Langton Capital – 2022-02-15 – PREMIUM – January Tracker, commuters & WFH, labour stats, BrewDog, Carnival etc.:
January Tracker, commuters & WFH, labour stats, BrewDog, Carnival etc.:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: We got a huge number of out of office replies yesterday bringing home the fact that, whilst it may be half term next week up north, it looks to have arrived already in some other parts of the country and, with the weather set to be bad and then get worse, that’s not the best in terms of timing. Anyway, we’re plugging away for the time being so, without further ado, we’ll move on to the news: JANUARY SALES TRACKER: The Coffer CGA Tracker for January has reported that managed pubs, bars & restaurants managed to increase revenues by 3% on pre-COVID-19 levels as restrictions ease. CGA says that restaurants and pubs were ‘solid but vaccine passes hurt late-night sector.’ The Tracker reports that ‘total sales in the first month of 2022 were 3% higher than in January 2019. It represents a solid recovery from December, when heavy COVID-19 measures were in place and sales fell 11% below the levels of 2019.’ Pubs v restaurants: • The Tracker reports that ‘restaurants were the strongest performing segment of the market in January, recording 4% growth on January 2019, while pubs were up 2%.’ This may be as a result of the reduced level of VAT on food and non-alcoholic drinks. • Restaurants have higher food levels that pubs and, as bars (which will, overall, sell less food than pubs) did less well still, this does seem to be something of a theme. CGA says ‘bars saw sales slip 3%, as the requirement for vaccination passes and lingering concerns about crowded venues dented late-night visits.’ PUBS & RESTAURANTS: Shrinkflation: This is becoming a thing. With thanks to the subscriber who pointed out that bulk yogurt pack sizes are being reduced, we would say that one thing is for almost certain. Portion and pack sizes are unlikely to go up in the near term. Commuters & the travel market: Commuters and commuting locations offer rich pickings for grab and go operators. Linger times may be short (unless they are lengthened by travel delays) but volumes can be high and Pragma comments on the market saying that the market may be changing. It says ‘train stations have historically relied on commuter traffic and the stations’ retailing has largely comprised of a functional offer aimed at the time-poor’ but then it adds that ‘with just 12% of commuters now planning to travel five days a week in the UK, train station space needs to adjust to generate greater revenue from other user groups.’ • Pragma says that some stations have become destinations attractive to non-travellers. It says in the UK ‘St. Pancras and Manchester Piccadilly are good examples of stations that have transformed into destinations in their own right.’ It says ‘a Network Rail report found that approximately one-quarter of King’s Cross station…users visit solely for its retail and F&B, with no intention of catching a train.’ This is perhaps true but it relies on excess land and may not be an option for the majority of stations across the country. • Pragma concludes that the commuter will continue to be important. It says ‘train station evolution is contingent on externalities, such as provisions in the surrounding vicinity, immediate adjacencies, and available space. But train stations will always need to serve transient passengers, who prioritise speed and convenience.’ This seems to be unavoidably the case. Foodservice analyst Peter Backman also comments on the travel market saying that the absence of travellers (and commuters) has meant that the dependence of the foodservice sector on travellers has become apparent. He says ‘disruptions to the daily commute mean that impulse (as well as daily, regular) purchases of coffee have been withheld for many months.’ He says that ‘travel-related foodservice…will be getting back to normal. Except that it’s unlikely to get back to where it was, for a while perhaps quite a long while. Commuting is going to be reduced by increased working from home.’ • Mr Backman says he senses that ‘the world really has changed, and working from home (for some people all of the time; for others, part of the time) will be a major change to their lives. Likewise, business travel is likely to be curtailed for similar reasons to those impacting commuters namely the effectiveness, and cost saving possibilities, of online meetings.’ • This will benefit operators in the suburbs’ and adds that ‘the extent of these changes is going to be worked out over the coming months and years. But certainly, the short to medium term impacts are becoming much clearer.’ London commuter numbers are running at around 70% of its pre-covid levels and Pret a Manger says that ‘business in central London (a reasonable proxy for the amount of travelling done by millions every day) is down 20%.’ • This is likely correct. It may mean that levels of business will shortly appear, to the naked eye, to be almost normal. However, the marginal 20% of revenue will make all the difference to profitability (or the lack of it). WFH: There is something of a move back to the office going on but the Telegraph reports that ‘London’s streets are still only half as busy as they were before Covid as the capital’s economy struggles to match the recovery of the rest of the country, owing to a lack of commuters.’ • This is true but the ONS reports that by the middle of last month, only 15% of employees were working solely from home, down from 17% in December. That isn’t a large change but, directionally, it is helpful. Larger towns – and primarily London – have been slower to return to normal than have many other locations. • Meanwhile, Gerald Eve, which clearly has a financial dog in this fight, has said that London office occupancy was running at its highest level since before the pandemic towards the end of last year. It says that the increase in activity has generated some signs that supply is tightening. This may be true but it is certainly in the interests of property agents that it should happen. Gerald Eve says ‘whilst the Omicron variant is still hampering some overseas investment activity, the government’s stance encouraging people back to their offices has underpinned improved occupier confidence and investor demand.’ • It says ‘we expect the divergence of performance on both leasing and investment metrics to amplify between good and poor-quality space over this year. However, where there is divergence, there is opportunity, with stock selection being key.’ We have commented before on how the words ‘expect’ and ‘hope’ can sometimes be inadvertently transposed. Sky has nonetheless reported that ‘vast numbers of Brits are still working from home, despite being free to go back to the office since the government repealed its advice to work remotely nearly a month ago.’ It quotes data from the ONS saying that some 36% of working adults were still working at home at least once in the last seven days. That could still represent a big move back to the office as maybe three or four times that number of people would have said the same thing during the height of lockdown. Footfall: Springboard has reported that footfall has risen for the fifth consecutive week as the ‘return to the office continues’. Comparing volumes with 2019, it says ‘for the fifth consecutive week footfall in UK retail destinations rose last week from the week before, albeit that the degree of uplift appears to be tapering off. Footfall rose across all three destination types, however, the increases in all three were lower than the week before which followed payday, and which is often a driver of retail spending.’ • Springboard says ‘footfall rose across all types of town centre last week, with an acceleration in the increase in footfall in city centres outside of London accompanied by a lesser uplift in footfall occurred in Central London; in part this is likely to be driven by employees outside of the capital heading back into their offices to a greater degree than in previous weeks. With footfall volumes being much greater in Central London than in cities elsewhere, a smaller increase in activity in the capital versus cities across the UK dampens growth in high street footfall in overall terms.’ • Whilst volumes rose week on week, they rose even more so in 2019 (as the consumer began to put post-Christmas blues behind them) and the gap with 2019 footfall widened further. Costs, inflation & the consumer squeeze: This is one of the major elephants in the room. The Telegraph says that food prices are on the up. it quotes hotspots (lamb up 9%, condiments up 12% etc) but, overall, price rises have still managed to slightly outpace inflation. Energy prices have impacted delivery costs but also fertilisers and ancillary products, many of which have ultimately had the effect of pushing food prices higher. A shortage of butchers post Brexit has led to a glut of pigs on farms. Delivery problems have led to higher prices for most products and the AA has reported that fuel prices at the pumps have just hit a new record high of 148.02p a litre for petrol and 151.57p a litre for diesel. The AA says ‘the cost of living crisis has been ratcheted up yet another notch.’ The RAC says ‘with the oil price teetering on the brink of $100 a barrel and retailers keen to pass on the increase in wholesale fuel quickly, new records could now be set on a daily basis in the coming weeks.’ Wage costs: This has two sides to it as one person’s wage cost increase is another person’s boost to disposable income. A survey carried out by YouGov for the Chartered Institute of Personnel and Development has concluded that British employers expect to award pay rises of 3% this year. That is a) the highest level in at least a decade but b) it is well below inflation, which is expected to peak around 7.25% in the Spring. We have heard of increases of between 17% and 25% for delivery drivers and waiting staff. • The ONS has said that wages were rising at an annual rate of 4.2% as at Q4 last year. To assume that the figure will fall by around a third to 3.0% – against a backdrop of rising inflation – does not seem entirely credible. • YouGov reports that around two-thirds of recruiters were expecting to make job offers before the end of March. It is likely to remain a sellers’ market and vacancies may not get filled at 3% up in terms of wages. The CIPD says ‘even though businesses anticipate making record pay awards to their employees this year, most people are set to see their real wages fall against the backdrop of high inflation.’ Workers will, understandably, fight to try to prevent this from happening. Labour market statistics: The ONS has this morning updated on the UK labour market for the three months to end-December saying that the numbers ‘show a continuing recovery in the labour market, with a quarterly increase in the employment rate and a decrease in the unemployment rate. However, economic inactivity has increased slightly on the quarter.’ • The ONS says that ‘the UK employment rate increased by 0.1 percentage points on the quarter to 75.5%.’ It adds that ‘the number of employees increased on the quarter to another record high.’ • The stats show that ‘the unemployment rate decreased by 0.2 percentage points on the quarter to 4.1%, while the economic inactivity rate increased by 0.1 percentage points to 21.2%.’ It says ‘the number of job vacancies in November 2021 to January 2022 rose to a new record of 1,298,400, an increase of 513,700 from its pre-coronavirus January to March 2020 level.’ • The ONS says ‘the rate of growth in vacancies continued to slow down. The ratio of vacancies to every 100 employee jobs continued to rise, reaching a record high of 4.3 in November 2021 to January 2022, with the majority of industry sectors displaying record high ratios.’ • In terms of pay, the ONS says ‘growth in average total pay (including bonuses) was 4.3% and growth in regular pay (excluding bonuses) was 3.7% among employees in October to December 2021. In real terms (adjusted for inflation), total and regular pay fell on the year at negative 0.1% for total pay and negative 0.8% for regular pay.’ • The picture appears to be one of a continued strong labour market with maybe a hint that things are cooling somewhat. The vacancy rate hit a new all-time high. Wage growth remains below inflation and, with the ‘wrong sort’ of cost rises coming through (heating, food etc), the consumer is likely to feel the pinch. Figures from the Scotch Whisky Association (SWA) show that the value of Scotch Whisky exports was up 19% in 2021, to £4.51bn. Volumes also grew by 21% to the equivalent of 1.38bn 75cl bottles. On average, 44 bottles of Scotch Whisky are exported every second. A legal ruling ordering a German distillery Waldhorn to remove the word ‘glen’ from its whisky label has been upheld. The whisky was previously called ‘Glen Buchenbach’. COMPANY & OTHER NEWS: BrewDog will launch an official complaint with the BBC and regulator Ofcom following the Disclosure documentary. Commenting on his blog on LinkedIn, co-founder and CEO James Watt, the focus of many of the claims on the BBC Scotland programme, said his legal counsel described it as a ‘malicious hatchet job’. • Writing on Linked In, CEO James Watt says the BBC programme reflected a ‘malicious caricature, based largely on untruths.’ He says ‘I utterly refute the characterisation of me as well’ and adds hopefully, by the end of 2022 I can look back on how what has been the most challenging two weeks of my life turned out to be a catalyst for creating an even better future for the team and our business.’ The MCA reports that Inn Collection Group has been acquired by a new company backed by The Harris Family Trusts together with Kings Park Capital, with The Times valuing the deal at £300m. The Harris family were one of the founding families of The Bourne Leisure Group which it held for over 45 years before selling a majority stake in 2021. • Inn Collection MD Sean Donkin says ‘this is a hugely exciting new chapter for our entire team.’ He says it’s ‘very much a case of ‘business as usual’ across our operations as we continue to invest in our people and estate to further develop The Inn Collection Group brand and concept while growing our portfolio with new sites.’ Bun-dles, the Bao and Dumplings specialist, has launched in London, offering meat, sweet, and vegetarian options. Kitwave Group has acquired M.J. Baker Foodservice for £24.5m. M.J. Baker offers over 3,500 products in ambient, chilled, and frozen foods, together with alcohol, confectionery and non-food items. The acquisition will be incorporated into Kitwave’s existing food service division which currently comprises the trading operations of H.B. Clark & Co. and David Miller Frozen Foods. A NYC Hospitality Alliance survey has found that around 95% of New York City restaurants would like to see the city’s temporary extended outdoor dining program extended as it was “very important” to their survival. The NYCHA says ‘based on the success and popularity of this emergency program, the City Council must develop and enact a standardized and sustainable permanent outdoor dining program that works for restaurants and the communities they serve so New York City can enjoy dining alfresco for many years to come.’ LEISURE TRAVEL & HOTELS: Shares linked to travel and tourism sank on Monday on rising tensions over Russia’s military build-up on Ukraine’s border, with IAG, Wizz, Tui and cruise firm Carnival – falling between 6% and 9%. The UK boss of Air France-KLM, Fahmi Mahjoub, told the BBC that the airline faced significantly higher fuel and airport costs, and as a result higher air fares were ‘quite unavoidable’. The airline advised people in the UK to book early as travel rules were eased and demand picked up. The high CPI forecast of 6% this month and 7% in April has not yet shown signs of hampering the rebound in holiday demand, but a hit to consumer confidence is still expected. Paul Davies, Mintel category director for leisure, travel and food service, said ‘Luxury experiences will remain a priority consumers will be prepared to pay for.’ However, Mintel reports that inflation will affect some holidaymakers’ choices. Shorter holidays, such as city breaks and special-interest holidays, will be hit most. Family and beach holidays, which tend to be longer, should prove more resilient. • TUI CEO Fritz Joussen has said that ‘inflation is an issue’ but says that he believes consumer’s savings could be used to pay increased costs. Commenting on the potential for ‘trading down’, he says ‘we don’t see a pattern of buying cheaper.” He points out that some destinations such as Turkey will appear cheap to some travellers because of currency movements. The Foreign Office has advised against all travel to Ukraine as tensions rise over the threat of a possible Russian invasion. British nationals in Ukraine were told on Friday to ‘leave now while commercial means are still available’. Hotel News Now in the US reports ‘of all the major global cities and transportation hubs, London was among the hardest hit by the COVID-19 pandemic, as lockdowns and other restrictions left the capital of the United Kingdom largely devoid of office workers and international travellers.’ On a brighter note, it says ‘now the city is showing robust signs of recovery, despite the recent blip resulting from the omicron variant.’ Carnival Cruise Line has said that it should have its whole fleet back in operation by May. The company updated on its 2022 fleet deployment plans yesterday. OTHER LEISURE: The rising popularity of VR headsets sparked a 31% rise in insurance claims, with Aviva saying the average VR-related claim for accidental damage in 2021 was about £650. Metaverse gamers are crashing into and breaking furniture, leading to an increase in home contents claims. The Times reports that fast-growing technology company Tripledot Studios has secured $116 million in investment in a deal that gives it a valuation of $1.4 billion. FINANCE & MARKETS: Sterling mixed at $1.3527 and €1.1953. Oil higher at $95.80. UK 10yr gilt yield up 5bps at 1.58%. World markets down sharply on Ukraine fears yesterday. London set to open down around 9pts as at 7am. Wage & employment data, see Pubs & Restaurants above. RETAIL WITH NICK BUBB: • Today’s News: As well all the usual share buyback announcements from Frasers, Travis Perkins, Kingfisher, Dunelm etc, there’s been a cautious trading update from the Philip Green-backed Online retailer MySale, flagging that weak demand in Australia and supply chain problems have led to a build-up of stock.
• Yesterday’s News: We were shocked to see that Studio Retail announced at 7.30am yesterday that it was appointing administrators, after failing to persuade its wretched banks to finance a short-term working capital issue…But we weren’t the only ones shocked by the sudden collapse of this home shopping business, as no less a personage than Mike Ashley had just taken advantage of the fall in the share price of Studio Retail after the profit warning on Jan 31st to increase the stake held by Frasers from c27% to c29%…and the company was still capitalised at as much as £100m before its shares were suspended. We were also shocked to see that at 7.53am the wretched CMA had put out a lengthy statement, boasting that JD Sports and Footasylum had been fined almost £5m after breaching the rules around the protracted merger that was eventually blocked by the CMA…Given that some of the CMA’s |
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