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Morning Briefing for pub, restaurant and food wervice operators

Fri 16th Dec 2022 - Update: Fulham Shore warns on expected fall in trading, Hollywood Bowl, consumer confidence, delivery sales
Fulham Shore expects trade in the final quarter to behind rest of the year, to pull back on rate of openings: Fulham Shore, the Franco Manca and The Real Greek owner, has said due to the current challenges facing the sector, including the impact of the cost-of-living and the train strikes, it expects trade in the final quarter of its current financial year is likely to be behind any of the group's first three quarters. The company also said although, it expects to deliver its 18th new opening in spring 2023, given the pressures the sector is facing, it believes that it would be “imprudent to aim to maintain this opening frequency in the next financial year”. The business said: “Until the economic situation for our customers and the country improves and stability returns, the group will look to target between five to ten new openings for the next financial year and will continue to fund the opening programme largely out of operating cash flow.” Group revenues for the six months ended 25 September 2022 were £49.9m (2021: £39.5m), an increase of approximately 38% when compared with the same period in 2019, prior to the onset of covid-19, and some 26% ahead when compared with the same period to September 2021. The company said headline Ebitda for the half year was in-line with the prior year at £10.5m (2021: £10.6m). Its adjusted headline Ebitda for the half year was lower at £6m (2021: £6.9m) as the business rates holiday, lower VAT rate and covid grants, which the group benefited from last year, ended. Operating profit for the period was £2.4m (2021: £4.5m), which the business said reflected the higher one-off pre-opening costs incurred on opening 13 new restaurants during the half year (2021: three restaurants), while pre-tax profit was £0.9m (2021: £3.1m). During the half year, the company opened 13 new restaurants (2021: three) and closed two restaurants (2021: nil), one of which was relocated nearby almost immediately. The opening programme resulted in pre-opening costs of £1.2m (2021: £0.2m). Since the period end, the group has opened two more Franco Manca pizzeria and two The Real Greek, including the first Franco Manca in Wales, in the centre of Cardiff, and the first The Real Greek in Scotland, which is located in the St James Quarter, Edinburgh. It said it was in various stages of negotiations for eight proposed new restaurant leases due to open in the next financial year. The company said the first few weeks of sales of its Franco Manca cook-at-home range have “gone well, reviews are positive, and we believe this will develop an additional source of revenue over the next few years”. Following the franchise agreement for Greece signed in November 2021, the group has confirmed terms of a franchise territory agreement for Franco Manca in Spain and Gibraltar have been agreed. The first two locations will be located in the Malaga area of southern Spain, with more sites to follow if these prove successful. The company said it believes this to be a major market for the group and hope to conclude the deal in the new year. The company also said it was making progress formulating a covid-19 business interruption insurance claim. It said: “We believe our policy wording is similar to some recent successful outcomes for insured parties in our industry. At this stage, however, there can be no certainty of a financially beneficial outcome for the group.” On current trading the business said: “Group turnover during the first two months of the second half of the financial year was well ahead of the comparable periods in 2019 and 2021, by 46% and 12% respectively, however our costs continue to rise against the backdrop of subdued early and midweek trading. During the second half of the financial year so far our restaurants and our customers have been buffeted by unstable political and economic circumstances, which in turn have impacted consumer confidence. This is in addition to the restrictions caused by intermittent train and tube disruption. As a result, office occupancy in our urban locations has again fallen back to well below 2019 levels. The group's trade at weekends especially in suburban sites has held up well and is in line with management expectations. December has started well and Franco Manca sales especially have recovered, again driven by strong weekend trade. Our restaurant businesses started life in central London and its inner suburbs. These sites still form a large geographic proportion of our sites. Following the lifting of covid restrictions last year some of these office occupancy figures had been improving week by week. However recent surveys have shown office occupancy figures have stagnated, remaining at around 42% down from a weekly average occupancy of 63% in 2019. Lower office occupancy has also impacted commuting numbers; in the year to March 2022, London Waterloo station carried less than 50% of the commuters that it did in 2019-2020. As a result, at our office centric locations, Monday and Friday trade has been particularly negatively impacted since the half year, exacerbated by a number of midweek tube or rail strikes. The majority of restaurants in the group benefited from fixed price energy contracts that expired at the beginning of October 2022. Energy rates have doubled since these contracts ended, after taking into account the price cap introduced by the UK government. We have been able to offset some of the resultant margin impact through an energy efficiency drive, benefiting from agreeing lower rateable values for some of our restaurants and from closing several rent reviews with nil increases. We will also review our menu pricing more regularly to cope with these additional costs while still aiming to be better value than a comparative basket of our peer group.” In November 2022, the business signed a one year extension of its £17m revolving credit facility with HSBC taking the maturity date to November 2025. The business said: “The continued transport disruption on the approach to Christmas will inevitably continue to cause more interruptions to our normal trading patterns. We prudently assume that these transportation strikes are likely to be equally as disruptive in the coming months. In addition, whilst we hope to see some recovery, we must assume that the cost of living impacts on consumers will continue to influence particularly early and midweek trading and office centric locations. As a result, the group is conducting a number of initiatives in both businesses to boost trade early in the week and at lunchtime and these are showing early signs of improving sales. Sales from our retail launch of five cook-at-home Franco Manca pizzas will also partially mitigate expected lower footfall in the final quarter. due to these challenges, the company expects that trade in the final quarter of the current financial year is likely to be behind any of the group's first three quarters.” David Page, executive chairman of Fulham Shore, said: "The group traded in line with management expectations during the period despite challenging trading circumstances. This creditable performance was underpinned by continued strong revenue growth at both Franco Manca and The Real Greek reflecting both businesses' high-quality food and excellent value-for-money propositions. During the six month period the group made solid strategic progress, opening a total of 11 net new restaurants in the UK and since the period end have agreed the terms of a new franchise agreement for Franco Manca in Spain, which will see the opening of two restaurants in the country early next year. Our UK restaurant expansion is now complemented by the launch of our very first range of cook-at-home Franco Manca sourdough pizzas into 500 UK supermarkets. The customer reception to the range has been encouraging since its launch in November, and we look forward to seeing this develop further over the coming months and years. Trading during the first two months of the second half of the financial year was well ahead of the comparable periods in 2019 and 2021, at 46% and 12% respectively. Furthermore, the Franco Manca loyalty programme continues to grow in user numbers with 350,000 users and over 50,000 loyalty pizzas enjoyed by our loyal customers. Notwithstanding this momentum, the board remains mindful that we continue to operate against an unstable political and economic backdrop, which in turn has impacted consumer confidence and driven up our costs as well as facing significant challenges from the ongoing transportation disruption. Reflecting on this, our aims over the coming 12 months are to conserve cash for our shareholders, to proceed cautiously, and take advantage of ever-decreasing rents.”

Hollywood Bowl Group reports 28.3% like-for-like revenue growth compared to FY2019: Hollywood Bowl Group, the UK’s largest ten-pin bowling operator, has reported 28.3% like-for-like revenue growth in the year to 30 September 2022 compared with FY2019, with record revenues of £193.7m, up 49.2% compared with FY2019 (FY2019: £129.9m). Group adjusted Ebitda (pre-IFRS) for the year stood at £60.6m, an increase of 58.6% to FY2019 (£38.2m). The company said games like-for-like volumes increased by 18.3% during the year, while total amusement revenues grew 49.9% compared with FY2019 and food and drinks revenue increased by 18.6% despite a reduction in average menu prices. It also reported an improved overall net promoter score to 61%, up 6.1 percentage points versus FY2019. During the year, six centres were refurbished and two AMF centres rebranded to Hollywood Bowl. The company opened three new centres in FY2022: Hollywood Bowl in Belfast and Birmingham Resorts World, and Puttstars in Harrow, while two additional centres (Hollywood Bowl Speke and Puttstars Peterborough) opened in the first half of FY2023 with two new Hollywood Bowl centres due to start construction during FY2023. The group said a further ten centres, at least, targeted for opening before the end of FY2025. The business said it had seen strong trading momentum at the start of FY2023 with encouraging pre-bookings for the Christmas period. It said it continued to see a “significant longer-term opportunity” to grow to more than 110 centres across its three experiential leisure brands: Hollywood Bowl and Puttstars in the UK and Splitsville in Canada. Stephen Burns, chief executive, said: "I am delighted with our excellent performance and record revenue this year, which demonstrates the continued success of our proven customer-led strategy. It is also testament to the significant efforts of our team who have provided consistently great, affordable experiences, appealing to customers facing increasing pressures during the cost-of-living crisis. We are well positioned to continue to grow our business, supported by our strong balance sheet, highly cash generative business model and our resilience to inflationary pressures. We are very excited about the growth opportunities for our Hollywood Bowl, Puttstars and Splitsville brands in the UK and Canada and our ability to generate further attractive returns through investment in our customer experience. We have had a strong start to the new financial year with an encouraging number of pre-bookings received ahead of Christmas, demonstrating the continued strong demand for high quality, great value leisure experiences that families and friends can enjoy together."

Restaurants' delivery and takeaway sales start to plateau: Managed restaurant groups' delivery and takeaway sales have started to plateau after hitting record highs during covid lockdowns, CGA by Nielsen IQ's latest Hospitality at Home Tracker shows. Combined sales in November 2022 were 1% behind November 2021—the 12th month of year-on-year decline in a row, but a small improvement on October's figures. Despite flattening out this year, delivery and takeaway sales are still nearly double pre-covid levels, with November's trading 99% ahead of November 2019. Deliveries accounted for 17% of groups' total sales in the latest month, while takeaways and click and collect orders took a 9% share. Karl Chessell, CGA's business unit director – hospitality operators and food, EMEA, said: "Covid was a powerful catalyst for the delivery market, and it's not surprising that sales have fallen away from the peaks of lockdown. Some consumers have switched back from ordering-in to eating-out this year, but others are becoming increasingly cautious about their spending on treats like deliveries and takeaways as costs soar. With little respite on inflation in sight, restaurants face fierce competition for sales on third party delivery platforms in 2023."

Andrew Bailey splits with Europe and US by suggesting inflation has peaked: Andrew Bailey has said inflation has now passed its peak in the UK, as he broke ranks with European and American central bankers who have warned of further aggressive action to tackle rising prices. The Telegraph reported the Bank of England Governor hailed the “first glimmer” of hope that the highest inflation in decades is coming under control as Threadneedle Street announced another 0.5 percentage point rise in interest rates. However, his optimism masked a three-way divide at the bank over the pace of rate rises amid widespread uncertainty about the economic picture next year. Just hours later, the European Central Bank president Christine Lagarde used significantly more aggressive language than Bailey, warning that Europe's interest rates would go up much more quickly next year than expected. In America, the S&P 500 index fell 2.6% as investors digested Wednesday night's (14 December) similarly gloomy messaging from the Federal Reserve. Bailey said there is still a “long way to go” to bring inflation back to the Bank’s 2% target, but the 0.5-point increase in interest rates on Thursday (15 December) is lower than the 0.75-point rise at the Bank's previous meeting. Bailey said: “We think we've seen possibly this week the first glimmer, with the figures released this week, that it's not only beginning to come down but it is a little bit below where we thought it would be and that is obviously very good news."

Wary consumers have little confidence in economy: Public confidence in the economy remains close to 50-year lows, despite a slight improvement in sentiment this month, a key survey suggests. The Times reported for the eighth month in a row, GfK’s consumer confidence index has measured minus 40 or below, the first time this has happened since the research series began in 1974. December’s score of minus 42 was a two-point improvement on the previous month, but Joe Staton, client strategy director at GfK, said the figures represented a warning of a “tough road ahead and that the UK is not out of the recessionary woods. Real wages are falling as inflation continues to bite hard, further straining the discretionary budget of many households as we enter the last few shopping days before Christmas.” The research measures a range of consumer attitudes and is closely watched by policymakers. Before Brexit, the poll was carried out on behalf of the European Commission. It is now funded by GfK, a data provider. It is based on a monthly poll of 2,000 individuals and asks questions on their personal financial situation and economic sentiment, their likelihood of making big household purchases and whether they think now is a good time to save. Staton said people’s outlook for their personal financial situation was still poor and “concerns about our economic future remain acute. As we enter the festive season, the overall index score is still depressed and, with scant seasonal joy at present and no immediate prospect of fiscal good news, it is unlikely we will see a rebound in confidence any time soon.” The Federation of Small Businesses, Britain’s largest employers’ group, described consumer confidence yesterday as “near rock-bottom”.

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