Langton Capital – 2021-08-18 – PREMIUM – Working from home, FUL, JET, labour shortages, Nando’s etc.:
Working from home, FUL, JET, labour shortages, Nando’s etc.:
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A DAY IN THE LIFE:
It’s a slow news day.
So, musing separately on the fragility of life and the industry of the Dutch in filling in the ocean near to their coastline, it occurred to us that, if you took all the land and plonked it in the sea (to create more ‘land’), you would indeed level things out – but we’d all be under about 8,000 feet of water.
This because we simply live on the bumps.
Not only is the Earth a Goldilocks planet – not too hot and not too cold – and it’s rocky rather than a gas giant, but it’s not a perfect sphere because, if it was, the water would cover it in a perfectly uniform, 8,000 foot thick blanket and we, if we existed in any shape or form, wouldn’t have two legs and two arm and walk on anything remotely solid.
Something to think about the next time you skim a stone into the sea.
Quote of the Day (as we were undertaking research in a London pub charging £6.30 for a pint of pale ale): ‘We don’t take Amex, it’s too expensive’. Not much of it today but on to the news:
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PUBS & RESTAURANTS:
• The FT reports on the working from home phenomenon saying that ‘the pandemic created a tempting opportunity for many urban workers…to move somewhere cheaper.’ The workers in question wouldn’t necessarily be offering to take a pay cut, but that’s what’s being suggested now by a number of employers. Google says that workers in the US choosing to work from home will have their pay determined by their location. If this caught on and spread to the UK, it would impact both the total amount of money in circulation and the places in which it was spent.
• Further comment. We’ve put this under ‘demand’ because working from home impacts where money is spent – as well as, potentially, the total amount of money that needs to be spent. Having paid £6.30 a pint in London on Monday night – when we were effectively making a donation to the graveyard-quiet pub – it’s easy to see how, if those prices prevailed, spend per head could go up but ‘demand’ (measured by the number of pints sold) could go down.
• Coincidentally but on the same topic, insurer Zurich has reported that fires in outbuildings – often during the pandemic used as work spaces – rose by 16% in 2020 vs 2019. It says the that conversion into home offices, gyms and domestic drinks bars increased the fire risk.
• Kantar has reported that retail spending is moving back in the direction of ‘normal’ in that only 20.3% of households ordered groceries online in the four weeks to 8 August, the lowest figure since October and markedly down on the 23.4% who did so in February this year, in the middle of the third lockdown. This matters because the 79.7% of people who didn’t order online were presumably getting out of the house. They would have been more likely to buy a coffee, a sandwich or make an impulse purchase than they would if they had ordered online.
• Further comment: Kantar says some 13% of all grocery sales are made online (the peak, in February, was 15.4%), meaning that people shopping instore are spending more pre head than those ordering online. Kantar says ‘take up of online grocery shopping grew rapidly during the pandemic, but as lockdown restrictions have loosened a divide is beginning to emerge.’ It adds ‘those who have come to love the convenience of an online shop are sticking with it, ordering regularly and spending on average more than two-thirds of their total grocery bill online – but the unconverted are starting to drop away, preferring to get back to store instead.’ This will come as quite a relief to a number of ancillary operators.
• Interestingly, Kantar goes on to say ‘consumers made an extra 108,000 shopping trips this month, while average basket sizes were 10% smaller.’ This implies that people were getting out more often and, again, this is positive news for the hospitality industry – particularly the small-ticket end.
• Waitrose was the only grocer to see sales rise over the last 12wks. Kantar comments on inflation when it says that prices rose by 0.4% in the last 4wks. It says this will add around £19 to the average annual grocery bill and adds, somewhat unhelpfully, that ‘it’s expected that inflation will rise again in the coming months, and as a result we’ll likely see shoppers seeking to tighten the purse strings and save where they can.’ This is less good news.
• Product – supply. Getting food & drink into pubs & restaurants is proving somewhat problematic. The MA has conducted a ‘snap poll’ that suggests ‘more than three quarters of operators are currently having issues with beer delivery delays’.
• Further comment: Only 8% of the 120 respondents said they were not having any problems. The MA reports that a further 13% said they weren’t currently, but they were anticipating issues in the future. There are two 24hr delivery strikes coming up.
• Product – price. Elsewhere, the latest CGA Prestige Foodservice Price Index says that ‘widespread distribution problems’ have coincided with ‘a spike in demand following the return of out-of-home eating and drinking’ such that prices have been squeezed a little higher, with prices up 1.6% in the month of June. The report says ‘June saw particular supply issues in the south of England, after the return of restaurants, pubs, bars and other venues, amplified by warm weather. Problems were compounded by a shortage of labour, particularly HGV drivers, as well as insufficient manufactured stocks and Brexit-related challenges with imported goods.’
• Further comment: The survey reports that ‘the situation has stabilized in July, but demand is likely to peak again in early September when schools and businesses increase order levels.’ The Price Index shows food inflation of 1.6% in June. It says food price inflation ‘levelled off at a time of year when it typically falls.’ Specifically, it says ‘non-alcoholic beverage prices increased month-on-month, but remain below the levels of 2020.’
• Re the near term future, the survey concludes that ‘the remaining months of 2021 are likely to see further increases in the level of food inflation, as sector demand returns towards pre-pandemic normality and extra supply costs and wage inflation feed into price increases.’ Prestige says ‘June brought an unwelcome realisation to operators and suppliers alike that availability of labour will be a challenge for the foreseeable future. The difficulties with HGV drivers has been particularly impactful, and operators should consult carefully with suppliers to ensure that supply chains are as lean and efficient as possible.’
• CGA adds that it ‘has been a long journey back for the foodservice sector, and the recent disruption to supply has come at the worst possible time. Labour shortages and price inflation are unwelcome challenges as consumer demand continues to increase, and fragile businesses must hope that conditions start to ease in the next few months.’
• Staff. The ONS has reported that job vacancies in hospitality rose by 163.7% between May and July as restrictions were eased. It says that vacancies in accommodation and food service rose by 73,000 in the three months compared to the prior 3mth period.
• Nando’s is reported to have shut restaurants as lorry driver shortages have hit deliveries. The sites have been closed in London, the North West, Midlands, the South East and South West, and one outlet in Scotland. The company has tweeted ‘the UK supply chain is having a bit of a ‘mare right now. This is having a knock-on effect with some of our restaurants across England, Scotland and Wales. We are doing everything we can to get the peri-peri back where it belongs – on your plates.’ See also below.
• The Caterer reports that ‘Nando’s is sending 70 of its team members to help short-staffed suppliers after a lack of ingredients forced a number of its restaurants to close.’ This supports out ‘convoy’ suggestion that the industry can only move at the speed of its slowest part.
• Further comment: There are a lot of linkages here & we accept that the above is a labour problem that has led to a supply of product problem. Nando’s had to temporarily shut some sites due to product shortages recently. It apologised on Twitter, saying ‘the UK food industry has been experiencing disruption across its supply chain in recent weeks due to staff shortages, and a number of our restaurants have been impacted.’ It said ‘we can confirm that from today Nando’s will be lending 70 of our brilliant team members to support our key suppliers – working in partnership to help get things moving again.’ And added ‘we expect to see this having a positive impact on the affected restaurants very soon.’ KFC has also reported that delivery problems were hurting the ability to make sales.
• Langton comment: At the height of the pandemic, we would perhaps have found it hard to believe that, coming out of the situation, there might be more problems with supply than there would be with demand. But, with Brexit also holding up product and leading to an exodus of staff, that would appear to be the case.
• The Telegraph politicises the situation saying that Brexit is not to blame for empty shelves as ‘the UK is far from alone in facing driver shortages’. It points to other factors such as ‘new tax rules and the pingdemic.’. The Telegraph has pointed to shortages in Germany.
• Further comment. The shortages will be due to a number of factors and, at the moment, it may be impossible to disaggregate them. Certainly, a shortage of lorry drivers who have returned to the EU or who are reluctant to come to the UK because of delays due to red tape and new administrative processes, will not have helped. But nor too will the pingemic. As the one should have effectively ended and the other has not, it should be easier (but not very fruitful) to point the finger shortly.
• Turtle Bay has started work on a new restaurant in Durham.
• Knead Pub Group has sold four venues to RedCat.
• Toca Social, a football-based bar, has opened at The O2.
• Bloomberg reports that Tim Horton’s China operation is set to go public via a merger with Silver Crest Acquisition Corp.
• Following its full year numbers yesterday, the Press has focused on the statement from Fulham Shore that it has identified 150 sites for expansion. Rents are markedly down on 2019 (albeit for new sites) and opportunities are legion. The Times also reports that the group is thought to be close to signing franchise deals in Portugal, Greece and Japan.
• Just Eat, which reported H1 numbers yesterday, has said that it would not be appropriate to sell the business to a bigger rival. CEO Jitse Groen says that a ‘merger’ with a rival was “not absolutely logical at the moment.” The company is under some pressure as it has fallen back into losses as a result of its expansion plans.
HOTELS & LEISURE TRAVEL NEWS:
• TUI has announced further holiday cancellations (in this case to Florida and Cancun) as a result of “ongoing uncertainty around travel”.
• Cruising is picking up a little – albeit from levels of zero – with the Port of Southampton reportin its busiest month of the year for cruise departures in August.
• The latest Europe Hotel Construction Pipeline Trend Report from Lodging Econometrics (suggests that the European hotel construction pipeline increased 7% by projects and 11% by rooms year-over-year at the end of Q2.
• STR reports that the ‘United Kingdom leads the construction pipeline with 345 projects (52,065 rooms).’ It says Germany and France are in numbers two and three positions. London is the busiest city, followed by Dusseldorf, Paris & Moscow.
• Further comment: In a classic ‘macro vs micro’ problem, additional capacity may be good for the company putting on the rooms, but bad for the industry as a whole. This for the obvious reason that any demand is soaked up and rates may come under downward rather than upward pressure. London remains the busiest city. On a couple of decade-view, that might be reasonable but, just at the moment, it won’t help much. London has been suffering since the beginning of the pandemic from a lack of tourists and from reduced levels of domestic travel.
• STR expects US occupancy to rise by almost a third to 51.7% this year. Room rates should rise by 12%. Both numbers are compared to a very depressed 2020. STR says that leisure demand is back but business demand has some way to go.
• US long-stay specialist Highland Group says it is seeing ‘record high demand, rapidly increasing [room rates] and a large decline in the supply pipeline.’
• Airport association ACI Europe has said that Europe’s airports are still reliant on debt in order to operate. Demand has not recovered to levels where the operators can stand on their own feet. ACI says ‘the first six months of 2021 were worse than last year as passenger volumes further decreased by more than a third – the direct result of travel restrictions reinstated at the beginning of the year which remained throughout spring.’
FINANCE & MARKETS:
• The ONS reports that UK unemployment fell from 4.8% to 4.7% in the three months to June. The number of people in employment rose, the number of vacancies hit record levels and numbers on furlough fell to the lowest level since the scheme was introduced.
• The ONS says average total pay, including bonuses, rose by 8.8% in the year to June. Excluding bonuses, it rose by 7.4%.
• Further comment: This is good news but it is not without risk. Inflation could take off if there is a staff shortage but, overall, anything that keeps people in jobs is perhaps preferable to something that does not. The ONS has said there is no sign of redundancies starting to pick up. Chancellor Rishi Sunak says ‘I know there could still be bumps in the road but the data is promising. There are now more employees on payrolls than at any point since March 2020 and the number of people on furlough is the lowest since the scheme launched.’
• The very strong wage growth could put pressure on the Triple Lock. Whilst the government promised to retain this, it could be unaffordable.
• Further comment: The NIESR comments on the wage data saying ‘the U-shaped recovery in the labour market is causing labour shortages in some industries like health and social work and wage inflation.’ It says ‘underlying wage growth increased to 4 per cent in the three months to June. With consumer price inflation rising and expected to reach also 4 per cent at the beginning of next year, there is a risk that price inflation feeds into wage inflation. The Bank of England should monitor the situation carefully to prevent in a wage-price spiral.’ The NIESR has previously been relatively sanguine about the threat of inflation.
• Sterling weaker at $1.3742 and €1.1725. Oil lower at $69.33. UK 10yr gilt yield 0.57%. World markets mixed yesterday and London set to open up by around 28pts as at 7am.
RETAIL WITH NICK BUBB:
• Nick is on a well-earned break. Back after the Bank Holiday.