Fuller’s read across, GfK, business confidence, inflation, Jet2 & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

Internet problems first thing so will have to move on. It’s Friday, which makes IT problems a little easier to bear. And the main task of the weekend is to avoid getting suckered into going to the cinema again.

‘It’s only a tenner, dad.’

Well, yes, but add in the parking, the pre-film coffees, the other tickets and the popcorn and you don’t get much change out of sixty quid.

Inflation, huh? Anyway, have a good weekend and on to the news:

FULLER’S COMMENTS & INDUSTRY READ ACROSS:

Introduction:

It’s easy to focus on the headline numbers but there are interesting and far-reaching comments in many financial updates. Fuller’s, yesterday, was no exception.

Comment on current trading:

Fuller’s yesterday commented on trading since Lockdown III ended saying that ‘sales are growing month on month.’ It did not split out London sales but says ‘sales for the seven weeks from the period end to 13 November are at 90% of 2019 levels and, with the further return of international tourists and increasing numbers of office workers in Central London and the City, we have a clear engine of growth to drive the business forwards.’

Provincial v London, rural vs the cities:

Fuller’s said ‘trading patterns have varied across our estate and it is no surprise that our rural pubs and hotels have seen the highest sales growth – consistently exceeding 2019 levels.’ The company’s Cotswold Inns & Hotels units did very well but it says ‘in Central London, where we naturally have a greater reliance on offices, tourists and the arts, we anticipated that customers would be slower to return.’ It says ‘momentum is growing and we expect that to continue as international travel restrictions are relaxed and the number of days office workers spend at their desks increases.’

The new normal:

a. Plant-based and provenance:

FSTA says ‘there is no doubt that the Covid pandemic has influenced the way today’s customer behaves – but the overarching good news is that the customer is back, has money to spend and is looking for a premium experience.’ It says there is a ‘move to healthier, vegan and flexitarian lifestyles’ and adds ‘the demand for food provenance has not gone away and we continue to see a significant increase in demand for higher quality wine and cocktails.’

b. Bar service:

Fullers says there is a ‘reduction in demand for bar service.’ It’s going to be hard to tell how much of this is demand pull and how much is supplier push. FSTA says ‘customers are also much happier to be outside, both later and in slightly lower temperatures.’ Fuller’s has committed £3.4m to gardens including ‘giant pergolas to stretch tents, wigwams and everything in between.’

c. There has been a rise in pre-bookings.

There needs to be an investment in ‘digital touch points’. This could sort the wheat from the chaff. FSTA says ‘we are upgrading our booking engines, our pub websites and our CRM system – impacting both internal processes and our customer interface. Collectively, these projects will improve the customer journey’ & market more effectively to customers.

Securing supply.

Fuller’s says it ‘has always developed long-term relationships with suppliers.’ It says it will ‘pay upfront where necessary’ and this should help secure supply.

Recruitment:

FSTA says these ‘issues around recruitment have been widely reported and…were predicted in 2016 at the time of the EU Referendum.’ It says it has ‘undertaken an employee engagement survey to capture insights from our people in a structured way.’ It is improving benefits and ensuring ‘better loyalty recognition with an enhanced staff discount that increases with tenure of service.’

PUBS & RESTAURANTS:

Customer demand:

GfK has released its consumer confidence numbers for November saying that ‘UK Consumer Confidence creeps up to minus 14 in November despite soaring inflation.’ It says that the ‘seven-point jump in major purchase index is good news for retailers in run-up to Black Friday and Christmas.’ This will come as something of a relief to retailers including hospitality retailers in the run up to the busiest part of the year.

• GfK says four of its measures were up versus October with one measure down. The company says ‘headline consumer sentiment has ticked upwards this month despite decade-high inflation, fears of higher prices and worries over rising interest rates, and as the deepening cost-of-living squeeze leaves UK household finances worse off this winter.’

• It says ‘the view on the general economic situation over the past year and year to come is better this month (up six points and three points respectively) but consumers are less buoyant on their personal finances. This weakness is important as it reflects day-to-day plans to save or spend and is a strong driver of overall UK economic growth.’

• GfK adds ‘however, one highlight for both physical and virtual retail is the seven-point jump in major purchase intentions in the run-up to Black Friday and Christmas. Is this a sign that shoppers are ready to bounce back, after last year’s cancelled family gatherings, with a Christmas splurge in coming weeks? That’s how it looks but consumers also know that when the festivities are over it’s going to be a tough year in 2022.’

• The one measure to move down was the Personal Financial Situation, which slipped to minus 7 from minus 5. This is, however, some nine points better than November 2020. The savings index ‘has weakened by seven points to +15 in November; this is four points higher than this time last year.’ A reduction in the savings ratio will also be taken as good news, at least in the short term, by retailers.

The latest Lloyds Bank UK Recovery Tracker has shown that tourism and recreation was the fastest growing UK sector in October for the second month running. Lloyds says that the sector recorded a reading of 70 (where any number above 50 indicates rising output). Lloyds reports that the number of UK sectors reporting growth was at a three-month high last month although businesses were under pressure to raise prices.

• Lloyds reports that twelve of the 14 sectors measured were in growth. Tourism and recreation, which includes pubs, hotels & restaurants, was foremost among them. Lloyds says ‘while encouraging, the headwinds from supply chain disruption and brisk input price inflation are proving both more persistent and stronger. Many firms are currently preoccupied managing continuing pressures on their capacity and bottom lines.’ It adds the above ‘suggests that inflationary pressures are likely to continue to intensify in the coming months. This could further dent consumer confidence and restrain household spending, the mainstay of the recovery so far.’

• Lloyds adds ‘October’s data reveal an improved economic picture for the UK, but the supply chain disruption and raw materials shortages that have dogged businesses for months are holding firm.’ It says ‘they are now being compounded by rising energy prices and rising salary expectations. Many business leaders will be frustrated that they cannot take full advantage of recovering demand and will be concerned that fully passing on higher input prices could make their products and services less competitive.’

• The bank concludes ‘while the situation is currently very challenging, the broad expectation remains that this global cost shock will prove transitory and that supply chains will recover next year.’

Xpert HR says that the average pay deal in the UK is worth just 2%, despite the CPI hitting 4.2% and the RPI touching 6%. It doesn’t feel like this to employers but, if wage-earners are failing to compensate for inflation, demand will dampen over time. The ONS has said that pay growth was averaging nearer 3.5% to 4% in the year to September.

Barclaycard says three in 10 businesses believe this Christmas will be their most successful of the last five years. It says 54 per cent of firms said they felt neutral or optimistic about the UK economy.

• Barclaycard says ‘while the overall economic backdrop remains challenging amidst rising prices, slowing economic output and muted consumer confidence, UK SMEs continue to impress me with their resilience and their focus on controlling what they can control to meet the needs of their customers as they’ve weathered the ups and downs of the past 20 months.’ This feels like an ‘it’s always someone else’s problem’ sort of response.

The NIESR takes a more upbeat approach to disposable income saying ‘we expect weekly earnings annual growth to average 5.7 per cent in 2021 – the highest in two decades – and 3.6 per cent in real terms, after 1.8 per cent (nominal) and 0.8 per cent (real) in 2020.’ It adds ‘the strength of Average Weekly Earnings is explained by high bonuses, robust public sector pay growth and a cyclical recovery exaggerated by compositional effects and increased weekly average hours due to the end of furlough.’ However…

• The NIESR says ‘the rise in inflation will mean close to zero average real earnings growth next year if there is no significant increase in underlying wage growth.’ It adds ‘the exceptional real earnings gain of 3.6 per cent in 2021 is unlikely to last into next year’ and says ‘unless there is an acceleration in underlying wage growth, rising inflation will reduce any real wage gains next year, and households’ income will be further squeezed by the rise in national insurance contributions.’

Labour shortages:

The ONS has said that job vacancies across the hospitality industry are now around the 151,000 level. Bizimply and consultancy Hospitality Mavericks say ‘the ONS figures are a stark indicator of the challenges that hospitality operators are facing. Not only are most businesses running with vacancies, but experienced hospitality staff are being courted by other employers. People want to feel valued, and will move on quickly if they don’t.’

Hospitality Rising is seeking to raise £5m ‘to launch a recruitment campaign to attract more talent into the industry as it starts to recover and build back its muscle post Brexit and the impact the pandemic continues to have on one of Britain’s most loved industry sectors.’ Mark McCulloch says ‘the support we’ve had from the industry and some of our marketing contacts has been amazing. We now need to raise enough money to really land a high profile that will both attract people back into the industry or make those who haven’t considered our sector as a viable, exciting, creative and rewarding career.’

Shifting patters of demand.

The British Beer & Pub Association says that Brits drank more wine and spirits – but less beer – during the 2020 lockdowns. It says wine consumption as a percentage of all alcohol consumed rose by 2 percentage points but beer consumption was 4 percentage points lower. Spirits took an additional 2pps of the whole market.

• Draught beer, with the pubs shut, was by definition not available. BBPA CEO Emma McClarkin says ‘with the pubs closed, its clear people turned to wine and spirits from shops and supermarkets rather than beer. Because of this, overall beer sales in 2020 fell by 14.2%. In short, sales in supermarkets didn’t make up for sales lost from closed pubs.’

• Ms McClarkin argues in favour of moderate consumption saying the above ‘goes to show that when people visit the pub they primarily drink beer, which on average is 4.2% ABV, the lowest strength alcohol category and so ideal for moderate consumption. It is great to see the Chancellor recognise this and promote lower strength alcohol drinks with his changes to the UK alcohol duty regime announced in the recent Budget.’ She adds ‘with pubs open and trading again in 2021, we hope customers will revert to choosing a beer at their local – a safe and managed space at the heart of communities throughout the UK.’

Inflation is everywhere. The NIESR points out that ‘the increase of 1.1% in annual inflation from 3.1% to 4.2% was almost as large as the recent increase in August, which was the largest in over a decade.’

• It says ‘next month will see a further increase in headline inflation of 0.3% or more through a combination of a base effect of 0.15% as the decrease of October-November 2020 drops out and the new inflation for October-November 2021 enters the Headline.’

• The NIESR adds ‘our measure of underlying inflation, which excludes extreme price movements, increased to 2.1 per cent in October from 1.6 per cent in September. The scheduled increase in the OFGEM household energy price-cap next month means consumer inflation will remain above 4 per cent until the end of the year. Our analysis suggests annual consumer price inflation will peak at around 5 per cent in the first half of 2022, well above the Bank of England’s 2 per cent target.’

• Because the above is front and centre as far as the media is concerned, consumers are fully aware of the situation and, though they may not like it, they are hardly likely to be surprised if pubs & restaurants put their prices up. Whether it would be worth doing this before Christmas or not is another matter. The bold may choose to do so – and then raise prices again in April when VAT on food and soft drinks rises from 12.5% to 20%.

Supply side (hospitality outlets rather than goods & services):

Harden’s London restaurant guide suggests, perhaps unsurprisingly, that London restaurants have recorded their weakest growth of the past 30 years in terms of outlet numbers. Harden’s says some 149 new restaurants opened per year over the last two-year period – but some 125 restaurants a year closed.

• Harden’s points out that ‘even before March 2020, over-supply was a problem in the London restaurant market, and the pandemic meant there was absolutely nowhere to hide.’ It says ‘the result has been the most dramatic period of closures and churn that we have yet seen.’ Harden’s adds ‘recessions normally hit weaker performers. In the closures we record, the fall-out is more randomly spread, with many excellent businesses shuttering due to factors as diverse as a City-based location, recalcitrant landlords, or a decision to take retirement and bow out gracefully.’

Supply, product.

Crisps are still in short supply following production difficulties at Walkers. Interestingly, in its latest Real Time Indicators release, the ONS says ‘shelf availability of items between 12 and 15 November 2021 was lowest for “crisps (multipack)”, with 29% of this item’s availability marked as “none” or “low”; shelf availability was highest for the “beer” category, as 71% of this item was recorded as having “high” availability.’ So you can have your beer but there will be fewer crisps with it. The ONS is using Kantar data.

COMPANY & OTHER NEWS:

Big Table is to reopen what was its Café Rouge in Haywards Heath under its new name ‘Rouge’ on 22 November.

More details on Starbucks’ cooperation with Amazon in the US sees press comments saying the first such store opens on Thursday in New York City.

Newly-listed Hostmore, which owns the Friday’s chain of restaurants in the UK, is to host a presentation on its business today at 12.00. The company says ‘the presentation is open to all existing and potential shareholders.’

Costa Coffee is to sell Marks & Spencer sandwiches and hot food in more than 2,500 outlets. Some 30 products will be carried. M&S says the venture gives ‘many more customers the opportunity to enjoy our wide range of sandwiches, salads and snacks.’

Alibaba shares were weak in the Far East after the gigantic retailer warned of a slowdown in consumer spending.

Lumina Intelligence has pointed to three areas where it believes restaurants will be able to make money. it highlights the use of technology, delivery and omnichannel delivery.

• Lumina says 61% of those aged 18-24 are ‘more’ likely to use technology in restaurants ‘in the future’. It is hard to see how you would answer a question like that by saying ‘less’. Nonetheless, the number drops to 20% for the over 75s. Lumina says ‘we found that technology was acting as a confidence booster to those concerned with virus transmission.’ It says ‘speed and ease of order / payment will play a much more crucial role when it comes to tech’ going forward.

• Lumina says that 7.63% of respondents said they had ordered online or via a phone and had food delivered from a restaurant in October. This is fractionally down on September but is up from 1.55% last November. That seems odd as one would have imagined the big step up would have come earlier than that, nearer the beginning of the pandemic. Lumina says ‘there was an expectation that delivery sales would plummet once dine in reopened’ but it says this hasn’t happened.

• Re Omnichannel, Lumina is saying that at home meal kits, delivery and meals eaten on the restaurant premises will be more evenly matched in the future than they have been in the past. It says that alternative delivery channels ‘are set to remain popular and could be a key to the market experiencing a swifter market recovery’. It names a few companies that ‘have excelled at this’ including Pizza Pilgrims, Pizza Express, Dishoom, Leon, Hawksmoor, Cote and Honest Burger.

LEISURE TRAVEL & HOTELS:

Jet2’s share price fell sharply yesterday on the back of the group’s H1 results announcement. Jet2, which has a March year end, needs to make money in its first half as it is virtually certain to lose money in its second. The group announced a loss (see yesterday’s email) and the shares fell by almost 10% to 1078p. They were 1330p earlier this month.

• H1 this year, the period March to September, was heavily impacted by Covid issues and, though revenues were better than last year, losses were perhaps inevitable. That, however, is said with the benefit of hindsight and it would appear that the market was hoping for better. The group has said it will – as it always does – lose money in its H2. 

The GBTA says the business travel market in the UK will shrink by 17% this year compared to 2020 with a business spend of $17.6 billion.

The Global Business Travel Association goes on to say that global business travel expenditures are predicted to have rebounded 14 per cent in 2021 to $754 billion. It says this recovery has been slower than it forecast in February this year. The GBTA says ‘there are factors, related to Covid-19 and beyond, that could impact the road ahead over the coming years. However, there is optimism overall as the industry, companies and travellers worldwide lean into recovery and the much-needed return to business travel.’

Grant Shapps has announced that the HS2 link to Leeds is to be scrapped.

TfL’s finance committee has spoken of ‘managed decline’ if it does not get more money from the taxpayer. This wouldn’t help the return to work or revenues at central London F&B outlets.

PE firm Zetland Capital Partners is reported to have agreed to buy two hotels from Macdonald Hotels & Resorts.

FINANCE & MARKETS:

Sterling lower at $1.3489 and €1.88. Oil up at $82.04. UK 10yr gilt yield down 5bps at 0.92%. World markets mixed yesterday but London set to open some 41pts higher as at 6.45am.

RETAIL WITH NICK BUBB:

• Today’s News: The Kingfisher Q3 update today flags that LFL sales fell by 2.4% in the period to Oct 31st, given the tough comps, but the company was pleased with the 15.0% growth on a 2-year basis and, with Q4 off to a good start, full year adjusted pre-tax profit is now expected to be towards the higher end of the previously guided range (£910m to £950m). The Q3 results from Foot Locker in the US, which will be closely watched by JD Sports investors, will be out at lunchtime.

• Consumer Confidence Watch: After today’s better than feared survey from the widely followed monthly GFK Consumer Confidence index, it’s worth highlighting that the record -39 index low seen in July 2008, during the financial crisis, was not tested during the pandemic crisis (the worst level was the -36 low seen in the early June 2020 “flash” report)…The overall November 2021 index rose from -17 in October to -14, the first rise in four months. A Reuters poll of economists had pointed to a drop to -18, given that polling was done between Nov 1st and 12th and that consumers seemed concerned about the jump in inflation and the prospect of higher interest rates. However, there was a notable jump in the Major Purchase Intentions sub-index, ahead of Black Friday, and Joe Staton, GfK’s Client Strategy Director, said: “Is this a sign that shoppers are ready to bounce back, after last year’s
cancelled family gatherings, with a Christmas splurge in coming weeks? That’s how it looks but consumers also know that when the festivities are over it’s going to be a tough year in 2022”.

• Next Week’s News: The big focus next week will be on the Online promotions around Black Friday, but ahead of that we get the AO.com interims and the Pets at Home interims on Tuesday. Thursday brings the Motorpoint interims, the QUIZ AGM and the Hotel Chocolat AGM, whilst the ScS AGM is on Friday.