Casual dining, labour, confidence, Nightcap, Naked Wines, RTN & other:

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A DAY IN THE LIFE:

Cloths moths, which one tends to think of something more suited to the Agatha Christie era than the modern day, seem to be making a comeback.

There are various articles out there saying their population has trebled in a five-year and, as they’ve eaten another pullover of mine and have chewed up the insoles in a pair of shoes that had been ignored for a while, I’m inclined to think its that and perhaps a lot more. 

And they’ve made a start on our carpets suggesting that, alongside deer, urban foxes, rabbits, squirrels, rats, mice and a whole host of other verminous fauna, they need adding to the list of pests that I never used to see in everyday life when I was younger but which, with their voracious appetite for things I’d like to keep as well as whatever happens to be on our birdfeeder or in the dustbin, seem to be more of a feature these days.

Anyway, worse things might well happen at sea. On to the news:

PUBS & RESTAURANTS:

Casual dining:

In a lengthy interview with The Telegraph, CEO of Restaurant Group Andy Hornby has said that UK chain restaurants ‘will never be as ubiquitous as they were pre-pandemic, but [he] insisted they will not disappear from Britain’s high streets altogether.’ He said the industry will never be quite as big as it was.

Mr Hornby, who announced full year numbers last week and who is facing criticism and a possible AGM revolt led by 6.5% shareholder Oasis, says people were still “prepared to spend money on good quality food and drink” as he argued that “good performing, well-run food and drink operators do have a good future in this country….”

• The industry, which arguably overexpanded post the financial crisis on the back of cheap private equity money and the belief that running a restaurant chain was easy, shrank in 2018 when a number of CVAs pared back unit numbers. Brexit has caused staffing problems and Covid and poor economic growth alongside the cost of living crisis have led to business failures and more closures since.

• Re his own business, Mr Hornby says ‘what has actually happened is demand has held up better than people thought, but the cost inflation pressures have hurt people’s margins. It’s all cash flow issues, and those for many operators won’t go away.’ The Telegraph adds that ‘the retrenchment by chains follows years of expansion for restaurants, with names such as Pizza Express, Prezzo and Strada becoming ubiquitous across the country.’

• Hornby adds ‘people have cut back on their spend, but not as far as you might [expect].’ He says ‘if you’re in a Wagamama and there’s six of you together, you might now choose to only share two or three starters. If you are in our pubs business, which is trading particularly well, you may have one less extra drink, or you might share a sweet dessert. It’s very subtle.’

• The company is being pushed to consider selling off some of its brands, such as its Brunning & Price pubs or its concessions business though it says its strategy will not be affected by shareholder lobbying. The Telegraph says ‘he brushed off suggestions from analysts that The Restaurant Group, which also owns Mexican chain Chiquito and Garfunkel’s, could be worth twice as much if it was broken up and sold for parts.’

Confidence:

The latest UK Business Outlook by Accenture / S&P Global suggests that ‘UK business confidence rebounded in February to its highest level in 12 months…’

• The survey says ‘expectations towards future activity picked up sharply from a record low in October.’ It adds ‘at +43%, the net balance of manufacturing and service sector firms expecting activity to increase over the next 12 months was the strongest recorded in a year, and marked a significant uptick from the +18% registered in October 2022.’

• The survey adds that ‘UK companies were more confident than almost all of their European peers, with levels of optimism nearly double the average seen in the eurozone (+23%).’

• The survey says that profit forecasts have turned positive for the first time in a year and the employment outlook has strengthened although capex and R&D plans continue to lag. It says ‘UK businesses have demonstrated strong resilience in the face of these challenging times, and their optimistic outlook is encouraging. But to compete and grow now, businesses must adopt a deliberate strategy of continuous reinvention that will enable them to anticipate—and respond t’

Sport in pubs:

KAM research reports that 43% of sports fans say watching live sport is the main reason they go to a pub mid-week, with 92% of sports fans saying that showing live sport during the week positively influences their visit frequency to a pub…

• KAM reports that the ‘age-old idea that mid-week visits cannibalise weekend visits…has also been debunked, with 74% saying visiting the pub for sport midweek doesn’t affect visits at other times during the week.’

• It adds ‘and sport fans are very valuable customers, 85% said they spend more on drinks in pubs when watching sport compared to normal visits- and 73% of respondents said that if they have a positive experience watching sport in a pub then they are likely to re-visit for non-sport occasions.’

• Not many negatives although there is the potential for sport to drive away some other customers, for example families and food occasions. As always, horses for courses.

Costs and prices:

The ONS reports that 69.4% of businesses in the ‘food and drink services’ sector have said their outgoings have risen but only 29.2% have said they have passed those costs on to customers…

• In ‘food and drink retailing’, which pertains chiefly to the off-trade, 65.1% said they have suffered increases in the prices they pay for goods and services but 63.7% stated they have passed the costs on to their customers.

• The report adds ‘price increases are asymmetric across the food and drink supply chain with manufacturers, wholesalers and retailers (excluding microbusiness) more likely to report passing prices on than service providers (for example, pubs, bars, restaurants and cafés).’

• This will not be the same across all companies. Operators may ‘test elasticities’. It is likely that pubs & restaurants with an affluent customer base will have more flexibility than those with a very cost-conscious clientele.

Trading:

CGA’s latest  Consumer On Premise Impact Report has found that around 7 in 10 consumers have visited restaurants and/or bars for food-led occasions in the past 2 weeks, while 2 in 5 have visited for drink-led occasions.  Consumers plan to continue visiting the On Premise in the near future, with 3 in 5 intending to visit bars and/or restaurants in the next week.

Delivery:

Lumina Intelligence reports that the delivery market is expected to grow by 7.8% in 2023 to reach a total value of £14.4bn…

• It says that growth is set to be driven by investment in delivery services, including development of aggregator platforms, optimisation of brand sites and prominent marketing activity. However, the report showed that the most important age group in the market – 25-34s – has seen the largest decline in share of delivery occasions.

Labour issues:

The CBI comments on the government’s suggestion that it wishes to help people back into the workforce saying ‘childcare costs are a barrier to many parents returning to work, especially those on lower incomes. It’s absolutely right that Government childcare support for those on Universal Credit is now paid upfront. The Government needs to announce the launch of a review into childcare to ensure it works for everyone….’

• The CBI adds ‘helping the over 50s return to work requires flexible skills support from firms, so the Government should be listening to business-wide calls for a reform of the Apprenticeship Levy.’ It says ‘business will hope to hear more on how the Government can help support people back into the workplace at next week’s Budget – big gaps in our workforce require big solutions.’

Regional issues:

London is likely to be overrepresented in terms of consumers who are both the most squeezed in the country and also b) the most wealthy…

• The FCA has said that Londoners and people in the south-east of England are 55 per cent more likely to struggle to pay their mortgages than other consumers. Mortgages are simply bigger and, when there are large numbers flying around, the financial ‘jaws’ can open or close rapidly and, with mortgage rates rising much faster than earnings, disposable income for those with large loans is likely to fall.

• The FCA said that 5.9 per cent of the 1.8mn mortgage holders in London and the South East were at risk of being “financially stretched” by the middle of next year. That is a) a spuriously-accurate sounding number but b) it is not necessarily wrong.

• Elsewhere, The Times has reported that London is the UK city where property deposits are highest. It says first time buyers, on average, are putting down 26% of the value of the property that they are buying. This equates to £61k outside London but amounts to almost £116k in the capital. First time buyers in London are paying around £470k for their properties.

Other news:

BII CEO Steve Alton said that ‘Collaboration and partnership are key’ for the pub industry and late-night economy when it comes to ‘getting the Government to recognise the unique role of hospitality beyond its economic contribution of £42bn a year’.

See also Finance & Markets. The US restaurant industry added 99,000 jobs in February re the US Bureau of Labour Statistics…

• The NRA in the US suggests that the industry will add some 500k jobs this year. It projects further growth thereafter such that employment levels should reach 16.5m people by 2030 compared with the 15.5m now and the 12.2m at the end of 2020 when Covid was impacting trade.

COMPANY NEWS:

Naked Wines has reported that its relationship with failed bank SVB ‘shows us having less than £0.6m of cash which we considered, prior to the US Treasury Announcement referenced below, to be at risk and potentially uninsured due to the closure of SVB.’ It adds that…

• …’the Group’s $60m asset backed credit facility, which is syndicated 50-50 between SVB and Bridge Bank, remains an important part of our financing arrangements. As explained in the Group’s latest going concern analysis this provides liquidity protection in the event of weaker trading than expectations as well as day to day liquidity.’

• It says ‘we have engaged in direct discussions with Bridge Bank who remain supportive of the Group and have indicated their desire to continue providing their services. While awaiting information from SVB and their successor business as to their intentions the Group has commenced a process to identify potential new financing partners.’

• CEO Nick Devlin says ‘we are announcing today that day to day operations are unaffected and we don’t expect to incur any loss as a result. Whilst this situation remains fluid, we maintain a robust balance sheet with approximately £185m of stock and £17m of immediately accessible cash. We remain focussed on delivering for our customers and winemakers and continuing to execute against the pivot to profit strategy announced in October.’

Nightcap has reported H1 results to 1 Jan saying that its revenue rose to £23.5m from £15.8m with adjusted EBITDA up to £4.1m from £2.5m in the period a year ago. The loss before tax is £0.9m compared with a loss of £0.5m last year. The loss per share is 0.50p against a loss of 0.39p last year…

• CEO Sarah Willingham says ‘Nightcap has had a fantastic half year. Our incredible team opened six bars in six weeks across the country, whilst also delivering a Christmas that exceeded expectations and records in terms of corporate parties, pre-sold events and a nearly sold out New Year’s Eve across all 36 sites.’

• She adds ‘this was followed by a significant business integration and streamlining process, resulting in expected Group savings of £1.4 million annually, whilst preserving the much loved individual identities of our brands. The new sites have opened well with trading continuing to build week-on-week all the way through to the end of February 2023.’

• Pause in growth. The CEO says ‘whilst rapidly building the leading premium bar group in the UK in a very attractive market for property deals, we continue our focus on strong cost controls, proven by our impressive cash generation of £4.1 million from operations during the period thanks to the unwavering dedication of our talented and highly motivated team.’

• Ms Willingham concludes ‘we look forward to the second half of the year with confidence and once again we thank our customers for coming to our sites and enjoying themselves with friends in a fun, relaxed party atmosphere and leaving knowing they have had a night to remember.’

Restaurant Group – see also comments on wider market above. Per MCA, The Restaurant Group CEO Andy Hornby has said that the company’s three-year strategy has ‘not been impacted by any of the shareholder issues’, referring to activist investor Oasis Management…

• The Hong Kong-based hedge fund owns a 6.5% stake and has threatened to push for the removal of Hornby unless he delivered a shake-up of the business.

• Langton. First we would ask ‘is that true?’ and second, we would consider ‘if it is, is it wise?’ Re the first question, we would suggest that it may be difficult to ignore the public comments of a large shareholder and, re the second, we would question whether it would be wise to do so.

• Because, whilst a 6.5% shareholder clearly does not own the other 93.5% of the shares, it is a material holding and, in the case of a fund with international holdings across a number of sectors, it is possible that the shareholder has something constructive to say.

Tim Hortons CCO Kevin Hydes said the company is keen to explore opportunities to open sites within UK travel networks, including motorway service stations, roadside, rail and air locations. Tim Hortons currently has 72 sites in the UK and plans to open 25-30 new locations this year.

DP Poland non-executive director Peter Furlong has resigned from the Board, stating ‘In recognition of the improved operating team and growing importance of having an independent board with strong Dominos operating experience I have decided to step down. I am encouraged by what I see and look forward with confidence as a shareholder.’

The MCA reports that Wingstop UK is aiming for a 50+ strong estate by the end of 2024, with £100m of revenue.  Director Tom Grogan said ‘Right now, we sit at 30 restaurants. If we can get close to 50 or 60 restaurants by the end of next year, we’d be very happy.’

Turtle Bay is set to open in Blackpool this summer.

Fever-Tree is set to launch its first cocktail mixers this week.

HOLIDAYS & LEISURE TRAVEL:

Kantar research has found that 17% of UK adults have already booked their main 2023 holiday – almost unchanged year on year…

• It adds that the proportion still planning a main holiday was up almost 150% year on year from 20% to 49%. Charlie Gordon, insight director at Kantar, said ‘There is every reason to be confident the boom in early bookings for 2023 will continue. The trend data suggests holiday intentions are far more robust than last year.’

• Mr Gordon adds ‘this time last year, two-thirds of people weren’t sure what their plans were regarding their main holiday. This year, we see two-thirds of people saying they have either booked or plan to book. In effect, a switch has flipped in the face of the strong headwinds we hear so much about.’

Tui UK and Ireland commercial and business development director Richard Sofer has said the ocean and river cruise ‘bookings for January and February have been absolutely flying – and not just for the existing summer seasons but also for winter and for summer next year’.

Consumer magazine Which? is pushing for urging the government to retain EU package holiday protections. Which? believes that the government will consult on changes to the regulations.

OTHER LEISURE:

Disney is considering the future of streaming platform Hulu. CEO Bob Iger also said the company might have been a ‘little too aggressive’ with price rises at resorts.

FINANCE & MARKETS:

Plenty of speculation in the weekend press concerning the upcoming (Wednesday) Budget.

The US economy added 311,000 jobs in February. The unemployment rate edged up to 3.6% from, 3.4% in January.

PM Rishi Sunak says “confidence is returning” in the economy.

There are concerns that the collapse of Silicon Valley Bank in the US could have implications for UK operators, particularly for tech companies.

Sterling up at $1.2109 and €1.1296. Oil price higher at $83.06. UK 10yr gilt yield down 15bps at 3.63%. Markets down on Friday but Far East mixed today and London set to open up around 7pts as at 6.30am. 

RETAIL WITH NICK BUBB:

• Saturday’s Press and News (1): The fall-out from Gary Lineker’s suspension from “Match of the Day” by the embattled BBC, for his comments on the Government’s hostility to migrants, dominated most of the front pages of Saturday’s papers. “Mutiny of the Day as Lineker gets star support” was the headline in the Times summing up the situation, whilst the i flagged that “BBC stars walk-out in solidarity after Lineker suspended”, the Telegraph highlighted that “BBC faces revolt over Lineker” and the Daily Mail noted “Mutiny at BBC over Lineker red card”. The Guardian front-page headline was “Lineker suspended from BBC over social media row”. The Daily Express focused instead on the Paris summit between the PM and the French President, trumpeting “Rishi’s £478m deal: I said we would stop the boats”. The Financial Times front-page featured a symbolic photo of Rishi Sunak and Emmanuel Macron
shaking hands, but its main story was about the US banking sector slump: “Collapse of US tech bank SVB shakes sector”.

• Saturday’s Press and News (2): In terms of Retail news, any more coverage of the news that the heavily indebted petrol forecourt chain owned by the Issa brothers, the EG Group, has had to sell $1.5bn of freeholds in the US to help reduce its debt was stymied by the news about the sudden collapse of the US tech bank SVB, with the Times, inter alia, noting that Moonpig is one of the customers of its UK subsidiary. The stockmarket report in the Times highlighted that Watches of Switzerland was one of the only retailers to escape the sell-off on Friday, thanks to a Buy note from Peel Hunt and the Times also noted that Ocado fell sharply after its French partner Casino was investigated by the French financial regulator. The Telegraph flagged that Lidl has become the latest UK supermarket to end rationing of fresh veg and the “Share of the Week” column in the Daily Mail focused on Deliveroo,
ahead of its upcoming finals. And there was a big feature in the Guardian on the American outdoor clothing brand Patagonia and its focus on combating climate change.

• Sunday’s Press and News (1): On Sunday, the lack of football coverage on the BBC after Gary Lineker was taken off air and other football presenters and pundits refused to go on shows was the big talking point: the Observer’s front-page story was headlined “Lineker row threatens to topple BBC chiefs and hit asylum plan”, whilst the Sunday Times flagged that “a day of anarchy” piled the pressure on the BBC Chairman Richard Sharp (“Lineker chaos piles pressure on BBC chief”) and the Sunday Telegraph led with the news that the BBC Director-General Tim Davie has refused to quit (“I won’t quit, says BBC boss, as he hints at climbdown”). The Mail on Sunday, however, claimed that Rishi Sunak had “dramatically intervened” in the impartiality row between Gary Lineker and the BBC by rebuking his comments (“PM hits back in Lineker storm”).

• Sunday’s Press and News (2): On Sunday, any Retail news was squeezed out by the coverage of the SVB Bank fall-out and previews of the Budget, but the Sunday Times had a snippet on the front-page of its Business section about the unhappiness of Tesco suppliers about the “fulfilment fee” imposed on them for products sold Online. The Sunday Times also had a feature on the share price collapse of Online car showrooms like Carvana and Cazoo (“Would you buy a used car from this burst bubble?”). And, in related news, the well-respected Business Editor of the Sunday Times, Oliver Shah, looked in his column at the plan to ban petrol cars by 2030, thundering that “My prediction: ministers will slam the brakes on 2030 green targets”.

• Sunday’s Press and News (3): In terms of pre-Budget Economics comments in the Sunday papers, we give our usual shout-out to the column by the Sunday Times Economics correspondent, David Smith (“Cash-strapped Chancellor has room only to tinker”), in which he noted that “If the Government has its own Inflation Reduction Act (IRA), it is keeping it well hidden”. We also enjoyed the columns by the veteran City commentator, Jeremy Warner, in the Sunday Telegraph (headlined “Dithering ministers have no credible policy for delivering net zero goal”) and by the Economics correspondent, Philip Inman, in the Observer (headlined “If the British economy won’t raise pay, then it must shrink”).

Today’s News: The Bank of England rushed to secure the sale of the UK subsidiary of the collapsed US tech bank SVB to HSBC before the markets opened today, to ensure financial stability, and tech companies have been rushing to assure shareholders about their exposure. THG has confirmed that it does not have any exposure to SVB, either in relation to cash deposits or debt facilities, but elsewhere the situation is more complicated. Moonpig claims that it is has no material exposure to SVB UK, even though SVB UK is one of ten lenders that provide senior debt facilities to the group. But Naked Wines is impacted, and it has put out a detailed statement, noting that the group holds cash with SVB in a variety of accounts in the USA and UK and that SVB is also the administrative agent and issuing lender for the group’s $60m asset-backed credit facility. However, Naked Wines says that group day
to day operations have been unaffected, with FY23 trading consistent with the guidance provided in January and that no loss is expected to the group resulting from SVB’s failure.

BDO High Street Sales Tracker: Although we have to mention our usual caveats (ie that the weekly BDO High Street Sales Tracker for medium-sized Non-Food chains is statistically flawed, is focused on relatively upmarket businesses, is very skewed to Fashion and underplays “big ticket” spending), the latest survey, for what it’s worth, shows that trading is still defying gravity. In the w/e March 5th, Total BDO sales (including a few Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by c11% LFL on the year before (with Store sales and Online sales increasing at the same rate, unusually), whilst Fashion sales alone were up by 10.1% LFL.

News Flow This Week: The big event this week is the Spring Budget on Wednesday lunchtime, but we also get the Virgin Wines interims tomorrow, whilst the much-awaited John Lewis Partnership finals and the Deliveroo finals are on Thursday, along with the Q4 results from the jeweller Signet (in the US).