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Managed pubs and restaurants see like-for-likes up 1.2% in September despite worst month for retail since 1995: Like-for-like sales at Britain’s managed pubs and restaurants grew 1.2% last month despite the retail sector reporting its worst September trading since 1995, according to the latest Coffer Peach Business Tracker. Wet-led pubs had the best of trading in September, with like-for-like sales ahead 1.9% year-on-year boosted by warm weather, while restaurants and pub restaurants saw like-for-likes up 0.4%. In contrast, figures from the British Retail Consortium (BRC) showed total retail sales down 1.3%, with year-on-year like-for-like trading falling 1.7%. Regionally, outside London traded better in September, showing year-on-year like-for-like growth of 1.3%, compared with 1.0% inside the M25. “If Brexit worries have put the public off shopping on the high street, they don’t appear to have stopped them going out to eat and drink,” said Karl Chessell, director of CGA, the business insight consultancy that produces the Coffer Peach Tracker in partnership with Coffer Group and RSM. “Just looking at retail as a barometer of the nation’s well-being you would be forgiven for thinking we were deeply depressed but the eating and drinking-out numbers paint a very different picture. It may be pubs and restaurants are providing welcome relief from the constant news of Brexit uncertainty. The warm weather at the end of the month certainly boosted wet-led pubs and bars, which together recorded a 2.6% like-for-like jump in sales, but it wasn’t just about the weather with restaurants and food-led pubs both seeing growth, if admittedly more modest.” Trevor Watson, executive director, valuations at Davis Coffer Lyons, said: “The figures show generally encouraging trends across the sector. The comparison with retail illustrates the extent to which consumers are opting for intangible experiences with their disposable leisure spend. This shows a move towards sustainable consumerism, where purchasers shun superfluous fashion goods in favour of experiences and are increasingly looking for sustainably sourced food and healthy-eating menus. We continue to see appetite for good-quality sites nationwide.” Total sales across the 58 companies in the Tracker, which include the effect of net new openings since this time last year, were ahead 4.3% compared with September 2018. Underlying like-for-like growth for the Tracker cohort, which represents large and small operators, was running at 1.8% for the 12 months to the end of September. This compares with average monthly sales growth in the retail sector of only 0.2% during the past year, an all-time low according to the BRC.

Industry News:

Restaurant Marketer & Innovator Awards open for entries: The Restaurant Marketer & Innovator Awards are open for entries. The awards, in their third year, recognise outstanding marketing and innovation in the sector. Finalists will be invited to an awards ceremony at Cafe de Paris in London on Wednesday 22 January, which will be the grand finale of the Restaurant Marketer & Innovator European Summit, which takes place over two days. Awards are open to any eating or drinking out brand or outlet in Europe. There are 13 categories – Integrated Campaign of the Year, Digital Campaign of the Year, Innovation of the Year, Launch Campaign of the Year, Best Use of Technology, Best New Website, Best Use of Video, Best New/Improved Visual Identity, Best Use of Social Media, Best Use of Research/Insight/Data, Marketer of the Year, Innovator of the Year and Future Marketing Leader of the Year. Propel managing director Paul Charity said: “We launched this event two years ago and now have 850 people from across Europe attend the various segments. The awards recognise the very best within the spheres of foodservice marketing and innovation.” Awards co-founder James Hacon added: “We are back after an incredible award programme in 2019 that attracted more than 120 entries. We created the awards to recognise the growing importance of marketing, innovation and strategy professions within the restaurant and foodservice sector. We saw a superb calibre of entries last year and have amazing momentum with our events throughout the year. We’re expecting an even more impressive list of entrants this year.” The closing date for entries is 11.59pm on Thursday, 31 October. For entry information and criteria, click here

Aperitifs add fresh fizz to cocktail market: Rising interest in aperitifs is driving cocktail sales to new heights. Cocktail sales by volume and value are up 8.8% and 9.9% respectively in the past 12 months, according to the latest CGA Mixed Drinks Report. While traditional cocktail mixes continue to deliver the bulk of sales, changing consumer tastes are creating opportunities around eating-out occasions. Aperitif sales have grown 12.5% by volume in the past year, while almost half (47%) of those drinking cocktails with food find the idea of an aperitif “very appealing” – up 7% in the past year alone. CGA said the resurgence of aperitifs and digestifs reflected the growing popularity of cocktails in the on-trade. Restaurants have seen their value of sales increase 13.8% in the past 12 months, well ahead of the industry-wide average. The report also uncovered consumers’ latest preferences on spritzes – a drink almost three-quarters (71%) of cocktail drinkers now say they would choose “at least occasionally” when they are out. Soda remains the most popular element of a spritz and is considered essential by more than two-fifths (43%) of drinkers, with prosecco (38%), white wine (36%) and lemonade (36%) close behind. However, there is significant diversification in the spritz sector too, with liqueurs, rosé wine and flavoured syrups among many other components cited by consumers. CGA said this reflected drinkers’ thirst for new flavours and styles in spritz drinks, especially at the lower-alcohol and healthier end of the category. While the research showed major brands dominate the aperitif market, new offers and innovations are helping the sector to rapidly evolve. Mixes featuring whisky, gin, vodka and limoncello have been among those emerging to compete for cocktail drinkers’ spend during the summer.

BBPA – post-Brexit immigration system will hurt pubs: The government’s proposed post-Brexit immigration system will have a detrimental impact on pubs, the British Beer & Pub Association (BBPA) has said. The UKinbound immigration report stated more than two-thirds (70%) of pubs are likely to experience a significant skills shortage if a £30,000 salary threshold is introduced for EU workers. A survey of BBPA members found 17% of the workforce employed by brewers and pubs are from overseas, rising to 40% in towns and cities and to 80% in roles such as kitchen staff. The BBPA has previously called for a review of the £30,000 threshold for migrant workers, stating the average chef’s salary is below that figure, while it wants to extend the Shortage Occupation List to include chef de partie and kitchen porter roles. The BBPA welcomed UKinbound’s proposal of quarterly independent reviews to ensure tourism sectors weren’t adversely affected by changes in immigration policy. BBPA policy director Andy Tighe said: “This research clearly shows why UK pubs are right to be concerned about the impact of a £30,000 salary threshold for EU workers. The pub sector is working hard to attract more UK nationals to work in our industry, which the tourism sector deal helps to achieve. However, it’s vital a post-Brexit migration system works for Britain’s pubs.”

US restaurants see like-for-likes slip into year-on-year decline despite small September boost: US restaurants saw like-for-like sales slip into a year-on-year decline despite a slight boost in September. For the first time in two years like-for-like sales fell into decline, down 0.4% during the third quarter of 2019. That was despite two consecutive months of declining like-for-like sales reversing in September, with growth of 0.1%, according to data company TDn2K’s Restaurant Industry Snapshot, which is based on weekly sales from more than 31,000 restaurants and 170 brands that represent almost $72bn in annual revenue. Another positive was the like-for-like growth in September, which although small lapped over a month with relatively strong sales last year. TDn2K said the like-for-like decline in the quarter was mainly the result of visits falling 3.5% on a like-for-like basis. While like-for-like visits fell 3% in September, it represented an average 0.8% improvement on the previous two months. TDn2k said it expected like-for-like sales growth to continue to be sluggish during the fourth quarter given the softening economic conditions and the fact the fourth quarter of 2018 was the strongest in terms of like-for-like sales, with 1.4% growth. It said slightly negative sales, as seen during the third quarter, were likely to occur again in the last quarter of 2019.

Company News:

PizzaExpress refutes report on site closure numbers: PizzaExpress has moved quickly to refute a report over the weekend it could be forced to close about 40% of its circa 470 sites in the UK. The Sunday Telegraph reported the Hony Capital-backed chain could be forced to close two-fifths of its restaurants, putting thousands of jobs at risk. One source told the newspaper bondholders were considering entering into a company voluntary arrangement, which would see more than 150 restaurants and about 3,300 jobs under threat. However, a PizzaExpress spokesman told Propel: “95% of our UK and Ireland restaurants are profitable and there are no plans for closures outside the normal course of business.” Earlier this month PizzaExpress hired adviser Houlihan Lokey ahead of debt talks with creditors. Separately, a group of secured bondholders started working with Perella Weinberg Partners after appointing law firm Latham & Watkins in July. The restaurant group has £465m of secured bonds due in August 2021 and £200m of unsecured notes due a year later, indicated at 84p and 23p in the pound respectively. Earlier this summer it was thought PizzaExpress and China-based Hony were reviewing its capital structure, with a restructuring of the business likely. Sector investor Luke Johnson took control of PizzaExpress with Hugh Osmond in early 1993, with Johnson becoming chairman. They expanded the business from 12 owned restaurants to more than 250, taking the share price from 40p to more than 900p before selling the business in 1999. Writing for The Sunday Times, Johnson stated: “The restaurants generated a highly attractive return on investment and patrons saw it as an affordable night out. Landlords loved our proposition and PizzaExpress became known for sympathetic conversions of period buildings, blazing a trail across high streets. However, over the decades the industry has seen lots of new competition. Meanwhile, rent, rates, wages, utilities and other costs have risen steadily. I’m sure PizzaExpress will remain in business but the lenders will need to take a haircut, I suspect the equity providers will be wiped out and perhaps some marginal outlets may shut over time. Possibly the formula needs to be reinvented. The hospitality trade in 2019 is exceedingly crowded and the golden age of casual dining is dead and buried. PizzaExpress will have to adapt its balance sheet and menu to the new rigours of the market.”

Hard Rock Cafe UK spend being driven more towards merchandise than F&B due to weak pound, paying £3.1m annual rent on new Piccadilly site: Hard Rock Cafe UK management has said the weakening pound is driving guests towards spending on merchandise at its outlets rather than food and drink. The company also revealed annual rent at its new Piccadilly Circus site is £3.1m and includes a rent-free period. The business has signed a 15-year lease on the site, which opened in July. The announcement comes as Hard Rock UK, which operates sites in Edinburgh, London, Manchester and Glasgow, reported turnover remained flat at £23.5m for the year ending 31 December 2018. Pre-tax profit was down to £2.2m, compared with £2.9m the previous year. Food and beverage sales were down to £13.5m compared with £13.9m the year before, while merchandise sales rose to £9.8m from £9.5m the previous year. Restaurant average spend increased to £26.78 from £26.08, while retail average spend rose to £34.63 from £34.18. Restaurant transactions fell to 516,434 from 526,814, while retail transactions increased to 291,302 from 279,416. Gross margin was 50.2% compared with 50.5% the year before. A dividend payment of £2m was distributed to its immediate parent, Hard Rock International (2017: zero). In their report accompanying the accounts, the directors stated: “The priority for Hard Rock Cafe in the UK is to continue investing in its core operations with few expansion opportunities being considered. Retail sales represent 43% of our revenue and about 75% of our retail items are cotton products. Recent studies have shown the carbon footprint left behind by the cotton industry is huge. Since most of our items are cotton, we need to propose possible mitigation measures to our supplier, such as switching to organic cotton, and review the various production processes. We continue to benefit from the weakening of the pound following the Brexit vote. Even though 2018 saw a drop in the number of international tourists in the UK (3% lower than the previous year), higher spending by European tourists contributed to the modest increase in retail average spend of 1.3%. In food and beverage, average spend was higher but the number of transactions was lower, suggesting the weakening pound is driving tourists to retail product. Management expects improved performance in both the retail and cafe in 2019 as a result of the fall in sterling as the UK leaves the EU, which helped to make the UK an even more attractive destination for visitors.” Meanwhile, the top floors of a Hard Rock hotel being built in New Orleans collapsed during the weekend leaving two people dead and one missing. The incident happened on Canal Street, a major road through the centre of New Orleans, on Saturday (12 October) at about 9am local time. Two construction workers have been confirmed dead, with another missing 18 others rushed to hospital. One bystander told the New Orleans Advocate he saw workers “hanging on”, with the crane “dangling there”. The 350-bedroom Hard Rock Casino hotel was due to open in spring 2020 and has been under construction for about a year.

McDonald’s European arm wires $2.7bn home: The European arm of McDonald’s wired a $2.7bn (£2.1bn) dividend to its American parent last year – the first such pay-out since Donald Trump was elected, the Sunday Times reports. His tax reforms have tried to get US multinationals to repatriate foreign earnings. McDonald’s has also ended a controversial arrangement critics said helped the company minimise its British tax bill. In previous years, McDonald’s Restaurants, its operating company in the UK, paid millions in “franchise rights fees” to an entity in Luxembourg that didn’t pay tax. This had the effect of reducing taxable profits in the UK. The EU found the arrangement wasn’t illegal. McDonald’s made pre-tax profits of £406.3m in the UK last year, compared with £341m in 2017, despite sales dipping £80m to £1.5bn. It paid £75m in corporation tax, up from £64.9m in 2017.

Hall & Woodhouse reports turnover boost: Dorset brewer and retailer Hall & Woodhouse has reported turnover increased 4.3% to £114,808,000 for the year ending 26 January 2019, compared with £110,110,000 the previous year. Pre-tax profit fell 35.2% to £6,020,000, compared with £9,286,000 the previous year. Exceptional items were down 130.7% to a loss of £1,009,000 in the year compared with a surplus of £3,281,000 the previous year, when the figures were boosted by the sale of its old brewery. In his statement accompanying the accounts, chairman Mark Woodhouse said: “The year has delivered a very strong performance from both our Managed House and Business Partnership estates. This is set against a backdrop of the continued legislative headwinds countered by the excellent summer weather that delivered top-line growth. Our off-trade business performed in line with our strategy – the Badger brand gained some successes in the top grocery accounts while Rio performed very strongly, aligned to our sugar tax strategy and the good summer weather. As with previous years and in line with our ongoing strategy, we continue to invest heavily behind our pubs, brands and teams. Borrowings increased slightly to £56.5m (2018: £51.5m). During the year we announced forthcoming changes to the senior management team we have been planning for a number of years, including Matthew Kearsey becoming managing director on 28 January 2019. Anthony Woodhouse will replace me as chairman when I step down at the AGM.” Hall & Woodhouse operates more than 200 pubs across the south of England.

KFC trials with UberEats in London: KFC has announced it is trialling delivery with UberEats from some of its London sites. The fast food chain said the trial would include some of its most popular London sites such as Camden High Street, Borough High Street and Victoria station. UberEats is offering free delivery on all KFC food until Tuesday, 12 November. Toussaint Wattinne, general manager of UberEats in the UK and Ireland, said: “We can’t wait to bring KFC’s dishes to fried chicken lovers across London and broaden our ever-expanding selection of partners. Now we’ve reached more than a billion orders on the platform we look forward to the Colonel’s help to reach the next billion and bring more locations on to the platform in the near future.” James Pidduck, digital operations lead at KFC UK & Ireland, added: “You’re welcome Londoners, It’s now going to be even easier to get your hands on your KFC favourites.”

Leon franchisee secures further funding for Irish expansion: Cibus Concepts, which holds the franchise rights for healthy fast-food chain Leon in Ireland, has raised €3.6m (£3.1m) from strategic investors including Tetrarch Capital’s Michael McElligott to fund national expansion. Cibus Concepts, which trades as Leon Ireland, is to raise a further €1m by the end of the year, The Sunday Times reports. According to the newspaper, other high net worth investors to back the company include Charlie Scanlan, owner and managing director of Jump Juice bar chain, and Michael Steel, managing director of Kiwi Education, which provides training in the UK including to the foodservice industry. According to Companies Office records, Robin and Michele Arkle, who built and sold a franchise of more than 60 Costa Coffee shops in the UK, are also backers. Cibus opened its first Leon in Dublin’s Temple Bar in May and will open another one at Dundrum Town Centre in March next year. The company hopes to announce two more high-profile Dublin locations shortly. Stuart Fitzgerald, Leon Ireland managing director and a shareholder, expects the chain to have five restaurants operating by May 2020, with the target to open 20 outlets in four years.

CMA starts scrutinising Stonegate’s £3bn Ei Group acquisition: The Competition and Markets Authority (CMA) has started looking into Stonegate Pub Company’s £3bn acquisition of Ei Group. The CMA is now inviting comments on the deal from any interested party by Friday, 25 October as it looks to determine whether the move would result in a “substantial lessening of competition”. The acquisition was expected to face scrutiny from the CMA and Stonegate has already agreed to dispose of up to 100 sites, which it believes will be enough to secure clearance. The deal sees Stonegate buying circa 4,000-strong Ei Group for 285p a share, a 38.5% premium to the closing price of 205.8p per share the day before the deal was announced in July. The acquisition values Ei Group’s entire issued and to be issued ordinary share capital at about £1.27bn. The terms of the acquisition imply an enterprise value of £2.97bn and a multiple of about 11.4 times Ei Group’s underlying Ebitda of £261m for the financial year ended 30 September 2018, adjusted for the disposal of 370 commercial properties. The deal is expected to complete in the first quarter of 2020. The new-look business would be led by Stonegate chief executive Simon Longbottom, with his Ei Group counterpart Simon Townsend and its entire board stepping down.

Inception Group hands ownership of new Soho bar to competition winner: Inception Group has handed over ownership of its latest venue – Cahoots: The Ticket Hall & Control Room – to a screenwriting student from Preston following a competition linked to the Soho site’s launch. Hattie Bee, 21, has swapped Lancashire for London to play a pivotal part in the opening of the 1940s station-themed venue. Bee, who is “obsessed” with the 1940s, was the winner of Inception Group’s Own The Bar competition, in which it teamed up with gin brand Tanqueray No TEN for a global “recruitment-style” campaign to find a “head scoundrel” to “own” the bar for its first week of trading. Perks include taking home the first week’s profits; a free launch party for 50 friends; choosing the venue’s signature Tanqueray No TEN cocktail, which will be free to the “owner” for life; and a permanent plaque in the venue. The Ticket Hall & Control Room is the second Cahoots site and Inception group’s 11th venue in total. The cocktail bar in Kingly Street spans two-storeys and features two distinct spaces.

Hackers ‘stealing Deliveroo customers’ details’: Hackers have been stealing Deliveroo customers’ details, according to a Mail On Sunday investigation, which found a menu of options on the “dark web”. Jason Hill, lead cyber security researcher at CyberInt, said email addresses, passwords and bank details were stolen through data breaches at other companies and traded on the dark web, which isn’t visible to search engines. Hackers then flood sites to test for vulnerable accounts, mainly those where customers have used the same passwords. Once in, they change telephone numbers and addresses to divert deliveries and then switch details back before quitting the account. Hill was able to find evidence that access to delivery firm accounts had been traded on the dark web. One, which appeared to be inactive, offered “all the food you want” from Deliveroo for £5.99. Another advertised Deliveroo “credit balances” between £10 and £99 for “30% of their value”. A Deliveroo spokesman said: “We regularly introduce measures to combat fraudsters and protect customer accounts. Unfortunately, cyber criminals rely on people reusing the same passwords on multiple online services and use data breaches elsewhere to try to gain access to other accounts online.”

Goodbody – many reasons to be cautious about Domino’s Pizza ahead of third-quarter update: Goodbody leisure analyst Rachel Fox has said there are many reasons to be cautious about Domino’s Pizza ahead of its third-quarter update on Thursday (17 October). Issuing a ‘Hold’ note on the shares, Fox said: “We now forecast third-quarter like-for-like sales growth of 3% (consensus circa 4%). We expect this like-for-like growth to be driven by price/ticket growth as franchisees use price to offset cost inflation. The primary issue across UK franchisees is the level of cost inflation in the system, which has put store margins under significant pressure. Management has said discussions with franchisees will go on into 2020 so we expect no meaningful update on this. However, to appease franchisees we think the group may need to absorb some of the cost inflation that would reduce the 40% margin taken on product sold to franchisees through its supply chain centre. Additionally, this franchisee issue is compounded by Papa John’s £2m investment last year to help its UK franchisees with rising costs. On a per-store basis, this amounts to circa £4,800 per store (415 stores). Applying the same economics to Domino’s UK stores would imply a cost of £5.5m. Following analysis of Domino’s stores on its website we believe just three stores were opened in the third quarter (first quarter: seven; second: zero). Given the dramatic slowdown in the new store opening run rate, we forecast only 15 new UK stores in 2019 (down from 20). For context we originally forecast 60 store openings for 2019 and, until there’s a resolution with franchisees, we believe downside risk remains to store roll-out targets across the forecast horizon. We struggle to get comfort on international forecasts, given it has consistently fallen short of guidance over the past 12 months. Given the declining number of Ebitda-positive stores and lack of management visibility on the quantum of loss the international business will make, we think it could prove a source of further downgrades. We see limited scope for positive catalysts and therefore the stock is likely to trade within the recent trading range (11 to 13 times EV/Ebitda). However, looking at Domino’s on a 12-month view, there are some positive catalysts that could occur (franchisee conflict resolution, international turnaround or disposal) that could drive a re-rating.”

Chinawhite to open third site, in Newcastle: London nightclub Chinawhite is to open its third site, in Newcastle. In its heyday, the original Soho club was frequented by celebrities such as Kate Moss and Prince Harry before moving to Fitzrovia, where it was later rebranded Libertine By Chinawhite. Its owners took the brand to Manchester in November 2018 after taking over the Milton Club in Deansgate. Now Chinawhite managing director James Spallone has revealed the company has secured a venue in Newcastle. He told The Business Desk: “It is a listed building that will require some renovation. We have done some basic plans. The idea is to start the build next July and be ready for October, but planning can be difficult.” The business is keen to recreate the Manchester model for Newcastle. In 2014 Chinawhite opened a franchise operation in Belfast, which closed in 2018. Spallone said: “Belfast was a franchise deal and I didn’t think it worked for them. What we learned from it was we knew what we wanted and decided it was better to do it ourselves. We wanted to be in control of the brand itself and the operations. That’s another element where Manchester has worked for us because we have been in control.” Of the Manchester site’s performance, Spallone added: “I’m happy where we are financially. We’re slightly ahead of projections. Manchester has 65% of London’s turnover but our pricing here is about 65% of London’s pricing, so we’re tracking London.”

Whistle Punks to open fourth site, in Bristol next month: Urban axe-throwing operator Whistle Punks, which is backed by Edition Capital, will open its fourth site, in Bristol next month. The company will launch the site at the former Panache nightclub in All Saints Street on Wednesday, 13 November. It will feature six axe-throwing lanes alongside alcoholic and non-alcoholic drinks. On the food side, it is working with Bristol-based pizza brand Pizzarova. Whistle Punks co-founder Jools Whitehorn told Insider Media: “We have taken axe throwing out of the woodland and turned it into a social activity. We can’t wait to open in Bristol.” Whitehorn and John Nimmons launched Whistle Punks in 2016 and it currently operates sites in Birmingham, Manchester and London. Earlier this year it secured £1.5m of new investment from Edition Capital that will enable the business to expand across the UK as the popularity of alternative sports and experiential leisure continues to rise.

Dodo Pub Co expands into Berkshire: Oxford-based operator Dodo Pub Company has opened its first site in Berkshire. The company, founded in 2009 by Leo Johnson and Chris Manners, has launched The Last Crumb in Caversham after taking over the Prince of Wales in Prospect Street, as revealed by Propel last month. Following a major refurbishment, the 180-cover venue features an open kitchen with wood-fired pizza oven, large outdoor seating areas and a bar with counter dining. The Last Crumb’s breakfast, brunch, lunch and evening menus feature signature Dodo plates such as buttermilk waffles, Neapolitan pizza, burgers and vegetarian bowls. The drinks list includes Dodo Lager, craft beer, ale, cocktails and homemade spirits. The company reopened The Somerset Arms in Marston Road, Oxford, as The Up In Arms in April, while Johnson has said the company is looking to open ten to 15 pubs in the Home Counties by rescuing “rundown and unloved pubs”. The company, which is chaired by Patrick Henchoz, who set up the Esporta rackets and gym chain, also operates The Rickety Press and The Rusty Bicycle in Oxford as well as The Bottle Of Sauce in Cheltenham.

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