improve its adjusted EBITDA going forward. While the benefits from this development will already be visible in the second half of the year. Just Eat Takeaway.com will continue to invest significant amounts in providing the best and most affordable service to its consumers across the world.’
The Fulham Shore:
• The Fulham Shore plc has reported full year numbers to 28 March saying that revenue decreased 41.3% to £40.3m (2020: £68.6m), driven by trading restrictions implemented by the UK Government due to the COVID-19 pandemic, which were in place throughout most of the financial year.’ It adds that it saw ‘buoyant trading during the summer of 2020 when restaurants were able to operate across eat-in and outside dining’ and says that it generated adjusted EBITDA of £1.6m excluding IFRS 16 (2020: £7.2m).
• FUL reports a headline operating loss of £2.2m versus a 2020 profit of £4.4m. The loss before tax (after interest and property impairments) is £7.5m versus £0.8m in 2020. Debt at 28 March 2021 was £3.6m versus £9.5m in 2020. The group opened two new Franco Manca pizzeria and one new The Real Greek restaurant during the year. As of this month, the group has 74 restaurants and all are fully open. The estate comprises 55 Franco Manca pizzeria and 19 The Real Greek sites.
• Chairman David Page says ‘during an unprecedented year, we are pleased to have navigated through the very challenging trading conditions to deliver this good performance.’ He adds ‘since the beginning of the current financial year commencing 29 March 2021, The Group has continued to trade profitably and ahead of management expectations, driven by strong performances across our suburban restaurants.’ Re the future, Mr Page says ‘in line with our long-term expansion strategy we have developed a strong pipeline of new locations, supported by favourable rental terms and the Group’s strong cash position. We plan to open 10 locations during the current financial year and have identified more than 150 additional sites in line with our medium-term plans.’
• FUL concludes ‘having navigated the impact of the Covid-19 pandemic, the Group is well-positioned to capitalise on emerging opportunities. We are confident that this current financial year will be the start of another exciting period of growth for The Fulham Shore.’
• Langton comment: Fulham Shore has recently said that the property market has swung in favour of tenants and that opportunities are coming along at very attractive prices. The group is in a position to expand. It has the resources to fund this and there are potential customers out there that will fill its sites. The competition is not best-placed and there is less of it. The future looks very interesting.
HOTELS & LEISURE TRAVEL NEWS:
• Research by BVA BDRC has suggested that 1.2% of UK adults booked an overseas holiday last month. Whilst low, this is double the rate seen in May and June. It has been put down to the removal or lightening of travel restrictions. The number of adults booking a domestic holiday fell in July to 3.4%. Whilst down, this is markedly higher than the overseas numbers.
• In line with the above, Cornwall-based brewery St Austell has suggested that elevated staycation numbers will persist into the autumn. St Austell has said that a number of its most popular properties featuring accommodation are almost fully booked to the end of December.
• Further comment: CEO Kevin Georgel says ‘the ongoing uncertainty around international holidays and concerns about the changeable overseas travel list means holidaymakers are continuing to opt for the safer, more reliable option of a UK holiday.’ He says ‘concerns around the environment and everyone playing their part to prevent climate change is also encouraging more guests to book domestic holidays and minimise the number of holidays abroad.’
• The clear implication here is that, whilst (hopefully) the impact of Covid will be transitory, the desire on the part of the consumer to cut their carbon footprint could be permanent. Georgel says ‘British tourists have flocked to us over the last few months and are experiencing first-hand that there is no place quite like Cornwall and the South-West for the perfect escape.’
• Business Travel Association CEO Clive Wratten has said that the price cut for NHS Covid tests for travellers ‘is a token small step forward.’ He says ‘these tests remain prohibitively expensive in comparison to other countries and the private sector is unregulated.’ Wratten adds ‘UK travellers are currently facing unacceptable demands in order to travel safely, despite our effective vaccine programme.’
• TUI numbers. Digging further into TUI’s H1 numbers, Travel Weekly says that the number of holiday cancellations in the UK in recent weeks has been greater than the number of new sales. CEO Fritz Joussen says ‘we’ve not been adding bookings in the UK, we’ve been losing bookings.” He says that, whilst the vaccine rollout has been fast, ‘the politics on international travel were different. Portugal was on the green list, then it was off.’ He says ‘customers didn’t know what to do.’
• Adventure holiday specialist Travel the Unknown has ceased trading.
• Administrators are reported to have been appointed to the Glenburn hotel in Rothesay on the Isle of Bute.
• American Express Global Business Travel reports that 98% of clients believe that business travel will return before the end of this year.
• Changing regulations threaten the business models of ticket re-sellers.
FINANCE & MARKETS:
• Levelling up. The Centre for Cities says this may cost a similar amount to that spent by Germany when it raised living standards in the East. Expenditure amounted to some £2,000bn. As there is a large amount of wiggle-room as to what ‘levelling up’ actually means, it is likely that the sum spent will be markedly less than the figure mentioned above.
RETAIL WITH NICK BUBB:
• Nick is on a well-earned break. Back after the Bank Holiday.