Langton Capital – 2022-12-05 – PREMIUM – W/Cup, strikes, labour issues, AG Barr, holiday demand, gambling etc.:
W/Cup, strikes, labour issues, AG Barr, holiday demand, gambling etc.:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: You know the kind of weekend after which you need a weekend to recover? Yes, exactly. We stayed in London for a start and visited the Winter Wonderland where the idea was to get there early, do as much as possible and make it back to civilisation east of St Paul’s in time for the football. And mission accomplished but the real wonder was that the constitution of the younger members of the Langton team seemed able to stomach beers, coffee, churros, more beer, chocolate strawberries, more coffee and beer, a bout of loud singing in a Bavarian beer hall, a death-defying kebab and then five or six extreme roller-coasters, ice-mountains, ‘sling-shots’, some sort of swinging hammer thing, Wildermaus XXL and other suicidal rides more or less in that order without suffering any obvious ill effects. Awe inspiring. And then it was back to the East End, another meal, this time in a well-known South American-themed chicken restaurant followed by the pub, another pub, Australia-Argentina and then back to Langton Central where a fridge full of beer was apparently not going to drink itself. Then bed and, the blink of an eye later, the team were getting up at 7.45am to pretty much do the whole thing again. This time without Langton Senior but after a trip to Brixton for a birthday party which, apparently, would allow them to ‘get an earlier start’. Ugh. I am not, to say the very least, looking forward to receiving my next credit card statement. Good result in Qatar last night & let’s hope we can progress past next Saturday. On to the news: PUBS & RESTAURANTS: World Cup. CGA has reported that the World Cup has lifted drink sales, finally, above the level of inflation. it says ‘World Cup matches for England and Wales triggered big uplifts for On Premise drinks sales last week’ [the week to 26 November – i.e. not including the England-Wales match] with total sales up by some 16%. Inflation is currently 11.1%… • CGA reports that beer and cider sales were up by 27% and 35% respectively with soft drinks’ sales up by 10% and even spirits sales into positive territory at plus 2%. Wine sales, where the drink may not be closely associated with football, were down – though only by 1%. • CGA points out the 16% result is the biggest of 2022 to date (and the 10th positive week on the trot). The number may be challenged this week and it is also worth remembering that Christmas sales could also (at first glance) shoot the lights out as Christmas last year was spoiled by Omicron. • CGA says ‘the week’s two World Cup matchdays sent sales rocketing—by 81% on Monday (21 November) when England and Wales played Iran and the US respectively; and by 41% on Friday (25 November), when those oppositions were switched. Other matches in the tournament helped too, with the remainder of the week in daily year-on-year growth of 2% to 3%.’ • CGA says ‘pubs and bars were particularly buoyant in Wales, which took part in the World Cup for the first time in more than 60 years. Sales across the week were up by 37% year-on-year, compared to 15% in England. While Wales are now out, England’s progression to the knock-out stages will bring another big upswing this Sunday (4 December).’ • The analysis suggests that, as expected, the football is a boost to the Long Alcoholic Drinks (LAD) category. • CGA’s Jonathan Jones reports ‘after months of modest increases well below inflation, the World Cup has delivered some very welcome real-terms growth.’ He says ‘pubs, bars and suppliers will be hoping England can now go deep into the tournament and bring a bright end to a difficult year.’ • The football is most definitely a net positive but there may have been some cannibalisation from the days either side of some of the big matches and, though the above analysis does show that the first week of the tournament as a whole was in growth ahead of the rate of inflation, consumers’ spending money must be depleted and this may impact sales outside of the World Cup period. Labour issues: Hospitality research consultancy KAM reports that 75% of operators are expecting a staff shortage in the kitchen this Christmas, while 74% are forecasting a shortfall in front-of-house staff. The majority said vacancies not being filled was significantly impacting the welfare of their current team (79%), the quality of the customer experience (79%), as well as sales and turnover (65%)…. • KAM says that some 70% of respondents are increasing wages with 46% reducing covers or service times (i.e. cutting shifts or the effective size of the restaurant). • Mark McCulloch, founder of Hospitality Rising, says ‘this research brings home the stark reality of the workforce crisis in hospitality and the absolute need we have for bold and creative ways to solve it.’ He says firms such as his ‘can bring more people into our dynamic and rewarding industry and ensure that we aren’t leaving revenue on the table due to a shortage of staff.’ • Mr McCulloch says ‘we need more operators to come on board and more companies to pledge financial support. Hospitality is nothing without people and we are determined to work together to ensure the best and the brightest are attracted to the industry to ensure a bright future for the sector.’ • KAM’s Katie Moses says ‘customers tell us that they’re excited about the upcoming festive season and despite the cost-of-living crisis many intend to put more effort into Christmas 2022 because of the disappointment of the last two years. It’s heart breaking, albeit sadly not surprising, that staff shortages continue to limit the vitality of the Hospitality sector with customer service levels, employee engagement and sales being impacted. The research really highlights the critical role which Hospitality Rising is playing in attracting new people to the sector.’ Transport strikes RMT union boss Mick Lynch is hopeful that the government will make an offer that could end the planned rail strikes… • Transport Secretary Mark Harper said he was trying to ‘encourage’ a deal between employers and trade unions on reforming the rail industry and bringing an end to the strikes. The Mail on Sunday reports on a plea from Punch Pubs boss Clive Chesser that the rail unions cancel their plans for strike action ahead of Christmas… • Mr Chesser says that the timing of the strikes is awful and says ‘it is crucial the hospitality sector has a good Christmas trading period.’ He says ‘what we are trying to stress to the Government and the RMT is that, unless they reach a resolution early, the damage for hospitality is done.’ • The Punch CEO says ‘pubs are an affordable treat and will continue to do well. But the pressures on consumer spending are very real.’ He adds ‘then there are some big macro factors, such as beer duty, where we’re looking for the Government to give us some clarity and support.’ The RMT, the biggest rail workers union, has rejected an offer from train operators aimed at heading off strikes later this month… • The RMT said ‘the RDG is offering 4 per cent in 2022 and 2023 which is conditional on RMT members accepting vast changes to working practices, huge job losses, Driver Only Operated (DOO) trains on all companies and the closure of all ticket offices.’ It says ‘we have rejected this offer as it does not meet any of our criteria for securing a settlement on long-term job security, a decent pay rise and protecting working conditions.’ • Kate Nicholls, CEO of UKH, tweets that this is ‘absolutely devastating news for hospitality.’ She says ‘we urge all sides to continue talking to secure last ditch resolution.’ Consumer discretionary income. The consumer is being squeezed by soaring rents, according to research undertaken for the Guardian. Some people are facing rent increases of up to 60%… • The London Renters Union said its members had reported average rent increases of almost £3,400 a year (21%), which it described as “rent gouging”, with consumer price inflation at 9.6%. • Rent (or mortgage payments) along with tax bills, food costs and heating bills will need to be paid for before the consumer can think of making discretionary purchases. Unfortunately, with the cost of essentials (and the tax bill) rising rapidly, discretionary income remains under significant downward pressure. Other news; Premiumisation slowing. IWSR analysis shows that premiumisation is showing the first signs of slowdown in the alcohol sector with the premium-and-above band growing volumes by 7% in 2022 H1 compared to 18% growth the year prior… • IWSR’s chief strategy officer Brandy Rand noted ‘What we see in spirits is that the growth is relatively broad-based across categories such as gin, rum, malt Scotch, US and Irish whiskey, although an absolutely key driver is the agave category.’ Various reports that the number of goods actually returned after Black Friday hit new records this year. COMPANY NEWS: AG Barr has announced the ‘acquisition of Boost, an established branded drinks business, for an initial consideration of £20 million, on a debt free cash free basis.’ It adds that ‘the Acquisition is entirely funded from the Group’s strong net cash position. The business is being acquired from Boost founder Simon Gray and his wife Alison…’ • AG Barr says ‘this earnings accretive acquisition further demonstrates A.G. BARR’s growth strategy focused on developing its portfolio in high growth and functional categories.’ It says the brand being acquired ‘primarily operates in the high growth functional beverage category spanning energy, sport and protein, with a strong market position in the UK independent retail channel.’ It adds that ‘significant potential exists for further growth and development of the product portfolio as well as opportunities for Boost to leverage the Group’s established scale and capability.’ • The company reports ‘additional consideration of up to £12 million, dependent on future revenue and profitability performance of the Boost business over a two year period from completion, payable in cash at the end of that period’ and says ‘the Acquisition is expected to be EPS accretive in the first full year of ownership. Overall Group operating margin will be diluted in the short term however it is expected that this will recover in the medium term.’ • CEO Roger White says ‘the Boost portfolio offers premium taste and performance at a competitive price, with a strong market position in the UK independent retail channel. With A.G. BARR’s proven track record of acquiring and developing attractive brands such as Rubicon and Funkin, I look forward to working with Simon [Gray, founder & CEO at Boost] and the team to ensure Boost continues to grow and develop under our ownership.’ Insider Media reports that the Inn Collection Group ‘is looking to significantly grow its headcount across the next 12 months’ and quotes CEO Sean Donkin as saying that 2022 has been a “relatively successful year” against a backdrop of economic uncertainty, with trade “significantly” up on the pre-Covid period of 2019… • The company will have made eight acquisitions by the end of 2022. Insider Media reports ‘as part of its growth plans, The Inn Collection will also continue to expand its footprint in Wales, where it now operates three sites, having entered the market last December with the purchase of the Swallow Falls Hotel in the heart of Snowdonia National Park.’ The Times reports that Brasserie Bar Co is to enter the pubs-with-rooms market as part of a plan to reach a target of 50 pubs within five years…. • The Times says ‘the programme is being backed by the private equity firm Alchemy Partners, which acquired Brasserie Bar Co in February from Soho Square (formerly Core Capital) in an estimated £40 million deal.’ It adds that ‘at the time of the Alchemy deal, the company was aiming for an investment of as much as £100 million over the five-year plan.’ BrewDog has lost its ‘B Corp’ status less than two years after joining the scheme. The status offers certification of a company’s ethical commitment to the environment, community and staff. Lavazza is set to acquire French coffee roaster, distributor and services supplier MaxiCoffee for an undisclosed sum… • MaxiCoffee currently markets and distributes coffee products, including espresso machines, coffee grinders and packaged coffee, from more than 350 brands via an e-commerce platform and 60 retail outlets across France. Cracker Barrel in the US has increased its revenues by 7% in its first quarter (to 28 Octobert) but it was not able to match the pace of increase in the cost of its inputs… • Cracker Barrel speaks for much of the industry, either side of the Atlantic, when it says ‘we continue to operate in a challenging environment of economic uncertainty that makes predicting the balance of the year particularly difficult.’ CFO Craig Pommells calls out some of the major issues when he says ‘consumer confidence, recession risks, inflation and supply chain constraints are some of the things that, depending on whether, when, and how much they shift, can impact our business positively or negatively for the balance of the year.’ Tim’s China (Tim Horton’s China business) reports revenue up 68% YoY to $43m in the quarter ended 30 September, opening 46 net new stores in the period to reach 486 across the country… • The company goes on to say that trading restrictions and lockdowns as part of China’s zero-Covid policy continued to adversely impact Tim’s China’s operations during the period, prompting temporary store closures, reduced operating hours and supply chain disruption. The Hush Collection has won a landmark court victory against its Mayfair landlord, Royal London Asset Management, after the landlord was deemed to have taken commercial advantage of Covid by terminating the operator’s option for a new lease because of a late payment during lockdown. In the US, online wine club Winc has filed for bankruptcy despite only being floated just over a year ago. Winc was bolstered by mid-pandemic growth as more and more people turned to e-commerce and at-home drinking due to Covid restrictions. In its Chapter 11 filing, the company disclosed total debts at $36.75m, while its assets are estimated to be worth $50.3m. HOLIDAYS & LEISURE TRAVEL: Baggage handlers at Heathrow airport have voted to strike from 16 December, with the 72 hour industrial action impacting lights operated by 10 major airlines from Heathrow Terminals 2, 3 and 4. The Daily Mail reports that ‘holiday firms are reporting a leap in the number of sun-starved Britons hatching plans for next year…’ • It quotes Advantage Travel as saying that sales of summer 2023 breaks are running almost a quarter ahead of pre-pandemic comparisons. Advantage says ‘there’s a large market who have savings, haven’t travelled for some years, and are keen to.’ Cash, however, is finite. OTHER LEISURE: The Times reports that ‘global gambling companies have been hit with £105 million of fines this year, almost three times as much as in 2021, as regulators increasingly crack the whip…’ • It says ‘research from TMT Analysis, the mobile identity group, found that the authorities in Britain, America and Australia were becoming increasingly stringent over safety checks on gamblers, with fines sharply ahead of 2021’s £40 million.’ It adds ‘the UK Gambling Commission alone had hit companies with £44.6 million of fines over the past year, up 76 per cent on 2021. Entain, which owns Ladbrokes and Coral, was fined £17 million for a lack of customer protection; 888, a £9.4 million penalty for failures over financial checks; Betfred, £2.9 million for a lack of adequate safety checks’ and cites further examples. FINANCE & MARKETS: CBI economic forecasts. The CBI has reported that productivity and business investment are weakening. it says that it has downgraded its forecast of economic growth for 2023 with the ‘economy expected to contract by 0.4% next year.’ It says that ‘productivity remains weak’ and says it will still be 2% below pre-pandemic trend at end-2024… • The CBI says inflation may have peaked but it will remain ‘significantly above Bank of England target [of 2%] next year.’ Few people would perhaps disagree with both of those comments. • The employers’ organisation says ‘after a turbulent year both politically and economically, the CBI’s outlook for the economy strikes a somber tone as we go into 2023. The Prime Minister and Chancellor have stabilized financial markets but must act to boost long-term growth.’ • it says access to labour is a problem and adds ‘with three-quarters of firms facing shortages, we need a joined-up plan that addresses this. This should include co-ordinated action to enable upskilling and automation across businesses to ease pressures, as well as reducing economic inactivity, supported by a more flexible immigration system.’ • the CBI says ‘the economy is likely to have fallen into a recession in Q3 2022, when GDP shrank by 0.2%. We expect the recession to last until the end of 2023.’ it adds ‘the weakness in household spending also weighs on other areas of the economy. In particular, business investment continues to disappoint, falling from mid-2023 onwards, hit by the recession and the government’s super deduction coming to an end.’ • On a brighter note, the CBI says ‘the outlook improves in 2024, when the economy grows by 1.6%, thanks to inflation falling back further and the squeeze on household incomes alleviating. The recovery in household spending also lifts business and residential investment.’ • Director General Tony Danker says ‘Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment. Firms see potential growth opportunities but a lack of “reasons to believe” in the face of headwinds are causing them to pause investing in 2023. Government can change this. Their action or inaction to support growth and investment will be a key determinant of whether recession is shallow or deep.’ • Mr Danker says ‘we will see a lost decade of growth if action isn’t taken. GDP is a simple multiplier of two factors: people and their productivity. But we don’t have people we need, nor the productivity.’ You don’t have to be an economist to see that that’s a bit of a problem. Jobs growth in the US remained strong in November with the economy adding 263k jobs and wages climbed sharply, up 5.1% in terms of average hourly pay. High wage growth has been cited recently by the Fed as a reason to suggest that interest rates may need to rise to higher levels than previously thought. John Lewis is to transform a number of supermarkets and warehouses into 1,000 rental homes. Rightmove founder Harry Hill has told The Mail on Sunday that house prices will fall by a fifth in the coming years… • Hill says that affordability issues will drive prices down. he says ‘my view on the housing market is that it’s going down in every direction. Transactions are going to go down. Prices are going to go down.’ He says ‘the only question is by how much? Intuitively it feels like double figures on both, starting now.’ Mr Hill adds that ‘we could see 20 per cent price reductions’ and says ‘that starts to hurt people a lot.’ Sterling up at $1.234 and €1.166. Oil lower at $86.11. UK 10yr gilt yield up 4bps at 3.14%. World markets mixed to lower on Friday & London set to open down around 4pts as at 6.30am. RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): The front-page headlines of several of Saturday’s papers were dominated by the recent deaths of six young children who had contracted the Strep A bacterial infection: the Daily Mail blamed reduced immunity caused by the Covid lockdown (“Lockdown linked to new surge in Strep A”), with the Telegraph making a similar point (“Alert after Strep A kills six children”). The Times also had a health headline: “Nurses will walk out of cancer and A&E wards”, claiming that up to 140,000 patients could have operations and consultations cancelled because of the NHS strike action planned for Dec 15th and Dec 20th. On its front page, the Guardian led with an exclusive report that up to half a million of the UK’s most vulnerable families have been left without Government help to pay their energy bills. Elsewhere, the i-weekend led with “UK Brexit regrets are
• Saturday’s Press and News (2): In terms of Retail news, the ASOS CFO departure vied with the JLP residential property deal with Abrdn for coverage. On the ASOS move, the Daily Mail and the Times both highlighted the comment of an analyst that Katy Mecklenburgh is leaving a “sinking ship”, whilst the Telegraph headline was “ASOS loses second finance chief as it battles downturn”. As for the JLP plan to build 1000 rental homes on sites in Bromley, Ealing and Reading (as already announced), the Telegraph and the Guardian swallowed the PR claim that it is “£500m deal” in the headlines of their articles (the £500m is simply the gross retail value of the homes), but the Times and the FT merely noted in their headlines that John Lewis is to build the homes in partnership with Abrdn. However, the Lex opinion column in the FT was prompted to look at the JLP/Abrdn deal, concluding that “John • Saturday’s Press and News (3): In other Retail news in Saturday’s papers, the FT picked up an interesting bit of news given to analysts at a recent presentation by Ocado, namely that 2 planned CFC’s will be delayed from 2024-2025 (“Ocado slows expansion as demand eases for Online groceries”) and the Telegraph also followed up on the FT story (“Ocado halts plan to build UK warehouses”). The stockmarket reports in the Times and the Daily Mail both led with an upgrade on Primark owner ABF by Goldman Sachs, whilst the “Share of the Week” column in the Daily Mail was devoted to Frasers, ahead of the upcoming interims. • Sunday’s Press and News (1): On Sunday, many of the front pages looked ahead to England’s “crunch” match against Senegal in the World Cup, with photos of captain Harry Kane, but the front-page headlines were mostly about the NHS crisis: the Sunday Telegraph flagging that pharmacies could be drafted in to help during this month’s nurses strike, with chemists given permission to prescribe antibiotics (“Pharmacies drafted in to break NHS strike”), whilst the Observer’s main story was that Ministers are “under intense pressure” to open new pay talks with unions to avert the impending NHS strikes (“Ministers accused of spoiling for a fight with nurses on pay”). The Sunday Times led with “Panicking Tories plan tough new laws on asylum”, reporting that a new law to curb migration to the UK could be introduced by the Government before Christmas.
• Sunday’s Press and News (2): On Sunday, in terms of Retail news, the main story was the Sunday Telegraph scoop that the Royal Mail has been dropped by Currys as a delivery provider, as postal strikes threaten Christmas deliveries. In related news, the Mail on Sunday flagged that a record was set on Black Friday…for returns, with Online retailers suffering a rise in returns of over 25% in November on last year, after a “boomerang Friday”. The “City Whispers” column in the Mail on Sunday also noted a downgrade on ASOS by Credit Suisse. The Mail on Sunday also flagged that festive sales at Kurt Geiger have got off to a flying start and that investors in the fashion marketplace Thread are furious about its collapse (and the terms of its acquisition by M&S). The Sunday Times was bereft of Business stories about Retailing, as its Retail correspondent was away on holiday, but Sam Chambers • Sunday’s Press and News (3): In terms of Economics comments in the Sunday papers, the Sunday Times Economics correspondent, David Smith was also away on holiday, but Stephen King of HSBC wrote a gloomy column about the adverse impact on the economy from Brexit (“Growth, but not as we know it, and the rot set in years ago”), in which he flagged “Who do we hope to trade with? I can only hear a deafening silence”. We also enjoyed the columns by the veteran City commentator, Jeremy Warner, in the Sunday Telegraph (headlined “Sunak must copy Biden initiative if he is serious about energy security”) and by the Economics correspondent, Philip Inman, in the Observer (headlined “The Tories know the game is up, even if the City doesn’t”). • Today’s News: There is no company news out this morning, but back on Friday Frasers Group CEO Michael Murray revealed in a LinkedIn post that the retail conglomerate has snapped up “the leading online platform for luxury global homeware brands”, Amara.com, stating that “This acquisition will build on our ambitions to create a credible homeware destination for Flannels”. Well…we have never heard of Amara.com either and it can’t be that big, because the company itself has not felt it necessary to announce the deal.
• Today’s Press: According to the invaluable Guardian morning email briefing, the Guardian itself leads its front-page with the headline “Sicker and poorer’: report reveals Britain’s widening health divide”. The story says upcoming research shows people in the north-east of England, Wales and Northern Ireland are twice as likely to be forced out of work by sickness as people in London and England’s south-east. The Times leads with “Midlife health checks go digital”, while the i says “Energy firms target homes in fuel poverty”. The Financial Times reports on a shift in EU state aid rules: “Brussels promises help for companies to offset impact of US green subsidies”. The Telegraph says “Rail union refuse to save Christmas”, with the news that the RMT has rejected the latest pay and jobs offer. The Daily Mirror focuses on England’s 3-0 World Cup win again Senegal last night, with “Dream • BDO High Street Sales Tracker: Although we have to make our usual caveats (ie that the weekly BDO High Street Sales Tracker for medium-sized Non-Food chains is statistically flawed and is highly skewed to Fashion), the latest survey, for what it’s worth, shows that November trading ended on a surprisingly good note, thanks to Black Friday promotions. In the w/e Nov 27th Total BDO sales (including a few Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by 4.3% LFL on the year before, with Fashion alone up by as much as 8.3% LFL. • News Flow This Week: As we move on into December, this week kicks off first thing tomorrow with the overnight BRC-KPMG Retail Sales survey for November (which is likely to flag that sales volume is well down, even if top-line sales are still up a bit, thanks to inflation), closely followed by the Victorian Plumbing interims and the latest monthly Kantar grocery sales figures (for the 4/12 weeks to Nov 27th), as well as the jeweller Signet’s Q3 results (out in the US). Wednesday then brings the Moonpig interims, the QUIZ interims, the Naked Wines interims and a Games Workshop update. On Thursday we then get the Frasers interims, with the ABF (Primark) AGM update following on Friday. |
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