Vinoteca, JDW, BVIC, Peloton, delivery, the consumer, costs, WFH etc.:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

With the sun sinking in the sky for the last eight weeks now, it’s cool in the mornings and warm in the afternoons.

And, whilst that is what it is, it means that all of my pullovers are gradually moving from my place of abode to the office because, whilst they may be needed at stupid o-clock in the morning, I would no sooner wear a pullover in the evening than roast myself slowly over an open fire.

Which seems sensible but, at some point, there’s going to have to be an ‘empty leg’.

That is a journey in one direction with nothing in tow and one in the other carrying a massive bag of assorted clothing such that, come the spring, we can the whole process over again.

Anyway, getting a bit ahead of myself there.

We’re in the New Forest for the upcoming last (and shortest) week of the summer holidays but we’re still kicking it in London at the moment. Hence, on to the news:

THE CONSUMER:

Housing costs:

The Telegraph reports that Halifax figures show homeowners in London and the South East were spending 49% of their income on servicing their mortgages, up from 42% a year ago….

• To many people this is both a) shocking and b) worse than it was. The average home in the Greater London area cost 9.3 times average regional earnings in the three months to June, making it the least affordable part of the country.

• The Halifax yesterday reported that, high though they are, salary multiples for the average house were coming down but, because of higher interest rates, affordability had still deteriorated further.

Energy costs:

Whilst the energy cap is set to fall, the Resolution Foundation says that bills will rise higher than last year for millions this winter. It says customers will have to pay for energy suppliers that have failed over the last two years and believes that around 7.2 million homes – will see higher energy bills this winter than last….

• Langton: Many households will be receiving emails or letters from their suppliers saying their bills will rise. Interesting to note that the Resolution Foundation says properties that use less than 79% of the typical gas and electricity consumption will be billed more.

• It says the extra costs will often be “significant” as roughly one in eight homes, equivalent to 2.7 million households, will have winter energy bills increased by £100 or more, again rising to almost a quarter (24%) of the poorest tenth of families.

• Elsewhere, the BBC reports that Citizens Advice has said thousands more people will start the winter behind on their energy bills with some borrowing to pay them, The BBC reports Citizens Advice as saying that a total of 46,431 people with energy debts contacted the charity for advice in the first six months of 2023, a 17% increase on the same period last year.

PUBS & RESTAURANTS:

Delivery:

CGA’s delivery tracker reports that ‘Britain’s top managed restaurant groups achieved year-on-year growth in delivery and takeaway sales of 4% in July.’ CGA says this is ‘a second successive month of growth, following an extended post-COVID fall in sales that saw the Tracker record 18 negative months in a row, as consumers returned to eating out rather than ordering deliveries and takeaways…’

• The nominal growth will be welcome but it is below inflation and will be well below the rate of inflation (largely driven by wages) faced by delivery operators. The latter are faced, therefore, with the question as to whether to demand higher fees from restaurants or see their margins decline.

Higher food cost risk:

Businesses are demanding clarity from the government about its plans for new Brexit border checks, with ministers refusing to confirm or deny reports earlier this month that the new system will be delayed again….

• Substantial extra red tape, delays and cost are likely to be introduced upon implementation. The checks have been delayed a number of times due to fears they could lead to price rises, drive inflation and worsen the cost of living crisis.

• Shadow international trade minister Gareth Thomas says ‘the government’s handling of this important issue has been absolutely shambolic. They have delayed new border checks time and again, creating huge uncertainty for businesses, who are already struggling as a result of Conservative economic mismanagement.’

• He says ‘with the deadlines for new checks just months away, it is unacceptable that businesses have not received a clear update from the government on whether the new border arrangements are even going to be introduced. The Tories’ trade barriers are stunting economic growth.’

• William Bain, head of trade policy at the British Chambers of Commerce, comments ‘business would have hoped to see the final version of the Border Target Operating Model by now. That would have been well in advance of any proposed introduction of export health certificates for inbound products to GB at the end of October.’ He says that ‘we have no clarity on the detail of Government plans. But neither is there denial of a potential delay into 2024 on cost of living grounds.’

• Ex-minister Jacob Rees Mogg, now out of government, had reassured in the past that Brexit would lead to lower prices for food, clothing and other essentials.

Working from home:

Some employers have been left with spare space. Rooms are being prepared to be let at Edinburgh city council’s headquarters at Waverley Court after the local authority found that more than 80% of desks are empty due to staff working from home….

• As mentioned earlier, this is important for hospitality operators with sites in office-heavy districts as footfall is likely to fall and spend could do likewise. Operators, who may have a decade or more to run on 15 or 25-year leases, are not able to cut and run. Although they are currently only disadvantaged at lease renewal (or when a tenant goes bust) landlords, at some point, may have to share in the discomfort.

Other news:

The Drinks Industry Group of Ireland has reported that over 150 pubs in the country have shut down every year since 2019. It says that some 2,000 in total have shut down since 2005, representing some 22.5% of the total. Some 450 have gone out of business since the outbreak of the Covid pandemic…

• The DIGI says that the pandemic, high excise duties and rising energy prices are responsible for recent closures. Demographic and social change must have a role to play, too.

• There are suggestions that the closures could negatively impact tourism. The CIGI says ‘the pub is the number one reason why people come to Ireland, while listening to music in the Irish pub is the number one reason tourists would return.’

• The biggest impact is reported to have been in rural Ireland. Some 3.4 per cent of pubs in Dublin closed between 2005 and 2022, but County Limerick lost just under a third. The DIGI says the sector is ‘fighting against continued decline due to a number of significant external pressures – many of which are outside of our control.’

COMPANY NEWS:

The Evening Standard reports that Breal Capital has acquired Vinoteca out of administration, saving 150 jobs….

• The upmarket wine bar chain said that train strikes and high energy costs put the operation on the brink of collapse. Administrator Ryan Grant says ‘after exploring a number of options, we’re pleased to have concluded this transaction which will see the continued operation of the company’s venues.’

Wetherspoon is set to open a new site at Heathrow Airport called The Star Light on 2 October. The pub will have seating for approximately 140 customers and will create up to 60 full and part-time jobs. CEO John Hutson says ‘we have operated units at Heathrow Airport since 1991 and are proud of our association with one of the world’s largest airports.’

Coffee#1 reports Q4 sales up 117% compared to 2019 levels, opening two new stores in Cheltenham and Portishead during the quarter, bringing the chain to an estate size of 113. Coffee#1 has also continued its expansion into the delivery segment of the coffee market, launching a partnership with UberEats, to add to its existing presence through Just Eat….

• CEO Bruce Newman says ‘the excellence of the quarter four like for like sales is testament to the quality of execution by our now over 1,000 strong employee team.’ He adds ‘while the business is still facing strong inflationary pressure, we are confident that the brand is well placed to take advantage of movement in working patterns and our good value offer for those wanting to enjoy eating out.’ The CEO says ‘we will continue to expand our estate at the current pace.’

Britvic is investing £22.5m in its East London factory in Beckton to create a sixth bottling line, creating 18 new jobs. The expansion is expected to increase production capacity at the site by nearly 30%. This follows the company’s recent £8m investment to improve energy efficiency at the factory.

The Advertising Standards Authority has upheld a complaint against a Camden Town Brewery TV advert which found that the advert was appealing to under 18’s through its use of cartoon characters and ‘playful tone’….

• AB InBev, which has owned the London-based brewery since 2015, stated it had ‘reviewed’ the TV ad and claimed the cartoon characters were similar to those used in other adult-aimed animations and featured a ‘dark, earthy and dull’ colour that was more appealing to an older audience.

The MCA reports that Pret a Manger franchisee and fish & chop shop operator Chesterford Group saw revenue up 13.7% to £27.3m in 2022, with EBITDA falling to £1.2m from £2.8m due to ‘extraordinary’ external pressures…

• The company made a loss of £868k in the period, compared to a profit of £1m the year prior. Directors said the company was ‘well placed to weather any storm, with its strong liquidity and focused, determined management team’.

Whitby Distillery’s £1.8m project to renovate two derelict barns on Whitby Abbey Lands on the south-west corner of the Abbey grounds is scheduled to be completed by the end of next year. The award-winning North Yorkshire gin distillery currently has its products stocked in more than 500 outlets across the UK.

Majestic has reported a sharp rise in organic wine sales and says the trend is set to continue. It says consumers will engage with “planet-friendly purchases.”

German Doner Kebab is to open a new restaurant in Fareham.

Greene King is to reopen The Ainsty in York as a Hive Pub after a £500,000 refurbishment.

Wilko. The BBC reports ‘the administrators of Wilko said jobs are set to go and stores will close after it failed to find a buyer for the whole business.’

HOTELS & LEISURE TRAVEL:

The Global Business Travel Association is forecasting an ‘accelerated rebound’ in corporate travel this week despite business travel volumes remaining significantly below 2019 levels more than 16 months after the end of pandemic restrictions in Europe. Visa forecasts show global business travel spending will surpass the pre-pandemic level of $1.4 trillion in 2024 and hit $1.8 trillion by 2027.

Sky reports that Loveholidays, one of the UK’s largest online travel agents (OTAs), is ‘on a journey towards a valuation of close to £1bn as its owners plot a sale that could kick off in the first half of 2024’…

• Sky reports ‘City sources’ as saying ‘that plans for a refinancing were now evolving into a sale, with one insider saying it was likely as soon as the second quarter of the year.’ It reports that Evercore, the investment bank, is working with Livingbridge.

Travel Weekly reports that Jet2.com and Jet2CityBreaks ‘has put its “biggest ever” city breaks programme on sale for winter 2024-25, in response to “strong demand”’…

• Langton. These are trips to be taken quite a way in the future. That being the case, it would be interesting to know what kind of deposits were being demanded. There is a risk that small deposits plus recession could => cancellations.

• Travel Weekly says ‘there are more than 600,000 seats on sale, representing a capacity increase of 10% compared to winter 2023-24, with additional services to Athens from Birmingham airport, to Barcelona from Leeds Bradford, and to Rome from Stansted.’

• We would suggest that this could be aspirational rather than a firm indicator of the potential outturn. That said, holidays will always shift. The question is, at what price?

OTHER LEISURE:

Exercise bike company Peloton Interactive yesterday reported Q4 (to June) numbers and saw its shares fall by over 20%…

• Peloton, which benefited from lockdowns but which has since struggled, reports that it will burn cash in the next two quarters due to costs related to bike recall and other expenses. Its numbers ‘failed to lift the gloom around the company’, reports Reuters. It says the company has been ‘struggling with waning demand for its fitness equipment as consumers return to gyms and spend more on travel and experiences.’

• Peloton CEO Barry McCarthy says ‘the cost of this recall substantially exceeded our initial expectations, leading to an additional accrual of $40 million (in Q4) for actual costs incurred as well as anticipated future recall-related expenses.’ The company will increase ad spend ahead of Christmas.

• Peloton’s fourth-quarter revenue fell 5% to $642.1 million from a year earlier. This was a shade ahead of expectations. But the company reported a loss per share of 68 cents, compared with expectations of 38 cents.

• The early summer quarter is historically quiet for the company but the CEO says ‘the slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted toward travel and experiences.’ Mr McCarthy says things have picked up a little, however, adding ‘then eight weeks ago the trend reversed itself, and we began to see a reacceleration in hardware sales.’

• Langton: Peloton’s performance – the hype and heavy spending on the way up (during lockdowns) and the disappointing deflation of the resultant bubble that has occurred since the return to ‘normality’ – is redolent of the situation faced by a number of other lockdown beneficiaries.

• With hindsight, this is (and will look even more) obvious but, as innumerable financial commentators have said in the past, it is hard to spot a bubble when you are in it. Nonetheless, beneficiaries of unexpected windfalls can either double down or reshape themselves and Peloton, for better or worse, seems to be taking the former course of action.

A survey by the Independent Society of Musicians (ISM) has found that Brexit has caused almost half of UK musicians and workers in the music industry to have less work in the EU….

• In its report, the ISM claims Brexit-related restrictions have impaired the viability of making a living as a musician. Mezzo soprano Jennifer Johnston said Brexit was ‘quietly killing our world-class music sector’.

FINANCE & MARKETS:

Flash PMI numbers for August from S&P yesterday led observers to conclude that the risk of recession in Q3 and Q4 this year was heightened. S&P reports the composite PMI at 47.9 (Jul: 50.8, a 31-month low.) and says that the flash UK Services PMI Business Activity Index was 48.7 (Jul: 51.5 a 7-month low). Manufacturing fell to 42.5 from 45.3, a 39-month low…

• Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said ‘the early PMI survey for August suggests that inflation should moderate further in the months ahead, but also indicates that the fight against inflation is carrying a heavy cost in terms of heightened recession risks.’

• He says ‘a renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival.’ He adds ‘the survey is indicative of GDP declining by 0.2% over the third quarter so far.’

• Langton. Inflation likely down but so too GDP. Interest rates may rise from their current levels but the peak could be close. Avoiding stagflation should be possible but painful.

The Bank of England has warned that high interest rates are putting indebted businesses under the most pressure since 2009. Tory back-benchers, presumably those who backed Liz Truss’s vision of the future, are calling to tax cuts.

Sterling weaker on recession fears at $1.2719 and €1.1699. Oil lower at $83.19. UK 10yr gilt yield down 19bps at 4.48% on concerns that recession could at least dissuade the Bank of England from putting rates up much higher. Markets better yesterday & London set to open around 37 points higher as at 6.30am.

RETAIL WITH NICK BUBB:

Today’s News: The administrator of Wilko has been unable to cobble together a deal and it appears that most of the stores will soon close permanently…There is no quoted retail company news today, but yesterday Frasers announced that it had edged up its stake in Asos from c16.9% to c18.0%, via more derivative positions. Over in the US, the Footlocker Q2 earnings resulted in the JD Sports  share price getting another bashing (for the second day in a row), after the company slashed its full-year outlook for the second straight quarter and suspended its quarterly dividend as a “still-tough consumer backdrop” weighed on the footwear retailer. “We did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers while still leaning into the strategic investments,” Foot Locker CEO Mary Dillon said.

Today’s Press: According to the invaluable Guardian morning email briefing, “Wagner chief Prigozhin reported dead after jet crash near Moscow” is the top story in the Guardian print edition. The Financial Times has “Wagner boss Prigozhin was aboard crashed plane, say Russian officials”, while the i says “Putin critic killed 60 days after mutiny”. “Putin’s revenge” says the Sun, while also calling it a “riddle”. The Daily Mirror also uses “Putin’s revenge” while the Daily Mail poses the question: “Was this Putin’s terrible revenge?”. “Prigozhin killed in plane crash, says Russia, as allies blame Putin” – that’s the Daily Telegraph while the Times goes with “Wagner boss who crossed Putin ‘killed’ in jet crash”. “No Surprise” – that’s more or less what Joe Biden said and so does the Daily Express, adding “Warlord enemy of Putin ‘dies’ in crash”. Prigozhin gets a little mention on the front
of the Metro – the story’s inside – while its lead is “India over the moon” after the landing of its spacecraft.

This Week’s News: The widely followed monthly GFK Consumer Confidence index is out first thing tomorrow (July saw a big drop, from -24 to -30).