Peter Backman Weekly Briefing Report - Week ending 27th September 2020
So, the much feared second wave of covid is hitting us. It has arrived just as the restaurant sector was achieving some stability after a boost in August from summer and EOtHO. And for the last few weeks it has been operating at something above 60% of pre-covid levels. And now we have a lockdown – less stringent than before but it comes at a critical time. The government’s furlough scheme is ending (albeit to be replaced but by one that provides less financial support) and the rising toll of redundancies looks set to grow even larger. Another quarter’s rent becomes due. And there is Brexit, no longer just over the horizon. The government is stressing the potential impact on the supply chain bringing with it disruption and higher costs for operators and their suppliers. Restaurants and pubs are rightly massively concerned about the impact of curfew restrictions. But, it is far too early to say what their precise impact will be. Will customers decide to eat at home rather than face a 10pm cut off for their restaurant meal or pub drink? Will they go out but spend less because they’ll have less time to finish their meal? Will they pivot even more to delivery and takeaway? What happens to restaurants that rely on two sittings at busy times for profitability – will they lose their second sitting? Even though pub chains claim that less than 6% of their sales come after 10pm, it doesn’t necessarily equate to a 6% sales hit. The earlier finish time means some customers might decide it’s not worth going to the pub at all, which could equate to a much larger hit.
Alongside these questions, a few days ago, I decided to find out what happens in the USA - maybe where the US consumer leads, others will follow? So, I carried out a small scale poll in the US about the times when consumers sit down for a restaurant meal. The practice is generally to start eating out at about 7pm (later in New York and other cities on either coast, earlier in rural areas) and there are also age and other demographic issues which influence start times. That being said, most restaurants are closed by 10 or perhaps 10:30 except those that are heavily dependent on bar sales. Will the UK consumer eventually follow these timings? Will we become even more like the US?
It seems to me that a key issue for now – and potentially well into the future – is how consumer behaviours will be changed by our communal need to cope with covid?
The numbers
Forty years ago, according to my records, meals served in hospitals, care homes, schools and universities accounted for 35% of all meals served out of home. Despite years of growing government investment in health care and growing school rolls, this percentage had fallen to 26% last year (the balance of course being taken up by restaurants, pubs, hotels, workplace etc). This month, my figures suggest healthcare and education will account for 43% of all meals – a third more important than forty years ago and two thirds more than last year.
The lesson is that these two unfashionable sectors, have always been important in terms of sheer volume and now that importance is underlined by the overall role they are playing in the foodservice sector. Not only that, but they are also significant market influencers by virtue of the fact that they are frequently at the forefront of tackling issues such as obesity, healthy eating and sustainability. That they are not seen in this light by foodservice operators generally, is probably due to their limited funds and the few resources they have available for pushing these agendas.
Nevertheless, the numbers involved are large. There are some 170,000 or so hospital beds in the UK, to which three meals a day need to be served. Care homes also serve large numbers of patients and staff. The NHS employs 1.5 million people (only 400,000 fewer than McDonalds’ global employee count) – and although not all of these people work in hospitals or care homes, most require at least one meal a day while at work. As for education, there are over 7 million pupils at school in England and 8.5 million in the whole UK. In England alone, almost 6.9 million pupils are attending school this month – a six-fold increase over the numbers at the end of last term. And then there are their teachers, and admin staff, to be fed too. The only part of the education sector where meals are currently not working at almost full capacity is further education.
So today, healthcare and education – two unremarkable, and often unremarked - sectors are leading the way when it comes to serving food away from home. In doing so, they provide welcome sales opportunities for suppliers – and while average values may not be as exciting as in some other sectors, volumes are large. Other benefits include the much reduced risk of corporate failure and therefore unpaid bills.
Overall, while other sectors are suffering, the significant importance of healthcare and education in the supply of food away from home is likely to last over the medium term - and maybe longer.
Meanwhile here are the latest numbers from the Huq Index and OpenTable. Please let me know about others that you feel I should also include here:
Financial & Legal
- ONS reported that 62% of commuters are back versus 36% in late May
- Figures from Morgan Stanley say that 63% of white collar workers still not at work at the end of August
- The government instituted a 10pm curfew for restaurants and pubs – takeaways and delivery still permitted
- Government rules mean sports venues will not see spectators from 1 October as previously planned
- Government rules require workers to work from home if they can
- Government warned of lorry delays after end of Brexit transition period
- The Chancellor announced continuation of reduced 5% VAT rate for hospitality for another twelve weeks until the end of March 2021
- The Chancellor announced the Job Support Scheme to replace the furlough scheme – paying up to a third of lost pay incurred by workers working at least a third of their normal hours
- The Chancellor announced extension of repayment period for accrued VAT to next summer
- The Chancellor announced repayment of Bounce Back Loans to be extended to 10 years, from 6 formerly
Retail
- Tesco introduced a limit of 3 items per customer on some lines including flour, dried pasta, and toilet rolls
- Morrisons introduced a limit of 3 items per customer on some lines including toilet rolls
Foodservice
- About 900,000 of hospitality employees are still on furlough
- UKHospitality claims that government figures show just 5% of infections out of the home are related to hospitality
- New West End Company reported footfall up 4% on 19 September versus the prior week
- New West End Company reported footfall down 57% on Monday, 21 September versus last year
- Shaftesbury collected 41% of rents due on the July and September quarter days
- Thai Leisure Group secured approval for CVA
- The Vurger Co launched home cooked meal kits
- Gusto secured approval for its CVA • Government will not require table service at outlets without an alcohol licence
- Honest Burgers expanded the Honest at Home meal kit range
- Pret launched its new coffee subscription scheme – 16,500 people joined by 3pm on the first day
- Chilango was acquired out of administration by RD Capital Partners
- JD Wetherspoon sales fell 22.5% on the first Saturday in September following ending of EOtHO
- Loungers sales rose +30% between 4 July and the 13 September
- Fullers sales in early September in units that were open were 80% of last year’s figures
- Mitchells & Butlers LfL sales fell 6.4% in first 3 weeks of September
- Mitchells & Butlers has reopened over 95% of its estate’
- Mitchells & Butlers saw LfL grow 1.4% during August, on the back of EOtHO, versus a fall of -32.4% in July
- Revolution Bars Group appoints advisers to explore options including a potential CVA
- Ten Entertainment Group sales are 83% of pre-lockdown levels
- Pork reserves in China, the main global source, fell due to swine fever to 100,000 tonnes in early September versus 550,000 tonnes a year ago
- SSP reported global turnover for the lasts I months was 24% year on year
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