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Morning Briefing for pub, restaurant and food wervice operators

Tue 3rd Aug 2021 - Domino’s UK reports like-for-like sales up 19.3% aided by VAT cut
Domino’s UK reports like-for-like sales up 19.3% aided by VAT cut: Domino’s UK has reported a strong UK and Ireland performance, with system sales of £752.3m in the 26 weeks to 27 June, with like-for-like sales up 19.3% aided by the reduced rate of VAT. Excluding the benefit of the reduced rate of VAT, underlying like-for-like system sales, excluding splits, grew by 5.5%. Underlying profit before tax of £60.8m, was up 27.7%, driven by the strength of the core business and lower covid-19 related costs. The company stated: “Total orders returned to a positive trend, up 3.5% in the first half, driven by collection orders up 27.1%, as we lap the closure of the collection business for much of Q2 last year. Collection orders traded at 71% of 2019 levels during the half, and are currently trading at over 75%.Digital momentum continues, with UK online sales up 25%, representing 93% of UK system sales. We have made excellent progress in the first half on our strategic initiatives to deliver our medium-term ambition of total system sales of £1.6bn to £1.9bn. A new store incentive mechanism has been successfully deployed with 13 new franchised stores opened in the first half (H1 20: 8). The stores are trading ahead of expectations and provide confidence in our target to open up to 30 new stores in the year as we accelerate toward our medium-term ambition of 200 new stores. The second half has started well with strong total order count growth as we benefitted from our supercharged marketing campaign, and the extended involvement of the English football team in the Euros. Our vertically integrated system has worked effectively to deliver great service to customers as we dealt with unprecedented peaks in demand. As the second half develops, we will operate within a shifting and uncertain landscape as the nation is released from the restrictions imposed by the covid-19 pandemic, and the country returns to a level of normality. We believe this will benefit our Collection business, which we expect to gradually recover toward order count levels more in line with 2019. Our delivery business will face more competition as the hospitality trade reopens but we believe the strength of our brand and our continued investment in developing our offer will enable the delivery business to maintain its performance. We have now passed the anniversary of the lower VAT rate which was introduced in July 2020. As expected, as the scheduled VAT rate increases are implemented, our system sales growth will be lower in the second half. However, whilst changes in VAT impacts reported system sales growth it has limited flow-through to our profitability. Our highly cash generative, flexible and robust business model is incredibly agile and can adapt quickly in changing market conditions. This has enabled us to increase our share buyback programme and provides us with confidence that we will continue to make progress in the remainder of this year.” Dominic Paul, chief executive, said: “I am delighted with the performance of the business in the year to date. We’ve worked closely with our franchisees to maintain fantastic service levels to our customers, while continuing to prioritise the safety of our colleagues and customers. I’d like to thank everyone in the system for their incredible commitment through the pandemic. We have continued to invest in the business as we focus on delivering our strategy with the opening of a new state of the art supply chain centre in Scotland, the launch of our redesigned mobile ordering app, and the roll out of our supercharged marketing campaign which has strengthened our brand and significantly boosted awareness levels. The strong trading in the first half of the year provides us with the firm foundations for the delivery of our strategic growth objectives, which build upon our strengths in both delivery and collection. This will enable us to deliver strong system sales growth and increase our store numbers in the UK and Ireland. Whilst the external landscape remains uncertain, the second half has started well. I believe our agile business model leaves us well placed to capitalise on the significant opportunities ahead while continuing to invest in our strategy, which will deliver benefits for franchisees and shareholders alike.” 

Mark Wingett’s Ones to Watch a new feature in next edition of Propel Blue Book of Turnover and Profitability: The next edition of the Propel Blue Book of Turnover and Profitability, produced in association with Mapal Group, will be sent to Premium subscribers on Friday, 13 August, at midday, and will feature Propel insights editor Mark Wingett’s Ones to Watch. Wingett’s report will provide analysis on the companies he considers best-positioned in the UK marketplace to achieve significant growth. The next edition of the Blue Book will also add 73 companies. This means the Blue Book will now feature 352 UK pub, restaurant, cafe and hotel operators with a total turnover of £29.6bn. The Blue Book has begun to reflect the economic damage of the pandemic with 172 companies in profit and 180 reporting losses. The Blue Book, which is updated every month – on the second Friday of the month – provides an insight into UK operator turnover and profitability over five years, profit conversion and directors’ earnings. Last Friday (30 July), Propel premium subscribers received the updated database of multi-site companies for July, which is produced in association with Virgate. The latest edition of The Propel Multi-Site Database included 71 new companies, operating 477 sites between them, and increases the total number of companies on the database to 1,951. Subscribers received the database as a PDF and an Excel spreadsheet, they were also sent a 12,094-word report on the businesses added during July. The go-to database provides company names, the people in charge, how many sites each firm operates, its trading name and its registered name at Companies House if different. In a new feature this year, there is a synopsis of what the business does and significant news associated with it. It is updated at the end of every month. Subscribers also received a new database on Friday (30 July). The New Companies Database, produced in association with StarStock, focuses on the newly announced openings and upcoming launches in the sector and will be updated at the end of every month. Subscribers also receive access to Propel’s library of lockdown videos and Friday Wrap interviews and now also have access to a curated video library of the sector’s finest leaders and entrepreneurs, offering their insights on running outstanding businesses in the sector. Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before our 6am send-out; regular video content and regular exclusive columns from Propel insights editor Mark Wingett. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The regular single subscription rate of £395 plus VAT for operators and £495 plus VAT for suppliers remains the same. Email to sign up.

Greggs reports bounce-back to profit, delivery now 8.4% of sales: Greggs has reported sales of £546.2m in the 26 weeks ended 3 July, (H1 2019: £546.3m) with pre-tax profit of £55.5m (H1 2019: £40.7m). 48 new shops were opened in first half, with 11 closures for an estate of 2,115 shops. Greggs anticipates circa 100 net new shop openings in 2021 and expects to create 500 new retail roles in second half. A delivery service is now available from 837 shops - delivery sales represented 8.5% of company-managed shop sales in the first half of 2021. Menu development, includes an expanded range of vegan-friendly products and options for other diets and dayparts. Chief executive Roger Whiteside said: “Greggs once again showed its resilience in a challenging first half, emerging from the lockdown months in a strong position and rebuilding sales as social restrictions were progressively relaxed. We continue to make good progress with our strategic priorities, growing the shop estate and investing in our digital capabilities to compete in all channels and dayparts of our market. Whilst there continue to be general uncertainties in the market, given our recent performance we now expect full year profit to be slightly ahead of our previous expectation. Sales developed progressively through the first half in response to our recovery initiatives and the easing of social restrictions. To provide a consistent reference point we are currently reporting like-for-like sales on a two-year basis, against the level achieved in 2019. On this basis sales in the first quarter were 21.5% lower than the 2019 level. In the second quarter the lifting of restrictions, particularly the re-opening of non-essential retail, made a significant difference to footfall and resulted in 2.8% growth on a two-year like-for-like basis. Walk-in customer transactions were still below the level seen in 2019 but were compensated for by higher average transaction values and increases in delivery sales. We continue to experience differential performance by location type across our broad and diversified estate. Shops in public transport hubs and large city centres continue to lag the overall Group recovery rate whilst customers staying closer to home are supporting our heartland shops in suburban and high street areas. The strongest locations continue to be shops typically accessed by car, including many operated by our franchise partners. The strongest-performing parts of the estate are also the locations where we see significant potential for further expansion, making Greggs accessible to more customers on-the-go. In the first half of 2021 we opened 48 new shops (including 17 franchised units) and closed 11 shops, giving a total of 2,115 shops (of which 343 are franchised) trading at 3 July 2021. We have refreshed our five-year plan and, in doing so, have reinforced our confidence in Greggs’ ability to deliver sustainable, profitable growth into the long term. The key areas of strategic development in the first half are outlined below; we expect to be in a position to provide a more detailed update on our plans later in the year. Greggs has the opportunity to expand its UK estate to at least 3,000 shops, presenting a multi-year growth path. Our strong, proven covenant is attractive to landlords and opportunities are now greater in number than they were before the pandemic. As well as growing the overall size of the estate we will continue to relocate existing shops to enable them to better deal with the increased demands of multi-channel growth. Our latest shop design, to be used for all new shops and relocations, will support collection of digital orders and incorporate kitchen modifications to allow better product customisation and menu development. 70% of our shop openings in the first half were in car-accessed locations such as roadsides, petrol stations, retail parks and supermarkets. We have also been able to gain access on improved terms to sites in central London and transport interchanges, which we see being good strategic sites in the medium term. Our pipeline of new shop opportunities remains strong and we expect around 100 net openings in the year as a whole, of which around half are anticipated to be with franchise partners, creating approximately 500 new retail roles in the second half of 2021. Alongside estate expansion to serve our walk-in customers, Greggs has invested to meet customer needs for food via new channels and at additional times of the day. The most developed of these is our delivery partnership with Just Eat, which continues to grow and is now available across the UK from 837 of our shops. In the first half of 2021 delivery sales represented 8.5% of company-managed shop sales. Customers are becoming more used to pre-ordering food, either for delivery or to guarantee availability when they ‘click and collect’. Pre-ordering presents us with the opportunity to improve availability of our standard menu as well as offering personalised choices where customers can, for example, adapt the ingredients in their sandwich or the topping on their pizza. Pre-ordering is a market trend that we believe will support, in particular, our ambition to grow sales in the evening daypart, a segment of the market where we are currently underrepresented. Delivery will also have a role to play here, giving customers convenient access to Greggs’ products wherever they are throughout the day. In today’s consumer environment, it is key to have strong digital capabilities; we have invested significantly in recent years in this area to strengthen our customer proposition. Our new Greggs Rewards app and new customer website have recently been launched to make the customer journey as convenient as possible. Our new app offers customers rewards across the full range of their purchases and is integrated with our click and collect service, described above. Improved features such as an upgraded shop finder and access to nutritional information all work to make the customer journey with us easier. Greggs Rewards will allow us to strengthen our relationship with our customers, better understanding their needs and providing us with improved communication tools to encourage increased visit frequency and wider menu participation.”

AJ Barr – we are pleased with our performance: AJ Barr has reported revenue for the 27-week first half of the financial year is expected to be circa £134m, c.18% ahead of the prior year (26 weeks to 25 July 2020: £113.2m). On a like-for-like 26-week basis revenue is expected to be up circa 13%. The company stated: “Trading has been strong across both our business units, Barr Soft Drinks and Funkin. This performance has been driven by a combination of brand-led initiatives and market factors, some long-term and structural and others more one-off, resulting in a short-term boost to operating margin, which we would not expect to be replicated in H2. Full year operating margin is still anticipated to be slightly ahead of the prior full year. Over the past six months we have benefited from recovery in ‘on the go’ consumption, growing volume and improving product mix, while our ‘at home’ sales have remained strong, as they have done throughout the covid-19 pandemic. Recent new product launches are performing well, with positive consumer feedback and encouraging customer listings. The energy sub category, in particular, continues to outperform the total soft drinks market and our focus on innovation in this area, primarily Rubicon RAW Energy, has made a very positive start. We plan to accelerate our commercial investment in Rubicon RAW Energy across the balance of H2. The response to the covid-19 pandemic has been especially challenging for the hospitality sector, however we are pleased to see positive momentum as consumers return to hospitality venues. Funkin has delivered a strong H1 performance in the on-trade driven by both customer restocking and an increase in cocktail rate of sale. During the various lockdown periods, Funkin capitalised on the increase in demand for cocktails at home, through both traditional retail and direct to consumer channels, becoming the UK’s No.1 ready to drink cocktail brand. Our ‘at home’ cocktail sales have continued to grow across the first half of the year, supported by a continued strong rate of sale and an increasing level of brand distribution. We will accelerate our investment in H2 as we continue our strategy to further develop Funkin as a consumer brand. We reiterate our guidance from 20 July 2021 that profit for the current 53-week financial year ending 30 January 2022, is expected to be slightly ahead of the performance delivered in the 52-week year prior to covid-19 (2019/20 profit before tax: £37.4m).” Roger White, chief executive, said: “We are pleased with the performance of the business in the year so far. There is good momentum behind our core brands and we have re-entered the growing big can energy category with our Rubicon RAW Energy range. We plan to increase our brand investment in the second half of the year, building on our progress to date. While uncertainty remains, we are confident in delivering our plans across the balance of the year and meeting our recently revised full year profit expectations.”

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