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Morning Briefing for pub, restaurant and food wervice operators

Wed 1st Nov 2023 - Exclusive: McDonald’s lfl sales grow in 2023 due to success of delivery and drive-thru following increase in profits and turnover
Exclusive – McDonald’s lfl sales grow in 2023 due to success of delivery and drive-thru following increase in profits and turnover: McDonald’s has said its UK like-for-like sales have grown in 2023 due to the success of its delivery and drive-thru operations, following an increase in profits and turnover in 2022. In the company’s accounts for the year ending 31 December 2022, director Mark Kiernan said: “The level of business and the period end financial position remain satisfactory, in spite of the ongoing challenges presented by the inflationary environment, both for the company and the wider McDonald’s system, and the directors are confident of being able to develop the business further in the future. Like-for-­like sales in 2023 have so far grown since 2022 due to the strength of the brand and the success of delivery and drive-thru services.” The company’s pre-tax profit grew from £148,538,000 in 2021 to £170,875,000 despite a £66,058,000 rise in costs. Franchise right fees increased from £449,489,000 to £491,141,000 while turnover was up from £1,459,442,000 to £1,597,442,000. Of this, £703,072,000 came from owned restaurants (2021: £637,283,000) while £894,370,000 came from licensees (2021: £822,159,000). Dividends of £75m were paid (2021: £325m). Kiernan added: “2022 was comparably stronger than the previous year which was subject to stricter lockdown and covid restrictions, as well as the pandemic, which had the most significant impact on turnover and profitability, consumer behaviour impacts the company’s turnover and the variability of commodity prices alongside other inflationary pressures impacts profitability. In the year, the company completed the share purchase and absorbed the APPT stores into the company, having previously gained control in the previous reporting period. In June 2023, McDonalds Restaurants purchased the remaining 50% share capital of the joint venture, South Coast Foods. The system’s high street estate continues to be impacted by declining retail footfall, but we have mitigated this risk through investment in the customer experience across our estate, including our high street stores, drive-thru stores and home delivery platform. Drive-thru stores performed well in the latter half of 2022, and so far in 2023, delivery is performing strongly. With regards to pricing, the company uses a third party on behalf of the wider system to conduct ongoing market research to provide periodic price recommendations. However, this risk is somewhat mitigated by the fact that the system has several sales channels. Furthermore, we are constantly adapting to the evolving competitive market. and we continue to have a broader focus on value. Increasing volatility, uncertainty, cost pressures and general environmental awareness in the UK market has resulted in increased pressure on the company and franchisees in recent times. To manage and mitigate the risk associated with these pressures, the company has previously entered into a number of power purchase agreements (PPAs) for the provision of cost-effective clean energy from environmentally friendly energy sources. Three of the agreements relate to generating energy through wind farms. Additionally, we have agreements with our existing provider to buy the electricity produced under the PPAs for onward supply to restaurants.” At year-end, the company had net assets of £773m and a cash at bank balance of £23m. McDonalds features in the Propel Turnover & Profits Blue Book. Its turnover of £1,597,442,000 is the eighth highest in the database. The Blue Book ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email to upgrade your subscription.

Number of experiential leisure launches included in next edition of The New Openings Database, features 107 site openings: Premium subscribers will receive the next edition of The New Openings Databaseon Friday (3 November) at midday, which features a number of launches by experiential businesses. The database features T-Squared Social, the premium sports and entertainment gastropub concept backed by golfer Tiger Woods and singer Justin Timberlake, which will make its UK debut in St Andrews, Scotland. Sixes, the cricket-based competitive socialising concept from the founders of Mac & Wild, has lined up two more UK openings. Meanwhile, Ballie Ballerson has opened its latest site, and first in Wales, in Cardiff. The new 7,000 square-foot “adult playground” in the city’s Brewery Quarter features a 65 square-metre ball pit. The database will show the details of 107 site openings, including which company has opened a site or its plans to open one in the future. It will have details on what type of site it is and its location, and there will also be a website link to the businesses. The database is published on a monthly basis and Premium subscribers will also receive a 7,600-word report on the new additions to the database. Premium subscribers also receive access to five other databases: the Propel Multi-Site Database, produced in association with Virgate; the Propel Turnover & Profits Blue Book; the UK Food and Beverage Franchisor Database; the Who’s Who of UK Food and Beverage; and the UK Food and Beverage Franchisee Database. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email to upgrade your subscription. Premium subscribers are also being given exclusive access to the recording and slides to Propel Multi-Club Conferences. They also receive their morning newsletter 11 hours early, at 7pm the evening before; regular video content and regular exclusive columns from Propel group editor Mark Wingett.

Various Eateries – Noci a ‘very compelling near-term rollout opportunity’ with focus initially on Greater London: Various Eateries, the Coppa Club operator, has said its Noci concept provides a “very compelling near-term rollout opportunity” with focus initially on further openings in the Greater London area. The company opened its third site under the handmade pasta concept earlier this month with a launch in London’s Shoreditch. “Noci, designed to be a modern Italian pasta concept, is the result of work evolving Tavolino for the high street, and continues to perform well,” the company said in its year-end trading update. “H2 (April to September 2023) lfl sales at the first Noci site in Islington grew 23%. Noci’s second and third sites opened in Battersea Power Station and Shoreditch, in May and September 2023 respectively, and have both traded in line with management's expectations to date. With a proven blueprint, the Board considers Noci to be a very compelling near-term rollout opportunity and will focus initially on further openings in the Greater London area. The group’s townhouse Coppa Clubs in Bath and Guildford, benefiting from high footfall city centre locations, delivered positive performances. This bodes well for the group’s townhouse sites in Cardiff and Farnham, scheduled to open in FY24. The performance of those Coppa Clubs with large outdoor spaces which benefitted in the prior year from exceptionally good weather, were impacted this year by extended periods of unusually wet conditions, including the wettest July since 2009. The group’s Tavolino site continued to benefit from the steady return of office workers in central London, delivering lfl sales growth of 10%. Previously announced inflationary pressures persisted throughout the year but encouragingly some, including food and energy, are beginning to ease. Reducing operational costs and improving efficiency remain priorities, along with exploring technological solutions. As previously stated, in the board’s experience of navigating challenging market conditions, a focus on the top line as opposed to short-term profit maximisation is fundamental to the success of any roll-out strategy. The group has therefore continued to prioritise revenue and customer retention, deliberately not passing cost increases onto customers in full. The board firmly believes this will stand the group’s brands in good stead for sustainable long-term growth as the market recovers.” The group said trading performance for the year ending 1 October 2023 was in line with expectations, with revenues slightly higher than market expectations at £45.5m (unaudited), up from £40.7m in 2022, largely driven by new site openings. Site Ebitda (before pre-opening and IFRS16) is expected to be circa £3.8m (unaudited), with group Ebitda (before AIM costs of £0.6m) expected to be a loss of circa £1.6m (unaudited). Group like-for-like sales, excluding the benefit of the reduced rate of VAT in the prior year, were maintained, which the company said is a “good performance considering the challenging macroeconomic environment, continued train strikes and unseasonably wet weather in the spring and summer months”. Cash at bank at 1 October 2023 was £1.9m (2022: £9.4m). Andy Bassadone, executive chairman, said: “Our teams have worked hard to manage the perfect storm of challenges the industry has faced over the past 12 months and on behalf of the board I would like to thank them for their efforts. In this context, group performance has been steady with the traction Noci is building a particular highlight. While Noci is still a relatively small part of the group, we expect it to become an increasingly core part of our growth strategy going forwards. We continue to believe our strategy of focusing on the top line will leave us in a stronger long-term position than many in our industry who have compromised their offerings to protect short-term profits. Encouragingly, there are signs that some of the well-publicised pressures on margins are beginning to dissipate. Nonetheless, we continue to prioritise cost control and efficiency initiatives including leveraging new technology which will benefit the group long after we emerge from the downturn. Looking ahead to FY24, we intend to maintain a measured approach to opening new sites and, supported by strong and highly relevant brands, remain confident in our ability to accelerate progress as conditions improve.”
Young’s adds The Crooked Billet to its London estate: Young’s has added to its estate in the capital with the freehold acquisition of The Crooked Billet in Clapton. Young’s chief executive Simon Dodd said: “Joining our 231-strong Young’s pub and bedroom estate, The Crooked Billet is a two-storey, wet-led ‘proper’ pub with a massive garden in East London. Located opposite Clapton station, the pub is a favourite amongst locals and aligns with Young’s aim to celebrate British pubs within local communities. Previously owned by the brilliant Malcolm Heap and Nick Pring of Urban Pubs & Bars, the purchase signifies our aspirations to expand across the capital – we currently have 150 pubs in London. The Crooked Billet joins our East London favourites; the Princess of Wales (Clapton), Royal Oak (Bethnal Green), Owl & Pussycat (Shoreditch), the Crown (Bow) and the Coborn (Bow). London is hugely important to us, having been our home for 192 years, and we are delighted that a freehold pub of this calibre is now a part of the Young’s family. We will be working with the existing team to develop a premium food & drink offering whilst still keeping the character of the pub intact.” In September, Young’s acquired a fourth freehold pub from Marston’s in the space of a few months, and its first in the New Forest. The Huntsman of Brockenhurst joined the now 41-strong Young’s Rooms collection and followed the acquisitions from Marston’s of the 260-cover, 4,227 square-foot Libertine in Bournemouth; the 73-cover, 11-room White Hart in Chippenham; and the 149-cover, 15-room White Lion in Tenterden earlier this summer. All four pubs were part of Marston’s Revere Pub Company division.

AB InBev promises $1bn buyback after Bud Light controversy: The world’s biggest brewer is to return $1bn to investors via its first-ever share buyback as it battles to restore its fortunes in the wake of the Bud Light furore. Anheuser-Busch InBev’s revenues in the US slumped by 13.5% in the third quarter after a conservative backlash over a social media promotional campaign with Dylan Mulvaney, a transgender influencer, reports The Times. Bud Light was toppled from its number one spot in the US after the beer brand sent a personalised can to Mulvaney in April, sparking a boycott that sent sales plummeting. AB InBev insisted that the Mulvaney promotion was not a formal campaign but “one single can given to one social media influencer”. Trevor Stirling, an analyst at Bernstein, said the buyback, while “not hugely material”, was “a very important psychological signal” to investors that the company could hit its debt-reduction targets while returning funds to shareholders. In addition to initiating the buyback programme, the brewer has approved a cash tender offer for up to $3bn of outstanding bonds. AB InBev, which is based in Leuven, Belgium, was created 15 years ago via a $52bn takeover of Anheuser-Busch by InBev. Eight years later, the enlarged brewer swallowed SABMiller in a £79bn deal. The group produces more than 500 beer brands and has 167,000 employees in 50 countries. Despite the impact of weak US sales as a result of the Bud Light backlash, the company still reported a solid operating performance, with pricing more than offsetting a volume decline. Volumes fell by 3.4% to 151.9 million hectolitres on an organic basis compared to consensus forecasts for a decline of 2.7%, but revenue per hectolitre increased by 9% amid strong pricing and a switch by consumers into premium brands. The US decline of 13.5% came despite a positive 5% movement in price and mix, while underlying earnings slumped by 29%. Revenue grew by 5% to $15.6bn on an organic basis, slightly better than expectations of 4.7%, while underlying earnings for the quarter grew by 2.7% against consensus forecasts for a decline of 1.8%, with Brazil the main driver. AB InBev reiterated its guidance for underlying full-year earnings growth of between 4% and 8%. It said revenue should grow ahead of earnings, and Stirling at Bernstein said he believed the brewer could achieve the upper end of this guidance.
Carlsberg exits Russia: Carlsberg has announced it has terminated its business in Russia after the Kremlin took control of its operations in the country, reports the BBC. The beer company said it refused to be “forced into a deal on unacceptable terms to justify the illegitimate takeover” of its Russian business. Carlsberg was in the process of selling its Baltika Breweries subsidiary in Russia before management was taken over by the state in July. The boss of the Danish brewer said the Russian government had “stolen our business in Russia”. “We are not going to help them make that look legitimate,” said chief executive Jacob Aarup-Andersen. Carlsberg said in June last year that it had signed an agreement to sell Baltika Breweries but had not yet completed the deal. Moscow introduced rules earlier this year allowing it to seize the assets of firms from “unfriendly” countries. Baltika produces some of the most recognisable beer brands in Russia, with 8,400 employees across eight plants. In a trading update on Tuesday, the brewer repeated that it could not see a “viable path to a negotiated solution for exiting Russia”. “We’re not going to enter into a transaction with the Russian government that somehow justifies them taking over our business illegally,” said Mr Aarup-Andersen. The company said it had informed Baltika that it had terminated all of its licence agreements to produce, market and sell its products in the country, but said there would be a run-off period until 1 April 2024 while existing stock is used up.

Cigarette-style warning labels on food ‘would drive down meat consumption’: Slapping cigarette-style warning labels on food would drive down how much meat people eat, experts have claimed. Durham University academics tested similar alerts on 1,000 people and found they persuaded up to a tenth of participants to choose a fish or veggie option instead. Warnings that eating meat contributes to climate change or poor health were the most effective messages, results showed. Telling consumers that meat-eating can potentially trigger pandemics was judged to be the least credible of three options tried. The results, published in the journal Appetite, show that all labels were effective at discouraging people from choosing meals with meat. Jack Hughes, study author and PhD student in behavioural science at the university, said: “As warning labels have already been shown to reduce smoking as well as drinking of sugary drinks and alcohol, using a warning label on meat-containing products could help us achieve this if introduced as national policy.” Dr Milica Vasiljevic, an associate professor of behavioural science at Durham University and senior study author, added: “Adding warning labels to meat products could be one way to reduce risks to health and the environment.”

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