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Morning Briefing for pub, restaurant and food wervice operators

Wed 10th Aug 2022 - Update: Deliveroo sees growth slow in Q2 as losses widen, Nicholls – one in five sector businesses could have been lost in five years
Deliveroo sees growth slow in Q2 as losses widen, Lord Wolfson to step down as director: Deliveroo has reported that market conditions softened in Q2 compared to Q1, which it believes reflected the impact of increased consumer headwinds, with its gross transaction value (GTV) growth year-on-year 12% in Q1 and 2% in Q2. The company said that during H1 orders grew by 10% year-on-year and GTV increased by 7% to £3.55bn. GTV per order was £22.1 in H1 2022, down 3% year-on-year in constant currency compared to H1 2021, which the company said was due to the prior year benefiting from higher basket sizes during lockdowns. It said: “Sequentially, however, GTV per order has increased quarter-by-quarter since Q3 2021 to reach £22.6 in Q2 2022, driven by factors including item price inflation.” In UK& Ireland, the company said that GTV grew to £1.91bn in H1 2022, an increase of 8%. However, GTV growth in constant currency slowed from 12% in Q1 2022 to 4% in Q2 2022. The company said: “Third-party data shows that the business continues to gain share in UKI even as the overall market has been impacted by increased consumer headwinds during the period. In H1 2022, orders grew by 12% year-on-year to 80.1 million. GTV per order was down 4% year-on-year in constant currency to £23.9 due to the prior year benefiting from higher basket sizes during lockdowns; sequentially, GTV per order has increased for four consecutive quarters. During the period, Deliveroo continued to add differentiated content for consumers. UKI restaurant selection was further expanded by c.5,000 sites in H1 2022, increasing the base of restaurants by 9%. In May, Deliveroo announced that McDonald’s would become available on the Deliveroo platform in the UK, further enhancing the selection available to consumers; the roll-out began in June and has since scaled rapidly.” In H1 2022, the company said that revenue increased by 12% to £1.01bn, exceeding the increase in GTV of 7%, mainly due to growth in commission revenue and consumer fees, as well as an increased contribution from advertising as this revenue stream begins to scale. Adjusted Ebitda was (£67.9m), an increased loss compared to (£25.8m) in H1 2021. Operating loss in H1 2022 was £157.8m, compared to £97.6m in H1 2021. It posted a loss before tax of £147m in H1 2022 compared to £95m in H1 2021. The company also announced it was commencing a consultation on the proposal to end its operations in the Netherlands, reflecting the its “disciplined approach to capital allocation”. Will Shu, founder and chief executive of Deliveroo, said: “Deliveroo is committed to delivering profitable growth. We are focused on driving the business to the milestone of adjusted Ebitda profitability and then on to positive free cash flow generation. In March we set out our path to profitability and the levers to deliver this. So far in 2022, we have made good progress delivering on our profitability plan, despite increased consumer headwinds and slowing growth during the period. We are confident that in H2 2022 and beyond we will see further gains from actions already taken, as well as benefits from new initiatives. We remain confident in our ability to adapt financially to any further changes in the macroeconomic environment. We continue to be excited about the opportunity ahead and our ability to capitalise on it.” At the same time, the business announced that Lord Simon Wolfson has decided to step down from its board. Lord Wolfson said: “After much consideration, and with regret, I believe that the time required to continue in my role at Deliveroo is no longer compatible with my executive and other commitments. I have enjoyed my time working with Will, the executive team and my board colleagues over the past 18 months and wish the company all the best for the future.”

Next edition of Propel’s Turnover & Profits Blue Book to feature 596 companies turning over £30.1bn: The next edition of Propel’s Turnover & Profits Blue Book, produced in association with Mapal Group, will feature 596 companies that are turning over a collective £30.1bn. The Blue Book shows the effects of the pandemic, with total losses of £5.7bn being reported by 328 companies. However, a further 268 sector companies are still reporting total profits of £1.3bn. The next edition will be sent to Premium subscribers on Friday, 19 August, at midday. The Blue Book, which is updated every month, provides an insight into UK operator turnover and profitability over five years, profit conversion and directors’ earnings. Premium subscribers also receive the New Openings Database, produced in association with StarStock, and the Multi-Site Operators Database, produced in association with Virgate, which are also updated each month. Premium subscribers also now have access to the UK Food and Beverage Franchisor Database, which is an exhaustive guide to the companies offering a food and beverage franchise in the UK and will be updated every two months. 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 single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email to upgrade your subscription. Subscribers also receive access to Propel’s library of lockdown videos and Friday Wrap interviews and 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 group editor Mark Wingett.

Nicholls – As many as one in five sector businesses could have been lost in five years: Kate Nicholls, chief executive of UKHospitality, has said that the cost of doing business and the cost-of-living crisis could see a similar ratio of businesses close for good as during the pandemic over the next 18 months, which could mean “as many as one in five could have been lost in five years”. Talking to Radio 4, Nicholls said: “We lost one in ten businesses in the 12 to 18 months of covid. That’s 10,000 hospitality businesses which closed for good. We forecast and fear that there will be the same again as a result of the cost of doing business and the cost of living crisis that we’re facing for the next 12 to 18 months, so as many as one in five could have been lost in five years.” Nicholls said that the association’s members are “facing a tsunami of inflationary cost pressures, an ever-worsening business situation and a downturn in consumer demand”. She said: “We are taking calls on a daily basis from people experiencing exactly the same level of increase in their bills, and very fearful about the future and the viability of their businesses in the face of those cost pressures and the cost of living squeeze.” She said it “is the cruellest of ironies” that these businesses have survived covid and are now facing these pressures. She said: “Let’s not forget that one in ten hospitality businesses did not make it through the crisis. So, these are the businesses that are viable, that have survived the crisis, were performing well at the start of this year. This has been a rapidly deteriorating situation for them. Since April, it’s been a very rapid slide with inflationary cost pressures. At the moment we are still seeing strong consumer demand but there is no doubt that it is flatlining as people realise the full enormity of the scale of bills that are going to be facing them as consumers. As we hear more and more talk about a tip into recession that hits consumer confidence, people are undoubtedly being a bit more care with their cash. And clearly the challenge that businesses face is they’re caught between a rock and a hard place. They’ve got cost pressures coming through the business of 20% to 30% and energy bills soaring by 300%, but they know that if they pass that on to the consumer, you will see consumers voting with their pockets and staying away. So it really is a sort of perfect storm that these businesses are facing.”

Cost of living support gives consumer confidence a lift: Consumer confidence rose in July as low-income households received cost of living payments from the government’s support package. The Times reports a two-point increase was the first rise since November 2021 on the index compiled by YouGov and the Centre for Economics and Business Research. Consumer confidence had fallen by nine points in the seven months to July. The biggest rise was in participants’ perceptions of household finances. Their view of their personal finances over the past month rose by 5.3 points to 60.3 and their expected outlook for the next year rose by 3.1 points to 51.8. Around eight million households on means-tested benefits received £326 at the end of July. A second payment will be made in the autumn. The £21bn cost of living package announced in the spring included a £400 discount on energy bills and an extra £650 for the poorest families. However, the overall outlook for finances remained weak. Job security expectations edged even higher, up by 1.3 points to 93.7, with job vacancies still at a record high. The outlook for business activity rose as participants said workplaces were busier. “The strongest upward momentum in July came from the backward and forward-looking household finance indicators,” said Kay Neufeld, head of forecasting at CEBR. “Nevertheless, the increases in these measures are from an extremely low base and the outlook remains challenging. Questions remain regarding the type of support households can expect over the coming months, with the energy price cap set to rise to new record highs in October and January.” She added that the rise in consumer confidence may be short-lived if a recession materialises this year.

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