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Morning Briefing for pub, restaurant and food wervice operators

Fri 10th Jan 2014 - Friday Opinion
Subjects: Economic optimism, groupthink, the face of alcohol and food regulation in 2014
Authors: Martyn Cornell, Tim Martin and Paul Chase

Greek villas, Theo Walcott’s ligaments and economic optimism by Martyn Cornell

We booked the family holiday last week, returning for the third year out of four to a set of villas-with-pools on a hillside outside the lovely village of Stoupa, with its soft golden sands and welcoming tavernas, halfway down the middle “finger of the Peloponnese”. We barely made the booking in time, despite there being more than seven months to go before fly-out time. Last year, booking at the same time, we had our pick of the villas. This year the only one left was the largest, which sleeps six. Fortunately we’re going with another family, and everyone is happy to share.

One anecdote proves nothing, of course, but Greek villas being filled faster early in 2014 than early in 2013 is another pebble to put on a growing pile of evidence that this year we are entitled to start feeling optimistic about the state of the British economy. The Markit/CIPS Purchasing Managers’ Index (PMI) for the UK services sector, where any reading above 50 indicates growth, reached 58.8 in December, the 12th consecutive month of growth, albeit below expectations and the weakest rate of growth for six months. All the same, the average growth rate in new orders in the final quarter of the year was the best in the survey’s history, according to Markit.

Now, admittedly the weakest sectors in the survey are hotels, restaurants and personal services, with the strongest growth seen in the IT, transport, finance and business-to-business service areas. (That last one – business-to-business services – covers us here at Propel Info, so, ah, we’re quite happy.) But even the “weak” hotels and restaurants sectors had “decent” growth in 2013, according to Chris Williamson, Markit’s chief economist. And while the High Street is showing mixed messages, with Tesco, Marks and Spencer and Morrisons reporting a poor Christmas period, while John Lewis, Next, Aldi and Lidl all traded strongly, the suspicion still has to be that consumer spending on leisure activities such as restaurant and pub-going is lagging a general rise in the British economy, as people still feel wary of celebrating, after what will be seen, once we are finally clear of it, as one of the worst global economic depressions of the past 100 years.

But with the British Chambers of Commerce saying this week that five key measures of manufacturing – domestic orders, employment, employment expectations, turnover confidence and profitability confidence – are each at an all-time high, it surely cannot be long until the rising manufacturing sector lifts the hospitality sector still higher as well. Rising manufacturing business is clearly already lifting IT, transport and business-to-business services. According to Williamson, again, if Markit’s surveys match the official data, the British economy will have grown by 1.9% in 2013, which would be the best performance since 2007. Only lingering doubts about whether we really are on an upward slope seem to be holding back consumer spending in the hospitality area. And if people are now, at the start of 2014, more eager to book Greek villa holidays than they were at the start of 2013, it suggests the gloom is finally clearing.

Certainly the message seen in the like-for-like sales reports for December that have come out so far suggests that consumers were opening the front door and going eating and drinking out in increasing numbers as the year ended, despite the truly dreadful weather as the new year arrived. The Yummy Pub Co, the four-site multiple founded by Anthony Pender, Jason Rowlands and Tim Foster reported like-for-likes up 30.2% for December, despite the severe weather. The New Pub Company in London reported “the best New Year’s Eve we’ve ever had”, with the week including New Year’s Day 17% up against the previous year. The restaurant, bar and gastro-pub operator ETM Group, headed by Tom and Ed Martin, also had a record-breaking December, with a 9.1% like-for-like rise in sales. Another gastro-bar operator, Whiting and Hammond, said the first week of December was up 8% like-for-like, the week starting 9 December was up 10% and the week commencing 16 December was up 12%.

The managed pub and bar group TCG has reported an average 7% like-for-like sales uplift across its estate during Christmas and New Year. The Real Eating Company, the south east-based coffee shops and restaurants operator, saw overall December like-for-likes up 7.2%. Bulldog Hotel Group, led by Kevin Charity, said it had a “fabulous December”, with like-for-like sales up 6.8% for the month. The brewer and retailer JW Lees reported like-for-like sales were up 6% for the six-week period to the end of 2013. All Our Bars, which operates 37 sites, saw sales up 6.3% for the week ended 29 December. The regional bar operator Loungers said its like for like sales in December were up 8.6% up on the same month in 2012.

Like-for-like sales at Orchid Group grew 9.8% over the Christmas and new year period. Anglian Country Inns reported like-for-likes up 11.5% for December, 2.5% ahead of forecast. The Hertford family brewer and pub operator McMullen said Christmas party meals, in the lead up to Christmas, were up 8% on last year; Christmas Eve, Christmas Day and Boxing Day sales were up 14%; and New Year’s Eve sales were up 8%. Nightclub operator Luminar saw total sales 3% up on New Year’s Eve, with its major investments in 2013 all of 29% up. La Tasca unveiled over 10% like-for-like sales growth as a company on New Year’s Eve, with sales on the Friday before Christmas up 18.7% and the Saturday up 19.2%.

Looking good going into 2014, then. The problem, of course, is that in life, the only thing you can expect with certainty is the unexpected. Ask Theo Walcott, who began 2014 looking forward to finally performing on the World Cup stage, and got less than a week into the year before a knee ligament injury ensured that if he does go to Brazil, it will only be as a spectator. Let’s hope the hospitality sector in particular, and the British economy in general, doesn’t suffer any knee injuries itself during 2014.
Martyn Cornell is managing editor of Propel Info

The dangers of groupthink by Tim Martin

Stockbrokers, bookmakers, economists and others make a decent buck from our need to “look into the seeds of time” – in other words, to try to estimate what will happen in the future. As one comedian said: “It’s safer to stick to forecasting the past.” My only serious attempt at economic prediction has been that the euro would eventually collapse, since no single currency has survived in history, unless it has been backed by a single government, as I have frequently argued over the past 15 years.

In reality, the euro has already failed, with around 25 per cent unemployment in some southern states and over 50% youth unemployment – what a dreadful indictment of the groupthink of those who should have known better, such as Michael Heseltine, Ken Clarke, Peter Mandelson, Tony Blair and organisations like the CBI and Financial Times which so vehemently supported it.

The main lesson for me of the euro débâcle, however, is that intellectual elites, with numerous honourable exceptions, often live in their own bubbles and are more susceptible to daft and dangerous creeds, like communism and the euro, than the general public is – which roundly rejected the wretched idea.

Our more recent battle relates to the knotty issue of the taxation of pubs – we like to pay our share of tax, but believe that the system is unfair. Figures show a net 9,169 (13.9% of the total) pubs have closed down since 2005. You don’t need to be Einstein or Newton to see where this is leading. The main reason for the closures is the tax inequality between pubs and supermarkets. As I have outlined previously, supermarkets pay no VAT on food sales, yet pubs pay 20%. This results in pubs having to charge more than they otherwise would and allows supermarkets to subsidise their drink sales, thanks to their tax break.

Pubs also pay about 15p a pint in rates, while supermarkets pay a fraction of that sum. The effect of this tax break has been to widen the price differential between pubs and supermarkets, meaning that those in less-affluent areas are most affected, since residents there are less able to afford the difference in price. Meanwhile, many of the residents of the wealthy middle-class enclaves (where most MPs and commentators live) are less affected, although, even there, the high pub prices are a burden to many. Even MPs struggle to pay normal pub prices: bars in parliament, believe it or not, are subsidised by the taxpayer, so that prices are matched to those of the local Wetherspoon!

“Let them eat cake” is the implicit message from the powers-that-be. Another huge effect of the tax régime relates to the crisis of empty shops in high streets, although no one seems to have made the connection. Town planners know that successful high streets comprise about 30 to 40 per cent or more non-retail uses, such as pubs, cafés, bookmakers and banks. “The pub is the hub,” as Prince Charles (the trainee king is more on the ball than some people) has said, and research clearly shows that most shoppers combine shopping with a coffee, a pint or a meal. So, once the pubs start closing, high street blight is not far away – once again, less-affluent areas are most affected. Trying to get Mary Portas to sort out this problem is political make-believe and whistling in the wind.

Successive governments, however, have created a huge tax incentive to bypass pubs and high streets and to visit supermarkets (mostly drive-to locations), leading to the inevitable empty pubs and shops, let alone the social effects of such dereliction. This is economic madness, since pubs contribute far more in tax and create more jobs (per pint or meal) than supermarkets do. The VAT Club Jacques Borel has demonstrated that creating VAT equality between pubs and supermarkets will create about 700,000 jobs, will be tax neutral for the government and will increase disposable income for the pub-going public. So, come on Dave, George, Nick, Vince, Ed M and Ed B. Let’s avoid the trap of groupthink – rather follow the logical course and put an end to this economic and social apartheid. You need to look into the seeds of time to see the potentially disastrous direction of current policy. Instead of this crazy path, create jobs, fill the government coffers and enjoy a more reasonably priced pint with the lads and gals, who will be better off as a result of your policies. Supermarkets don’t need tax favours either, so what’s not to like?
Tim Martin is founder and chairman of JD Wetherspoon

War without end by Paul Chase

As we move into 2014 what might we expect in terms of the regulation of alcohol and of food? Indeed, what do we want to see? I think that what the food and drink industries want are free, flexible markets in which business can be developed and conducted within a regulatory framework that is clear, simple and transparent, but above all stable. And by stable I mean not changing law and regulation every time a public health lobbyist alarms public opinion with a scare story based on dodgy statistics.

But what are we likely to get? The New Public Health Movement (NPHM) has migrated the techniques used against the tobacco companies and opened a second front in relation to alcohol and, now, to food. In the process the NPHM has conjured up a pantheon of folk devils – not just Big Tobacco, Big Alcohol and Big Food, but subordinate, but no less wicked demons like Big Salt and Big Sugar – and Big Sugar’s sidekick Big Soda. We’ve already seen the consequences of this in New York, where Mayor Bloomberg introduced a ban on the sale of “supersize” sugary drinks. This was struck down by the state’s supreme court. The European Union may also respond to the noise around this lobbying by formulating an EU “lifestyle policy”. I like the idea of a single market and the liberalisation of trade, but when did we sign-up to a lifestyle policy?

Draft, and as yet unpublished recommendations, coming from the World Health Organisation (WHO) will no doubt inform any such policy. For example, it is likely that the WHO is going to halve the recommended “safe limits” for the intake of sugars from 10% of daily calorie intake to 5%. You might think this is to tackle the “obesity epidemic”, but not a bit of it; this recommendation follows research into tooth decay. The WHO has spent three years reassessing the 10% limit, which was set in 2003, and concluded in March last year that it was still valid with regard to obesity. Then it decided in the light of further research into tooth decay that, after all, it should be reduced to 5%. The study admits that the evidence for significant health benefits from such a reduction is limited, but whether that will stop a recommendation from the WHO remains to be seen. Have these people never heard of tooth brushes and flossing?

What we see here is a typical example of how the NPHM, which wants to exclude the food and drink industries from public policy formation, can influence the propensity of government to over-regulate. The politics of public health are about holding economic power to account and the expansion of its demonology ensures the very opposite of stable regulation: war without end.

The fundamental issue here is that the NPHM believes that lifestyle regulation is the key to conquering non-communicable diseases like cancers, diabetes, heart attack and stroke. All we have to do is get people to follow the recommendations of the health lobbyists’ socially accredited experts and we can significantly reduce premature deaths and increase longevity. But just in case the public cannot be persuaded to co-operate, the power of government should be co-opted to regulate our choices so that we do not actually get the chance to make them!

The good news is, the public does not support lifestyle regulation. An Ipsos MORI poll of 19 countries has found that the majority of the population in these countries, with the exception of Russia, think that the government has no role in trying to encourage “healthy lifestyles”. In Great Britain only 30% of people polled thought this to be a responsibility of government and in the United States the figure is only 12%. Interestingly in Canada, where there is a government-operated alcohol monopoly, the number of people who think it is the government’s business to regulate lifestyle was just 24% – the second lowest level of support. People resent being patronised.

Lifestyle regulation is based on the word “if” – if people can be persuaded or prevented from smoking, drinking, eating trans-fats and sugars, and if they can be persuaded or coerced into eating five-a-day and take up jogging, then on the basis of a variety of mathematical models specially constructed for the purpose, reductions in premature mortality and increases in longevity will follow. But it turns out that “if” is the biggest two-letter word in the English language, and it serves only to disguise the growing distance between unrealistic hope and realistic expectation.

It is not that “healthy lifestyles” are something I would want to discourage; it is just that something that might bring health benefits to individuals is a matter of private health; it only translates into a public health matter if it can achieve a critical mass, which is proving stubbornly difficult. This is the impossible dream of the New Public Health Movement.

My own belief is that conquering non-communicable diseases will not be achieved by lifestyle regulation, but by the further advance of scientific medicine. There are numerous promising possibilities, particularly in relation to DNA and stem-cell research, that hold out the promise of effective treatments or cures for a variety of cancers and for Alzheimer’s. I suspect that in 20 or 30 years’ time, when these new treatments become available, we will look back at the futile attempts of the health lobby to regulate personal lifestyles and appreciate just what a costly blind alley it was. The pity is that if some of the money being wasted on this nonsense was to be diverted into medical scientific research, we might get some of these new treatments that much sooner.
Paul Chase is a director of CPL Training and a leading commentator on alcohol policy

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