October Tracker, costs, employment, inflation, JDW & more:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

I’m pleased to report that the switch of internet providers in the office yesterday seemed to go relatively smoothly and at a saving of perhaps 60% per month, it was worth battling the ever-present suffocating inertia and getting off one’s behind to avoid being punished for one’s loyalty any longer than was strictly necessary.

Although, having said that, it did the best part of a year or two for us to address the issue but, now that it’s done, it’s done.

Of course our new supplier will wait for the status quo to become established and for our ‘doing-something-about-it’ energy to dissipate, and will then begin to charge us more and more hoping that we don’t notice until, going on previous form maybe towards the end of this decade, we’re once again spurred into a brief burst of activity to do something about it.

Anyway, all good so far. On to the news:

PUBS & RESTAURANTS:

Current trading:

The latest Coffer CGA Business Tracker has revealed that managed groups’ trading was up by 1.5% on October 2021 and rose some 4.3% on 2019 numbers. Both figures are well below accumulated inflation over the period…

• The Tracker headlines ‘costs crisis wipes out hospitality’s growth despite an increase in October sales’ and says October was a ‘solid month for pubs and London but restaurants and regions slow…’

• It adds ‘sales have beaten pre-pandemic comparatives for nine months in a row. However, with inflation now in double digits, sales are significantly behind 2021 and 2019 in real terms.’

• ‘Pubs were the strongest performing of the Coffer CGA Business Tracker’s three segments in October, with year-on-year sales growth of 6.4%.’

• It adds that ‘restaurants endured a tough month with like-for-like sales down by 3.6% on October 2021, while bars’ sales slipped 12.7%.’

• It’s worth adjusting those numbers for inflation. Pubs may therefore have been down around 4% in real terms with restaurants down 14% and bars down maybe as much as 23%. Those are large, meaningful and financially hurtful numbers.

• Today’s tracker adds ‘London’s hospitality sector continued its recent rebound from more than two years of COVID-related upheaval, as tourists and workers steadily returned to the capital.’

• It says ‘groups’ October sales within the M25 finished 6.4% ahead year-on-year—in sharp contrast to regions beyond the M25, where like-for-likes were up by only 0.3% from October 2021.’

• CGA’s Karl Chessell says it’s been encouraging to see hospitality sales running ahead of pre-COVID levels for nearly all of 2022. But after adjusting for the effect of higher prices it’s clear that footfall is down, and inflation means sales are even further behind in real terms.’

• Mark Sheehan at Coffer Corporate Leisure comments ‘whilst these numbers are not positive in the context of inflation they are at least improving in real terms. There is a sense particularly in London, and not withstanding strikes, that trade is returning steadily.’ Trade elsewhere has returned more rapidly.

• RSM comments ‘demand for out-of-home socialising remains strong, but that belts are being tightened in response to the cost-of-living crisis. With any uplift in sales cannibalised by rising costs, margins are being squeezed and the entire industry is now geared towards maximising Christmas trade. With last year’s festivities severely impacted by Omicron, 2022 needs to deliver if the sector is to avoid a swathe of closures in the New Year.’

Autumn statement:

In an attempt to avoid shocks and promising there will be no more ‘rabbit out of the hat’ moments, much of the Autumn Statement seems to have been leaked. Or ‘flagged up for the benefit of the market’ if you prefer. Either way, it looks like a 40% windfall tax on electricity generators, rates bill increases of 5%, a maintenance of the triple lock, around a 9.5% increase in the national minimum wage and most allowances frozen so that wage inflation drags more people into taxation and into higher bands. Just possibly, the earnings level at which people get dragged into the 45% tax band could be reduced.

Business costs:

If the NMW rises by 9.5% to £10.40 per hour, the hospitality industry will have little option but to pass the bulk of the rise on…

• Because, having cut costs as much as is surely feasible and in what after all remains a people industry, the decision will not be whether to pass the rise on but whether the percentage or the cash margin should be protected.

• In the short term, it may just be the cash margin. Cash, after all, is what pays the bills and it would allow the industry to pass on price rises below the operator’s own level of cost inflation.

• But, over time, operators would therefore find themselves doing more for less as the cash margin the results will be worth less in real terms due to the impact of inflation. In the short term, however, with the consumer up against it in cash terms themselves, operators may have little choice.

Business confidence:

Bad news spoiler alert. The cautious news just keeps on coming with the ICAEW this time releasing its Q4 2022 Business Confidence Monitor. This ‘shows business confidence falling further across the UK as difficult economic conditions combine with political turmoil…’

• The bean-counters (and former PM Liz Truss has a bean-counter badge) report ‘the latter has seriously unsettled financial markets, and although some stability has been restored, recent events are likely to result in higher interest rates, taxes and government borrowing, and lower government spending, than previously expected. This has adversely affected business sentiment.’

• Key points. The Business Confidence Index has fallen further into negative territory. The ICAEW says ‘all sectors, regions and types of companies are affected’ and it adds that ‘domestic sales growth has slowed, and this is expected to continue. Export sales growth, although on a smaller scale, is holding up rather better, probably helped by a weaker sterling.’

• Rather than go through the comments in detail, we can supply a link to anyone who’s interested.

• In conclusion, the ICAEW says its Business Confidence Index ‘now stands at minus 16.9, a figure reminiscent of the Covid pandemic, and in stark contrast to the +47.0 index recorded in Q3 2021.’ That is quite a noteworthy swing-around.

Employment:

As with much data, there was enough in yesterday’s employment numbers to keep most people happy. The jobs market appears to be firm, wage inflation was a little higher than expected and unemployment rose…

• The ONS reports that regular pay rose by 5.7% in the year to September, a real decline of 2.7%, accounting for the impact of inflation.

• KPMG says there are early signs of the recession beginning to have an impact. It says ‘it is only a matter of time before the recessionary environment spills into the labour market as employers increasingly consider the weakening demand and rising labour costs.’ it adds ‘while the vacancy rate will likely be one of the first indicators to turn, we expect the unemployment rate to eventually peak at around 6% by 2024.’

• Real pay:

• The Resolution Foundation says that yesterday’s ‘labour market data show real pay falling fast in the private sector, and even faster in the public sector. Public sector vacancies have hit a new record, while vacancies in the private sector continue to recede gently from recent record highs.’

• The Foundation suggests that ‘employment and inactivity may have topped out – at levels worse than pre-pandemic.’ It adds ‘public sector workers are by far the most affected by this pay squeeze, with the gap between public and private sector pay reaching its widest level ever outside of the pandemic period. While real regular pay fell by 1.9 per cent in the private sector, it fell by 6.1 per cent in the public sector.’

• See further wages comment in Finance & Markets.

Inflation:

The ONS has reported that the UK CPI in October rose to 11.1% in the 12 months up from 10.1% in September 2022. It says ‘despite the introduction of the government’s Energy Price Guarantee, gas and electricity prices made the largest upward contribution to the change in both the CPIH and CPI annual inflation rates between September and October 2022.’

The ONS adds ‘rising food prices also made a large upward contribution to change with transport (principally motor fuels and second-hand car prices) making the largest, partially offsetting, downward contribution to the change in the rates.’

The consumer:

Whilst a rise in the NMW will hit the cost line for leisure operators, the workers beneficially impacted are also potential customers and, with 9.5% rises likely and the triple lock perhaps set to be maintained, there could be a little more cash in some pockets…

• At least in nominal terms but, if operators have to pass price rises on in order to make ends meet, wages may be eroded in real terms and the NMW and pensions hikes could be responsible for giving another spin to the inflation wheel.

• Interestingly, the Independent quotes Ryan Shorthouse, chief executive of the Conservative think tank Bright Blue, as saying ‘it is intellectually indefensible to protect the value of the state pension in line with inflation but not universal credit. Either both rise by inflation or both rise by earnings.’ Doing the one action could be like pulling a thread on an old pullover. You are never quite sure where it might stop.

Insolvencies:

The UK Insolvency Service has updated on its monthly insolvency stats saying that in October 2022 there was a total of 1,948 registered company insolvencies across England and Wales. They comprised 1,594 creditors voluntary liquidations, 242 compulsory liquidations, 107 administrations and just 5 company voluntary arrangements (CVAs). The latter number is down 69% on October 2021 and it is 86% lower than in October 2019

Other news:

The ONS has said that some 15,000 pubs and restaurants may be cutting back on opening times for one day a week or more because of rising costs. Energy bills may currently be to blame but, if the 9.5% increase in the NMW goes through, then wage costs will also become a major factor.

Costs to the consumer. The Telegraph reports that the price of some of the most popular branded food products have increased by more than 100% over the last two years, far beyond the average 15% rise in food prices. An investigation by consumer group Which? found the cost of Dolmio Lasagne Sauce had risen 107% in one major supermarket…

• Which says ‘our research shows the shocking rate of inflation on some of the nation’s favourite branded foods, which is much higher than the national average. This highlights why it is so important for retailers to provide people with a choice of product ranges.’ It says ‘supermarkets must ensure budget lines for healthy and affordable essential items are widely available across their stores including smaller convenience stores.’

The Daily Mail has reported what it says is ‘the New Year 15% price hike on pints.’ It says ‘drinkers face forking out over £7 for draft beer and cider from 2023 as brewer Heineken passes on ‘unprecedented cost increases’ to landlords – amid cost-of-living crisis…’

• The Mail says that ‘Heineken will increase the price of their beer and cider by more than 15 per cent after Christmas due to ‘unprecedented cost increases’’. It adds that ‘on top of increasing wholesale prices, the brewery also told landlords it will be reducing the alcohol content in Fosters, from 4 per cent to 3.7 per cent, citing ‘consumer trends towards lower strength products’’.

• The Mail goes on to say ‘looking at prices taken today from central London Green King pubs, the hikes could mean a Heineken Silver would go from £6.50 to 6.86 – up 36p.’ Other prices would go up by a similar amount. Other brands owned by Heineken include John Smiths, Red Stripe, Desperados, Tiger and Strongbow.

The British Free Range Egg Producers Association (BFREPA) warns that British farmers could run out of eggs by Christmas as a result of rising costs and the ongoing outbreak of avian flu. The group says a third of hen farmers surveyed earlier this month have either ‘reduced their flock sizes, paused production temporarily or left the industry altogether’.

COMPANY NEWS:

Deliveroo has today announced that it has decided to end its operations in Australia. It reports ‘this decision is driven by the Company’s disciplined approach to capital allocation. Management is committed to driving growth and delivering on its path to profitability while aiming to have strong, profitable businesses in each of the markets in which it operates, built on the foundation of leading hyperlocal market positions…’

• Deliveroo says ‘in Australia, the market is highly competitive with four global players, and Deliveroo does not hold a broad base of strong local positions. In H1 2022, the Australian business represented approximately 3% of Deliveroo’s total Gross Transaction Value (GTV) and negatively impacted the Company’s adjusted EBITDA margin (as % of GTV) by approximately 30 basis points.’

• The company says ‘the expected return on such investment is not commensurate with Deliveroo’s risk/reward thresholds’ and says ‘given this position, Deliveroo has decided to end its operations in Australia.’

• Deliveroo says ‘as reported in the Q3 2022 trading update on 21 October, throughout 2022 Deliveroo has been adapting financially to the operating environment and driving forward on the path to profitability. Following today’s announcement, there is no change to Deliveroo’s previously-communicated financial guidance on GTV growth and adjusted EBITDA margin for 2022 and beyond.’

• COO Eric French says ‘this was a difficult decision and not one we have taken lightly. We want to thank all our employees, consumers, riders and restaurant and grocery partners who have been involved with the Australian operations over the past seven years. Our focus is now on making sure our employees, riders and partners are supported throughout this process.’

JD Wetherspoons has appointed CBRE and Savills to sell 7 of its pubs in addition to the 32 pubs that were put on the market in September. The new properties for sale, which comprise a mix of 5 freehold and 2 leasehold units, are located in England and Scotland and are being considered for sale either individually, in small packages or as a portfolio.

Premier Foods which, as a food company, did well during lockdowns and has subsequently held sales at not far off lockdown levels, has reported H1 numbers today. The company could be a beneficiary if consumers decide to eat out less in the coming months. The group says that revenue rose by 6.2% with revenue in Q2 up 6.4%. The company says that trading profit is up 6.2% and adjusted PBT is up by 11.9% with EPS up 11.4%…

• The company CEO, Alex Whitehouse, reports ‘we have again made very good financial and strategic progress in the first half of this year, reporting strong Group and branded revenue growth in what continues to be a challenging environment. Our margins were in line with last year, and we delivered adjusted PBT growth of nearly 12% due to our consistently good trading performance and lower interest costs following our refinancing in H1 last year.’

• The company says ‘our UK Branded revenue has now grown 5% on average over the last three years; we continue to invest in our supply chain to drive efficiencies; revenue from extending our brands into new categories more than doubled, and International revenue increased by 11%.’ The company bought The Spice Tailor during H1.

• PFD says ‘the current economic climate is undoubtedly challenging for consumers, and our broad range of affordable brands have always played a key role for families when times are tough. With people starting to eat out less, they often find the best restaurant in town is at home.’ PFD is launching a “Best Restaurant in Town” advertising campaign.”

• On costs, the company says ‘we continue to see further input cost inflation, which we expect to recover through a combination of cost savings and our annual price increase in quarter four this year. Following a strong first half and with good momentum as we enter H2, we are on track to deliver on expectations for FY22/23.’

Constellation Brands has succeeded in ending its B class of shares which carried 10 times the vote of ordinary shares in a coup for equal voting rights. The B shares had effectively given the Sands family vetoing powers in the company’s direction.

Jubel has launched its ‘JUBELLINGHAM’ promotion where free JUBEL pints will be given to customers any game in which Jude Bellingham scores a goal for the England national team at the World Cup. The offer is only effective at participating pubs.

Keurig Dr Pepper has acquired a minority stake in US alcohol-free brewer Athletic Brewing Company for $50m. Athletic Brewing Company, which was founded in 2017 by Bill Shufelt and John Walker, has a portfolio of more than 40 beers and has recently gained a Tesco store retail listing in the UK. The investment from KDP is set to assist in the brewer’s plans to roll out further across North America.

EBF Holdings, parentco of Oddbins, reports revenue up £4m to £11.98m for the year ended 31 July 2021. The company reported losses for the year of £832k, down from £1.22m the year prior. It noted that it had decided not to restart its wider wine wholesaling activity ‘as the economic climate isn’t conducive to doing so’, however it said it was exploring avenues such as licensing to boost revenue.

Popeyes is set to continue its UK rollout, opening in Cambridge, Croydon and Reading in early 2023. Sites in Rotherham, Cardiff and Glasgow are also planned for next year. Overall, Popeyes UK is expected to open 20 restaurants in 2023, which will bring the total number of UK restaurants to 31 by the end of 2023.

Fuller’s has acquired two further pubs in the south-west of England, one in Bourton on the Water and the other in Wootton in Hampshire.

The MA reports that KFC has launched its first pub – the Colonel’s Arms – in Hammersmith, west London. The unit will be open over the World Cup.

Simon Spurrell, MD of Macclesfield-based Cheshire Cheese Company, has sold his business to larger rival Joseph Heler Cheese to regain access to customers in the European Union after Brexit left him with an estimated £600,000 black hole in lost EU sales…

• Spurrell said ‘I still feel very let down and bitterly disappointed by the fact I’ve had so many conversations with the Department for International Trade and government ministers and nothing happens. They are impotent because of their Brexit policy. They are so anti-Europe they won’t even discuss getting a better deal sorted out. Getting access to the single market has to be the first step.’

HOLIDAYS & LEISURE TRAVEL:

Sky reports that the Chinese owner of Thomas Cook, Fosun, ‘is exploring the sale of a stake in the famous British holiday brand three years after its ignominious collapse.’ It says Fosun is ‘examining options including raising capital from an outside investor in the coming months.’

Jet2holidays CEO Steve Heapy warned flight prices will continue to rise for the foreseeable future due to government taxation. Heapy estimated the cost of carbon permits, used by airlines to offset emissions, has increased from £5 to £90, which is being funnelled back into the ticket price.

Labour’s shadow tourism secretary, Jeff Smith MP, warns that the lack of government support means that the Travel sector faces a ‘perfect storm’. In a speech to the Tourism Alliance, Smith will also highlight Labour’s plans to support tourism businesses, including a pledge to cut and eventually scrap business rates, replacing them with a new system “fit for the 21st century” to provide vital relief to UK tourism businesses.

The new boss of Uber UK has said that people are still booking Ubers in the UK despite the current downturn in the economy.

OTHER LEISURE:

Netflix is now advertising a service in the UK with adverts for £4.99 per month.

Google has been ordered to pay $391.5m in order to settle allegations about how it collects data from users.

FINANCE & MARKETS:

The Evening Standard reports that average asking prices for houses in London ‘have fallen by almost two per cent — or £13,000 — in the past month’…

• It says this is ‘as jittery buyers step back from the market amidst the cost of living crisis and owners increasingly resort to price-cutting.’ There will be some seasonality at play here.

Former Bank of England MPC member Michael Saunders has said that Brexit is the ultimate reason why the UK is now facing a fresh round of austerity. He says ‘the UK economy as a whole has been permanently damaged by Brexit.’ He says it has ‘reduced the economy’s potential output significantly, eroded business investment.’

The CBI says more should be done to boost workforce health. It says ‘health-related economic inactivity is costing the UK £180bn a year.’ It adds ‘labour market resilience is a precondition to growth. Without healthy, productive employees, the UK economy will be unable to achieve the growth it sorely needs.’

The BCC comments on yesterday’s employment stats and says ‘the challenges facing businesses in the UK labour market remain very much the same. We have a critical shortage of skills and labour that is damaging firms and holding back growth…’

• The BCC adds ‘with confidence waning as we enter recession, and the expectation of even tougher economic times ahead, we may see more recruitment freezes, job losses and business closures.’ It says ‘concerns are growing about the numbers of people who are leaving the labour market through long-term illness – as well as those choosing early retirement. This will damage opportunities for individuals and the economy.’

London has slipped from no1 in Europe in terms of stock market valuations to no2. Paris, which has been closing the gap since Brexit, is now in poll position reports Bloomberg.

Sterling up at $1.1869 and €1.1439. Oil higher at $93.16. UK 10yr gilt yield down 6bps at 3.29%. World markets broadly better yesterday but London set to open some 13pts lower at 6.30am.

THE AQUIS MARKET:

Broker VSA Capital is hosting an Aquis Day on Tues 29 November at the Royal College of Surgeons (38-43 Lincoln’s Inn Fields, London, WC1A 3PE). The event will feature around 20 companies, who will present to attendants and take part in a competition to win the ‘Britain’s Got Aquis’ title. Judges on the day will include Andy Brough (Schroders) and Judith Mackenzie of Downing LLP. Tickets and details are available HERE

https://www.eventbrite.co.uk/e/the-vsa-capital-aquis-showcase-event-tickets-430890363677?aff=odeimcmailchimp&mc_eid=cfe56acbe0&mc_cid=cd83de005f

Attendance costs £20 – but Langton has a number of complimentary tickets and we’re open to suggestions as to who we should give them to…. Drop us a line.

RETAIL WITH NICK BUBB:

• Grocery Market Watch: The latest monthly Nielsen grocery market share figures (for the 4 weeks to Nov 5th) came out at 8am yesterday, a week later than the rival monthly survey from Kantar (which covered the 4 weeks to Oct 30th). The Nielsen survey was headlined “Early November trading looks positive for Christmas”, with total till sales up by 5.3% in the four weeks (after a 4.7% rise in the previous 4 weeks), even though Online Grocery sales fell by 1.2% in the 12-week period and industry volumes were 5.4% down, with inflation accelerating and shoppers purchasing less. Nielsen highlighted that Asda was the fastest growing retailer over the last 12 weeks, with total sales growing of 7.6%, whilst Sainsburys was up 5.1%, Tesco was up 4.8% and M&S Food was up 2.9%. Morrisons and Waitrose were the only retailers to have sales decline compared to this time last year, by 3.2% and 1.8%
respectively. Mike Watkins of Nielsen said that “Nielsen are anticipating that £34bn will be spent at the Grocery Multiples in the 12 weeks to Dec 31st, which is growth of c4% compared to last year, when there were weak post pandemic comparatives and no real industry growth. The difference this year is that, due to inflation, we expect volumes to be down c4%, with shoppers buying less and more carefully this Christmas”.

• Today’s News: Hot on the heels of the Land Secs interim results yesterday, the British Land interims today are headlined “Good operational performance in a challenging macroeconomic environment”, with Simon Carter, the CEO, saying that “Our good operational performance in the half reflects the high quality of our portfolio and reinforces our conviction in our value-add strategy which is focused on sectors with pricing power…Higher interest rates have increased property yields, but the impact on valuations was partially cushioned by rental growth”. Its Retail portfolio includes shopping centres like Meadowhall in Sheffield and Drake Circus in Plymouth, but 60% is Retail Parks (eg Fort Kinnaird in Edinburgh) and British Land highlight that “As the role of the store changes, retail parks are increasingly the preferred format for retailers. They are ideal for omni-channel, enabling click
and collect, returns and ship from store, and are affordable with an occupational cost ratio of 10% in our portfolio”. In other news, Deliveroo has announced that it has decided to pull out Australia, flagging that “In Australia, the market is highly competitive with four global players, and Deliveroo does not hold a broad base of strong local positions”.

• Today’s Press: According to the invaluable Guardian morning email briefing, the Guardian itself leads its front-page today with the headline “Russian barrage strikes Ukraine amid claims missiles hit Poland”. The Times has “Russians blamed for fatal strike on Poland”, while the Daily Mirror says “Russian bombs hit Poland” under the banner “Tyrant’s war on Ukraine” with a picture of Vladimir Putin. “Putin’s war spills into Poland” – that’s the i, while the Daily Telegraph has “Russian missile strikes Poland”. The Metro says “Putin’s war escalates – ‘Russian missiles’ hit Poland”. In the Financial Times, it’s “Sunak urges bosses to curb their pay and look after staff” and the culture wars are back on in the Daily Mail: “Universities are told to ‘decolonise’ maths and computing”.

• This Week’s News: The Autumn Budget tomorrow lunchtime will dominate this week, but tomorrow also brings the Burberry interims and a Superdry EGM (at 9am). First thing on Friday we get the widely followed monthly GFK Consumer Confidence survey and the ONS Retail Sales figures for October. Over in the US, all eyes are still on the retail sector this week with Q3 results from Lowe’s and Target today and Footlocker on Friday.