Langton Capital – 2021-10-05 – PREMIUM – Gregg’s, Compass, Hotel Choc, The Budget, supply, Xmas & other:
Gregg’s, Compass, Hotel Choc, The Budget, supply, Xmas & other:
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A DAY IN THE LIFE:
It’s going to be one of those weeks.
One of the ones where the day-job gets in the way of, well, the day-job and, because the number of hours in the day don’t come with much give, you’re pinging around from dawn till dusk without the chance to draw breath.
So, note to self. Manage diary a bit better but, as there’s that chance to meet contacts, existing and new, for the first time in quite a while, the diet is being suspended, the Oyster Card is set to get a hammering and, who knows, I might even be forced to get the odd taxi.
Indeed, all very pre-Covid so, if the email looks a little shorter than usual on occasion, it’s because I’ve been out and about, collecting facts, anecdotes and fiction for use on that fabled day, ‘tomorrow’.
On to the news:
PUBS & RESTAURANTS:
Accrued costs: A joint letter from UK Hospitality and the BRC warns ministers that enforcing the payment of rent accrued during the pandemic will put business ‘at risk of insolvency or takeover’.
• The letter expresses concerns about the government’s policy that ‘those tenants that can pay in full should do so’ with the new rent arbitration system set to be implemented in March next year.
Trade bodies step up lobbying ahead of the Chancellor’s Budget (on 27 October). UK Hospitality has called on the Government ‘for a package of targeted support in its Budget submission to the Treasury.’ It says it is ‘proposing a programme of co-investment to create jobs and boost growth.’
• UKH says ‘having survived 18 months of enforced closure and harsh trading restrictions, the hospitality sector is now not only facing a critical shortage of staff and severe supply chain issues, but the triple threat of punitive business rates, rent demands and an increase in VAT.’
• It says that, ‘under these circumstances, a targeted package of post-pandemic support for the sector is essential if it is to have any hope of a complete recovery.’ You can feel some sort of request coming, the sort that would have Chancellor Rishi (I’m going to have to raise taxes further) Sunak squirming in his seat and, in almost the next sentence, UKH says it would like a lower rate of business rates for hospitality, a permanent rate of VAT at 12.5% for hospitality and tourism, an increase to the primary threshold for employer National Insurance Contributions to £12,000 and ‘a lower level of excise duty for all categories of alcohol sold in licensed venues.’
• Not much then. Perhaps it never hurts to ask. But UKH isn’t finished as it says it also needs ‘a strong, implementable, equitable code of practice that mandates a sharing of the pain of rent arrears between landlords and closed sectors, including a 50% rent debt write-off for tenants for all closed periods.’ It would also like to see a boost to government ‘spending on tourism attraction, skills and apprenticeship funding, an extension to the Kickstart scheme and High Street regeneration funds.’
• CEO Kate Nicholls, says ‘given the right conditions we can continue to create jobs, rejuvenate high streets, generate billions in tax and contribute to growth.’ She adds that, if only VAT and rates were cut and a chunk of rent debt snuffed out, hospitality could create ‘125,000 new jobs.’
• We try not to live in the criticism game but there are a number of tone deaf points here. Taxes are going to have to go up rather than down, hospitality has been one of the main beneficiaries of government schemes to date and, even if 125,000 jobs were created, there aren’t the bodies to fill them. However, as mentioned above, perhaps it never hurts to ask.
Labour issues. As reported yesterday, CGA has said that one in six hospitality jobs are currently unfilled. Its confidence survey (conducted with Fourth) suggests that 76% of respondents were upping pay to attract and retain staff.
Christmas. Yes, Christmas. Foodservice analyst Peter Backman comments that Christmas this year could present mixed fortunes for operators with uncertainty as to both demand and supply likely to cause problems.
• He says that, whilst there is a growing desire to eat out, some consumers are still conflicted and supply shortages are continuing. Fuel prices are rising, labour is in short supply and inflation is beginning to become a nagging concern. He says that ‘as usual, a “good” Christmas is vital to see business over the lean Q1 next year.’ The Chancellor seems to be saying that further tax increases are on the cards, Kwasi Kwarteng says the government can’t make any promises about delivery and PM Boris Johnson says only that Christmas this year will be better than last.
HGEM reports that ‘less than a quarter (21%) of consumers report that their workplace is planning a Xmas party this year (however, it is a 17% increase from 2020).’ It says ‘shockingly, more customers are saying they’re not having work Christmas parties than there were last year (24% vs. 20% in 2020), whilst the majority (55%) are yet unsure whether their workplaces are organising anything this year.’
• HGEM says this suggests ‘that offices and workplaces are adopting the ‘wait and see’ approach and are intending to book something relatively last-minute, which could mean a surge of Christmas bookings is on its way.’
• HGEM goes on to say that its report suggests ‘that consumers feel much more confident in taking part in Xmas parties in 2021 than they did last year. 9 out 10 (89%) feel safe enough to take part in a (work or personal) Christmas party; that figure was only 72% in September 2020.’ It says that ‘the most fearless age group is Gen-Z (18-25) as 2 out of 3 (63%) don’t feel worried at all about taking part in social gatherings. That confidence decreases with age in a linear trend to only 8% of those aged over 56 ‘don’t feel worried at all’’.
Supply issues: The prime minister has told business leaders that it is not the government’s job to fix food supply shortages in the run up to Christmas. Passing the buck. When asked if more emergency visas will be issued to step up supplies, he said it is up to industry leaders to work out the way ahead. The Times reports ‘only 27 fuel tanker drivers from the EU have applied to work in Britain under the government’s emergency scheme to tackle the petrol crisis, ministers have been told. It means only a fraction of the 300 visas available for HGV drivers in the fuel industry are set to be taken up in a setback to efforts to replenish supplies.’ More on petrol & culled pigs:
• The Petrol Retailers Association (PRA) said it hoped the Army driving tankers would help increase fuel deliveries, with London and south-east England still facing a shortage of supply.
• The British Meat Processors Association warned that around 100,000 healthy pigs may be culled due to a shortage of butchers and abattoir workers. The BMPA also said there could be fewer choices available for Christmas dinner this year due to labour shortages following Brexit.
Disaster capitalism? Tory MP Chris Loder has said that food shortages were in the “long-term interest” of the British economy. He told a Tory Party conference fringe event that it ‘is in our mid and long-term interest that these logistics chains do break.’ He said that it ‘will mean the farmer down the street will be able to sell their milk in the village shop like they did decades ago. It is because these commercial predators – the supermarkets – have wiped that out and I’d like to see that come back.’
• Some critics have suggested that ‘disaster capitalists’ could be the only constituency to ‘benefit’ from the upheavals seen as a result of Brexit and other shocks. The Telegraph reports that ‘business leaders called the idea “ridiculous”, “parochial” and “disrespectful” as pressure mounts on the Government over supply chain chaos.’ Breaking things will not benefit the weak and it is hard to see how it really benefits anybody at all. The Telegraph reports ‘James Bielby, chief executive of the Federation of Wholesale Distributors, added: “Of all the justifications for the current crisis, this is the worst one yet. It’s so parochial. We’re not back to this mythical golden age, and it’s disrespectful to the people who don’t live in rural areas near farms.”’
Current issues. Foodservice analyst Peter Backman recently visited Bluewater & found foodservice companies struggling for product & shutting early. He says ‘over 30 shops were boarded up’ suggesting that there are ‘massive changes to shopping habits are being disrupted by online shopping with a consequent huge impact on retailer sustainability.’ This will impact footfall and demand for F&B.
• It’s life, Jim, but not as we know it. Things have changed a bit. Backman says ‘in the food hall a constant stream of riders from Deliveroo and Just Eat were making their collections.’ His conclusion is that ‘delivery continues to disrupt patterns of sales (and disrupt many consumers’ enjoyment of their shopping space).’
• He points out that tenants such as Wagamama, ASK, Byron, Tortilla, Friday’s and many more ‘have grown over the last ten years partly through colonising shopping centres. If these centres are going to be a shadow of their former selves, how will brands like these continue their rollout strategies?’ There are options, such as they could ‘move back into city centres where rents may now be lower than before; move to towns and cities where those working from home are going to spend more of their time and money; do (even more) delivery.’ But whatever happens, there could be more disruption to trade.
• We would suggest that, now more than ever, it isn’t going to be possible to create one or two successful restaurants and then press the button that says ‘give me a hundred’. Site selection remains critical but the F&B offer too will need to be authentic and genuine and it will need to offer value for money.
COMPANY & OTHER NEWS:
Gregg’s – trading ahead of expectations, plans to double revenues in the next five years. Gregg’s has updated on trading for its Q3, saying that it is seeing a ‘continuing recovery and increasing potential for growth.’ The company says that Q3 LfL sales were up by 3.5% against 2019. It says delivery sales are ‘developing well’ and it has 943 of its c2,100 now involved. The group opened 68 net new shops opened year-to-date (84 openings less 16 closures) and its says it continues to expect around 100 net shop openings in 2021. The group says earnings should be ‘ahead of our previous expectations.’
• Gregg’s says that it has a target to ‘double turnover over next five years to circa £2.4bn in 2026.’ It says it will add 150 shops a year and could go to 3,000 units. The co says ‘despite widely reported disruption to staffing and supply chains, it is a credit to our teams that Greggs has continued to trade well over the third quarter with two-year like-for-like sales in company-managed shops rising by 3.5 per cent when compared with the same period in 2019. Growth was particularly strong in August when a ‘staycation’ effect was evident and remained in positive territory in September, with two-year like-for-like growth of 3.0 per cent in the four weeks to 2 October. Delivery sales have continued to develop well, with 943 shops now involved in supplying customers through this channel.’
• It says, re the outlook, that ‘Greggs has not been immune to the well-publicised pressures on staffing and supply chains and we have seen some disruption to the availability of labour and supply of ingredients and products in recent months. Food input inflation pressures are also increasing; whilst we have short-term protection as a result of our forward buying positions we expect costs to increase towards the end of 2021 and into 2022.’ It says ‘operational cost control has been good and the strong sales performance in the third quarter gives us confidence as we move into the autumn. Subject to any unexpected COVID disruption we expect the full year outcome to be ahead of our previous expectations.’
• The group is today hosting a Capital Markets Day event ‘during which the Company’s Operating Board will set out the considerable opportunities that we see in the coming years.’ It says ‘our strategic direction remains consistent – further growth in the shop estate will be supplemented by development of new channels in the food-on-the-go market.’
Hotel Chocolat has this morning reported full year numbers. The group says it has increased revenue by 21% to £164.5m with underlying EBITDA of £28.6m against £21.6m last year. PBT (before exceptional items) is £10.1m against £2.4m. Re current trading, the company says ‘following a year of strong digital growth more than offsetting significant retail disruption, sales growth accelerated further from April with the UK re-opening of all channels, indicating the effectiveness of the multi-channel sales model.’ The first 13wks trade has been in line with management expectations.
• CEO Angus Thirlwell says ‘these results show we have now evolved from a UK store-led brand to a globally ambitious digital-led brand. FY21 was a year where Hotel Chocolat improved on many fronts. Our digital and subscription-continuity models surged ahead and our global aspirations racked up more strong growth and progress.’ He says ‘the continued challenges of COVID-19 pushed us to accelerate many of our existing plans and strategic initiatives.’ He adds ‘I am confident that the strategic progress we have achieved over the past year has improved the performance and prospects of the business for significant years to come.’
Compass Group yesterday announced that director Karen Witts ‘has mutually agreed with the Board that she will step down as Chief Financial Officer and as a Director of the Company with effect from 31 October 2021.’ It said ‘Palmer Brown has been appointed Chief Financial Officer Designate and a Director of the Company with immediate effect. He will assume the role of Chief Financial Officer with effect on and from 1 November 2021 and will also join the Corporate Responsibility Committee.’ Chairman Ian Meakins said ‘we would like to thank Karen for her valuable contribution, particularly over the last 18 months which has been a time of exceptional challenge for Compass. She will leave the Group in strong financial health.’
The Telegraph reports that Caffe Nero has hired ‘advisers for debt talks as Issa brothers circle.’ It says ‘Lazard is understood to be assisting the chain with discussions on refinancing its £150m debt pile.’ The paper reports that the Issa brothers own £180m of Caffe Nero’s ‘lower ranking debts’. It says this means the brothers ‘could seize control if the company defaults on its debts.’ EG Group, the Issa brothers’ vehicle, announced yesterday that it had acquired Cooplands, the Scarborough based baker chain, the UK’s second largest, for an undisclosed sum. The business recently bought Leon and Asda.
• The Telegraph says ‘the brothers are understood to have attempted to also buy Caffe Nero’s top-ranking bank debt, which is currently owned by a group including HSBC, Santander, Lloyds, and Rabobank.’ The paper reminds readers that ‘Caffe Nero, which employs more than 7,500 staff across more than 1,000 outlets worldwide, was founded by Mr Ford in 1997. He floated the business in London in 2001 buying it back in 2007 in a debt-backed deal worth £225m.’
• A spokesman for Caffe Nero said: “We will not comment on whether we have hired advisers or are planning any refinancing. As we have stated on several occasions, we are not forecasting any breach of banking covenants and our auditors have verified this for the next 12 months. In fact, our current trading has been very robust, going from strength to strength and closing in on pre-pandemic levels.”
The Times reports that the family-owned manufacturer of Ginsters pasties and Soreen malt loaf tumbled into the red to the tune of more than £30 million on the back of “an incredibly challenging year”.
• The main reason for the decline in fortunes, unsurprisingly, was the collapse in demand for its food-to-go unit’s product. The division provides sandwiches, wraps, toasties and salads and saw its sales fall by 19 per cen. The company owns the West Cornwall Pasty Co stores, which it closed on a temporary basis last year. The company has since reportedly closed the unit permanently.
The Ivy has reportedly requested permission to open a new restaurant in Chichester.
MEATliquor is set to open a new restaurant in Clapham, adding to its 11 London outlets. The new venue will contain two split-level bars, a 170-cover dining area and outdoor garden space. The space will also host live music on weekends.
BrewDog Retail reports a pre-tax loss of £10.4m in its full year results for 2020, with turnover at £25.2m. The bars division of the Scottish craft beer company said it is optimistic for a better 2021.
Five Guys reports revenues down by 11% during the 2020 full year to £233m, with an operating loss of £14.2m. The company said it continues to see strong growth prospects in the premium burger market, and will carry on rolling out in the UK and Europe.
Zapaygo has partnered with the Night Time Industries Association (NTIA) to become its mobile ordering partner. A recent survey commissioned by Zapaygo, found that 63% of hospitality businesses said they saw their mobile order and pay system as strategically important to the growth of their business.
The Morning Advertiser reports that small brewers are facing challenges after the Covid-19 pandemic as they attempt to get back to normal trading. The latest impacts of both the petrol crisis and CO2 fears have seen brewers and pub operators hit by a supply chain crisis.
Perfect Day, a animal-free dairy company, has raised $350 million in a Series D funding round led by Temasek and Canada Pension Plan Investment Board (CPP Investments). Perfect Day is a food tech start-up that developed a method for producing functional protein through the fermentation of microflora.
Austria reports its wine exports increased by 25% in H1 of 2021, with values rising to over €111 million, with growth driven by the relaxation of Covid-19 restrictions.
HOTELS & LEISURE TRAVEL NEWS:
Onex Corporation, owner of Parkdean Resorts, is preparing to put it up for sale as the UK staycations market continues to boom.
• Insiders say the business may fetch more than the £1.3bn that Onex paid for it nearly five years ago. Parkdean owns more than 65 holiday parks across the UK and is the latest in a string of similar companies to be put on the market in recent months.
Air Newzealand is imposing a ‘no jab, no fly’ policy as it prepares for a return of international travel. Passengers will be required to be fully vaccinated when it restarts operations from 1 February, 2022.
The CAA has granted 871 Atol licences by the September 30 renewal date, more than 300 fewer than in October 2019. It urged businesses due to renew Atols next March to apply in good time before the March 31 2022 deadline.
In the US, Destination Analyst says that Americans are feeling more financially stressed lately and some are not entirely confident in the protection their COVID vaccines are currently giving them. Over 30% of all American travelers say the announcement that international visitors will be able to visit the US again makes them more interested in traveling in the next six months.
Facebook, Instagram and WhatsApp were down for several hours yesterday.
Facebook. A whistle blower has leaked documents alleging that the company knew its products were fuelling hate when it turned off safeguards designed to combat misinformation in the wake of Joe Biden’s defeat of Donald Trump in last year’s US elections.
FINANCE & MARKETS:
Chancellor Rishi Sunak has defended the first of his tax rises and stressed the ‘need to fix public finances’ at the Tory Party conference. He says ‘I know tax rises are unpopular.’
• Mr Sunak says ‘there can be no prosperous future unless it is built on the foundation of strong public finances. And I have to be blunt with you. Our recovery comes with a cost.’He says ‘we need to fix our public finances because strong public finances don’t happen by accident.’ He says he wants to cut taxes but implies strongly that that won’t be happening in anything like the short term.
Sterling up at $1.359 and €1.1719. Oil price higher at $81.45. UK 10yr gilt yield down 1bp at 1.01%. World markets mixed to down yesterday with London set to open up around 21pts as at 6.30am.
RETAIL WITH NICK BUBB:
• Today’s News: After the recent shocks from reporting retailers, the trio of companies announcing updates today all put a brave face on things. The sofa retailer ScS has reported a strong recovery with its finals for y/e July and flagged that year-to-date trading has been in line with the Board’s expectations, with order intake up 11.9% on a two year like-for-like basis for the first nine weeks of the new financial year to 2 October. Overall SCS are “positive about prospects for the full year although we are mindful of the ongoing disruption to supply chains and cost inflation”. The delayed Hotel Chocolat finals for y/e June are said to be ahead of market expectations and group trading is reported to be in line with management expectations for the first 13 weeks of FY22, with CEO Angus Thirlwell reporting that “These results show we have now evolved from a UK store-led brand to a
• This Week’s News Flow: Tomorrow brings the Tesco interims and the Topps Tiles pre-close update., whilst Friday brings the N Brown interims.