Monday 15/11/21

1. In CORONA/POST-CORONATRENDS, Berry Bros celebrates, board games boom, a US REIT buys into British staycations, international restaurants aim for London, museums digitise, Wizz orders more planes and Airbus can’t keep up with demand
2. In SUPPLY CHAIN NEWS, chip shortages force manufacturers’ hand and high-end bicycle manufacturers warn of longer disruption
3. In BUSINESS TRENDS NEWS, Johnson & Johnson is the latest giant aiming to split while rental firms want EVs
4. In MISCELLANEOUS NEWS, European carmakers look like they’ll hit easy targets and UK house price growth weakens
5. AND FINALLY, I bring you the cutest (and surely most obedient) pup around…

So we look at companies benefitting from trends under lockdown who have adapted and who are now building for the future…

When I say “coronatrends” I mean trends that came about because of the Coronavirus. When I say “post-coronatrends” I mean trends that have come about as we emerge from the worst effects of the Coronavirus.

So there are some behaviours that have occurred under lockdown that have persisted as the situation has improved. Wine merchant Berry Bros celebrates sales boom (Financial Times, Alice Hancock) highlights the fact that Berry Bros & Rudd, the 320-year old London wine merchant, has seen sales of fine wines increase sharply throughout the lockdown and beyond. It said that 37% more customers are now subscribers to its wine cellar business than before Covid, adding that customers have continued to spend under lockdown despite the company not being able to run its usual tasting sessions at its premises on Pall Mall. At the more “normal” end of the spectrum, Digital detox and post-pandemic catch-ups fuel boom (The Guardian, Mark Sweney) shows that although we saw a boom in the sales of board/card games and jigsaw puzzles as families stocked-up on non-screen entertainment, there is now a trend for people to keep playing these games – but at cafés, bars and larger-scale venues! Games Workshop is one company that has really done well in the boom, seeing its market valuation reaching a level that is double that of Asos and about the same as Marks & Spencer!

We’ve also seen many industries adapt considerably under lockdown. People became eager to go on holiday as lockdown restrictions limited holiday options and everyone wanted to play safe by staying closer to home. Americans put £1bn bet on staycations (The Times, Callum Jones) shows that Sun Communities, an American Real Estate Investment Trust (REIT) has just agreed a deal to buy Park Holidays – which operates campsites, static caravans and lodges at over 30 locations mainly in the south of England – in a move that gives them exposure to the staycation market. The offer is worth almost £1bn! * SO WHAT? * It sounds like this was an opportune time for the current owners, Intermediate Capital Group, to sell up only five years after it bought the business for £362m. Who wouldn’t want to lock that kind of profit right now? You do wonder how well this business will do over the next few years as more people will surely want to satisfy their wanderlust in foreign lands. It’ll be interesting to see if Sun Communities can bring anything to the party…

Other businesses that have had to adapt under lockdown are restaurants. International restaurants target London for new sites (Daily Telegraph, Hannah Boland) cites research from property adviser Savills which showed that 14 new international food and drink brands have opened for the first time in London this year, which is almost three times the five who did so last year. Pre-Covid, the average was around 23 in 2018 and 2019. The influx has been driven by cheaper rents, various incentives and growing customers numbers as people return to the office. Then in Museums v business: the growing market for cultural digitisation (The Guardian, Georgina Quach) we see that museums worldwide have been trying to capitalise on the intellectual property of their exhibits as a way to bring the cash in while visitor numbers plummeted. Given that the Victoria and Albert Museum in London saw its visitor numbers evaporate by 97%, it is unsurprising that museums have had to find other ways to make ends meet by selling licenced goods, with homeware proving to be particularly popular. The Louvre in Paris, which is the world’s most-visited museum, has signed deals with DS Automobiles, Swatch and macaron bakery Ladurée – almost doubling income from brand partnerships in 2020 versus 2019. It now has another deal with Uniqlo! * SO WHAT? * I think that it would be fair to say that the Coronavirus has forced many companies – and industries – to face up to certain issues much quicker than they would have had to otherwise. In the case of museums, there could be some controversy, though, over whether galleries should be able to profit from artworks that don’t have copyright, which in the case of the UK and EU lasts until 70 years after the creator’s death. This is just pure speculation on my part, but I wonder whether this could be another potential market for NFTs that would give families etc. rights to future earnings for artworks that can’t be moved. Just saying!

Then there are other industries that had a shocking time last year and are trying to rebound more strongly as per Wizz orders over 100 planes as it steers path for growth (Daily Telegraph, Simon Foy) which suggests that the company is willing to take a gamble by doubling down in the European budget travel market by putting in a big order for Airbus. It bought 102 Airbus A321 aircraft, most of which will be delivered between 2025 and 2027 with an option to buy another 94 before the end of this decade. Wizz is based in Hungary and is currently focused on central and eastern Europe, but it clearly wants more! Although each planes costs about $100m, carriers get big discounts if they order in bulk. Mind you, Airbus says it can’t meet current demand for single-aisle jets (Wall Street Journal, Benjamin Katz) would suggest that Wizz aren’t the only ones interested in orders! * SO WHAT? * Let’s hope that there are no shocks in the coming years and that this will prove to be a bold move in uncertain times rather than turning out to be a disaster. I guess in the airline industry you either have to go big or go home!

Chip shortage repercussions continue and supply chain issues hit high-end bikes…

Chip shortage has manufacturers turning to lower-tech models (Wall Street Journal, Austen Hufford) shows that manufacturers are having to adapt to the ongoing shortage of semiconductors and that they are doing so by redesigning existing products, shipping incomplete units and trying to sell older, lower-tech models! Companies such as Boss Products, Whirlpool and T3 Motion are all redesigning products to use fewer chips and it is, ironically, prompting innovation! Polaris, which makes snowmobiles, is going to be sending out units that don’t have big GPS screens – but they can be installed later on, when they arrive. * SO WHAT? * Given that there seem to be varying estimates of how long the chip shortage is going to last for, it is probably prudent for companies to make the best of what they have. Still, I expect the demand to remain strong and they will no doubt go back to hi-tech as soon as they can! I guess that there is a risk, in the interim, of customers holding off buying in the meantime unless they have to.

Then in Bicycle supply disruption is getting worse, high-end manufacturer warns (Financial Times, Harry Dempsey) we see that the bike industry looks like it will suffer supply chain disruptions for some time to come as French high-end bike company Look Cycle said that problems are getting worse. Although Halfords said last week that it was well-stocked with bikes ahead of Christmas, things are a bit different at the high-end of the bike chain! Look Cycle is saying that lead times for parts are very long and that the bottlenecks will probably last for another 12-18 months as component manufacturers like Shimano, SRAM and Campagnolo have been inundated with orders, something made worse by the fact that they have held back from expanding capacity too quickly due to fears that the demand won’t be there when things die down again. * SO WHAT? * It’s difficult to tell who to believe here when you have a company like Halfords sounding all relaxed! Still, Look isn’t the only one having problems – Brompton also believes that supply chain issues are going to last for some time to come yet! I wonder whether the second hand bike market is going to be like the second hand car market where used models sell for more than new ones!

Another big company talks about break-up and US rental fleets change…

Following on from news last week that General Electric is breaking up, Johnson & Johnson to split consumer from pharmaceutical, medical-device businesses, creating two companies (Wall Street Journal, Jonathan D. Rockoff and Peter Loftus) shows that the world’s biggest healthcare products company by sales outlined plans to split its high-margin prescription drug and medical device business from its slower-growing consumer group and list both companies separately. The company plans to split off its consumer division in the next 18 to 24 months, saying that the rationale behind the deal is that both businesses have drifted apart a great deal over the last few years, meaning that it will make more sense for them to exist separately from one another. * SO WHAT? * OK so this isn’t exactly happening overnight but it is interesting to see that we are seeing a continuation of the trend that smaller-is-more beautiful. It seems to me that these things go in waves – conglomerates become all the rage when they want to see smoother earnings paths by being exposed to different business areas, but then they de-merge or hive off different businesses when investors prefer to buy into distinct industries, businesses or themes. It seems that conglomerates are no longer flavour-of-the-month as Toshiba also announced last week that it will be going down the same road of demerging! I suspect that there will be more to come…

US rental fleets gain cachet as carmakers pursue electric vehicles (Financial Times, Claire Bushey) is a really interesting article which highlights the recent “deal” between Tesla and Hertz (I say that in “” because Elon Musk, the little tinker, Tweeted that no deal had actually been signed!) as being a potential turning point for car rental companies. Apparently, in the past, rental companies have been known to buy cars at big discounts of models that were unpopular with customers. It got so bad that selling to rental companies has been seen as a sign of weakness for car makers! However, it seems that rental companies are now eager to offer EVs to their customers and that there is a real business opportunity in providing cars to customers who want to give them a decent test drive before potentially buying them. * SO WHAT? * I think that this sounds like a really interesting direction – however, there would appear to be limitations in the execution in that apparently Enterprise, another car rental company, says that about 25% of its vehicles are cleaned and re-rented within a matter of hours of being returned, which will make logistics difficult regarding recharging. There will also be the issue of range anxiety as rentals are typically for four days, with the customer driving about 100 miles per day, meaning that they would have to recharge at some point during the rental – and this might not be readily available at the moment. Still, it is a journey that more rental companies will no doubt be keen to follow!

Carmakers set the bar low and house price growth eases…

Following on from what I said last week about carmaker reticence on COP26, Major European carmakers will hit targets too easily (The Guardian, Jasper Jolly) shows that weak EU vehicle emissions targets could make it too easy for Europe’s biggest makers to hit emissions targets, meaning that we will continue to see more petrol and diesel-powered cars on our roads, according to a report by the think-tank Transport and Environment (T&E). It says that manufacturers could hit their targets with four years to spare because they have set the bar too low. * SO WHAT? * It is hardly surprising that the automotive industry did its best to give itself as much wiggle room as possible – and it’s hardly surprising that activists find this very frustrating. At the end of the day, consumers will make their choice but activists need to keep the pressure on. If consumers buy EVs in higher numbers, the car manufacturers will have to take note…

Then in House prices fall by £2,000 in a month amid a lull ahead of Christmas (Daily Telegraph, Rachel Mortimer) we see that, according to the latest figures from property website Rightmove, house prices saw their biggest monthly reduction since January 2021 in only the third time that they have fallen this year. A shortage of housing supply and the extended stamp duty holiday helped to boost the market over the year, but it seems that consumers are now turning their attention more to frozen turkeys than the red-hot property market 😁! Apparently, if you are a buyer, bargains are there to be had as sellers who want to sell this close to Christmas often have a pressing reason, meaning negotiation potential! The real estate drama continues!

…in other news…

I know you will think I’m soft, but how about starting your week right with this clip of the adorable puppy in Super obedient old English sheepdog waits patiently for treat in adorable video (The Mirror, Catherine Swan) 😍.