Inside Track by Peter Martin
Whitbread shares took a hit this week after chief executive Alan Parker voiced concerns over the current level of consumer confidence. His caution echoed general fears about tightening consumer spending across the wider retail arena. The performance Whitbread’s pub restaurants and lower membership levels at its David Lloyd sports club were both proffered as evidence of a "less confident consumer". This added to Wetherspoon’s 2% drop in like-for-likes in the third quarter and Ultimate Leisure’s warning of a full-year profit shortfall contributed to a jittery City marking down the big pub players. Enterprise, Punch, Mitchells & Butlers, Greene King and Wolves & Dudley all saw share price falls over the week. But the eating and drinking market was not alone. Kingfisher, owner of the B&Q DIY chain, and Dixons, which owns Currys, also felt the pressure from poorer trading and renewed fears of a stagnating housing market. The City is anxious – and pre-election nerves don’t help. But some perspective is needed. General retail spending on the high street is under pressure. Consumer debt is an issue, but there is plenty of evidence to suggest that consumer hesitancy is not so much down to consumers not wanting to spend but because they already have so much. They are after new experiences, and in sectors like food and fashion, where products are essentially disposable, the ability to offer something fresh and different will still be a winner. One of the success stories of the week was The Body Shop, whose results showed a thriving rather than a struggling enterprise. It is essentially a fashion business, which has continued to reinvent itself. In the restaurant and pub business it therefore shouldn’t have been surprising that La Tasca was the company that this week reported strong trading since its flotation, as well as the opening of its 50th restaurant. The Wetherspoon’s results were also interesting in that the pub chain was still able to announce a 2% increase in overall sales for the last quarter at a time when it is trying to re-engineer its offering. Its switch towards more food in its sales mix has hit margins, but in the long run it may be pain worth suffering if it mirrors changing consumer tastes. It was also notable that Punch said this week that there were few signs of penny-pinching at its country and suburban pubs. Going to back to Whitbread, it is not hard to see that its less than glittering pub restaurant returns are probably down to a jaded offerings in many of its sites, witnessed by its decision to finally ditch its Brewsters family concept and convert all the sites back to Brewers Fayre. The challenge for Whitbread is to create more exciting and contemporary consumer offerings underpinned by boss Alan Parker’s stated aim to "leverage the benefits of scale" and "drive long term growth". The overall health of the eating and drinking may best be judged when the fortunes of Mitchells & Butlers and The Restaurant Group, two other domestic big hitters are added in. MAB will be reporting shortly, but as Geof Collyer of Deutsche Bank commented after the recent difficulties at Spirit Group: "One of the principal causes of pain amongst the managed pub groups at present is the resurgence of M&B. Investors should not take the Spirit problem as indicative of similar poor trading for M&B". Meanwhile, The Restaurant Group continues to see like-for-like growth of +3%. The truth is that consumers are still spending in the hospitality sector, but are more choosey about where their leisure pounds go. Greater competition means it is now an even tougher business to win that expenditure from rival offerings. That state of affairs is not going to change, so the ups and downs of individual operators should not be seen as always indicative of the health of the market as a whole – no matter how big they are. The trick now is to spot the good retailers really in tune with public tastes.