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Fri 30th Oct 2020 - Update: Sector sales drop, Tasty, Shake Shack, Starbucks
UK hospitality sector sales fall by 48% in Third Quarter: The UK’s hospitality sector saw sales plummet by 48% in the third quarter of 2020, the latest Quarterly Tracker from UKHospitality and CGA reveals. It equates to a shortfall of £17bn on the same quarter in 2019. Hospitality’s sales for the 12 months to the end of September totalled £80.3bn, the Tracker shows – £53.2bn less than the £133.5bn that the sector contributed to the UK economy in 2019. The huge drop in sales comes despite an injection of trade from the government’s Eat Out to Help Out promotion in August. Since the scheme came to an end, tough local lock-downs and falling consumer confidence have cut into sales again, highlighting the need for extensive financial support while restrictions remain in place. The figures from UKHospitality and CGA come ahead of the publication of new figures from the Office for National Statistics showing the latest impacts of the covid-19 pandemic on the UK economy. Kate Nicholls, chief executive of UKHospitality, said: “This is clearly dreadful news and made all the more desperate when combined with the expectation that Christmas will be, for many businesses, very bleak. Regional lock-downs and additional restrictions are also beginning to bite businesses hard. This highlights the need for clarity on the roadmap for businesses in tier two and three regions. We need some idea of how businesses can plan to move out of the higher tiers, to give themselves a half chance of success. Otherwise, these awful figures are likely to be surpassed in Q4.” Phil Tate, group chief executive of CGA, said: “The Tracker makes plain the seismic impact of covid-19 and restrictions on hospitality. After sales were all but wiped out in the second quarter, a 48% fall in the third is not the recovery the sector was hoping for, in spite of the temporary boost from Eat Out to Help Out. Hospitality’s sales are inextricably tied to government restrictions on trading and socialising, and every new measure deals another blow to operators and the supply chain. Businesses have responded to the pandemic with resilience and innovation, but they need proper, sustained support over what is going to be an extremely challenging winter.” The UKHospitality Quarterly Tracker is compiled by CGA and based on its Trading Index and OPM data on food and drink sales across the on-trade. It is combined with hotel data supplied by STR, fast food market data supplied by NPD Group’s Crest Panel and direct company contributions, and is complemented with ONS statistics.

Tasty – we may be able to avoid a CVA: Wildwood operator Tasty has reported sales fells to £8.7m (2019 – £21.1m) in the six months to 28 June, significantly impacted by covid-19 related restrictions. It made an impairment charge of £7.6m (2019: £nil) and its loss after tax for the period was £11.0m (30 June 2019: loss of £0.8m). It is currently trading from 48 of 55 restaurants with one recently closed due to localised lock-down. Six sites that have not reopened are at risk of permanent closure. Chairman Keith Lussman stated: “Having steered the group to a debt free position following the sale of More London dim t for £2m in January; we were in the fortunate position to have no banking covenant pressure during the shutdown of the estate due to covid-19 restrictions implemented in March. Cash preservation became a key priority in order to maximise the chances of the group surviving the unprecedented impact caused by the pandemic. In light of the continued economic uncertainty and the impact of covid-19 related restrictions, the group announced in September that it had secured a £1.25m, four year term loan from the group’s existing bankers, Barclays Bank, in order to strengthen its balance sheet and provide additional working capital support. The facility is available to be drawn down until 7 February 2021. However, drawdown is restricted until the future of the group is assured through restaurant closures and creditor arrangements. Whilst the trading environment continues to be extremely challenging and ever-changing, with the additional bank facility and support from our creditors and landlords, we are hopeful that we will be able to navigate our way through these difficult times due to our agility and restructured operational base. Our focus on cash preservation and maintaining the wellbeing of our staff and customers, has provided us with the opportunity to find a new way of operating the business, which is covid-19 safe. There are opportunities to build on the stability in the group and the lower operating cost base which will allow us to take advantage of reduced competition. The group has been successful in achieving rent reductions and lease concessions on a number of sites but needs to extend negotiations to cover any period of reduced revenue. We have commenced consensual negotiations with landlords and other creditors in respect of the outstanding rents and anticipate that this process will be completed by the end of November. It is difficult to predict the outcome of those negotiations but on the whole there seems to be a willingness to assist. The board believes that given the recently announced additional covid-19 related regulations and the probability of tighter restrictions in the near future, all potential options for the group’s future should continue to be explored but, with creditor assistance, a more formal procedure such as a Company Voluntary Arrangement, may be avoided. The group will continue to review its existing estate to consider whether a number of restaurants should close permanently. As announced on 30 September, the board confirms that, whilst no decision has yet been made regarding a restructuring or potential Company Voluntary Arrangement, it is continuing to work with its advisers, KPMG, to assess the potential impact of covid-19 on the business and the various strategic options available to the group.” Adam Kaye stepped down from the board on 15 September to allow him to focus on his other commercial interests. He remains a substantial shareholder.

Study links Eat Out to Help Out to rise in new infections: The Eat Out to Help Out scheme caused a “significant” rise in new coronavirus infections, a new study suggests. According to the University of Warwick, the sharp increase in covid-19 infection clusters emerged a week after the scheme began. The government’s initiative was designed to boost the economy after the national lock-down, and allowed pubs and restaurants to offer heavily discounted meals on Mondays, Tuesdays and Wednesdays in August. Research from the university suggests that between 8% and 17% of newly detected infection clusters can be linked to the scheme. Areas where there was a high uptake of Eat Out to Help Out also saw a decline in new infections a week after the scheme drew to a close. Places that experienced high rainfall around lunch and dinner time ended up seeing lower infection rates than areas that enjoyed nicer weather.

Shake Shack reports like-for-like sales recovered to minus five in October: Shake Shack has reported like-for-like sales were down just 5% in October as it reported like-for-likes down 17% in its Third Quarter to 23 September. Chief executive Randy Garutti said: “Our business during this most recent quarter showed steady recovery, thanks to the hard work and dedication of our team, their agility in adapting new Shack protocols and models and an increasingly strong suite of digital capabilities. As a result, guests have been able to enjoy their Shack the way they want it, with a choice of convenient and safe ordering and pick-up options, as we continue to expand and elevate the Shake Shack experience. Since our last update at the end of July, forward momentum has continued and we’re encouraged to see significant improvement in both sales and profitability, with many Shacks returning to or exceeding last year’s results. Total year-over-year company-operated Shack sales declined 17% in the third quarter, compared to a decline of 39% during the second quarter, and further improved to a decline of just 5% in fiscal October. Same-Shack sales have also improved sequentially in every single one of the last six months, with the third quarter down 31.7% compared to the same period last year, versus down 49.0% in the second quarter, and improving to down 21% in fiscal October. Importantly, our improving top line performance, the normalization of beef costs, and disciplined expense management led to a significant recovery in Shack-level profitability with third quarter Shack-level operating profit margin improving to 14.8%, compared to 2.2% in the second quarter. As of the end of fiscal October, we are back to a full development schedule, having opened 33 Shacks so far in this challenging year, including 15 domestic company-operated Shacks, and expect to complete the year with 18 to 20 total new company-operated Shacks. Our pipeline for 2021 is strong, and we expect to open between 35 and 40 new company-operated Shacks, many of which will incorporate our new Shack Track and Drive Thru designs centred on the hospitality and experience Shake Shack has been known for, with an added focus on speed, convenience and the integration of our pre-ordering digital capabilities.”

Starbucks reports like-for-likes down 9% in Fourth Quarter, ‘faster than expected recovery’: Starbucks has reported global like-for-like sales were down 9% in its Fourth Quarter to 27 September. Chief executive Kevin Johnson said: “I am very pleased with our strong finish to fiscal 2020, underpinned by a faster-than-expected recovery in our two lead growth markets, the US and China. These results demonstrate the continued strength and relevance of our brand, the effectiveness of the actions we’ve taken to adapt to meaningful changes in consumer behavior and the extraordinary efforts of our green apron partners to serve our customers and communities in challenging circumstances. The guiding principles we established at the onset of the pandemic, combined with our industry-leading digital platform and our ability to innovate rapidly, continue to fuel our recovery and provide confidence in a robust operating outlook for fiscal 2021. Our strategies are working and I am optimistic that we will emerge from the covid-19 pandemic as a stronger and more resilient company.” Consolidated net revenues of $6.2 billion declined 8% from the prior year primarily due to lost sales related to the covid-19 outbreak. The company opened 480 net new stores in Q4, yielding 4% year-over-year unit growth, ending the period with 32,660 stores globally, of which 51% and 49% were company-operated and licensed, respectively.

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