Demand Grows for Extension of Eat Out to Help Out - RTN, WTB, MAB and JDW Stocks Make Strong Gains

Summary

• Eat Out to Help Out, one of the most popular support schemes of the UK government is coming to an end on 31 August
• A discount on food or non-alcoholic drinks of 50 per cent, up to a maximum of £10 discount per diner was allowed on every Monday, Tuesday, and Wednesday
• By the second week 35 million meals were claimed by Britons under the scheme
• The positive impact was also seen on the restaurant stocks, many of them made a double-digit gain in just three weeks

One of the most popular and successful schemes announced by the UK government to support the economic revival “Eat Out To Help Out” is all set to end in a week and there are demands from the industry to extend it to the month of September. The hospitality sector has been one of the most affected sectors of the economy due to the lockdown imposed to contain the Covid-19 pandemic spread. Restaurants were suddenly shutdown with only takeaways allowed. The government’s “Eat Out To Help Out” scheme provided a deal for both, as the restaurants were able to pull in customers after remaining out of business for months, the customers were able to enjoy the food at their favourite food joints at a reduced price.

What are the different features and advantages of the scheme?

The UK government in the mid of July came out with a scheme, as a part of its efforts to support the businesses and self-employed people during coronavirus. It was announced that during the month of August (from 3 to 31 August), people could avail a 50 per cent discount when they eat in at restaurants that are registered as a participating establishment with the Eat Out to Help Out Scheme.

The discount on food or non-alcoholic drinks was of 50 per cent, limited to a maximum of £10 per diner. The discount was valid on the first three working days of the week (every Monday, Tuesday and Wednesday) and for as many times as one like.

The most important factor of the scheme was that there was no requirement of any voucher to use the scheme and can be clubbed with other offers and discounts. Also, apart from restaurants, the scheme also included cafes, bars or pubs, food halls as well as work, school canteens.

How successful has been the scheme so far?

The scheme for which the government had set aside £500 million, as per the treasury estimates at an average claim of around £5, made up £50 million in the very first week with 10,540,394 claims under the scheme. By the second week, the numbers reached 35 million, which as per Chancellor of Exchequer Rishi Sunak is equivalent to over half of the UK taking part in the scheme, supporting the industry’s local jobs. There were more than 85,000 restaurants who got registered for the scheme and as per industry data, it helped the restaurants to be 27 per cent fuller on average during the Monday-to-Wednesday period as compared to the previous year.

The scheme not only provided a deal to the customers but came to rescue of over 2 million people employed in this sector. As per the government estimates, around 80 per cent or 1.4 million workers of the hospitality industry were furloughed, one of the highest numbers from any sector in the country.

How has been the Consumers spending pattern after lockdown reopening?

There has been a strong uptick in the consumer spending after the easing of the lockdown, as per the data from the Barclaycard and the British Retail Consortium (BRC), the spending almost neared the pre-pandemic levels in July 2020 in the country. Though all sectors were not equally benefitted, but a level just 2.6 per cent lower than in July 2019 was really heartening for many. The gloom which the country has witnessed in just over a couple of months seemed gradually receding. When the economy suffered a drop of over 20 per cent in the second quarter, amid and Bank of England’s expectations of the jobless rate climbing to 7.5 per cent by the end of 2020, the report of British consumers spending the most in July since the country went into a coronavirus lockdown in March, has cheered many industries.

But the stark reality was that despite the government support sales at pubs and restaurants, which reopened for on-premises consumption on 4 July 2020, remained well below year-ago levels. But as people preferred to stay at home, sales of takeaways and fast food were 20 per cent higher than last year. This was the reason Rishi Sunak came with the scheme for dining in restaurants.

Has it been all smooth for the industry?

As the scheme nears it closing, there have been increasing calls from the industry leaders for an extension of the scheme, at least for a month more. There are many businesses who want to continue with the scheme by their own, restaurant group’s like DRG and Gaucho have already announced to extend the scheme, and many others are likely to follow the suite. They have got the support of trade body Hospitality UK, who has voiced the demand to extend the scheme.

But not everyone is happy, even though the footfall has increased, and the business has improved, many were also considering scrapping the scheme in the very second week as the customers were turning aggressive and behaving rudely. These businesses argued that during the three days of the scheme, the whole atmosphere use to get changed as compared to the other days of the week with customers getting impatient and rude. With social distancing measures in place and a lesser number of employees, the preparation of the meals was taking a longer time than usual and was enraging the customers who came there for a discounted meal.

Also, there were some reports that food industry was sitting on £20 million of excess produce due to lockdown imposed in the country, which resulted into people being served with old meat, fish and vegetables. Though, many food items like frozen beef, chicken and lamb have a longer shelf life and can be consumed up to a period of 18 months. So, it was not a serious issue and considered legal and valid if they were within the ‘best before’ labels.

Impact on stock prices of the listed players since the announcement of the scheme.

• Restaurant Group Plc (LON:RTN) is one of the largest food chains in the country with over 650 restaurants and pubs across the country. The stocks of the company which has given a YTD (Year to Date) negative return of 67.55 per cent, ended at GBX 39.60 on 3 August 2020, the day the scheme came into existence, since then it has surged to currently trade at GBX 52.70 (24 August 2020, 13:54 PM GMT), up by around 33 per cent.

• Whitbread Plc (LON:WTB) is the leading hotel and restaurant operator of the United Kingdom. All over the country, the company has presence of around 1,200 restaurants and Premier Inn hotels. The stocks of the company which has given a YTD (Year to Date) negative return of 51.02 per cent, ended at GBX 2,220.00 on 3 August 2020, the day the scheme came into existence, since then it has surged to currently trade at GBX 2,347.00 (24 August 2020, 14:00 PM GMT), up by around 5.72 per cent.

• Mitchells & Butlers Plc (LON: MAB), providing a wide variety of eating and drinking-out is one of the largest operators of restaurants, pubs and bars in the United Kingdom. The stocks of the company which has given a YTD (Year to Date) negative return of 63.02 per cent, ended at GBX 149.00 on 3 August 2020, the day the scheme came into existence, since then it has surged to currently trade at GBX 165.60 (24 August 2020, 14:05 PM GMT), up by around 11.14 per cent.

• JD Wetherspoon Plc (LON:JDW) with around 900 pubs, it is a leading pub company of the UK. After the announcement of the scheme, more than 700 pubs of the company have been offering a selection of meals along with a drink at a reduced price. The stocks of the company which has given a YTD (Year to Date) negative return of 41.95 per cent, ended at GBX 829.00 on 3 August 2020, the day the scheme came into existence, since then it has surged to currently trade at GBX 961.00 (24 August 2020, 14:05 PM GMT), up by around 15.92 per cent.