Thursday 13/01/22

1. In MACRO, OIL & CRYPTO NEWS, the US faces increasing pressures to raise interest rates, BoJo is on shaky ground and Britcoin gets a dose of scepticism
2. In CONSUMER, RETAIL & HOSPITALITY NEWS, we look at home delivery challenges, UK retailer success, grocery price inflation, appeals for permanent VAT reduction for hospitality, rising room rates at Premier Inn and rising wages at Pret a Manger
3. In TECH NEWS, Apple gets investors meta-excited and Philips shares fall on recall
4. In INDIVIDUAL COMPANY NEWS, checkout.com looks like it’s worth checking out, Flipdish becomes a unicorn and Savills lifts profit guidance
5. AND FINALLY, I thought I’d bring you some dressing-up ideas and the TikTok-inspired supermarket purchases of 2021…

The US faces more pressure to raise interest rates, BoJo looks precarious and Britcoin gets a frosty reception…

I will be launching the Watson’s Yearly TONIGHT at 5pm with a 2021 review/2022 preview webinar with Jake Schogger from the Commercial Law Academy. PLEASE CLICK HERE TO SIGN UP! You will need to register to attend this event.

Given that I have been putting all my energies into writing the Yearly over the last three weeks, I won’t be doing the usual Thursday night Zoom calls tonight. These will resume next week, but may be at slightly different times to last year. I will let you know very soon!

Americans face interest rate rises as Covid fallout sends inflation to 40-year high (The Guardian, Richard Partington and Lauren Aratani) just follows on from what I was saying yesterday as the US labour department announced that inflation had increased by an annual rate of 7% in December, the biggest 12-month increase since June 1982. It was the seventh month in a row of inflation being above 5% and puts even more pressure on the Fed to increase interest rates. This is getting serious now as People want to start spending again and inflation is ruining it (Wall Street Journal, Veronica Dagher) shows that prices are rising so much now that people who can and want to spend are becoming nervous and holding back instead. OK, so this is slightly better than people not having the means to spend – but only just, because the money that is just lying in bank accounts gathering dust isn’t going to be powering the economy! According to recent figures from the Federal Reserve Bank of New York, Americans are hoarding around $1.6tn in excess savings from the pandemic – so this needs to be unleashed!

In the UK, Boris Johnson’s back is against the wall over another “partygate” scandal and For Boris Johnson, the party really may be over this time (Financial Times, Robert Shrimsley) suggests that his sheepish apology yesterday

may not be enough to save him although lack of alternatives may. * SO WHAT? * Rishi Sunak distanced himself from the whole thing and you do wonder whether Sunak or perhaps Sajid Javid could step in (although whether they would WANT to right now is unclear). In a leadership contest, Javid may even get extra brownie points for having resigned from his previous post as Chancellor because of his disagreement with Boris. Maybe MPs are waiting for the dust to settle after yesterday to gauge the public mood but I have to say, especially after watching BBC Breakfast this morning, he is surely not going to survive this given that there was report after report of the desperately sad cases of people who went through tremendous personal hardships and sacrifices because they DID follow the rules. When you have other reports in the background on things like the Prince Andrew court case and even Djokovic and his visa exemption, there seems to be a general trend of rich/privileged people trying to bend/break the rules at the moment and you wonder whether all of this happening together will turn public opinion enough to kick BoJo out of office. I guess it’s just whether anyone else would want the top job at this precise moment.

Meanwhile, Britcoin ‘risk to stability of the banks’ (The Times, Patrick Hosking) shows that the House of Lords’ economic affairs committee, that includes the 73-year old ex-Bank of England governor Mervyn King, has concluded that the Bank of England has overstated the benefits of having a Central Bank Digital Currency (CBDC) and that the risks involved are considerable. It said that there would be a sell-off of the banks, privacy concerns and increased risk of the UK being more susceptible to attack by ill-intentioned governments. * SO WHAT? * The Bank of England and the Treasury are going to be looking into a digital currency this year. It’s hardly surprising that a bunch of old duffers isn’t keen on new technology and I bet King’s jowls wobbled in disgust at the prospect of such a new-fangled thing 🤣. No doubt all eyes will be on China’s new digital yuan that will be showcased at the Winter Olympic Games next month as a sign of things to come…

Home delivery faces challenges, UK retailers report a merry Christmas, hospitality calls for help, Premier Inn looks to raise prices and Pret increases wages yet again…

In the frenzied world of home delivery, Growth in takeaway orders slows as Covid curbs ease (Daily Telegraph, Matt Oliver) shows that consumer behaviour changed in the final quarter as Just Eat Takeaway reported a slowdown in growth (but it still grew!). This looks particularly bad when you compare it to the same quarter in 2020 where order growth was 57%, but then again we weren’t under lockdown this time around! Elsewhere in the sector, Delivery Hero grapples with how to pass on rising rider costs (Financial Times, Joe Miller) highlights tricky times ahead as the chief exec of the German food delivery app moans about potentially being less able to pass costs on to customers. He’s thinking about having a scale of charges which reflect how promptly the food is delivered. * SO WHAT? * Delivery Hero has been going for about ten years, has operations in Asia, Europe, Latin America and the Middle East and looks like breaking even for the first time during the second half of this year. It’s been under pressure from investors to stop sinking so much money into expansion – and it even withdrew from Germany FOR THE SECOND TIME last month due to unsustainable costs. As I keep saying with delivery businesses generally, scale is key – but at some point you have to focus on profitability, not just growth. I still think it’s pretty amazing how much people are willing to spend on takeaways and deliveries considering how much household budgets are being squeezed (eating this way costs an absolute fortune!) and if companies like this are having problems now, things will get worse very quickly if customers decide on mass to – quite literally – tighten their belts.

Meanwhile, Christmas sales boost for retailers (The Times, Tom Howard) highlights the success of three of Britain’s biggest retailers as their trading updates were released yesterday. JD Sports put in a solid festive

performance with no drop-off in sales, Rise in sofa sales cushions Dunelm (The Times, Tom Howard) reflects higher sales and profitability thanks to the popularity of sofas and chairs and Sainsbury’s can taste the difference with bumper food sales (The Times, Tom Howard) shows that the supermarket was even confident to raise forecasts for the full-year after a strong Christmas and record new year performance. It had benefited from more people eating at home due to the spread of the Omicron variant and “treating themselves” and increased its market share to boot. Given this, I thought that UK grocers/inflation: higher prices should mean better earnings (Financial Times, Lex) made a very interesting suggestion – that although there’s going to be more intense competition from the likes of Lidl and Aldi, Tesco and Sainsbury’s should actually benefit from Asda and Morrisons going private because the high amount of leverage needed by the acquirers of these businesses (the Issa brothers/TDR Capital and Clayton, Dubilier & Rice respectively) will probably mean that they have less of a stomach for a price war.

Then in UK hospitality sector intensifies calls for permanent VAT reduction (Financial Times, Alice Hancock) we see that the whole industry is now calling for a permanent reduction in VAT after sales were decimated in the normally-busy Christmas season in the wake of Omicron-prompted Plan B curbs. Figures due to be published today by UK Hospitality and industry tracker CGA will show that revenues from restaurants, pubs and bars fell by £3bn in December versus December 2019 and trading on Christmas Day was a whopping 60% less as well. * SO WHAT? * The fact is that the hospitality industry is suffering. The tantalising prospect of making a mint at Christmas 2021 after a tough 18+ months was cruelly snatched away at the last minute and businesses have been left with the prospect of a more thrifty financially-squeezed customer base. With stories like Premier Inn under pressure to raise room rates as costs soar (Daily Telegraph, Rachel Millard) showing the need to increase rates to cover rising costs and Pret a Manger to increase pay for second time in four months (The Guardian, Sarah Butler) showing that the embattled sandwich purveyor is having to up staff wages due to labour shortages, it’s no wonder that the industry is appealing for help.

Investors want Apple to go meta and Philips suffers from recall blues…

Apple’s metaverse prospects produce real optimism for investors (Wall Street Journal, Tim Higgins) shows that the tech giant is getting swept up in all the excitement about the advent of the metaverse although it hasn’t actually said anything specific about it! Investors and analysts reckon that Apple will launch extended reality devices over the next year or so which will give them yet another avenue for growth. Fans say that the metaverse will be a digital space where people will use digital avatars to work, rest and play and that Apple’s ability to make popular hardware will come to the fore once more. * SO WHAT? * I actually agree with this, but there have been so many false dawns over the years about Augmented Reality and Virtual Reality! However, having said that, with things like virtual concerts (especially over lockdown), BTS NFTs, digital currencies, digital wallets and kids already getting

used to being in – and building – digital words in games like Roblox etc., it really does look like this will become reality. It’s just a question of how long we’ll have to wait!

On a more downbeat note, Philips shares slide after profit warning and recall extension (Financial Times, Ian Johnston) shows that shares in the Dutch medical equipment specialist fell by over 10% in trading yesterday as it issued a profit warning and the extension of a recall of faulty medical devices. Problems were detected in the foam in sleep apnoea devices that help sufferers sleep. Apparently, when it degrades, it can expose patients to toxic chemicals so the company is recalling millions of the devices to fix them (it estimates that it will have to repair and replace 5.2m devices!). This is particularly tricky timing for the company because it has also had to deal with supply chain disruptions. * SO WHAT? * This sounds like a massive class action lawsuit waiting to happen and I would have thought this cloud is going to hang over valuations for quite some time until there is a final resolution. Still, having said that, there is still strong demand for the company’s products, so things may not be TOO bad, especially if the extended recall goes smoothly.

Checkout.com gets a chunky valuation, Flipdish becomes a unicorn and Savills is a winner…

In other interesting news today, Checkout.com hits $40bn valuation after funding round (Financial Times, Siddarth Venkataramakrishnan) shows that payments platform Checkout.com managed to raise $1bn in its latest funding round that gives it an implied valuation of $40bn, making it the UK’s most valuable private tech company. Checkout.com helps retailers to process online payments and it is now more valuable than Revolut, the digital bank. This is particularly amazing when you consider that the company was valued at “only” $5.5bn in the middle of 2020, but the huge shift to online commerce under lockdown has really turbo-charged its growth.

Talking about amazing valuations, Flipdish valued at more than $1bn in Tencent-led funding round (Financial Times, Alice Hancock) shows that restaurant tech company Flipdish, which provides tech to create food ordering apps, just got a slug of money from its latest funding round that tipped its implied valuation to $1.25bn. This is yet another business that boomed under lockdown and feeds quite nicely into the whole home delivery boom theme. The money raised will be used to expand in markets where it already has a presence.

Then in Estate agent Savills lifted by rush to buy luxury homes (Daily Telegraph, Ben Gartside) we see that rising sales of mansions and luxury apartments have boosted profits as wealthy customers splash out on properties. Interestingly, demand for properties worth over £1m was 60% higher last year than pre-Covid and such trends have prompted the company to upgrade its profit forecasts for 2022.

…in other news…

It’s January, so many people are suffering from the post-Christmas/New Year blues – but it seems that this lady is doing her best to cheer everyone up in Mum ‘brings light to dreary January’ by dressing in brilliantly wacky costumes (The Mirror, Emma Rosemurgey). Also, given that I’m going to be doing a round-up of 2021 tonight (see details above), I thought that this would be particularly appropriate: Supermarket shows what shoppers bought last year – and it was influenced by TikTok (The Mirror, Rosaleen Fenton).  Remember TikTok feta pasta? Seems like ages ago, right??