UK Based Consumer Businesses Continue to Look for Cost Cutting Measures

Summary

  • Consumer businesses are making all efforts to remain afloat during the pandemic
  • Fear of the second wave of Coronavirus in the winter is prompting businesses to reduce costs
  • SSP Group is expected to take decisive and rapid action to reduce the cost to bolster its financial health
  • Ocado Group could end up axing 200 jobs at its Hatfield call centre facility to save costs

The coronavirus pandemic has devastated the whole world, causing much damage than anticipated and the carnage is expected to continue for a few more months until a vaccine is found to fight against the deadly virus.

Businesses in the UK are leaving no stone unturned to remain afloat during the pandemic. From accessing credit through state backed schemes to reducing costs, the businesses are doing it all to battle the liquidity crunch. But the real question remains unanswered, till how long can they survive the unprecedented catastrophe?

Also read: Redundancies Start Pouring in Ahead of New Restrictions, Whitbread and Wetherspoon announce Job Cuts

SSP Group to reduce costs aggressively

Food and beverage concessions operator, SSP Group (LON: SSPG), which owns brands like Upper Crust and Caffe Ritazza is mooting various plans to preserve cash and reduce the cost base amid challenging trading environment. The onslaught of novel coronavirus has pushed the sales of the group down by 86% year-on-year during the second half of 2020.

SSP Group Plc is an FTSE 250 listed Company which operates food and beverage outlets in travel locations globally and makes most of its sales from travellers. The number of people travelling to other locations is still at very low levels, which is the main cause of the decline in sales. Moreover, the inconsistent travel restrictions and quarantine regime have added insult to injury.

Sales of the group were approximately 95 per cent lower in April and May and 90 per cent lower in June, according to the pre-close trading statement released by the company for the second half of 2020. The weekly sales were around 80-85 per cent lower year-on-year in North America and the rest of the world during the period (H2 2020). However, the company witnessed a slight uptick in sales across Continental Europe and the UK.

The company is expected to take decisive and rapid action to reduce cost in order to bolster its financial health. As the novel coronavirus continues to have an unprecedented impact on the travel industry, SSP Group Plc announced plans to reduce its workforce in the United Kingdom by circa 5 thousand in order to protect the business, given the prolonged nature of the unprecedented crisis.

The Company is beginning to witness an early sign of recovery and plans to open the outlets as travel demand picks up. However, the recovery in the UK continues to be slow, and hence, the Company is considering options to reorganise the business. The company was expecting that the proposed introduction of air bridges and the start of the summer holiday season might lead to a limited return of short-haul air travel. The Company’s focus is to resume operations gradually by keeping the cost bases lower and invest in long-term opportunities.

The Group has substantial liquidity to navigate through the uncertain short-term phase to deliver growth in the medium to long term as soon as passenger demand recovers. The current trading of the company stands at around 24 per cent of the pre-pandemic levels with limited improvement in traffic in a number of regions.

Comparative share price chart of SSPG with FTSE 250 (MidCap) index

(Source: Refinitiv, Thomson Reuters)

SSPG shares have fallen over by nearly 70 per cent on a YTD basis. The shares have performed poorly in comparison to the benchmark index. While writing on 24 September 2020 at GMT 2:21 PM+1 GMT, SSPG shares traded at GBX 195.60, down by 3.65 per cent from previous day closing price.

Also read: Job Redundancies Continue to Rise in High Street Retail

Ocado Group could end up axing 200 jobs to save costs

Despite being profitable during the unprecedented crisis, the online grocer, Ocado Group Plc (LON: OCDO), might make 200 of its workers redundant at the Hatfield call centre facility. This move by the company is considered to be a cost-cutting measure as it looks forward to relocating the call centre roles at Sunderland. However, the company said that the Hatfield workers would be offered support roles in Sunderland.

The call centre facility has immense contribution in guiding the FTSE 100 listed company into profits during the unprecedented crisis. The Company has shown strong revenue growth in the third quarter of 2020, driven by the shift to the online grocery in the UK. The Company witnessed an increase in orders per week, while the average order size continues to normalise. Ocado Group also witnessed a positive response to the switchover to M&S products, which resulted in strong forward demand. The Company expects the market to remain uncertain, and social distancing measures can certainly impact the trading performance in the near term.

During the third quarter of 2020, the Company witnessed an increase in retail revenue by 52 per cent, driven by the paradigm shift to online shopping in the UK. Higher demand was evident from the fact that the retail sales increased at a faster pace quarter-on-quarter in 2020. The average order size continues to normalise and remain higher as compared to pre-pandemic levels. The Company witnessed a surge in orders per week, driven by strong demand, normalised shopping behaviour as the website reopened for new customers in a phased manner. The customers have given a positive response to the switchover to M&S products, resulting in strong forward demand and increase in the number of products in customer baskets.

Comparative share price chart of OCDO with FTSE 100 index

(Source: Refinitiv, Thomson Reuters)

OCDO shares have risen over by nearly 124.47 per cent on a YTD basis. The shares have outperformed the benchmark index. While writing on 24 September 2020 at GMT 2:51 PM+1 GMT, OCDO shares traded at GBX 2,787, down by 2.72 per cent from previous day closing price.

The Food & Drug retailers have remained active since the onslaught of the pandemic. Now the UK fears a second wave of the pandemic, which is not a good sign for the economy. Therefore, these businesses are following a cautious approach and chalking out plans to reduce costs which may lead to some job redundancies.

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