Langton Capital – 2021-08-20 – PREMIUM – Trading, staff issues, virtual brands, Roadchef, Adnams, Rekom etc.:
Trading, staff issues, virtual brands, Roadchef, Adnams, Rekom etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Thanks for the suggestions re walks in London.
And yes, considering that I’ve lived in London, Cambridge, York, Geneva – and of course, Hull – you also were right to point out that it’s scarcely forgivable that I know the above cities more for their pubs (or lack of them in the case of GVA) than I do for their public appeal.
Further, I agree that the Tower is more than just a tumbledown outhouse, Trinity College’s Great Court is indeed a sixteenth century work of art rather than an annoying bit of greenery you have to cross to get to the bar etc. And York in its entirety is a historical treasure, Geneve’s vieille ville is more than an annoying hill, Mont Blanc isn’t just a white bump on the horizon and Hull is, well, much, much more than just a strange accent and the vague smell of fish and chocolate.
Aside: If you’ve never heard me Turk, you can get a flavour of it HERE at 6:40 into this video:
So I promise to do better but anyway, it’s the end of a light news week – as can be witnessed by the emergence of yet more stories about Geronimo the Alpaca – so have a great weekend and on to the news:
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PUBS & RESTAURANTS:
• Lumina Intelligence says the ‘impact of eased restrictions has yet to be felt for hospitality’. We have a view on this comment that we outline below. The analyst says that a net 93% of respondents to its recent survey found trading ‘net challenging’ compared with only 54% in 2019. Looking on the bright side, the number peaked at 97% in 2020. Some 63% found trading ‘extremely challenging’ (vs 68% las year) and 30% (in both 2021 and 2020) found trade simply ‘challenging. A resounding zero percent (in both years) said that trade was ‘extremely positive’.
• Further comment: We don’t think trade is that bad. And do Lumina mean demand or supply? Because demand, we perceive, is good – but supply is an issue. Of course that means some operators, who have been able to deal with their supply issues, are only left with the good stuff – and that, we believe, can currently be very good indeed. As always, stock selection is critical as you can’t make a share purchase of ‘the industry’. The entire hospitality industry could be C+ or a B- but there are plenty of Ds and a smattering of A-stars out there.
• Lumina Intelligence has added its voice to those of other operators and observers saying that ‘staffing is a key challenge.’ It says this is ‘exacerbated by Brexit’ and says ‘the online opportunity will grow through delivery and DTC Brands admired for adaptation to and alignment with consumer trends.’ It says ‘pre-existing recruitment challenges – particularly in the hospitality market – have been worsened by Brexit with over half of surveyed professionals impacted by Brexit-related staff shortages. There is overwhelming demand for more EU workers.’
• Further comment. Lumina goes on to say that the ‘coronavirus pandemic has seen an acceleration of digitalisation in businesses across grocery retail and hospitality with demand for home delivery the number one consumer trend.’ It says ‘delivery and digitalisation have been key for hospitality businesses in the past 18 months offering a crucial income stream as well as more efficient operations with managing costs a leading challenge.’ As regards other developments, it says that keeping up with the customer is critical. It says ‘established players; McDonald’s, Pret A Manger, Coca-Cola and Tesco; are among admired brands with clear strategies centring around innovation and alignment with consumers despite notable headwinds.’
• The Scottish Hospitality Group has called for a migrant worker visa scheme for the hospitality sector to be introduced. It says that a staff shortage is “preventing businesses from opening to capacity”. The pingemic element of this should be falling away. And furlough finishes at the end of next month so, if things are not much improved by then, depending on your politics, automation, less supply or immigration may be the solutions. The SHG says ‘the issues of furlough, lack of staff and supply chain complications are jeopardising hospitality’s ability to try and scrabble back to pre-COVID trade levels.’
• Feedback. Questions being asked as to whether the VAT increases upcoming on 1 Oct (up to 12.5%) and 1 April next year (back to 20%) will be passed on to consumers. The belief is, with demand good and supply restricted, that they will be. Staff shortages are a politically hot topic but, with the pingdemic now in the rear-view mirror, most are being put down to Brexit. Staycations are currently huge – but they are putting a strain on resort destinations, where operators simply cannot get the staff. There are some price rises but, in all honesty, there could easily have been more with supply so patchy. It will be interesting to see how this unwinds next year when overseas holidays could once again be on the agenda.
• Virtual brands are being tested out by a number of operators. Brinker International in the US has made a success of its virtual brand ‘Just Wings’ and it is reported to be rolling this out via the introduction of Maggiano’s Italian Classics. But what is a virtual brand?
• Further comment: FSR in the US defines a virtual brand as one that is produced (crucially) either in a dark kitchen or in an operators’ existing restaurant kitchen but it is not available to dine-in customers. It says ‘sometimes called delivery-only or digital-only, these concepts are housed in a brick-and-mortar kitchen, but are only available through off-premises’ sales.
• If an operator, e.g. Brinker International, has 1600 or 1700 restaurants, it can roll out a virtual concept quickly, provided a) there is capacity in the kitchen and b) that it’s not a complicated dish. Not surprisingly, Brinker kicked off with chicken wings, which can be pre-prepared and are not (I’m told by Google) very hard to prepare. Restaurant Dive says the company launched its virtual brand ‘Just Wings’ last year and now has it available in 250 units with plans to go to 900 by the end of this year. The group is therefore enacting a very rapid rollout, and it is utilising existing capacity to do so.
• The group is moving on to launch a second virtual brand, Maggiano’s Italian Classics. We don’t analyse Brinker so, the question is, could a similar process be adopted in the UK? Central kitchens, a close geographic proximity of restaurants, an ease of preparation, available sister brands and a will to do it spring to mind as obvious questions.
• The IROAR (the Independent Restaurant Owners Association Rescue), which represents around 50 businesses in two boroughs in New York, is reported to be suing New York City Mayor Bill de Blasio for demanding that customers and employees effectively show vaccine passports if they want to dine indoors.
• Roadchef is reported to have expanded its outdoor catering options by adding new open-air food huts at some sites across its motorway service area network. It says this is to accommodate the high volume of road users expected as a result of increased staycations this year. Roadchef says ‘we’re anticipating a busy summer ahead as travellers take to the roads and visitor numbers increase. Our new food huts provide even more options for those looking for a tasty treat to enjoy as they stop and de-stress at one of our regional sites or if they just need a grab-and-go option on the way to their staycation.’
• Further comment. There are some winners across the pandemic-impacted hospitality industry and perhaps motorway service are operators should be added to suburban pubs, resort put and restaurant operators and holiday cottage companies. The outdoor space has the advantage that a) it could reassure the nervous, who do not want to go indoors and b) it sounds as though it is temporary so, if everyone ends up on a beach in Spain and Portugal next year, the space can be removed at an acceptable cost.
• Suffolk brewer and hospitality company Adnams has said that it made a pre-tax loss of £3.3m in the H1 to end-June compared with £4.3m of losses in 2020 as a whole. The company’s chairman, Jonathan Adnams, says the ‘team has performed admirably throughout a series of lockdowns and when called upon to reopen the business.’ He says ‘the adaptability and resilience within our culture has meant that we have been able to deal with this uncertain and fast changing situation in the best way possible, taking our customers with us and positioning us for future success.’
• Mr Adnams says ‘we are pleased at the prospect of unrestricted trading and that the vaccine roll-out and vaccine efficacy has enabled the country to reach this stage. However, we have also always been clear that any release must be sustainable and unreversible.’ He adds ‘given current data and the ‘mood music’ coming from Government and the medical community, we will continue to take a cautious stance to ensure the business, our staff, our pubs, and our customers are protected for the future as we deal with those ongoing uncertainties.’ The company is ‘cautiously optimistic that the worst of the pandemic is behind it and that the on-trade will be able to progress relatively normally into the autumn and beyond.’
• Adnams yesterday pointed to import difficulties regarding wine. It says there is some stockpiling going on. CEO Andy Wood says ‘we did have a bit of a skew towards Europe, and we are trying to manage the supply so we get wines from the rest of the world as well.’ He says ‘we’re paying more, and it’s taking longer for us to get wine in from around the world and Europe. That means we’re having to stock more, so that means we’re having to fund more stock in the system.’ This will have a working capital impact and cost increases are likely to be passed on to the consumer.
• What goes around. Amazon is reportedly set to open large department stores in the US.
• Some degree of normality. Car use in the UK is said to be up to pre-pandemic levels.
• Chipotle Mexican Grill is reported to be testing meatless chorizo in Denver and Indianapolis. It says ‘plant-based lifestyles have continued to accelerate in popularity, and as a long-time leader in the category, we are exploring ways to give more variety to our fans.’
• Rekom UK (formerly Deltic) has said that it has seen a rapid return to its clubs with trading currently up 150% on 2019. CEO Peter Marks told the MA that demand has “never been higher”. He says ‘since reopening, we have noticed more pre-booking than usual as people want to make sure they can get in, but the majority of our customers are still walk ins, as it was pre-pandemic.’ He says that cocktail sales are booming and says ‘there is a clear high demand for clubbing now that we are back open again – particularly for young people, many of whom were hit hardest by Covid-19 restrictions while at university or entering the job market despite being part of a low risk group. They are excited to enjoy a night out after all this time and regain some of what has been lost since March 2020.’
• Salcombe Brewery Co has appointed Jordan Mace to the newly created role of Commercial Director.
• Ponti’s Restaurant is reported to have negotiated a short-term working capital injection of £100k from Reward Finance Group.
• London-located plant-based restaurant KOJO is to open a second site this month.
• UKH has announced that Business Secretary Kwasi Kwarteng will be the headline speaker at its annual conference on 20th September at the RAC in London.
HOTELS & LEISURE TRAVEL NEWS:
• Covid testing. The BBC reports that the CMA says it told the government back in April and May that its Covid PCR testing regime could lead to customer abuse.
• UK Inbound has said its industry is on the “cusp of recovery”. It is asking, however, for the furlough scheme for the tourism sector to be extended until the end of April 2022. UKH says 82% of tour operators have seen their incomes drop by more than 90% since March last year.
• Further comment: UKH says ‘inbound tourism businesses such as tour operators and DMCs face a cliff edge on October 1 when furlough ceases due to the government misconception that these businesses have been in recovery for many months and have large levels of new revenue coming in.’ The lead time for bookings is undoubtedly longer than it is for walk-in products and services such as most sales made by pubs & restaurants. UKH says ‘they’ve lost out on the valuable 2021 summer season and are facing a winter with minimal income. Removing support measures would be absolutely counterintuitive, given the investment government has already made in the industry since the start of the pandemic and the potential for recovery.’
• It’s probably fair to say that elements of the UK industry will have done pretty well this summer. That doesn’t tell the whole story, of course, as they were obliged to shut for much of Q2 last year, a chunk of Q4 2020 and for much of H1 this year. And the overseas tour operators, who often own aircraft and have other fixed commitments, may have suffered more. UKH says ‘2022 presents a tremendous global opportunity for the UK as it hosts and celebrates the Commonwealth Games in Birmingham, Festival UK 2022 and the Queen’s Diamond Jubilee.’ It says ‘these events will bring vast economic, cultural and societal benefits to the country which will play a vital role in the UK’s economic recovery, but they will only be realised if we have a thriving inbound tourism industry in place.’
• UK Inbound goes on to say that a third of hospitality businesses operating in this market do not expect to survive more than six months if they do not receive greater support.
• Visit England says that visitor attractions in England saw visitor numbers fall by 65% in 2020 vs 2019. Revenue was down by 55% year on year. Visit England says that art galleries and museums saw the most material drops due to the periods of enforced closure.
• Business travel services company SAP Concur says that 40% of small businesses fear that their operations may suffer if business travel does not pick up in the next 12 months. The company says ‘travellers from within small businesses see an even greater need for business travel than their counterparts at larger companies.’
• More Eurostar trains are being laid on as demand picks up.
FINANCE & MARKETS:
• Toyota is cutting production due to a shortage of microchips.
• The Guardian fears that UK beet farmers could be crushed by Australian imports. Major customers include Cadbury and Coca Cola as well as Silver Spoon. They will be able to source their product cheaper abroad.
• Sterling weaker at $1.3633 and €1.1665. Oil lower at $66.59. UK 10 year gilt yield down 2bps at 0.55%. World markets mostly sharply down yesterday. London set to recover & open up by around 10pts (as at 7am).
RETAIL WITH NICK BUBB:
• Nick is on a well-earned break. Back after the Bank Holiday.