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Morning Briefing for pub, restaurant and food wervice operators

Wed 27th May 2020 - Propel Wednesday News Briefing

Story of the Day:

Gilkes – stimulus from the government is needed to get us going again: Charlie Gilkes, co-founder of Inception Group, which owns and operates concepts including Cahoots and Mr Foggs, has said a stimulus element to the government’s support of the sector will be essential to get it going again. Speaking as part of Propel’s “navigating the coronavirus” series, Gilkes said VAT was a key issue in this regard. He said: “Jonathan Neame suggested on one of your previous videos a rebate of the first quarter of VAT, which would be a massive help to working capital when we do relaunch. But we also need to look at a VAT cut, like they are doing in Germany from 19% to 7%. If we could cut from 20% to say 5% for a short period of time, it would help get us going. There is the rescue element that is needed through this lock-down and then there is the stimulus element to get us going again, which will be essential. I am confident the government message will change with that, when appropriate. Initially, of course, people will be fearful and we will need to reassure people we are taking every step to mitigate the effects of this virus and it transmitting in our venues. That will become part of our everyday operational procedure.” Gilkes believed people will be more considered about their evenings out and more discerning about the venues they choose to visit. He said: “We are also planning ways in which we can reopen but keeping our sense of fun and escapism. I feel people have never wanted escapism more than now and whatever measures are put in place, we need to lean into them and they become part of our concept and theme. We are looking at developing experiences, which take these new restrictions into account. The sooner we can have guidelines to know if we are working towards a one metre or two metres physical distancing criteria the better, and like everyone else I hope it’s the former like other European countries have adopted.” Gilkes will share more of his thoughts in the video, which will be released on Wednesday (27 May). Meanwhile, readers can support independent sector journalism and get their news 12 hours early (at 7pm each night) with a Propel Premium subscription. It costs £395 plus VAT per annum for operators and £495 plus VAT for suppliers. Email to sign up.

Industry News:

London ‘showing signs of awakening’: London is showing “signs of awakening”, according to the latest data from Wi-Fi solutions provider Wireless Social. The analysis, which took an aggregated look at footfall in more than 800 venues nationally and focused mainly on major cities, showed footfall in the capital has picked up in the past two weeks. It is now down about 60% compared with the average in February having been down by about 80% beforehand. Footfall in Bristol has slightly increased, but is still down about 75% compared with the average in February. Of the other cities analysed, footfall in Birmingham, Cardiff, Leeds, Liverpool, Manchester has again crept up, but remains down by more than 80% compared with the average in February. Meanwhile, Edinburgh, Newcastle and York are down by about 85% compared with the February average, while Glasgow is still down by circa 90%. 
Wireless Social is a Propel BeatTheVirus campaign member

Gove – ‘forget propping up the pub bar for a long time’: Opening up pubs, restaurants and bars after the coronavirus lock-down is “difficult” and so there will be no standing at the bar in pubs “for a long time”, cabinet office minister Michael Gove has said. He told LBC Radio: “What I hope we may be able to see is people being able to have outdoor hospitality, so you can enjoy a drink in the garden of a pub or eat outdoors in a cafe. I think it’s going to be very difficult to return to any of us standing at the bar or any of us mingling in a cafe indoors in a way that we have in the past.”

Axa to meet some French covid-19 business claims: Global insurance firm Axa has said it would meet the bulk of business interruption claims from some restaurant owners in France after it lost a court case that was seen as a potential precedent for coronavirus-related disputes across the world. The Paris court ruled last week AXA should pay one owner two-months’ worth of coronavirus-related revenue losses, potentially paving the way to more litigation from business owners who have had claims for business interruption denied. Stephane Manigold, the owner of four Paris restaurants who brought the case against the French insurer, told Reuters since the court decision his team had received calls from Britain, South Africa, Spain and the United States asking for details of his contract and the court's ruling. “This decision in Paris has a global resonance,” he said. AXA has said it will appeal the Paris ruling, but chief executive Thomas Buberl added the company was seeking an amicable solution and planned to meet the bulk of claims from restaurant owners whose contracts had some ambiguity in them.

Liverpool plans to launch continental-style outdoor spaces: Liverpool is to invest £450,000 to maximise outdoor spaces to maintain social distancing to help its recovery plan. Working with Liverpool’s Business Improvement District, which supports 1,500 businesses in the city centre, and the Chamber of Commerce as well as with a collection of creatives and designers, the fund will be used to help local independent businesses, in areas such as Castle Street, redesign outdoor spaces. The aim will be to turn them into high-quality covered seating areas to make up for the internal space they are losing as a result of social distancing restrictions. In a move that is believed to be the first of its type in the country, it will ensure many independent bars and restaurants are able to continue trading safely. The easing of restrictions on bars and restaurants is not expected until early July, but the city is keen to start getting itself ready to be as accessible and safe as possible in the coming months. Mayor Joe Anderson said: “We need to find a way to give local people confidence they can continue to go out to eat, spend money in the local economy and have a good time safely. This is really important as we know tourism is going to be badly affected by international travel restrictions. Small, independent traders do not have the financial reserves or the borrowing power of big corporate companies. It is up to us to come together and find ways to give them a helping hand through what is undoubtedly the biggest challenge of my lifetime.”

Company News:

GBK generating about a fifth of revenue prior to lock-down through delivery, 19 of its 72 sites currently capable of the service: Famous Brands has said its Gourmet Burger Kitchen estate is generating about a fifth of the revenue it was prior to lock-down through delivery. Speaking at a presentation of the company’s full-year results, Famous Brands chief executive Darren Hele said he currently expected a total of 19 of the 72-strong portfolio to offer delivery, with 12 outlets open to date. He added the company plans to continue reopening those sites capable of delivery at a rate of three per week. At the beginning of April, Famous Brands said it had taken the decision to not provide any further financial assistance to GBK, and accordingly the board of GBK is considering the options available to the business, but did not provide any further update. Famous Brands said its decision to withhold further financial support for GBK may result in an impairment of the full value of Famous Brands’ investment in GBK of £119m. Hele said while Famous Brands had hit its targets for GBK for the full year, it was unlikely to able to do so going forward following the coronavirus pandemic. In the full year, Famous Brands said GBK had performed strongly in the first three quarters but a “tough” final quarter was “putting pressure on the wider business”. GBK reported an operating loss before non-operational items of £0.6m, compared with an operating loss of £4.6m the previous year. Operating margin improved to minus 0.9% from minus 5.7% the year before. System-wide sales were £68.9m, compared with £80.2m the previous year largely due to the closure of 24 stores as part of the company voluntary arrangement process, including eight in the full year. GBK’s UK and Ireland’s combined like-for-like sales increased by 2.7%, compared with a decrease of 4.2% the year before. Hele said the Irish GBK business, which remains closed, had “underperformed” in the full year and it was working on improvements. Of its Wimpy UK business, which comprises of 67 sites, Famous Brands said the performance had been “solid” – boosted by an increased contribution from the delivery offering and a re-engineered menu – and the business was well positioned for long-term growth.

Gail’s Bakery to open Windsor and Southwark sites: Gail’s Bakery, which is backed by sector investor Luke Johnson, is to open sites in Windsor and Southwark, Propel has learned. The company has transformed the former Jung’s bakery in Peascod Street and will open the site on Monday (1 June) for takeaway only. This will be followed by an opening in Southwark in mid-June. The site in Stamford Street forms part of the Bankside Hotel. Both sites will adhere to social distancing guidelines with extensive safety measures in place to protect staff and customers. Chief executive Tom Molnar told Propel the company was continuing to negotiate on a site in Guildford. He said of the openings: “While we will have a scaled back menu, we are trying to our bit to keep the economy moving.” Johnson tweeted: “We advance! Onwards!” Gail’s was founded in Hampstead in 2005 and is run by Molnar and managing director Marta Pogroszewska. It operates circa 60 sites.

City Pub Group plans temporary outside cashless bars as it readies beer gardens for reopening: City Pub Group has outlined measures it will implement to get beer gardens ready for reopening, with outside cashless bars and limited menus. Executive chairman Clive Watson told the Evening Standard the company, which runs 47 pubs, has drawn up a number of plans to start trading as soon as the government gives the green light. Watson said City Pub Group will initially look to keep customers outside, and they and employees will be socially distanced. A temporary bar will be set up in beer gardens or terraces, staff will take orders there using contactless payments, go inside to get orders, and customers will get them from an outside collection point. Plastic glasses, paper plates and wooden cutlery will be used. They can be recycled and used instead of tableware that although washed, has been used by others previously. Tables will be spaced out to comply with social distancing guidelines, and a smaller food and drinks menu will be available to make orders quicker and simpler. On top of that staff will wear gloves and masks. Watson said customers will be encouraged to pre-book and pre-order food and drinks to avoid queues and to speed up service. He added: “As pubs start to reopen it’s important this is done with the safety of staff and customers being of paramount importance. We will only open pubs where we can guarantee this safety. Pubs are an important part of our everyday lives. By being responsible when we reopen we can hopefully get back to some kind of normality as quickly as possible.”

JD Wetherspoon could experience ‘substantial excess demand in a favourable cost environment’: Peel Hunt leisure analyst Douglas Jack has said JD Wetherspoon could experience “substantial excess demand in a favourable cost environment”. Issuing a ‘Buy’ note on the shares with a target price of 1,200p, Jack said: “In contrast to Wetherspoon, only 36% of pub, bar and restaurant operators believe they will eventually reopen all their sites for trading, according to CGA. All venues that reopen are likely to do so under social distancing restrictions. We expect supply to fall more than demand, supporting higher retail pricing, with the biggest supply reduction under social distancing occurring in lower price, historically high footfall segments with limited outdoor space. In our view, this must be an environment, with constrained operating economics and restricted supply, in which Wetherspoon tests higher pricing, at least on some products. Wetherspoon has many competitive advantages. It has plentiful liquidity and an estate with an average of circa 4,000 square foot of customer area, in addition to almost 700 (80%) of its pubs having either a beer garden, roof garden/terrace or outside patio area. In comparison, the British Beer & Pub Association claims 27,000 (56%) of 48,556 pubs have beer gardens. Wetherspoon also has a successful order and pay app in operation. There should be many opportunities for the pub operators that can reopen successfully – the CGA Prestige Foodservice Price Index is in deflation; the previous acute labour shortage is over; scope to negotiate with landlords and other suppliers has never been greater; working capital should start to rewind; and this should be the biggest staycation year ever. Wetherspoon could experience substantial excess demand in a favourable cost environment.”

Investor group led by Mario C Bauer acquires Vapiano France and Luxembourg: A group of investors led by Mario C Bauer has agreed to take over the Vapiano brand’s operations in France and Luxembourg. The group led by Bauer, who was Vapiano's former head of international franchising, will take on the operation of 29 sites under the brand, working with Vapiano France chief executive Salvatore Perri. A statement from the investment group said: “Salvatore and his organisation have made Vapiano a strong brand in France and Luxembourg in recent years and see great potential for the future. We look forward to working with him and his team.” Last month Propel revealed advisors had been appointed to find a buyer or new investor for Vapiano UK. PwC was understood to have started actively marketing the seven-strong UK arm of the brand. It is believed the advisor has been appointed to manage the sales process for parent company Vapiano SE, Vapiano Franchising, and a number of the brand’s international markets, including the UK. The brand operates seven company-owned sites in the UK, comprising five in London, plus restaurants in Edinburgh and Manchester. Its site in Great Portland Street, near Oxford Circus, was one of the brand’s best performing sites across its entire international estate. At the start of April, the board of Vapiano filed for insolvency due to liquidity problems as a result of declining sales. The company could not reach an agreement with its financing partners on an envisaged funding solution, which left it unable to apply for aid under government relief programmes. The brand operates 55 sites in Germany and circa 240 restaurants across 33 countries in total. Vanessa Hall, the former YO! chief executive, was appointed chief executive of Vapiano SE in September. She had been a member of its advisory board since September 2018.

‘Marston’s deal with Carlsberg UK is a game changer and resolves any liquidity concerns’: Peel Hunt leisure analyst Douglas Jack has described Marston’s joint venture with Carlsberg UK as a “game changer” and resolves any liquidity concerns. Issuing a ‘Buy’ note on Marston’s shares with a target price of 95p, Jack said: “This transaction resolves any liquidity concerns and raises the net asset value outside the securitised estate from 35p per share to 97p per share, with the value of the brewery crystallised by this transaction. If one applied a nine times 2019 Ebitda multiple to the 435 unencumbered pubs, the result would be 75p per share with a free option on the securitised estate (that has a net asset value per share of 93p) by our estimates. The transaction brings in £239m cash, with a deferred contingent payment of £34m due 12 months after completion. Despite this, there should be no reduction in brewery cash flow. Carlsberg's share of proforma Ebitda is £53m, up from £21m. We estimate it is paying £273m for £32m of additional Ebitda, implying a valuation of £780m for £89m Ebitda (after working capital), a valuation of £312m for Marston's 40% share, implying £585m of total value versus a previous book value of £196m. These figures exclude revenue synergies, which should be assisted by both beer portfolios being complementary. We expect these synergies to be mostly through the free trade due to Carlsberg UK already being a supplier to Marston 's. For Marston 's pubs, the supply agreement should be unchanged, long-term with no volume commitment and with the option to source other brands. In our view, this is a game-changing deal that should ensure Marston's emerges from covid-19 in a much stronger position. This is before considering other opportunities, such as the potential to drive revenue synergies, re-centralise distribution, reduce central costs and refocus on just the pubs.”

Nando’s to reopen a further 40 sites: Nando’s has announced it will reopen a further 40 sites from Wednesday (27 May) for either delivery or click-and-collect. It will add these sites to the 54 UK locations it has already reopened over the past few weeks. All restaurants are operating “behind closed doors”, and offering a reduced menu, which includes its peri-peri chicken wings, butterfly chicken, halloumi sticks and peri chips. The company also announced all delivery orders placed through the brand’s website can earn chillies through its loyalty scheme ready to be redeemed when the restaurants open their doors for dine in service later in the year. This week’s reopenings mean 94 of its 422 sites will have resumed service, following the closure of all sites at the end of March.

Tabletop closes investment round: Tabletop, the fast-growing technology startup specialising in tablet, mobile and self-serve ordering and payment, has successfully closed a large, oversubscribed investment round, Propel has learned. The investment, believed to be a very large six-figure sum, was led by Namier Capital Partners and includes a significant number of experienced industry professionals. Tabletop has developed a “complete, EPOS-replacing solution that combines cutting-edge hardware with artificial intelligence-powered software to enable social distancing, drive higher spend per head and reduce labour costs”. The company already works with Compass Group, Kew Green Hotels, Levy Restaurants among others and is in discussions to launch its technology with additional hospitality companies post-lock-down. Tabletop chief executive Matthew Husselby said: “We are thrilled to have secured a sizeable investment round to facilitate the next stage of our exciting growth plans. We see substantial opportunity for technology within the healthcare and hospitality sectors and this will only be accelerated as a result of coronavirus.” 

Douglas Jack – Revolution Bars Group’s new facility is sufficient to accommodate the estate being closed for a further nine months: Peel Hunt leisure analyst Douglas Jack has said Revolution Bars Group’s new facility is sufficient to accommodate the estate being closed for a further nine months. Issuing a ‘Buy’ note on the shares with a target price of 85p following the announcement Revolution Bars Group has added £16.5m to its debt facility, Jack said: “Revolution Bars Group has further reduced its monthly cash burn from £1.9m to £1.6m. This assumes the £1.0m of monthly rent cost is paid, although this may not be fully necessary. The other £0.6m includes salaries, utilities and insurance. Net bank debt is £22m, up from £17.8m as at 11 April. We believe this increase is largely due to £4m of working capital unwind. A further £1m of unwind is still expected, taking the financial headroom down to £14.5m (versus a £37.5m facility). Thus, this facility is sufficient to accommodate the estate being closed for a further nine months, by our estimates. The debt facility comprises a £21.0m revolving credit facility, which amortises by £1.0m in June 2021 and matures in June 2022, and £16.5m under the Coronavirus Business Intervention Loan Scheme, which amortises by £1.0m per annum from June 2021 and matures on 30 June 2023. We are leaving our June 2020E forecasts unchanged even though the pace of cash burn has slowed. For 2021E, our forecasts now assume a more gradual return to full trading, taking advantage of the extended Coronavirus Job Retention Scheme while social distancing restrictions are in force. The company should trial reopening in a few sites in July, perhaps with more emphasis on its food offer and daytime trade, prior to the entire estate being open in November. We forecast net debt to be £26m in June 2020, £30m in June 2021 and £22m in June 2022. This reflects no expansion and no dividends. In our view, this is based on cautious assumptions; a better scenario for Revolution Bars Group would be if social distancing were applied to the more vulnerable age groups as almost all its customers are under 40. For 2022E, we assume sales almost return to 2019's level. Before coronavirus, Revolution Bars Group delivered on its workstreams, generated positive like-for-like sales as well as bringing down costs and debt. Subsequently, it has done all the right things to safeguard itself and its employees. In our view, the valuation has to be based on 2022E, the first possible year with a semblance of normality. Our 85p target price equates to five times EV/Ebitda 2022E.”

Inamo pivots to online e-commerce platform: London-based futuristic restaurant brand Inamo has launched an online wine e-commerce store. Inamo said the wine is already at least 15% below the recommended retail price, and is offering a further 10% discount to Propel readers until Sunday (31 May) by using the code PROPEL10 at checkout. Inamo co-founder Noel Hunwick and chief executive Lee Skinner created the partnership with MDCV UK in February. MDCV and its sister Kingscote estate in West Sussex supply premium Provence and English wine from their vineyards on both sides of the Channel. Inamo’s senior team chose the wine to feature in its own Inamo Provence wine selection with English sparkling from Kingscote. The intention is to extend the range of wine available in the coming weeks. Delivery is typically within 72 hours and free to UK addresses. Skinner said: “We’re delighted to offer high-quality wine with free UK delivery as we seek to do all we can to support our fantastic team and suppliers in the period before we can reopen our restaurants.”

Macellaio RC founder to launch delivery service: Roberto Costa, founder of Italian steak brand Macellaio RC, is to launch a delivery service next week “bringing an Italian kitchen, larder and butcher” to homes in the west and south west of London. Costa is launching CasaCosta on Monday, 1 June, which will offer items that he uses daily in his kitchen directly sourced from producers. The butchery will feature cuts of Fassona beef, along with chicken, lamb and sausages. The “larder” will consist of charcuterie, fresh bread, pasta and sauces along with a range of essentials such as eggs, flour, bacon and cheese. From the “kitchen” will be freshly made pizza, focaccia and pesto alongside lasagne and cannelloni. The service will be available to residents in the Battersea, Chelsea, Fulham and South Kensington areas. Costa operates five Macellaio RC sites in London. 

200 Degrees reopens two more sites for takeaway: Nottingham-based coffee roaster and retailer 200 Degrees has reopened a further two sites for takeaway. The company has reopened its outlet in Colmore Row in Birmingham and Flying Horse Walk in Nottingham. Co-founder Rob Darby said because the sites were large there was room to put the required social distancing measures in place while they normally have strong takeaway trade. The company had already reopened its sites in Carrington Street in Nottingham and its Lincoln branch. 

Adam Handling extends delivery and collection service nationwide: Chef Adam Handling has extended his food delivery and collection service nationwide. Handling launched Hame – the Scottish word for home – last month offering some of the dishes from his restaurants – The Frog Hoxton, Frog by Adam Handling and Adam Handling Chelsea – and a few he has developed while cooking at home during lock-down in London. The service is now available across Britain, although orders outside the capital must be given by Wednesday midnight for delivery on Fridays. Hame is available for delivery in London from Friday to Sunday with 48 hours’ notice. Rather than providing hot dishes, the food from Hame arrives fully prepared, ready for cooking and plating at home, complete with recipes and full step-by-step video instructions. 

Whitbread secures permission to rebuild fire-damaged Premier Inn site in Bristol: Whitbread has secured planning permission to rebuild the Cribbs Causeway Premier Inn in Bristol. The company has received approval from South Gloucestershire Council for a new hotel and restaurant after a fire severely damaged the177-bedroom property in July last year. The new design will follow the same “U shaped” building footprint with an additional six bedrooms. The section of the building facing on to Cribbs Causeway will be raised by a storey to accommodate an undercroft car parking area. A 150-cover restaurant and meeting rooms are also included. Whitbread aims to start work on the site this summer and have the building complete by the end of 2021.

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