Swapping fiction for facts

The what, ifs and maybes of how the economic climate will impact the sector started to give way to a few more facts last week as a clutch of leisure companies updated the market. Restaurant Group, the operator of Frankie & Benny’s and one of the sector’s most clinic and professional outfits, showed that although not immune, it was still in positive territory in like-for-like sales growth terms for its current year – frankly a laudable effort. Its like-for-likes were ahead 2.5% for the 45 weeks to 9 November, pegged back from 3% at the half year and 5% after the first 18 weeks. It is solid stuff from TRG, although with its everyday-value positioning, it is among the better placed groups in the market. Talking of well-placed companies, McDonald’s continued to outperform, with like-for-like sales ahead 9.8% in Europe. It will be interesting to see what Whitbread, with its fair share of value-positioned businesses, says when it updates the market early next month. One the clearest indications of what has happened for the mass leisure market since the financial storm hit came from outside the immediate sector, as InterContinental (IHG), the biggest hotel group in the world, revealed the impact reduced business and leisure travel was having at its hotels, with revpar falling 4.5% for the month of October. After a perfectly reasonable Q3, and given IHG’s status as a barometer for the hotel industry, its numbers sent something of a chill through the air. Mark Brumby, the high-profile analyst at Blue Oar Securities, said: “Despite the company’s business model it is unable to avoid the fallout from a global fall in demand for hotel rooms.” The group’s chief executive Andy Cosslett said the change it was seeing in business travel trends was likely to remain “for some time” as companies cut costs. He said that whether the leisure market (bookings derived from leisure customers) could recover remained “the big question”. With the financial crisis hitting the headlines in earnest in mid-September, the thinking is that after seeing Lehman collapse, Merrill Lynch sold and ultimately witnessing in a matter of weeks a level of financial M&A activity and distress that would not be expected across a number of years, both businesses and Joe Public turned off the spending tap in October. Although IHG is a global hotel operator, it has hefty exposure to Western markets, and its numbers are interesting because – as others from this sector have intimated – it feels inevitable that there should have been some backlash in consumer (and business) spending as the world digested these unprecedented events. Whether October was the worst of it or just the beginning remains to be seen. The doomsayers suggest that the hotel market is always late into the downturn of a cycle – and October was when it finally climbed aboard. It also emerged that some companies with an interest in the corporate shilling in the restaurant market were seeing a softening of business. D&D London, the former Conran restaurant firm, said bookings for corporate events this Christmas were down between 15% and 20%, while the Institute of Directors said 27% of companies had reduced their spending on staff and staff events. Although the news flow from listed groups to date could hardly be described as a classic triumph of hope over expectation, the sector can take some solace from the fact that tea leaves and crystal balls are starting to be put to one side in favour of on-the-ground numbers and hard sales data. Although, unfortunately, there is still much crystal-ball gazing to be done. With the governor of the Bank of England last week warning that the UK was probably already in recession, which would last well into next year, and that the economy could contract by 2% in 2009 – much worse than previously thought – many think it will be a long and hard year. The one ray of light is that the banking bailouts actually work, the rate cuts take hold and leverage returns to the leisure sector. More than ever, there is a clear, palpable thirst for information in the market right now, as operators tackle the environment head on. Among other things, everyone wants to know: how much tougher can it get for wet-led pubs; to what extent restaurants and food pubs will be hit in this new era of mass eating out; and how big Christmas will, or will not, be. We’ll get more real insight into historical and current trading this week, when Enterprise Inns, one of the country’s two dominant leased pub groups, and Fuller’s, the South-East biased pub operator and brewer, update the market this week – on Tuesday and Friday respectively. They will be followed next week by Mitchells & Butlers, the managed pub and casual dining group, and then by Carluccio’s, Clapham House, Greene King, Marston’s and Whitbread in December.