On Thursday 21 May, Numis – the respected UK institutional stockbrokers and corporate advisors – hosted its annual leisure conference, and here reports on some of the key points that arose during the course of the day.
The main positive theme was the strength of the UK consumer backdrop, and the resultant surge in demand for premium products (that are unique to the on trade). The main negative theme was the scale of supply growth in eating out, a scenario that favours strong brands in captive markets.
- Longview Economics expects consumer cash flow to grow by 3% in real terms in 2015, the best rate since 2005. It is also positive that Longview estimates that the process of de-leveraging household debt is now 40% complete. The backdrop should remain benign: 2-3% GDP growth in 2015 and 2016; no interest rate increase until 2016; and rising private sector employment.
- The main medium-long term economic risks are inflation and rising interest rates, stemming from low labour productivity and rising wage inflation. Slack in the labour market has started to dissipate, with the share of part-time workers in the labour market now falling. These issues, housing market earnings multiples, and the current account deficit should become more problematic when monetary policy eventually has to tighten.
- According to CGA Peach, eating out supply rose 5.4% in the year to March 2015 (with restaurants up 8.1%) whereas drinking out supply fell 2.9% (with wet-led pubs down 5.6%). Licensed retail supply is now growing more quickly in Manchester (+4% supply), Cardiff (+6%) and Leeds (+8%) than in London. Competition is fiercest in city centres, compounded by rapid growth in the fast casual restaurants and street food.
- On-trade drink is decreasing by 2.0% p.a. in volume, but rising by 1.7% p.a. in value, with all pub segments in volume decline, whereas the restaurant sector is in 5.2% volume (7.5% value) growth, driven by supply. Premium products are outperforming (volumes are growing at 21% for craft beers, 8% for world lager and 6% for premium cider, versus declines of 3% for standard lager and 5% for keg ale) and these trends are expected to continue.
- Pub food sales are growing at 5.8% (wet-led +6.8%; food-led +3.6%; bars +8.7%) according to CGA. Horizons forecasts a 3.9% CAGR for on-trade food sales through to 2019, with managed groups outperforming independents. Voucher promotional activity is falling, but restaurant prices have been steady for two years, whereas pub prices have been rising towards restaurant levels.
Numis concludes by commenting: :Overall, we view the outlook as positive. The greatest risks rest with independent and mainstream restaurants opening in oversupplied town and city centres.”
For more information click here