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Morning Briefing for pub, restaurant and food wervice operators

Thu 8th Sep 2022 - Update: Truss to unveil £150bn energy scheme, TRG results, price rises
Truss to unveil £150bn scheme to freeze energy bills for two years: Prime minister Liz Truss will today (Thursday, 8 September) announce a £150bn package to freeze energy bills for up to two years for businesses and households as she ends the ban on fracking and gives the go-ahead for oil and gas drilling in the North Sea. The package, which will be reviewed early next year but could last until the next election in 2024, will cap the cost of gas used to produce electricity and heat Britain’s homes and businesses and will be funded by increased borrowing. Household bills will be limited to £2,500, with consumers also receiving a £400 rebate announced in May by Rishi Sunak, the former chancellor. Truss will promise to take action to increase supplies of domestic oil and gas by reversing a ban on fracking put in place by Boris Johnson and offering incentives to local communities to approve applications. Truss said: “We will take action immediately to help people and businesses with bills but also take decisive action to tackle the root cause of these problems, so that we are not in this position again. We will set out our plans to deliver on that promise and build a prosperous Britain for everyone.” The government will reach legally binding agreements with energy providers to cap the wholesale price of gas for households and businesses. A government source told The Times the £150bn earmarked for the scheme was a “gross” figure and likely to be lower, although they acknowledged the costings were deeply uncertain. Truss will argue that as well as helping consumers, the price cap will help to control inflation and reduce pressure in the medium term on the Bank of England to raise interest rates. Economists had feared that the energy price rises due in October and January could have pushed inflation up to 20% The Bank of England said yesterday (Wednesday, 7 September) it would still have to increase interest rates from their present level of 1.75% to bring down inflation to the government’s target of 2%. Inflation is at 10.1%.

Only 26 of 619 companies in next edition of Propel Turnover & Profits Blue Book generating pre-tax profit of more than £10m: Only 26 of the 619 companies featured in the next edition of the Propel Turnover & Profits Blue Book are generating pre-tax profit of more than £10m. Premium subscribers will receive the latest edition of the Blue Book, which is produced in association with Mapal Group, on Friday, 16 September, at midday. The Blue Book shows the effects of the pandemic, with total losses of £5.4bn being reported by 326 companies. However, a further 293 sector companies are still reporting total profits of £1.5bn. The 619 UK pub, restaurant, cafe and hotel operators featured have a collective turnover of £31.3bn. 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 Multi-Site Operators Database, produced in association with Virgate, and the New Openings Database, which are also updated each month. Premium subscribers also have access to the UK Food and Beverage Franchisor Database, which 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 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; plus regular video content and exclusive columns from Propel group editor Mark Wingett.

The Restaurant Group reports slowdown in like-for-like sales, hedges utility costs until FY24: The Restaurant Group (TRG) has reported a slowdown in like-for-like sales growth since May. Like-for-like sales at Wagamama in the 19 weeks to 15 May 2022 were up 15% versus 2019 but for the 14 weeks to 21 August 2022 were up 5% against 2019 levels. The pubs division has seen like-for-like growth increase from 6% reported in May to 8% while the leisure division has seen a 4% decline in like-for-like sales having reported 6% growth in May. The concessions business continues to see improvement with like-for-like sales for the 14 weeks to 21 August 2022 down 14% on 2019 from being down 20% in May. The company has hedged all its utilities costs for FY22, FY23 & FY24 “to provide future certainty on the cost base”. The company said that given the near-term market dynamics it is adapting its targeted capital investment plans in 2023. It said: “Our Wagamama and Pubs businesses have a track record of delivering strong returns on new sites and despite the near-term cost challenges we plan to selectively grow both businesses. Key developments include: Securing improved commercial terms for new UK Wagamama restaurant leases; ceasing the roll-out of our Wagamama delivery kitchens in light of the delivery market softening and an increase in capital investment required; reduced pub openings for FY23 in light of current valuations for high quality UK pub assets; maintaining Barburrito roll-out plans given lower per unit capital requirement and limited market penetration.” Wagamama like-for-like sales were up 11% in the 33 weeks ending 21 August 2022 compared with 2019 while pubs like-for-like sales were up 9% and leisure like-for-like sales were up 2%. Concessions sales have continued to be weak with like-for-likes down 17%. Except for the leisure division, TRG is continuing to outperform the market. TRG said in-line with the wider market, both Wagamama and leisure’s delivery-related sales have moderated in recent months. Chief executive Andy Hornby said: “We have made good progress in the past six months, delivering a robust financial performance in a challenging market, with continued like-for-like sales outperformance. I’d like to thank each and every member of our teams for their phenomenal efforts in delivering these results. We have taken decisive management actions to reduce the impact of the industry cost pressures including fully hedging our utilities until December 2024 and reducing our interest rate exposure through interest rate caps. While the uncertain consumer environment presents challenges for the hospitality sector, the group is well positioned to further develop our brands to deliver long-term growth for all stakeholders underpinned by our strong balance sheet.” Total sales for the period were £423.4m (2020: £216.8m) and there was a statutory loss before tax of £28.5m (2021: loss of £58.8m). Adjusted Ebitda was up to £41.7m on a pre IFRS 16 basis (from £11.2m last year.

On Wagamama, it stated: “We began 2022 with a new vegan menu launch which was well received and saw our overall total plant-based (vegan and vegetarian) participation rise to its highest level. The business continues to innovate in anticipation of future food trends with a focus on maintaining our 50% plant-based commitment while also protecting other iconic Wagamama dishes. Wagamama’s estates review process has ensured we have continued to regularly invest in our sites through selective transformational and refresh refurbishments.”

On Pubs, the company stated: “We remain disciplined in our proven approach to new pub site selection and do not compromise on our requirements on population and demographics within defined drive times of our pub locations. We regularly take on large scale renovation projects, over many months and years, to ensure we have a unique property in the right location. The business can be nimble with menu changes both regionally and locally and a full appraisal of the core menu content and architecture has led to improvements in the quality of many dishes. The business also benefits from strong asset backing with approximately 50% of our pubs being freehold. In August 2022, our freehold pub estate was valued at £160m according to a third-party valuation commissioned by the group.”

On its Leisure sites business, the company stated: “We have made further quality changes to the Frankie’s main menu focused on pasta dishes combined with significant improvements to our drinks menu across all brands. Core menu items will reduce by a further 15% to 20% in our winter menu launch to support improved dish execution and mitigate some of the inflationary pressures we are experiencing. More than 20% of the Frankie and Benny’s estate has had a capital light refurbishment over the past 12 months which has been very well received by customers and our teams, and we will selectively explore further opportunities to invest in the estate.”

On its Concessions segment, it stated: “We currently have our entire estate of 43 sites open. Sales have benefitted from a better than anticipated recovery in passenger volumes as well as higher average spend per passenger. Recruitment and retention have been well-publicised issues since the spring but our teams have performed heroically against a tough backdrop to reopen our sites and be ready for the busy summer trading period. While we are pleased with progress, the concessions sales recovery profile has been tempered by reduced peak summer flight schedules announced by various airlines following operational challenges at major UK airports. The concessions team are well positioned to maintain this momentum if passenger volumes continue to improve through 2023 and 2024.”

The company added: “We have made very good progress in our expansion plans this year for our Wagamama international franchise and now expect to open eight to ten new sites in FY22 predominately in Italy and the Middle East. We expect to end the year with circa 65 sites operating across our Wagamama international franchise business. Going forward we expect to open five to eight new restaurants per year, representing a capital efficient way to expand the Wagamama brand internationally. Since the group’s annual general meeting update in May 2022: Utilities inflation is £2m higher than previous guidance due to unhedged volumes on landlord billed sites and new openings; Wagamama and leisure sales were adversely impacted by heatwaves in July and August (whilst our pubs sales benefited from the heatwaves). Despite the well-documented pressures facing the sector, TRG is confident in our ability to continue to outperform the sector and deliver long-term sustainable growth for our stakeholders. We have a strong portfolio of brands consistently out-performing the market, we have taken decisive action to hedge our utility costs and reduce our interest rate exposure and we benefit from a strong balance sheet with substantial liquidity.”

Prices already rising in three quarters of pubs and restaurants as energy crisis hits: Three quarters of pubs and restaurants have already increased their prices because of the energy crisis and falling demand, new research has found. The Telegraph reported an industry survey of 150 companies operating 7,500 venues has found one in five expect to go bust unless the government steps in to cap energy bills, while three in five said they are already not profitable. Pubs and restaurants now say energy makes up a fifth of their expenditure. One chain restaurant firm said the cost of an average main meal had increased from £13.25 to £14.95, while the average price of a pint had shot up from £3.50 to £4.15. The data, from UKHospitality members, suggests the sector could shrink significantly if ministers do not step in to boost revenues or cut costs. Liz Truss was asked about the sector in her first Prime Minister’s Questions yesterday (Wednesday, 7 September). “The hospitality industry is vital and I will make sure that in our energy plan we will help to support businesses and people with the immediate price crisis, as well as making sure there are long-term supplies available,” she promised MPs. Industry sources said pubs and restaurants are facing the dual challenge of rising energy bills and a fall in demand from consumers as households reduce their outgoings. The average energy bill for a hospitality firm has increased by 258% his year. The survey found 52% of businesses have already reduced trading hours to reduce energy bills, while 41% have laid off staff. Many are expecting to ask staff to take annual leave in January, which is usually a quieter season, so they can close. Kate Nicholls, chief executive of UKHospitality, wrote in a letter to Kwasi Kwarteng, the new chancellor: “Our sector is critical to our national economic and social recovery, but we need support – to guarantee jobs and wages, to ensure businesses stay afloat and to preserve and grow our communities throughout the nation. At this time of crisis, we need urgent, substantial action.”

JD Wetherspoon pubs to reduce prices on Tax Equality Day: JD Wetherspoon pubs across the UK will be cutting the price of all food and drink in its pubs by 7.5 % on Thursday, 15 September – to highlight the benefit of a permanent VAT reduction in the hospitality industry. Prices at the company’s 851 pubs (not including Republic of Ireland) will be reduced for one day only to mark Tax Equality Day. In Scotland, prices will be reduced on meals and non-alcoholic drinks only due to licensing restrictions. Wetherspoon stated: “So for example a customer spending £10 on food and drink will only pay £9.25 on Tax Equality Day. All food and drink in pubs is subject to 20% VAT. By comparison, supermarkets pay zero VAT on food, and are able to use that saving to sell alcohol to its customers at a discounted price.” Wetherspoon chairman Tim Martin said: “Taxes should be fair and equitable. It doesn’t make sense for the hospitality industry to subsidise supermarkets. However, it is unfair that supermarkets pay zero VAT on food, but pubs and restaurants pay 20%. Pubs have been under fantastic pressure for decades due to the tax disadvantages that they have with supermarkets. Customers in our pubs will find the price of their food and drink will be lower than normal on Tax Equality Day. We applauded the chancellor when he reduced the level of VAT to 5% and then to 12.5% (for food and drink served in pubs) and urge the chancellor once again to reduce VAT, thereby creating tax equality between pubs and supermarkets. He should also note the main impact of tax inequality is on high streets and town and city centres, which heavily depend on a diversity of prosperous hospitality businesses for economic, social and employment success. Government does best when it does not discriminate among various types of business selling the same products.”

Company that ran The Shankly Hotel in Liverpool ordered into liquidation: The company that operated The Shankly Hotel in Liverpool has been ordered into liquidation. The Shankly Hotel Liverpool Ops has been the subject of a successful winding up petition by HM Revenue & Customs, a creditor of the company. The business operated the hotel, which entered administration in April 2020. It is part of the Signature Living family of hotels and hospitality businesses. The firm that holds the leasehold interest of the Victoria Street building, Signature Shankly, remains in administration. Advisory firm Kroll, which is handling the administration, confirmed to Business Live that Signature Shankly has taken over the day-to-day running of the hotel, which remains open. According to an administrator’s progress report for Signature Shankly, which was published in May, The Shankly Hotel Liverpool Ops continued to trade the hotel while steps were taken to put it up for sale. Kroll said there had been a “number of interested parties that were in an advanced phase of the bidding process”. However, after a period of exclusivity was entered into with one interested party the potential buyer withdrew their interest. Kroll added the hotel “will be brought back to market as soon as possible”. A Kroll spokesperson said: “All upcoming bookings and events will be honoured and all employees that remain in the business, will be offered new contracts of employment.” The Shankly Hotel opened in August 2015 following a £20m project. It has more than 80 bedrooms, a 150-cover restaurant named The Bastion, rooftop bar and restaurant, infinity swimming pool, conference facilities and 100ft slide.

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