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Fri 24th Apr 2020 - Propel Friday News Briefing

Story of the Day:

Douglas Jack – Loungers has enough liquidity to sustain site closures until next March, should emerge from crisis to ‘resume sector leadership’: Peel Hunt leisure analyst Douglas Jack has said cafe bar brand Loungers has enough liquidity in place to sustain its sites being closed until next March, and should emerge from the crisis to “resume its sector leadership”. Issuing a ‘Buy’ note on the shares with a target price of 200p, Jack said: “Loungers has raised £8.3m via an equity placing at a 16.1% premium. The company now has £57.5m of bank facilities versus £35.4m of net debt, as at 17 April. The company has reduced its monthly costs from £9.8m to £2.1m, before any reductions or deferral of rent, including £4.75m from the Coronavirus Job Retention Scheme and £0.4m from the business rates holiday. The cash burn run rate of £480,000 per week comprises £280,000 rent and service charge; and £200,000 insurance, maintenance, utilities and staff costs (including directors salary cuts). It excludes rent savings, even though, to date, two-thirds of landlords have agreed to waive or defer rent payments to 2021. Like-for-like sales rose 4.4% in the 47 weeks to 15 March 2020. Due to the enforced closure on 20 March, we now expect full-year like-for-like sales to be down 6%, causing our Ebitda forecast to drop by £6.5m. We assume the estate is closed for the first 11 weeks of the 2021 financial year (taking £10.5m off Ebitda), followed by 24 weeks with 70% of the estate (the largest sites) operating at 80% capacity. We estimate sites can stay Ebitda positive with 30% less capacity. We assume average sales pass 2019's level in 2022E. Like-for-like sales have averaged 5% over the past seven years. We cautiously forecast an Ebitda in 2022E that is in line with our previous pre-covid-19 forecast for Ebitda in 2020E, despite some expansion as the build teams start to ramp up. We estimate net debt should be £34m in 2021E and fall to £27m in 2022E, based on assumptions of no more expansion in 2020E, five sites in 2021E (of which four were on-site pre covid-19) and 15 sites in 2022E. In our view, with plentiful liquidity in place, Loungers should emerge from the covid-19 crisis in a position to resume its leadership (in relation to like-for-like sales, returns and growth) of the licensed retail sector.”

Industry News:

Mark Wingett to look at Chris Hill’s departure from NWTC and sector’s current pathfinders in latest Premium column: Propel insights editor Mark Wingett will look at the departure of Chris Hill from New World Trading Company and focus on the sector's current pathfinders in the latest Propel Premium column, which will be sent to subscribers on Friday (24 April) at 5pm. Meanwhile, Incipio Group co-founder Ed Davenport will talk about adapting to life under lock-down while Petra Barran, founder of street food business Kerb, explains how traders are coping in the current environment. There will also be the latest sector whispers from Premium Diary. Propel Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before our 6am send-out, discounts to attend Propel conferences and events, and regular columns from Mark Wingett. Subscribers also receive access to our database of multi-site companies, which has grown to 1,600 businesses. An annual premium subscription costs £395 plus VAT for operators and £495 plus VAT for suppliers. Email

Hospitality temporary lays off largest proportion of workers with eight in ten on furlough: Eight in ten workers in the hospitality sector have been furloughed as a result of the coronavirus crisis, a survey has shown. Research by the Office for National Statistics (ONS) showed the sector had temporarily laid off the largest proportion of workers after the UK lock-down began. On Monday (20 April), the Treasury officially launched the Coronavirus Job Retention Scheme, which reimburses companies for up to 80% of the wages for employees who are furloughed rather than made redundant, up to a maximum of £2,500 a month. By Thursday (23 April) 435,000 companies had applied for almost £3.8bn worth of support to pay the wages of 3.2 million workers. The ONS figures are based on a survey of 6,150 businesses, which found together they had furloughed more than a quarter of their workforce. With hotels and restaurants unable to operate as usual, it said 81% of businesses in accommodation and foodservices had closed temporarily or ceased trading. The figure was only higher in the art, entertainment and recreation industry, where 82% of firms are not operating. These businesses have furloughed 68% of workers, the ONS found. The figures, which cover the period from 23 March to 5 April, show businesses that had paused trading had furloughed 78% of staff, while those that were still trading had told 14% to stay at home.

Top 500 US restaurants set to see sales fall up to 17% this year, growth gap widens between largest players and mid-size companies: The top 500 restaurants in the US are set to see sales fall between 12% and 17% this year, according to initial forecasts by insights firm Technomic. It said while uncertainty remains about the effect coronavirus will have on performance, the top 500 companies “face their most challenging year on record”. Meanwhile, the Top 500 Chain Restaurant Report, which ranks each business by sales performance for the previous year, showed the growth gap between the largest players and mid-size companies continued to widen. Thanks to Chick-fil-A, which moved up to number three in the list, and Popeyes' new chicken sandwich, the chicken menu category saw sales growth of almost 10% in 2019. Full-service saw significant challenges, growing just 1.6%. Over the past five years, growth has averaged under 2%, while total restaurant count has decreased. Limited-service restaurants propelled 2019 sales growth for the top 500, with fast casual sales up more than 7% and quick service increasing by more than 4%. Kevin Schimpf, senior research manager at Technomic, said: “The 5.7% sales boost achieved by the top 20 chains significantly outpaced the 2.4% growth observed by chains ranked 21 through to 500.”

UKHospitality calls for ring-fenced support for Welsh hospitality businesses: UKHospitality has called on the Welsh government to ensure future business support is ring-fenced in a hospitality and tourism hardship fund. David Chapman, UKHospitality executive director for Wales, said: “We really appreciate the Welsh government support to date and this week’s addition of £100m to the Economic Resilience Fund in Wales. It will provide a much-needed lifeline for businesses seriously hit by this crisis. We hope, as we begin to look at renewal, the government goes even further and makes sure that sufficient cash is ring-fenced for hospitality. Our sector’s future is really precarious – we have been hit very hard by the crisis, probably more than any other industry in Wales, and it will take, in some cases, considerable time – maybe 12 months – for our businesses to even start to properly recover.”

Campari UK, joins forces with Drinks Trust and Tipjar to launch hospitality relief fund: Campari UK has created the Shaken Not Broken Fund to provide much-needed support to front line workers in the hospitality industry during and following the coronavirus crisis. The business has started the fund with a £100,000 donation and is now calling on the nation to get involved. The fund was created in collaboration with industry charity The Drinks Trust and Tipjar, the peer-to-peer tipping and tip-sharing concept. The Drinks Trust will administer the funds to those who need them, focusing on three key areas – financial assistance; education grants and well-being grants. People can support the initiative by visiting the Shaken Not Broken Fund page on Tipjar. Campari UK managing director Brad Madigan said: “The closure of the UK on-trade as a result of coronavirus is having a real impact on the livelihoods of many workers across the hospitality industry – and will continue to do so well into the immediate future. Now more than ever, our UK hospitality family needs all our support.”

Job of the day: COREcruitment is working with a well-known dining group that is going through a period of transition. To support this development, the business is looking for a dedicated operations manager to lead the London team. Ideally, the individual will have a mixture of branded restaurant and premium dining experience as well as good group operations knowledge and extensive experience improving service standards. Due to the current coronavirus crisis, the business is only in a shortlisting phase and will look to arrange interviews later in the year. Anyone interested can email with their CV or profile. 
COREcruitment is a Propel BeatTheVirus campaign member

Company News:

Pret in talks to raise ‘€100m urgent loan’: Pret A Manger, the JAB Holdings-owned business, is seeking a “€100m urgent loan from global banks”, reports the FT. The company is reportedly in discussions for the emergency loan as part of measures to make up for lost sales once stores reopen after the coronavirus crisis. Pret chief executive Pano Christou told the FT that Pret had enough cash to make it through the current lock-down but it needed funds for a “test and learn stage” to develop the operation once restrictions have been lifted. He said: “As a business coming out of this, we might look different, possibly smaller. I wish I could tell you in six months what size Pret will be. What I can tell you is Pret will still be there.” He also stated Pret had not attempted to access any government loan schemes. The FT said it was likely BNP Paribas, HSBC and Santander were in discussions with Pret, after the three banks helped to fund JAB Holdings’ £1.5bn-takeover of the business in 2018.

Wahaca working with advisors on financing options: Mexican restaurant brand Wahaca is working with advisers to review its financing options, including its ability to tap into funding schemes launched by the government in light of the coronavirus outbreak. The 25-strong company is working with PricewaterhouseCoopers to advise it on assessing what measures it could tap into, including the Coronavirus Business Interruption Loan Scheme. Sky News said the company, which employs about 1,000 people, would examine a number of financing options in the coming weeks, with other alternatives likely to involve seeking a new investor or another form of restructuring. Co-founder Mark Selby told Propel an outright sale of the business was not part of the conversation and the company had sufficient funding in place to see out the lock-down. He said: “We felt it was prudent to seek the best advice about how we navigate our way through the coming months and to see how we could use some of the funding options that are available to us. I don’t think there is a business out there at the moment who isn’t having similar conversations in terms of their finances.” Earlier this month, Selby told Propel: “We know we are going to come out of this but we don’t know when. Cash concerns are growing and landlords need to wake up to the fact they need to be looking at the long-term scenario to make sure they still have tenants. Operators are not going to be able to pay while there is no money coming through.” Last month, Byron appointed advisers as it looks to shore up its balance sheet. The company appointed KPMG to explore options to access emergency funding. This was thought to also include its ability to tap into the new funding schemes launched by the government to help cope with the coronavirus crisis.

Mouna puts plans to step down as Remarkable Pubs MD on hold: Elton Mouna has put plans to step down as managing director of east London-focused pub collection Remarkable Pubs on hold in light of the coronavirus crisis, Propel has learned. Mouna was due to leave his role at the end of the company’s financial year in June. He said: “To leave mid-crisis would show a lack of integrity to the Remarkable team I have worked so closely with for the past five years. Yes, I will be leaving to follow my passion of radio broadcasting, podcasting, writing and sharing my knowledge to a wider audience, but I have agreed to remain in position, beyond our year end of 30 June, and until Remarkable Pubs is back up and running.” Mouna joined Remarkable Pubs in 2015 from Fuller’s, where he held senior board level roles including head of marketing and head of PR and corporate communications.

BrewDog waives franchise fees for six months, offering free pint when bars reopen: Scottish brewer and retailer BrewDog has waived fees for its franchisees for six months, Propel has learned. The company is also offering support to franchisees with restocking their cellars with beer when it comes to the time of reopening. Meanwhile, BrewDog has committed to giving a free beer when bars reopen. People can sign up for their free pint of Punk IPA or Punk AF via BrewDog’s website that can be redeemed at any of its bars in the UK as well as in Germany, France, Spain and Ireland. Customers must be of legal drinking age in their country, and will be issued with a QR code that can be taken into a BrewDog bar in return for a beer. Co-founder James Watt said: “Like always, we believe in the power of our community and that good beer has always brought people together. Looking to the future, we want to make sure that when this is all over, whether you’re in Aberdeen or Berlin, you can celebrate with friends and family, over a beer. Until then, stay home. Stay safe, and look after each other, see you on the other side.”

Chilango reopens two sites: Mexican restaurant brand Chilango has reopened two of its sites, Propel has learned. The company has reopened its Islington and London Bridge outlets to offer delivery via Deliveroo and in the coming weeks pre-ordered collection. Propel understands Chilango will look to open further locations should demand present itself and the sites can operate safely. The restaurants have been reorganised and set up to ensure social distancing, extensive cleaning and strict hygiene guidelines are in place. Personal protective equipment and hand sanitiser is provided for staff and delivery drivers; while a contactless system has also been set up for drivers collecting orders from each location. Staff have also been given a travel budget, so they can avoid using public transport. Chilango is working with Deliveroo to help feed NHS and keyworkers in areas local to each location, by offering 150 free meals weekly from each site. Managing director Richard Franks said: “We – like many of our fellow operators – think it is important to reopen to support meals for key workers and allow us to learn from the new measures in place and continue to look for ways we can be ensuring our staff are safe at all times now and over the coming weeks.” Chilango closed its sites on 26 March, having initially offered delivery-only following the government ordering hospitality venues to close a week earlier. 

KFC reopens further sites for delivery: KFC has reopened further sites in the UK for delivery. The company reopened 11 sites earlier this month and has now added more to the list, including four in London – Enfield, Hammersmith, Mornington Crescent and Putney. Staff at KFC have returned on an opt-in basis, and only those who can travel without the use of public transport have been asked to work. The company has implemented a number of measures to observe social distancing including placing tape on the floor to create designated working zones two metres apart and operating with just one person per station and fewer team members. The restaurants are serving a limited menu to prevent the need for team members to cross stations and staff packing orders are wearing gloves. Similar procedures have been put in place for delivery drivers with contactless payment in place. KFC has also committed to providing 100 free meals from each open restaurant every Tuesday to those on the front line as well as continuing to deliver meals to NHS staff and key workers as part of the restaurant partnership with Deliveroo.

Moto boss – the focus is on what the ‘new normal’ will look like: Ken McMeikan, chief executive of motorway services operator Moto Hospitality, has told Propel the business was not working on a return to normal but on what a “new normal” would look like. Speaking as part of the “navigating the coronavirus” video series, McMeikan said: “We have been thinking around how consumer behaviour will change. That is forcing us to think through everything from pre-ordering to management of queues, because social distancing will remain in place for some time. We also believe consumer behaviour will want a degree of social distancing until there is some support from the medical profession around vaccines. Until we get there, people are still going to be nervous how we socially interact, so we have been thinking about how would that change the way you interact with a motorway service area? That is from the moment you get in a vehicle, to ordering your product, so when you get on to one of our sites it is more about a click-and-collect experience. When you are on-site and haven’t done a pre-order, we are also thinking about how you queue and whether you will wait in a separated, specially-dedicated area.” McMeikan said the business was also looking at the potential of its number of drive-thrus. He said: “We already have drive-thru Costa sites in some locations, but will be looking at whether we do more drive-thru options in the future because we believe people’s habits will change and there might be a higher demand for them.” He said more importance will be placed on a combination of technology – in terms of pre-ordering, social distancing, and ways of working within a brand. On the latter, he said: “For years we have been trying, operationally, to make things as efficient as possible, for example tills being moved closer together, but in the new world it will also be about keeping colleagues safe and putting distance between them, as well as your customers. So, there needs to be a huge rethink about new ways of working for a new normal.” McMeikan will share more of his thoughts in the video, which will be released on Friday (24 April). 

Domino’s Pizza reports global sales up 4.4% in first quarter: Domino’s Pizza has reported global sales increased 4.4% in its first quarter ending 22 March 2020. Like-for-like sales were up 1.6% in the US while the international division saw like-for-like sales grow 1.5%. The figures marked the 105th consecutive quarter of international like-for-like sales growth and the 36th consecutive quarter in the US. Total revenue in the quarter increased to $873m, compared with $835m the year before. The company added 69 stores during the period – 39 internationally and 30 in the US. Diluted earnings per share in the quarter was up 39.5% to $3.07. Chief executive Ritch Allison said: “We can't predict the full impact of coronavirus on the broader economy and we don't know how consumer behaviour and restaurant purchasing patterns may evolve coming out of this crisis. What I do know is our franchisees and teams will remain focused on safely serving our customers and our communities in this time of need. I have great confidence in our people and our ability to manage through this crisis, and I remain optimistic about the long-term potential of the Domino's brand.”

Heineken launches dedicated website to support pub licensees and on-trade partners: Heineken has launched a website dedicated to supporting its Star Pubs & Bars licensees and on-trade partners through the lock-down period. The Pub Collective provides licensees with advice, guidance and inspirational stories to support them through the period as well as how to hibernate their business and prepare for reopening. It also offers free learning resources and case studies from operators that are adapting their offer. Heineken UK on-trade sales director Stephen Watt said: “It’s a worrying time for everyone and we are doing all we can to support our on trade customers and Star Pubs & Bars licensees. This pop up website makes it easy for them to access all the information they need in one place.” Last week Star Pubs & Bars announced it would provide rent reductions to its pubs on an individual basis and has suspended rent collection until at least June.

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