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Morning Briefing for pub, restaurant and food wervice operators

Mon 1st Feb 2021 - Propel Monday News Briefing

Story of the Day:

Findlay – not hearing anything about further support until March is ‘completely unacceptable’: Marston’s chief executive Ralph Findlay has said not hearing about further support for the sector until the budget at the start of March is “completely unacceptable”. Talking on Propel’s Lessons & Learning for Lockdown Three video, Findlay also called on the government to talk to the sector about what its reopening plan looks like “because we can help”. Findlay said: “We are getting the feeling we may not hear anything until the Budget. Well I am sorry but that is just not good enough and it is way too late. If you’re a business trying to plan your finances, how do you work with that? You can’t wait until March to reach agreement with the people who might keep you going and I think that is completely unacceptable. I participate in a weekly call with one of the business ministers and one of the things we keep coming back to is can you please talk to us when you are talking about what that reopening plan looks like because we can help. We know how this business works, we know how our customers behave and we can make a positive difference to this.” Findlay said the sector has to remind people, SAGE and the government it “put a lot of effort, a lot of capital and a lot of thinking into making our venues safe and the evidence is that it worked”. He added: “What happened was there was a protracted period where infection rates did not increase, through July, August and most of September and they only started to increase when higher education went back. And after lockdown has happened infections continued to grow and it’s not because of hospitality. So, if there is a debate about pushing hospitality behind retail and opening us later, we have to confront that. We all want to avoid another lockdown, we don’t want to see infections surge, but the data suggested we were a safe place to be. The optimist in me says we could open in April maybe, but the more realistically I think it could be May, I hope it isn’t after that, because I fear many, many businesses won’t make it that far.”

Industry News: 

Mark Wingett – offer for Marston’s ‘has fired the starting gun on what could be an unprecedented period of M&A activity in the sector’, expect further bids: Propel insights editor Mark Wingett has argued US private equity firm Platinum Equity Advisors’ unsolicited offer for Marston’s “has fired the starting gun on what could be an unprecedented period of M&A activity in the sector” – and expects further bids to materialise. Writing in the latest Premium Opinion, Wingett said: “Since long-term rival Greene King agreed to a £4.6bn takeover by Hong Kong-based conglomerate CK Asset Holdings in the summer of 2019, it has been a case of when, not if, Marston’s would follow suit. The pandemic that delayed any deal, has now, in some respects, acted as a catalyst for the unsolicited approach for the Ralph Findlay-led pub operator that came out into the open on Friday (29 January) from Platinum Equity Advisors. I expect its move will flush out rival private equity firms. It is thought Platinum has been working on its bid for a while, believing Marston’s, with the majority of its circa 1,400 sites located in suburban areas, predominantly freehold estate and lack of exposure to London seen as key attractions. It may also have timed its bid perfectly in terms of taking advantage of when the pub sector can begin to start trading fully. The next few weeks and months should see more runners and riders appear.” Meanwhile, Goodbody leisure analyst Paul Ruddy has argued interest in Marston’s will see valuations increase in other listed pub and restaurant companies. Ruddy said the move would make a positive read-through to Mitchells & Butlers valuation in particular, which should help with its upcoming equity raise. Ruddy added: “On our FY22 forecasts (September year ending), Marston’s trades on circa 9.25 times FY22 EV/Ebitda (adjusted for Brains and pre IFRS 16) at 85p. Greene King was taken private at 9.5 times historic EV/Ebitda, and Stonegate bought Ei Group for 11.4 times historic. Applying these multiples to Marston's FY22 Ebitda (pre-IFRS 16) would give an equity value of 93p to 145p per share.”

Consumer confidence edges down but pent-up demand to spend could aid recovery: Consumer confidence edged down slightly in the final quarter of 2020 but pent-up demand to spend could aid a recovery, according to the latest Deloitte Consumer Tracker. It registered a fall in confidence of a further percentage point, to minus 17%, as the UK headed into the new year under fresh lockdown restrictions. With the exception of personal finances, all other measures of confidence were below year-on-year comparisons, with “health and well-being”, and “children’s education and welfare” categories reaching historic lows, at minus 34% and minus 17% respectively. November’s lockdown and tighter restrictions over the Christmas period negatively impacted on spending across almost every leisure category in the final quarter of 2020. With social distancing and tier restrictions in place, restaurants, pubs and cafes were hardest hit with year-on-year spend on eating and drinking out declining by minus 51 and minus 40 percentage points, respectively. However, the extension of some major government and private sector income-support measures, such as the furlough scheme and payment holidays on loans, mortgages and credit cards, boosted confidence in personal finances, improving sentiment in the fourth quarter. With many consumers working from home, free of commuting costs and unable to spend on holidays or socialising, 31% of respondents said their savings had increased in 2020 with millennials leading the way (35%). By contrast, 29% of consumers said their savings had decreased over the same period, with 30% of Generation X and 30% of Baby Boomers falling into this category. Deloitte chief economist Ian Stewart said: “High levels of savings combined with confidence in household disposable income point to favourable conditions for supporting growth in consumer activity when the recovery comes. The easing of lockdown restrictions, coupled with vaccines being more widely rolled out and strong personal finances, should unleash pent-up demand to spend.”
haysmacintyre invites operators to take part in snapshot survey of sector: Hospitality specialist haysmacintyre is inviting operators to take part in a snapshot survey of the sector as it moves through 2021 and beyond. The survey consists of six key questions – five of which are multiple choice – covering future prospects, new innovations and changes to the sector and only takes a few minutes to complete. The survey will remain open for a couple of weeks and operators can choose whether to remain anonymous or submit their details. Results will be shared with participants alongside expert commentary from haysmacintyre’s specialist team. To complete the survey click here.
haysmacintyre is a Propel BeatTheVirus campaign member

Sunak to use budget to extend government relief: Chancellor Rishi Sunak will use the Budget to extend government relief. According to The Sunday Times, this will include extending the furlough scheme, business support loans, cuts in VAT — and perhaps even stamp duty — until the virus is under control. But he will also announce those will be phased out, probably this autumn, in favour of “a plan for jobs” to kick-start employment and a “plan for growth” to promote new industries. The basics of the recovery plan were thrashed out in a series of “supper summits” between Johnson and Sunak. Their agreement led to the announcement last week Johnson would set out the first “roadmap” for lifting the lockdown in the week of 22 February. Johnson has now ordered Treasury officials to work with the Cabinet Office on that. Officials said Johnson and Sunak “want to get the economy firing again” but will be cautious and lift restrictions slowly to avoid a fourth lockdown.

Consumers longing to get back to hospitality: Consumers are badly missing hospitality experiences but understand going out to eat and drink won’t return to normal for a while yet. The third edition of CGA’s 2021 Hospitality Consumer Forecast showed three quarters (77%) of consumers are worried life won’t return to normal in 2021. But when it does, it is clear getting back to hospitality will be a priority for many people. A total of 59% said they can’t wait to go out again, and four-in-five (80%) hope to get back to a venue within a few weeks of reopening. The figures are broadly in line with those ahead of the reopening of hospitality after the first national lockdown in July 2020. While concerns about safety continue, the forecast showed confidence about going out is likely to rise in line with the rollout of covid-19 vaccines—prompting optimism people will return to the sector promptly and safely when it reopens this time round. The report revealed restaurants and cafes are likely to receive many of the first wave of returning consumers. Almost a third – 32% and 31% respectively – plan to visit them within the first few weeks of reopening—just ahead of pubs and fast food venues (both 25%). The forecast hinted the post-lockdown market will be somewhat polarised between those spending carefully and freely, with similar numbers indicating they will be controlling their spending and treating themselves. There is also growing confidence across many segments of the market. Almost three quarters (73%) of late-night and nightclub users now say they would feel comfortable visiting them when they are allowed to do so—up by 23 percentage points since June 2020. Numbers feeling confident are similar among bar visitors (72%, up by ten percentage points on last June).
Closure of Hampstead creperies over queues they were attracting could have ‘far-reaching consequences’ for small businesses, QC warns: The closure of two creperies in Hampstead, north London, under covid regulations because of the queues they were attracting could have “far-reaching consequences” for small businesses, a QC has warned. The La Creperie de Hampstead pancake truck, which has sold the French delicacy in the north London neighbourhood for 40 years, and a creperie based outside the King William IV pub next door, were shut by Camden Council officers due to concerns over customers not adhering to social distancing. The creperies said they have put in social distancing measures and asked customers to wear masks. The owners claimed they cannot be held accountable for the public's transgressions. Robert Griffiths QC, who is representing the pub, told The Mail: “This does raise some major issues in terms of the way the government guidance is being applied by local authorities. It is a genuine situation of injustice. The closure order is a pretty draconian step to take. They were given little warning. The idea that you can close a commercial entity down based on customers’ behaviour is taking it too far.” A Camden Council spokesman said: “The large queues coming from both these businesses, together with a lack of social distancing and face coverings being worn, were causing congestion on the pavement and presenting a serious and imminent threat to public health.”

Derry – restaurants provide the cultural backdrop to this country: Brasserie Bar Co chairman Mark Derry has said restaurants provide the “cultural backdrop to this country” and the sector needed four things from the government to survive, including a long-term discussion on leases and taxes for the industry. Writing in the Evening Standard, Derry said: “We carry a deep sense of responsibility for our people and their families. Cash is the only thing that really matters for businesses in crisis. We informed the landlords and suppliers we couldn’t pay them now but in time we would try to develop an equitable repayment schedule. We furloughed 1,250 people while a core of 19 worked tirelessly from home on reduced pay. Infuriatingly, as we tried to work out how to finance ourselves we were hacked and lost a year’s data after refusing to pay the ransom. But we persevered. Our shareholders wrote off millions and we got a state covid loan. Our debt is now eye-watering but not insurmountable. Sadly, we recently had to permanently close a few of our sites. I feel so sorry for the strain our wonderful people are living under. Some earn only 60% of their working income, because furlough calculations do not recognise tips. And it’s not over yet. We have no idea when we can reopen. The insurance industry had been refusing to pay businesses like ours for business interruption from covid, but the Supreme Court this month ordered them to – yet we’re still waiting for our money. We need four things from the government – a short-term injection of cash, a sympathetic tax regime for one year after reopening, intervention in negotiations with landlords and a long-term discussion on leases and taxes for the industry. Going into this, we paid 55% of our revenue in tax. It’s not sustainable. Restaurants provide the cultural backdrop to this country. We bring communities together and provide millions of great jobs. In better times, we will continue to grow and, with the right support, provide the tax revenues needed to help mend our economy.”

UKHospitality – crucial additional support secured for Welsh businesses is delivered alongside further UK government action: UKHospitality has said it is crucial additional support secured for Welsh businesses is delivered alongside further UK government action to save livelihoods and jobs. The Welsh government has revealed the details of a £200m package of support for non-essential retail, hospitality, leisure and tourism businesses. Businesses with a rateable value of £12,000 or under will be eligible to receive a payment of £3,000 while businesses with a rateable value between £12,001 and £150,000 will be eligible to receive a payment of £5,000. The Welsh government has also extended the £5,000 grant through to businesses with a rateable value of up to £500,000. Supply chain businesses will be able to apply for support if they have had a reduction in turnover of more than 40%. While welcoming the package, UKHospitality Cymru’s executive director Dave Chapman said more assistance was needed and the trade body remained in further discussions to seek appropriate discretionary and targeted Welsh government assistance. He added: “In addition, it is crucial this support is delivered alongside further UK government action to save our businesses. We need a year’s extension of the business rates relief holiday and, to help our businesses to trade viably upon reopening, an extension of the reduced VAT for the sector into next year.”
Soho Business Alliance urges government to support hospitality businesses through six-point plan: The Soho Business Alliance has sent an open letter to government with a six-point plan to support hospitality businesses. The letter requests business rates relief is extended for a further six to 12 months; VAT on food of 5% continues for another 12 months and consideration given to reducing VAT on drink sales too; and the Coronavirus Business Interruption Loan Scheme one-year interest free period is extended to two years and the repayment term extended to ten years. It also asked the government to consider paying the national insurance/PAYE contribution of furloughed staff for small businesses only; support the landlord/tenant negotiations by ensuring no foreclosures by banks on landlords; and deferred VAT and PAYE via the Time to Pay Scheme is extended to three or five-year payment plans. Part of the letter states: “When the government support programmes were considered, it was assumed this pandemic would be well behind us as we enter spring 2021. This is not the case. The £3,000 per month grants and £9,000 in January might cover the costs/cash burn in a restaurant in smaller cities, towns and villages, but they definitely don’t meet the significantly higher costs that we face in Soho and London in general. We are therefore facing an extremely difficult 12 to 18 months ahead and many of our members won’t survive under this avalanche of costs. Without the above support, government is guiding many of our members and the hospitality sector on a whole, towards mass failure, company voluntary arrangements and liquidation. When the country emerges from this pandemic, surviving hospitality businesses will be pivotal in restoring a sense of normality, by providing experiences for a nation that has sacrificed so much. This is an opportunity to shine – to build back better. Please don’t drop the baton now.”
Job of the day: COREcruitment is supporting a growing international food concept that is looking to expand its grab and go concept both in the UK and abroad. This position is based in London or the south east but will require extensive travel abroad. The operations director position will pay up to £110,000 and will require fluent English and business level Lebanese or Arabic. This growing retail concept has been gaining momentum and is on the hunt for some top-line talent. The ideal operations director will have experience in a fresh, seasonal food business and a strong understanding of growing brands. Anyone interested can email with their CV.
COREcruitment is a Propel BeatTheVirus campaign member

Company News:

Blackstone confirms deal to take control of Bourne Leisure: Blackstone, the world’s biggest private equity firm, has confirmed it has acquired a majority stake in the leisure company behind Butlin’s holiday parks in a deal thought to value the business at about £3bn. The Harris, Cook and Allen families, the founding families of Bourne Leisure, have co-invested alongside Blackstone as part of the deal and will together hold a significant minority stake in the business. Bourne Leisure employs more than 16,000 team members, hosting 25,000 holiday-home owners, and attracting 4.5 million guests to 56 sites across the UK every year. It operates through three brands – Haven, Butlin’s and Warner Leisure Hotels. Haven is the largest UK caravan operator with 38 holiday parks and 2.5 million visitors a year. Blackstone previously backed Center Parcs and Tragus Holdings, and currently owns Merlin, which has grown to become the second largest operator of visitor attractions and theme parks globally. Lionel Assant, European head of private equity at Blackstone, said: “We are long-term believers in the UK and are delighted to invest meaningful capital, despite recent uncertainty, to support the recovery of a covid-impacted industry, and wider local economies. We look forward to working in partnership with Bourne Leisure’s founding families, the management team led by Paul Flaum, as well as colleagues from Blackstone Real Estate, to further grow this great company.” Flaum added: “Today marks the beginning of an exciting new chapter for Bourne Leisure, for our guests, our holiday-home owners and our team members. We are delighted to be partnering with Blackstone, which has demonstrated a real understanding of our business and sector, and we look forward to working together to deliver on our exciting plans for the future. We are also delighted our founding families will continue to be involved in the business through their significant family minority co-investment. We see compelling opportunities to grow Haven, Butlin’s and Warner Leisure Hotels, as well as benefit from the increasing demand for UK domestic holidays.”

Criterion Capital takes court action against hospitality tenants: Criterion Capital, the property firm owned by Asif Aziz, has filed claims against its tenants even though they say they cannot afford the rent while closed under covid lockdown rules. Court documents seen by The Mail on Sunday showed Criterion Capital has filed a £1.5m county court claim to recover rent from better burger brand Five Guys and a £284,000 claim against cafe company Caffe Concerto. Criterion Capital has also filed a seven-figure claim to recover rent owed from a third hospitality firm, which asked not to be named. The article added: “All three of Criterion's legal claims were made after the government published a code of conduct for commercial rent negotiations during the covid crisis. The code says firms that cannot pay rent in full should ‘communicate with their landlord and pay what they can’, and landlords ‘should also provide support to businesses if they are able to do so’. The government has also banned landlords from issuing winding-up petitions and statutory demands to recover outstanding rent through a moratorium in place until the end of March. But firms such as Five Guys and Caffe Concerto – which have been hit hard by the steep decline in trade from tourists and office workers – feel Criterion has not showed it is willing to negotiate an affordable payment plan. Caffe Concerto director Stephano Borjak said Criterion's behaviour amounted to ‘harassment’ while the moratorium is in place, adding the operator had previously paid its rent in full and on time for 12 years.” By contrast, Five Guys has agreed rent deals with landlords of more than 80 of its 105 UK sites. 
Wellington Pub Company pressures tenants to extend leases by five years to win rent concessions: The Mail on Sunday has reported billionaire investors David and Simon Reuben face a rebellion by 250 tenants after their Wellington Pub Company offered to scrap or lower rents for nine months – but only if tenants agree to extend their leases by five years. The article added: “The publicans say they feel pressured to accept as they cannot afford to pay rent while deprived of income, and are considering a class action against Wellington.” A source said: “Wellington is securing for itself an additional five years of inflated rental income. To withhold rent support for covid-affected tenants unless they agree to such a reversionary lease is extortion.” Other pub companies, such as Kent brewer and retailer Shepherd Neame and brewer and retailer Greene King, have waived rents or cut them by 90% if pubs are shut. 
Schlee steps down from Pret board: Clive Schlee, the former chief executive of Pret A Manger, has stepped down from the company’s board, Propel has learned. Schlee stepped down as chief executive of the JAB Holdings-backed business at the end of September 2019 after more than 16 years in the role. He handed the reins to chief operating officer Pano Christou and became a non-executive of the business. It is understood Schlee played a key role on the board following his retirement as chief executive and through the onset of covid last year. It is thought having helped Pret with the transition to new leadership and through the past 18 months, he has decided to step down. He remains an investor and director at Itsu.
Landlords launch legal challenges against Caprice Holdings and Burger King: Soho Estates, the landlord founded by the late publisher Paul Raymond, has launched a legal challenge over unpaid rent against the restaurant tycoon Richard Caring’s Caprice Holdings. According to The Telegraph, the property empire, worth £1bn before the pandemic hit and now majority owned by Raymond’s granddaughters India Rose James and Fawn James, has filed a debt claim against Caring’s restaurant group, which includes West End restaurants Sexy Fish and Balthazar, according to court filings. The claim relates to allegedly unpaid rent on a site in Soho, for which Caprice Holdings is a guarantor on the tenancy agreement. The site is currently being sublet to restaurant and bar Martha’s by Jackson & Rye, the collapsed chain formerly owned by Cote Restaurants and backed by Caring. John James, Raymond’s son-in-law, who is now managing director of Soho Estates, claimed the company had not received rent or service payments from the tenant since the March quarter last year, meaning it was owed about £500,000. James claimed it had tried to engage with Caprice Holdings but had received no response. Meanwhile, The Sunday Times reported Burger King is being pursued by one of its landlords over unpaid rent. A UK subsidiary that leases properties and sublets them to the chain’s franchisees allegedly owes £461,174 to the owner of its branch in Queensway, west London. According to a court filing, Burger King proposed quarterly rent due last March be waived and rent due last June would be discounted by 70%, with rent linked to sales after that. “Given the differences in size of the parties ... the claimant considered a more appropriate arrangement under the code of practice might be a deferral of some of the rent to be repaid over a period of time,” the filing said. 
Dowling returns with Harcourt Inns link-up: Frank Dowling, the entrepreneur who previously operated a number of venues at the O2 arena and across the country under the banner of the Inc Group, has returned to the sector as part of a link-up with London-based pub group Harcourt Inns, Propel has learned. Dowling, who had tax fraud charges against him dismissed in 2017, is thought to be helping with the management of the sites under Harcourt Inns umbrella and is listed as a director of some of its subsidiary companies. Harcourt Inns, of which Henry Harris stepped down as chef-director last year, currently operates six pubs in total, with its most recent site, The KPH in Notting Hill, opening in 2019. Dowling was acquitted in 2017 at Southwark Crown Court when the Crown Prosecution Service offered no evidence after a four-year investigation into alleged undeclared VAT and PAYE. Dowling, who was brought up in New York, started his working life in construction then went on to London working on the property development project at Canary Wharf. His first bar was opened in Greenwich in 2003 and he became the first restaurateur to sign a lease for a venue at the O2 Arena and subsequently built up a portfolio of venues under the banner of the Inc Group, which grew to 23 restaurants, pubs and bars across the capital and Leeds, and Bristol. However, by 2013 the business had fallen into administration and was eventually placed into liquidation.
King – four things Rishi Sunak can do to save jobs in hospitality: Dermot King, chief executive of Oakman Inns, has said there are four initiatives the government must put in place to allow businesses to repair their balance sheets that have been damaged. Writing in inews, King said: “First, it must introduce a permanent reduction in VAT on hospitality and foodservices to 5% so accommodation providers can compete with Europe, where rates are already very low, and restaurants can compete with supermarkets. Second, the current rates holiday needs to be extended for at least another fiscal year and the rating system needs a root-and-branch review. High streets up and down the country are being hammered by unfair taxes that online retailers can avoid. Third, reintroduce the job retention bonus scheme that was announced and then withdrawn in October in return for an extension to the temporary VAT reduction. As these businesses were shut in the third lockdown, the VAT reduction wasn’t applied. Hospitality creates jobs quickly, and this scheme will help to get the young back at work. Fourth, allow hospitality businesses to use their current corporation tax losses to offset other tax liabilities such as PAYE and VAT. We don’t have the time to allow these losses to be used against future profits, we need to use them now. Re-balancing the country has never been so relevant.”

Chop’d acquired by retail group Inc Retail: Chop’d, the Eddie Holmes-led salad bar chain, has been acquired by Inc Retail Group, Propel has learned. The deal sees Inc Retail back the existing management team led by Holmes and secures the future of the brand’s 13 sites, spread across London, Manchester, Liverpool and Leeds. All jobs at the business, which was founded in 2004, will also be kept in the share purchase. The deal for Chop’d, which had been backed by Calculus Capital, comes days after Inc Retail, a newly-launched division of Manchester-based marketing and advertising agency Inc & Co, acquired luxury bag and accessories brand Knomo. It is thought as part of the Chop’d deal, there will be significant investment in expanding the brand’s current menu offering, website and back-end ordering systems. In October 2019, Propel revealed Chop’d had appointed advisers to assess its funding options. The business had appointed north west-based advisory firm Cowgills to oversee the process, which is thought to involve a short-term funding requirement of £250,000 ahead of a broader strategic review that could lead to a sale of the business. The funding requirement came as Chop’d launched virtual brand Vegan Delivered, which delivered freshly made vegan meals prepared in Chop’d kitchens. 
Red Mist acquires first site post investment: Red Mist Leisure, the south east-based pub group founded by Mark Robson and Mark Williams, has acquired its 11th site, adding a sixth pub in Surrey to its portfolio. The company has purchased The Parrot, near Shalford, in a deal brokered through Nick Earee, of Fleurets. It is the first acquisition completed by Red Mist Leisure since it secured investment last week from Red Lion Holdings (RLH), a newly formed pub investment vehicle led by ex-Busaba chief executive Jason Myers and sector investor David Ramsay. Red Mist has ambitious growth plans over the years ahead and the company said the acquisition allows the company “to consolidate our foothold in an affluent and highly desirable part of Surrey”. Plans are being developed to extend and refurbish The Parrot to bring it in line with the ethos of Red Mist’s other pubs. Robson said: “We are excited to be growing our portfolio with the purchase of a site with as much potential and scope as The Parrot. It has an enviable location, and we look forward to creating another destination pub for both leisure and business customers, and to becoming part of the local community.” 

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