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All change as PE times out - Ed’s letter

As we continue to live in a land which refuses to embrace spring time and seems consumed with a desire to water log the Easter bunny as we hop towards the year’s first bout of bank holidays, it remains hard to gauge the mood for 2024.

Pressures were not lifted by the Budget, although there was some hope from the fall in the rate of inflation - albeit that food price inflation is still uneven; high for some products, dropping for others. Trading up to this date has been buoyed by rugby, less so by Valentine’s Day. Make of that what you will.

So uncertainty remains. But it’s looking more hopeful as the year plays out.

Graeme Smith from Alix Partners told this week’s Propel Hospitality event that the consumer was continuing to spend on leisure and hospitality, with spending on eating out increasing by 5.9% on average over the last 12 months.

In 2024, 63% of consumers plan to spend at least as much as they did in 2023 in restaurants and bars and 65% of consumers agree that eating and drinking out is as important in their social life as it was before the cost of living crisis, making a stable case for occasions.

Value remains important, with that great sector bellwether, Greggs, reporting 8.2% like-for-like growth so far this year.

Smith added that listed companies were forecast to exceed 2019 profit margin levels this year, despite the impact of inflation, indicating the staying power of the sector.

Smith reported that the group had seen distress increase last year, but was not expecting to see a leap this year. What Alix Partners was anticipating seeing was an increase in deals, driving in part by a need to refinance (and terms not being as favourable as the last time companies spoke to their lenders) and in part by private equity groups coming to the end of their hold times/tethers.

The volatile trading and behaviours of the past few years have seen many private equity groups hold onto their investments for longer than their usual three to five year tastes, which meant that, with trading stabilising this year, exits were likely to be made.

What did this mean for the sector? More interest for the observers, but also shifts and changes in companies as they add rivals, build platforms and look to fill white space. An interesting year lies ahead.


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