RTN, McDonald’s, Vue, price elasticities, no shows, holiday fires etc.:

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A DAY IN THE LIFE:

The weather was awful over the weekend but, when the Sunday forecast had sixteen degrees and light rain for York in what’s now the last full week in July, we didn’t think it could get much worse.

However, as it promptly changed to fourteen degrees and heavy rather than light rain, we realised that it could.

But still, we decided to look on the bright side and, when it stopped raining for a little while mid-afternoon, we ignored the forecast (which pretty much said ‘don’t be fooled, there’s much more rain to come’) and ventured into town.

Sadly, our optimism collapsed on contact with reality, the heavens duly opened and our expedition proved to be something of an error of judgement.

Indeed more than that as, drowned-rat-like, we had to skulk from shop to shop and compete with tourists, strangely unhappy to experience a genuine English summer to the full, for the few square feet under the odd shop canopy.

And then it was Monday.

On to the news:

PUBS & RESTAURANTS:

Consumer – disposable income:

Rents rocket. Rightmove figures show that private rent outside London had risen to a new record of £1,231 per calendar month, rising to £2,567 in London….

• The property platform said that demand is 3% greater than at this time in 2022, and 42% higher than in June 2019. Demand is now greatly outstripping supply, with rising interest rates adding upward pressure to rents.

‘Cheaper’ mortgages; blink & they were gone. Moneyfacts reports that the average two-year homeowner mortgage rate on the market edged back up to 6.8% on Friday from 6.79% yesterday. The move undoes some of the positive sentiment around the lower than expected inflation figure.

Trading:

CGA has reported that cooler weather has dampened July’s drinks sales. It says that ‘on Premise drinks sales dipped slightly last week (to 15 July) in line with falling temperatures—ending an 11-week stretch of year-on-year growth….’

• It says that sales were 0.3% down on the same week last year. This is a major drop once inflation is taken into account. The week just ended could be tricky as well as the comps last year include the heatwave.

• CGA says that this is ‘the first negative weekly performance in the On Premise since late April.’ It says ‘the figures are a reminder of the close correlation between weather and drinks sales. June and early July brought widespread sunshine, attracting consumers to pubs with outdoor spaces—but milder and wetter weather made last week much tougher.’

• CGA reports that ‘long Alcoholic Drinks categories were hardest hit by the falling temperatures, with cider sales down 18% last week and beer sales only 2% ahead of July 2022. Soft drinks (up 1%) and spirits (down 5%) had modest weeks too, but consumers’ moves indoors, and towards food-led occasions, created 14% year-on-year growth in wine sales.’

• The above is much as would be expected. Jonathan Jones at CGA says ‘after a long run of fine weather and sales it was little surprise to see more modest trading last week.’ He says ‘eleven consecutive weeks of growth marks an impressive late Spring and early Summer for the On Premise, especially given all the current cost pressures, and this is hopefully a weather-driven blip in the pattern. However, with more poor weather forecast and consumers’ spending further squeezed by interest rate rises, trading conditions will remain challenging for some time yet.’

Food costs:

The MCA speaks to David Read, Prestige Purchasing chairman, who concludes that inflation can have a deeply corrosive effect upon business. He says it plays havoc with prices & margins and increases investment volatility. Food Inflation as measured by the CGA Prestige Foodservice Price Index increased again to 22.6% year-on-year in June and, since mid-2021 food prices have increased by more than a third…

• Mr Read says that ‘at the raw material end of the global supply chain, inflation is for the large part in retreat’ but this will take some time to feed through to the end user. Mr Read says ‘producer and manufacturer conditions in the UK continue to be much less benign, with farming input costs such as energy, feed and fertiliser remaining high, near-full employment levels tightening the labour market, climate vulnerability on imported foods, rising interest rates, and additional costs of post-Brexit trade all continuing to feed through into prices.’

• Langton. The above points to a degree of stickiness in costs that will not be immediately apparent if one looks at commodity prices – such as oil, grain, sugar etc – alone. Transport costs and the service element involved will be slower to go into reverse and the latter will likely not go down at all. Prestige says ‘for the time being food prices in the UK hospitality sector continue to increase at around 2% per month.’

• It does, however, say that ‘this rate of increase is likely to be close to a tipping point – where deflationary factors should start to compensate for the currently dominant inflationary pressures.’ It says ‘the exact timing of this tipping point though remains uncertain whilst the above factors remain volatile.’ PM Rishi Sunak has taken a view and said that inflation should be halved, to around 5%, by the end of this year.

WFH:

Cutting office space: John Lewis is set to halve the size of its new head office after thousands of employees opt to work from home….

• The retailer will move to a new 108k square foot location at One Drummond Gate from its current 220k square foot office in Victoria. Andrew Murphy, chief operating officer at John Lewis, has previously said ‘we’ve discovered nothing to make us believe a blended approach isn’t workable in the long term for most ‘office’ jobs.’

Access to staff:

The Sunday Times reports that ‘thousands of young European waiters, baristas and au pairs could be allowed to come to the UK for two years under plans to plug gaps in the British workforce….’

• It says ‘the Home Office has begun discussions with some EU countries after being asked by Downing Street to agree more youth mobility schemes to help improve the economy without raising record levels of net migration.’ It says ‘in particular ministers are understood to be looking at France, Germany, Spain and Switzerland — which is not in the EU — for deals involving workers aged between 18 and 30.’

• Industry leaders have for months been pushing for visa schemes to help fill a million job vacancies. Many have complained that filling them has become harder since Brexit, the pandemic and the introduction of a points-based migration system, reports The Times.

Market size:

Lumina Intelligence reports that the UK eating out market will reach £95.2bn of turnover in 2023 as inflation drives up prices….

• As alluded to above, it would be interesting to see these numbers in real terms. Consumer spending is expected to be flat in 2023 and improve towards the end of the year. Leading brands include the Ivy, Côte, and Miller & Carter. In terms of growth rates, Slim Chickens is expected to lead turnover growth year-on-year – forecast to reach £33.2m in 2023, a 65.8% increase.

Rail strikes:

James Watt, the CEO of BrewDog, has called on the government to ‘step in’ on the continual rail strikes and ‘sort out this mess out’….

• That’ll clearly sort the government out as nobody else had thought it would be a good idea to settle strikes. Watt said so far the strikes ‘equate to £3.5m in revenue lost, £600,000 of wages to our amazing team lost and tellingly £1m to the treasury lost via VAT, national insurance [contributions] and beer duty.’

No shows:

Barclaycard Payments has reported that ‘growing last minute cancellations and no-shows have driven restaurant owners to consider permanently closing over the last year.’ It says 18% of restaurant owners are considering shutting and ‘a third of restaurants are given under an hours’ notice for cancellations…’

• Barclaycard reports that ‘one in 10 adults would prefer to pay a no-show fee – averaging £29 – than verbally call and cancel a reservation, despite 39 per cent feeling guilty about doing so.’

• The card issuer goes on to say that ‘last minute cancellations and no-shows are one of the biggest issues the restaurant industry is facing right now according to almost a quarter (23 per cent) of restaurant owners, as nearly four in 10 (37 per cent) UK adults who dine out regularly reveal they cancel on the day of the booking, typically providing less than six hours’ notice.’

• Barclaycard hints to a solution when it says ‘only 34 per cent of restaurateurs currently take card details when booking and charge a cancellation fee if a customer does not turn up. Although, in a bid to reduce the impact on their business, a further 37 per cent plan to introduce this measure.’

• Despite the above, the card issuer says ‘it is encouraging to see that there is still a strong desire to eat out. And with a third (33 per cent) of diners admitting they would be less likely to cancel a restaurant booking if they had been asked to pay a deposit, the research shows there are clear methods that can deter the rising cancellations.’

• Kirsty Morris, MD at Barclaycard Payments, says ‘the hospitality industry has faced many challenges in recent years and is continuing to feel the strain against the backdrop of the cost-of-living. While diners are becoming increasingly picky about the venues they choose to spend their hard-earned cash at, it’s really important this doesn’t translate to indecisiveness and negatively impact restaurants through cancellations.’ She says ‘with more venues considering charging cancellation fees to deter no-shows, we want to help diners understand the impact on businesses of cancelling at the last-minute so they can think ahead and give advance warning – and not get stung with a cancellation charge.’

Other news:

Arcade Battersea, a modern dining food hall, is set to open on 26 July inside Battersea Power Station. The food hall will have seating for 500 and will have Arcade’s direct-to-table ordering system, eliminating the need to queue at stands and limit the need to book ahead.

The  Chicago Board of Trade exchange had wheat trading higher last week as Russia continues to carry out heavy air strikes on Ukraine’s grain stores….

• There is concern about the  impact these strikes will have on poorer, grain-importing countries, as well as on western nations dealing with high inflation. Whatever the ultimate impact, it is unlikely to be deflationary.

Price elasticities. Interesting to see Premier Foods last week, in its well-received Q1 update, comment that the price elasticities across its brands had been different in the face of price rises…

• The company reported that the cost pressures being experienced in Grocery and in Sweet Treats were similar but, when prices had been raised, the impact on volumes was different. Clearly, with Sweet Treats, the clue is in the name whereas Groceries are seen as necessities. Hospitality will likely be experiencing similar results. Some product types will be holding up in terms of sales better than others. Operators may decide to put through lower (or no) price rises for goods with higher elasticities. This will impact margins and lead to mix changes in numbers.

Sales of Champagne fell by nearly 4% in the first half of 2023; The region of Champagne has capped yields for its impending harvest at a slightly lower level than last year.

• The Comité Champagne – which regulates the supply of grapes in the appellation – reports that they can make roughly 326 million bottles this year. This is because the number of berries that can be harvested for making into champagne from this year’s harvest is to be limited to 11,400kg/ha.

• Total shipments for this year are predicted to decline by 3.7% reaching around 314m bottles, according to the Comité Champagne. The regional trade organisation recorded that Champagne shipments in the first half of 2023 were 125.8 million bottles, which was a decrease of 4.7% compared to the same period in 2022.

COMPANY NEWS:

The Sunday Telegraph reports that ‘TMR Capital is considering a swoop for two of the four divisions at The Restaurant Group.’ It says the PE house is ‘plotting to break up the hospitality group…’

• The Telegraph reports that TMR ‘is eyeing a bid for the company’s Brunning & Price pub division and its casual dining chains, which include Frankie & Benny’s and Chiquito.’ The pubs division, which is trading strongly, and the leisure operations, which are still under considerable pressure, are somewhat different in terms of operating metrics, property tenure and customer base.

• Nonetheless, The Telegraph ‘can reveal’ that ‘no price has yet been discussed, with TMR Capital pushing for more detailed financial information ahead of a possible formal bid. City analysts have said a “knockout” offer would be around £200m.’

• A move towards a pure-play Wagamama business could be well-received by investors. The group, should it sell its pubs & leisure operations, would be left with Wagamama and the company’s concessions business. RTN said last week that it was considering strategic moves, widely taken to mean disposals. A company spokesman said RTN would “continue to review our wider strategic options” but wouldn’t comment on speculative approaches.

After the BBC reported multiple allegations of abuse, the company McDonald’s has launched a new investigation. A BBC investigation reported that some workers as young as 17 were being harassed almost routinely in the fast-food chain.

• The chief executive of McDonald’s UK and Ireland, Alistair Macrow, stated the claims are “personally and professionally shocking” and he apologised to anyone affected. As well as this, Macrow said, “The unit will have oversight on all cases and the power to refer the most serious cases to a third-party legal team staffed by specialist investigators.” He went on to say later, “It is crucial that people feel safe and able to speak up.”

• Since the BBC’s report was published, more stories have surfaced, putting further pressure on McDonald’s. Many workers have argued that their complaints were not escalated in an appropriate and timely way, yet, Mr Macrow said he wanted to ensure people had the confidence to speak out.

In its plan to reach 100 stores by 2026, KBeverage has acquired fellow franchisee GK Coffee Group and its nine London stores.

• The Starbuck franchise operator and Norwich based group used a seven-figure funding package from HSBC UK for the deal, which brought its estate to 44 Starbucks outlets across London and the East of England. Seattle-based Starbucks currently operates more than 1,150 UK outlets, with around 75% franchises. It pledged £30m ($36m) to open 100 new UK stores by March 2024.

The Sunday Times reports that Asda and Morrisons paid zero corporation tax last year. It says the PE owned businesses sought to ‘minimise tax by loading their companies up with debt.’

HOLIDAYS & LEISURE TRAVEL:

Rhodes fires. A number of tour operators including Tui, EasyJet Holidays and Jet2, have cancelled outgoing flights to Rhodes after a number of hotels were evacuated due to wildfires….

• Langton: It is believed that some flights have been going out to Rhodes empty in order to bring back returning holidaymakers. This is the kind of last minute disruption that, quite apart from the upset for clients, could play havoc with margins. The insurance position is unclear. TUI reports that it is offering some holidaymakers the chance to book into alternative resorts without amendment fees.

• Jet2 says ‘due to these extraordinary circumstances, we have cancelled all flights and holidays that are due to depart to Rhodes up to and including Sunday 30th July.’ It adds ‘we believe this is the right thing to do for everyone, and we will be contacting affected customers with regards to their refund and rebooking options.’

• TUI says ‘we appreciate how distressing and difficult it is for customers who have been evacuated and ask they follow the advice of the local authorities who are managing tourist movements in impacted areas.’ It says, not unreasonably, that ‘the safety and well-being of our customers and teams remains our top priority.’

EasyJet CEO, Johan Lundgren, said the intense heatwave in Europe is not dampening holiday sales in England. However, Mr Lundgren says that it serves as “a reminder of what is ahead”.

• Lundgren said, as easyJet announced its results for the three months leading up to June: “We’re not seeing any impact at all on bookings from the heatwave.” He goes on to say, “People on holiday will have air-conditioned hotel rooms, be sitting by a pool or swimming. It’s not the same as living there where a lot of people don’t have air conditioning.” He insisted: “We’re not seeing the heat deter people [from booking]. But from a climate point of view the temperatures we’re seeing are a reminder of what we have ahead of us.”

OTHER LEISURE:

The Barbenheimer phenomenon has driven cinema ticket sales higher this weekend and into the first week of the school’s summer holidays with the Barbie film also becoming the biggest film of the year so far in the US and Canada….

• The film took an estimated $155miverthe weekend with Oppenheimer, also out on Friday, making $93.7m. Vue in the UK has said that both films had combined to produce the busiest weekend in four years.

Toy company Mattel Inc has seen its value rise by £1 billion this year ahead of the Barbie movie release.

FINANCE & MARKETS:

Former Bank of England governor Mervyn King has said the Bank may plunge the UK into a recession by raising rates too far. Lord King said signals from the credit markets showed that price growth was about to drop sharply.

The ONS has reported that government borrowing amounted to some £18.5bn in June, around £400m down on June last year and slightly below estimates.

The Mail on Sunday reports that the ‘Chancellor rules out pre-election tax cuts’ because the UK’s ‘public finances [are] in disarray as surging interest rates push up cost of servicing UK debt pile.’

Sterling mixed at $1.2858 and €1.1563. Oil up at $80.94. UK 10yr gilt yield unchanged at 4.27%. World markets mixed on Friday. London set to open down around 11 points as at 6.30am.

RETAIL WITH NICK BUBB:

• Saturday’s Press and News (1): The front-page stories in Saturday’s papers were dominated by Thursday night’s by-election results, with a focus on how unhappiness with the ULEZ scheme enabled the Tories to hang on to Uxbridge and South Ruislip (despite their devastating defeats in two safe seats elsewhere). The Guardian headline was “Shattering defeats for Tories in ‘cry for change’” and the Weekend I ran with “Tories fear wipeout with 150 MPs now facing axe”, but the depressing headline in the Telegraph was “PM urged by Cabinet to abandon eco policy” and the FT took a similar line: “Tories urge Sunak to rein in green pledges after by-election”. The Times went with “Sunak aims to divide and rule after poll setback”, whilst the Daily Mail wailed “Go True Blue…Or Face Wipeout” and the Daily Express screamed “Rishi: All Isn’t Lost! Next Election ‘Not Done Deal’”. The FT was the only
paper to have a front-page photo about the by-elections (Keir Starmer with the youthful new Labour MP for Selby): the front pages of the Times, Daily Express and Daily Mail all carried a photo of Prince George to note his 10th birthday, whilst the Telegraph and the Guardian went with photos of the late singer Tony Bennett. And if you’re wondering what the wretched Boris Johnson wrote about in his sixth column for the Daily Mail…he had a go at the Nat West boss Alison Rose over the Coutts “scandal” about the equally wretched Nigel Farage’s bank account.

• Saturday’s Press and News (2): In terms of Retail news on Saturday, the Times was the only paper to give much coverage to the better-than-expected ONS Retail Sales figures for June (“Warmest June takes the heat off retailers”) and there was a surprising amount of focus in general on the modest “Strategic review update” from THG, confirming the full exit of THG OnDemand and ProBikeKit. Even the FT found the space to flag that “THG sells two lossmaking businesses as ecommerce group looks to streamline” and there were similar stories about THG in the Daily Mail and in the Times, whilst the Telegraph picked up on some more bizarre musings from the controversial THG boss Matt Moulding in a LinkedIn post, about the valuation of UK listed companies operating in multiple sectors: “”Amazon wouldn’t survive London market””.

• Saturday’s Press and News (3): The Daily Mail and the Times both flagged that the embattled Revolution Beauty is being investigated by the FCA for “market abuses” in the 2021-2022 period. The “Investment Extra” column in the Daily Mail was devoted to Ocado and, although the headline was “Failing to deliver”, the tone of the article was supportive, highlighting the big rally in the share price last week, after the interims. The main Business story in the Telegraph was that Waitrose has attacked the Government for shelving plans to make animal welfare labels mandatory, highlighting a column by Waitrose boss James Bailey headlined “Britain may be dragged into a race to the bottom on animal welfare”. There was also a snippet in the Telegraph to note that the John Lewis Partnership has announced it is to downsize its HQ, moving from Victoria to offices half the size in nearby Pimlico.

• Sunday’s Press and News (1): On Sunday, the front-page headlines were mostly about the political fallout from Thursday’s by-elections: the Sunday Times led with “Khan to rethink Ulez after call from Starmer”, whilst the Sunday Telegraph focused on Michael Gove’s warning against the “inflexible” application of environmental policies (“Gove: net zero can’t become a crusade”) and the Observer took a more neutral stance on the so-called Ulez back-lash (“Sunak and Starmer are warned: don’t dump your green pledges”). However, with its finger on the pulse of what’s really important in this country, the Mail on Sunday led with an “exclusive” story about a “vile film” in which it is claimed that Boris Johnson lied about having a near-death experience during the Covid pandemic…

• Sunday’s Press and News (2): On Sunday, in terms of Retail news, the main front-page story in the Business section of the Sunday Times was that “Asda and Morrisons pay zero business tax”, highlighting that the debt-fuelled private equity structure of the buyouts of Asda and Morrisons cut their corporation tax bill to zero last year from a combined average of £200m a year in the decade before they were bought out. There were no other Retail stories in the Sunday Times, but the “Quote of the week” in the Prufrock gossip column was from M&S boss Stuart Machin: “M&S is now left with no choice but to review our future position on Oxford Street – all on the whim of one man. It’s frankly pathetic”. The Sunday Telegraph highlighted that the Saudi Arabian sovereign wealth fund helped to bankroll the takeover of Selfridges last year and it also flagged that Ocado will be paid £200m after
winning the “robot wars” legal battle against Norwegian rival Autostore. And the Sunday Telegraph had an interview with the boss of Harvey Nichols, Manju Malhotra, in which she whined about the VAT that tourists have to pay in the UK (“Harvey Nichols boss calls for rethink on visitor tax raid”).

• Sunday’s Press and News (3): In terms of the Economics comment columns in the Sunday papers, we give our usual shout-out to the column by the Sunday Times Economics correspondent, David Smith (headlined “The window is closing on further interest rate hikes”), in which he noted that “The Bank would win no friends if it pushed the UK into recession”. We also enjoyed the columns by the by the veteran City commentator Jeremy Warner in the Sunday Telegraph (headlined “We are hurtling towards recession – how bad is in the lap of the gods”), by the veteran Economics commentator William Keegan in the Observer (headlined “Can’t Labour offer more than Brexit and fiscal flagellation?”) and by the Political correspondent Andrew Rawnsley in the Observer (headlined “Labour’s stumble in Uxbridge shows Starmer how to put the party on a firmer footing”).

• Today’s News: The announcement from the embattled Revolution Beauty that it is being investigated by the FCA for “market abuses” in the 2021-2022 period came out after hours on Friday, just before 5pm. The weekend press news that Ocado will be paid £200m (in 24 monthly instalments) after winning the long-running “robot wars” legal battle against its Norwegian rival Autostore has been confirmed by the company today, but the announcement was issued to journalists on Saturday. Interestingly, the brief statement says that “There is a cross-licence of certain patents between the parties whereby: Ocado and AutoStore have complete freedom to access and use technology covered by each other’s pre-2020 patents”, which implies that the two companies both used a bit of each other’s technology, if truth be told.

• Today’s Press: According to the invaluable Guardian morning email briefing, the wildfires in Rhodes take centre-stage in today’s papers and the Guardian itself leads its front-page with the main headline “Thousands forced to flee Rhodes fire ‘nightmare’”. The Telegraph has “Pressure on travel firms to fly Britons out of Rhodes”. The Sun carries a picture from the evacuation with “Run for your lives”, while the Daily Mirror hears from affected families under the headline “Our terror” and the i leads with calls for Rishi Sunak not to backflip on climate pledges with “Tories warned over fiddling with green policies…while Rhodes burns”. The Financial Times, however, looks at US politics with “DeSantis policies spur billionaires to rethink support for presidential bid”. Finally, the Daily Mail has an exclusive interview with Jeremy Hunt, with the headline “I’m blessed my cancer was caught
quickly…”.

• BDO High Street Sales Tracker: The weekly BDO High Street Sales Tracker for medium-sized Non-Food chains gets a lot of attention (even though it is statistically flawed, is focused on relatively upmarket retailers, is very skewed to Fashion and underplays “big ticket” household spending), because…it is the only weekly (as opposed to monthly) guide to what’s happening to retail spending. And the latest survey, for what it’s worth, shows that trading has continued to be erratic. In the w/e July 16th, Total BDO sales (including a few Homewares and Lifestyle retailers, as well as all the Fashion retailers) were up by 2.7% LFL on the year before (with Store sales up 2.7% LFL and Online sales down by 0.8% LFL), with Fashion sales alone down by 3.0% LFL (given the disappointing weather).

• News Flow This Week: Tomorrow brings the Games Workshop finals, the Wickes pre-close update and the latest Nielsen monthly grocery sales figures (for the 4/12 weeks to July 15th), as well as the B&M AGM. On Thursday we get the Hammerson interims and the Inchcape interims, as well as the Frasers finals, but the Amazon Q2 earnings in the US have been put back a week (to Aug 3rd).