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Morning Briefing for pub, restaurant and food wervice operators

Wed 30th Sep 2020 - Update: Burger King, City Pub Company, 10pm curfew, confidence
Market confidence dips but bigger groups are more optimistic about survival: Fewer than 10% of business leaders in the out-of-home sector are confident about market prospects over the next 12 months, the latest Business Confidence Survey from CGA and Fourth reveals – but restaurant and pub group bosses are less pessimistic than independent operators. The survey, conducted over the first three weeks of September, shows that the number of leaders feeling confident about the general market has dipped to just 9% – half the level in June (16%), and a fraction of the four-year high of 60% at the start of this year. But the proportion of multi-site businesses feeling confident about the next 12 months for their own business has climbed five percentage points to 37% since June. This contrasts with a recent survey of members of UKHospitality, BBPA and BII, which found that only 19% of operators with one or two sites felt optimistic about their prospects. However, group leaders’ optimism levels remain way below pre-pandemic levels of 83% in the February edition of the Business Confidence Survey. The gulf in confidence follows news from CGA’s Market Recovery Monitor with AlixPartners that 89% of group managed licensed premises were back trading by the end of August, compared to just 68% of independently run sites. Confidence has been lifted by the popularity of the Eat Out to Help Out scheme, which led to better than forecast trading for many multi-site groups in August. Two thirds of leaders said their trading had been above expectations since they reopened, with only 18% reporting worse than expected sales. Staycations and warm weather also boosted many operators over August. But optimism levels will have been dented by new measures on group sizes, curfews and table service since the survey was conducted. Nine in ten leaders think fragile consumer confidence will have a negative impact on the market, and nearly as many (79%) are concerned about a squeeze on disposable incomes. The Business Confidence Survey also shows how leaders are responding to market dynamics and consumers’ changing habits. More than four in five leaders (83%) say they will be avoiding city centre locations in their growth plans following a collapse in footfall in big cities including London, while three quarters (73%) plan to adapt to the widespread switch to working from home. CGA’s research and insight director Charlie Mitchell said: “The last six months have been the most challenging that the out-of-home eating and drinking sector has ever known, and the government’s latest restrictions mean conditions are likely to remain very tough for the rest of 2020. The Eat Out to Help scheme has been a springboard to recovery for some multi-site groups, and the green shoots of confidence among leaders are very welcome, but it is clear that many independents face a battle for survival. In the face of so many headwinds, the fresh backing that was announced this week on jobs, loans and VAT is welcome, though whether it goes far enough remains to be seen. This is a resilient and adaptable sector, but it deserves extended support from government if it is to sustain businesses and protect jobs in the coming months.”

Burger King UK working with advisers on future of subsidiary; plans 40 new openings: Burger King UK (BK UK), the Bridgepoint-backed fast food chain, is working with advisers to review options for one of its subsidiary businesses, the 33-strong Kout Food Group BK estate it acquired last December. As first reported by Sky News, the Alasdair Murdoch-led business is working with advisers from AlixPartners to review options for the subsidiary, which could include a company voluntary arrangement (CVA) or, more likely, a pre-pack administration. This could include the closure of up to ten of sites. Burger King UK acquired KFG Quickserve Limited in December 2019. The acquisition included 33 of its Burger King restaurants, 16 of which were situated on high streets or within shopping centres. The company told Propel: “Due to the current pandemic and economic pressures, 2020 has seen a shift in footfall from traditional high street and in-centre locations, to out of town restaurants, which has impacted some of the locations acquired. As a result, we have worked directly with landlords to try and agree a realistic level of rent of which we believe is reflective of the current climate, but unfortunately this has not been achieved and as such, we are considering the difficult decision to close up to ten locations but have not concluded at this time. Burger King UK is committed to save as many jobs as possible and where individuals can be, they will be offered transfers to locations open or within new restaurants set to open.” The company, which operates circa 530 sites, including 118 company-owned, said that despite “some changes and closures across our network, we also have ambitious growth plans for new openings”. In 2021, it plans to open up to 40 new restaurants, which will create around 1,400 new jobs and by 2023, it forecasts it will have opened over 100 new restaurants. A spokesperson told Propel: “Despite having to make the painful decision to close a small number of restaurants in light of the current pandemic, Burger King UK has demonstrated a resilient approach to the hurdles that have been placed in its path in recent months. We hope that our commitment to open many new sites over the coming three years, bears testament to this ethos.” Bridgepoint took on the role in 2017, when it acquired the exclusive rights to the Burger King brand. The main franchisee directly owns about 118 of the 530 sites. BK UK was formed after a joint-venture deal was agreed between Restaurant Brands International and Bridgepoint in November 2017. On its creation, BK UK Group acquired Caspian UK Group, one of the UK’s largest Burger King franchisees with 74 restaurants. Sky News reported that insiders indicated that a broader restructuring of the business was a possibility, depending upon further spikes in covid-19 cases and ensuing lockdowns and enforced closures of restaurants. Bridgepoint is understood to have been discussing a refinancing of the Burger King business to enable funds to be invested in opening more drive-thru restaurants.

City Pub Company reports trade at 80% of previous levels since re-opening: The City Pub Group, the owner and operator of 52 predominantly freehold pubs, has reported sales of £12.1m in the 26 weeks to 28 June compared to £27.1m last year. It made a loss of £3.5m compared to a profit of £1.9m the year before. The company said that since reopening, revenues are at around 80% of previous levels for pubs re-opened, generating positive cashflow. It has 37 of its 48 site now open. The company has also paid £1.2m for a 14% stake in certain companies within Mosaic Pub and Dining Group – it has nine pubs within the portfolio companies. Clive Watson, executive chairman of The City Pub Group, said: “Trading since reopening, given that there have been no sporting events or large bookings and given reduced opening hours, has been encouraging. This excellent performance has delivered profitable, positive cashflows allowing us to maintain our strong financial position. A large part of this is down to the passion and dedication of our staff who have hospitality at their very core. The business has undergone significant change since the outbreak of covid-19. The work and actions implemented have made us an even better business, positioned us well to endure these challenging times and emerge strongly once the pandemic passes.“ On covid-19, Watson stated: “The covid-19 pandemic has been the biggest challenge to business that we have all had to face in all our lifetimes. The recession of the early 1980 and 1990s, and the credit crunch in 2008/2009 are comparably insignificant when assessing the impact of covid-19. As a management team, we have had to adopt new measures to help stabilise the business. The group raised £22m from a Placing and Open Offer in April. These funds have helped to strengthen the balance sheet and have been utilised in helping to reduce the group’s bank borrowings. This in turn has helped the group to modify its arrangements with its bank, Barclays, meaning there will be no covenant testing until mid-2021. We continue to benefit from good liquidity and levels of liquidity are significantly greater than at the same time last year. The group has been able to enter into arrangements with some of its landlords, where some rent is paid in return for rent concessions going forward. The group will consider whether it should permanently surrender its liabilities on certain leases. The group is prepared to work with landlords so that an equitable arrangement for both parties can be found.” On the future he added: “The next six months will throw up more challenges, but I remain confident we can face up to them. During this period, it is important that we continue to develop the group and continue to establish ourselves as a premium collection of pubs, with its own brand and culture. It is in times like these that it is important to challenge your business model and make enhancements where necessary.” The Mosaic fundraise, which involved The Galaxy, Pioneer and Sovereign City Pub Companies netted subscriptions after costs of over £2.5m. The nine-strong estate established in 2015, which includes amongst its sites The Garrison in Bermondsey Street and The Button Factory in Birmingham, has reduced its net debt to under £2m following the offer. Joint chief executive James Watson said: “Our recent fundraise was a strategic decision to strengthen our collective balance sheet and increase liquidity, in order to protect our shareholders’ interests while current trading conditions and the government’s decision-making remains in flux. We are very pleased that existing shareholders and new investors have shown such support to the fundraise, and with a predominantly freehold estate and modest gearing, this additional cash means we can move forward with confidence and continue to pursue our longer-term goal of restoring shareholder value over the next three years.”

Time Out Group updates on plan for food market openings: Time Out Group has updated its plans to open and re-open its food markets. Of the six months to 30 June, it stated: “The period started with performance in line with our expectations. Lisbon continued to grow footfall and average spend despite its relative maturity and the five newly opened Markets were gaining further traction with locals and receiving growing plaudits. By 16 March however, in response to the global efforts to contain the spread of covid-19, all markets were temporarily closed as we focussed on the wellbeing and safety of our employees, guests, concessionaires and their teams. As outlined above, in response to closures, immediate cost saving initiatives were introduced to help mitigate the revenue lost. We engaged in productive discussions with our landlords and are appreciative of their on-going support through partial deferrals of rent. While this still results in an accounting rent charge within Market adjusted Ebitda, the agreements afford some cash preservation as the markets re-open and revert to a normal level of operation. Covid-19 has proven to be a catalyst for the acceleration of initiatives already in the pipeline, most notably the development and launch of the Market app that facilities contactless transactions, order and payment at tables, collection and home delivery via third party fulfilment. Chefs and consumers alike have been keen to return to the Time Out Markets since reopening, demonstrating that the scale and layout of well-ventilated venues is well suited to allow social distancing in an enjoyable environment. The markets have been adapted to include distanced seating plans, table partitioning, cashier shields and sanitisation teams. As a result of these measures and government restrictions being lifted, Lisbon and Montreal Markets reopened in July followed by New York, Boston and Chicago in August. We currently expect the Miami market to reopen in Q4. There are five previously announced and contracted sites, where progress is being made towards opening. Although they may be subject to further covid-19 related delays, the current scheduled timings are: London Waterloo (owned and operated) – currently expected to open in H1 2022; Porto (owned and operated) – currently expected to open in Q4 2021; London Spitalfields (owned and operated) – Listed Building consent application has been submitted and the group awaits the outcome; Dubai (management agreement) – construction has now re-started following a covid related pause and is currently expected to open in Q1 2022; Prague (management agreement) – expected opening date in 2023. Time Out’s unique curated markets show-casing the best of each city, hold particular appeal for retail real estate owners, as they seek solutions to generating high and consistent footfall. As a result, we are actively reviewing a growing pipeline of proposals from landlords around the world. Following the success of Montreal, management agreements are an increased strategic focus, especially given that these projects require no capital outlay and provide long-term visibility over guaranteed revenue and Ebitda.” The company saw sales drop 24% to £20.3m in the period – it made a group adjusted Ebitda loss of £8.8m.

Independent Family Brewers call on PM to re-think 10pm curfew: The Independent Family Brewers of Britain, which run collectively around 4,000 UK pubs, has written an open letter to PM Boris Johnson calling for a re-think of the 10pm curfew and other regulations hurting the pub sector. Chairman Richard Bailey, who is also chairman of Thwaites, states: “Our longest established member started their business in 1698; many of our companies are more than 100 years old. Our breweries and pubs have been an integral part of the United Kingdom’s communities for hundreds of years. The current government policy to escalate rapidly draconian new rules on pubs is the wrong tool for the wrong job. Since the start of July there have been approximately 500 million visits to pubs in the UK. In this time there has been absolutely no indication or evidence that the opening of pubs on July 4th has contributed to a noticeable increase in covid-19 infection and pubs have built their customers confidence. There is very little, if any, evidence that pubs are even now a major problem in the transmission of covid-19, yet nationwide pubs (and restaurants) are having their businesses dismantled by blanket legislation, both last week and over the past few days. This threatens their very survival, not to mention their role in their communities and the destruction of the employment that they provide. The problems around community transmission and a rise in the R-rate lie in other sectors suchascare homes and education. Targeting pubs will do almost nothing to dampen transmission, but will certainly destroy people’s livelihoods, employment, hope and sanity. Pubs are one of the last places that people can now socialise, and playa fundamental role in social cohesion and mental well-being. The measures introduced over the last days will destroy their ability to play that invaluable role over the winter months, and many millions of people will suffer as a result. Pubs have already taken enormous steps to mobilise themselves to be able to provide their social role in a covid-secure and regulated setting. The new measures to wear masks, introduce a curfew and prevent people from meeting friends and family are now actively pushing people away from pubs, either into social isolation or into a less secure domestic environment – neither of these are desirable. Pubs need to be part of the solution to the current challenges, not a scapegoat to demonstrate action; particularly when the measures being introduced are illogical, have no basis in the statistical evidence and have unintended consequences, such as encouraging late night house parties with alcohol purchased from off-licenses. There is time yet to avoid an act of catastrophic self-harm, both to our pubs and our communities, the shadow of which will be cast onto our social infrastructure far into the future. I call for you and your government to act now to get behind pubs and assist them to play the role that they are so finely evolved for. Please rethink the national pub curfew, masks and restrictions on gathering multiple households in a pub. After all of the work that had been done to build confidence over the past three months, these harmful rules are doing untold damage now, which will be compounded in the coming weeks and over the winter months.”

Everyman reports cinema admissions around 40% of last year since re-opening: Cinema group Everyman Media Group has reported cinema admissions at 40% of last year since it re-opened its cinemas. The company stated: “The release of Tenet in August demonstrated continued demand for great content in a cinema setting, with Everyman achieving a 10% market share, and UK Box Office for the film in line with other similar releases pre- covid-19.” The company reported sales of £15m in the 26 weeks to 2 July compared to £28.9m in he same period the year before. It made an operating loss of £12m compared to a £1.6m profit in the same period the year before. Paul Wise, executive chairman of Everyman Media Group, said: “We had a very strong start to the year with good revenue growth, illustrating that our model was gaining further traction. Covid-19 has halted that growth abruptly. Our sole subsequent challenge was to make swift, prudent adjustments to prepare for the current environment. Our amazing teams have been loyal, understanding, and supportive. Our dialogue with customers has reinforced our faith that we have exceptional brand loyalty and goodwill. Despite of the challenging current environment, we retain our confidence in people’s appetite to be entertained. And that film accounts for a large proportion of that appetite. People are fundamentally sociable, and we remain confident that, when it is appropriate, people worldwide will return to cinema, and specifically to Everyman. We are confident in the Everyman brand, and importantly our ability to navigate whatever challenges the next twelve months may pose.”

Sharrow Bay Country House Hotel to go into liquidation: The Sharrow Bay Country House Hotel, on the shores of Ullswater, is set to be placed into liquidation. A resolution to consider the winding up of the iconic hotel is due to be considered on 2 October. Papers sent out to creditors by email on Wednesday reveal that the administrators were first contacted by the director of Sharrow Bay Hotel Ltd, Andrew Davis, on 3rd July. A statement of finance shows that the estimated total assets available for preferential creditors is £83,898. The estimated deficiency to creditors is more than £2.3 million. The hotel was opened in 1948 by the late Francis Coulson, who created the first ever country house hotel along with his partner Brian Sack, who joined him in 1952. In December, 2003, the hotel was sold to the Von Essen hotel chain for £5 million. The chain later went into administration with debts of nearly £300 million. The Sharrow Bay was snapped up by a private equity company, London-based Hamilton Bradshaw, run by entrepreneur and former Dragons’ Den investor James Caan, for a knock down £1.5 million in 2012. In 2013 Andrew Davis, the founder of the Von Essen group, took it on again and invested heavily in the hotel.

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