TheChek News Flow

- Overall Economic Activity: Economic activity expanded at a moderate pace since mid-February. Several Districts reported moderate employment gains despite hiring and retention challenges in the labor market. Consumer spending accelerated among retail and non-financial service firms, as COVID-19 cases tapered across the country. Manufacturing activity was solid overall across most Districts, but supply chain backlogs, labor market tightness, and elevated input costs continued to pose challenges on firms' abilities to meet demand. Vehicle sales remained largely constrained by low inventories. Commercial real estate activity accelerated modestly as office occupancy and retail activity increased. Districts' contacts reported continued strong demand for residential real estate but limited supply. Agricultural conditions were mixed across regions. Farmers were supported by surging crop prices, but drought conditions were a challenge in some Districts and increasing input costs were squeezing producer margins across the nation. Outlooks for future growth were clouded by the uncertainty created by recent geopolitical developments and rising prices.

- Labor Markets: Employment increased at a moderate pace. Demand for workers continued to be strong across most Districts and industry sectors. But hiring was held back by the overall lack of available workers, though several Districts reported signs of modest improvement in worker availability. Many firms reported significant turnover as workers left for higher wages and more flexible job schedules. Persistent labor demand continued to fuel strong wage growth, particularly for footloose workers willing to change jobs. Firms reported that inflationary pressures were also contributing to higher wages, and that higher wages were doing little to alleviate widespread job vacancies. But some contacts reported early signs that the strong pace of wage growth had begun to slow.

- Prices: Inflationary pressures remained strong since the last report, with firms continuing to pass swiftly rising input costs through to customers. Contacts across Districts, particularly those in manufacturing, noted steep increases in raw materials, transportation, and labor costs. In multiple Districts, contacts reported spikes in prices for energy, metals, and agricultural commodities following the Russian invasion of Ukraine, and several noted that COVID-19 lockdowns in China had worsened supply chain disruptions. A few reports noted that input suppliers were making use of more flexible contract terms or only honoring price quotes for 24 hours. Strong demand generally allowed firms to pass through input cost increases to customers, for example, via fuel surcharges for freight and airline fares. However, contacts in a few Districts noted negative sales impacts from rising prices. Firms in most Districts expected inflationary pressures to continue over the coming months.

Decline of in-person learning and ‘extortionate’ fees spark action as industrial dispute and Covid taint experience

When Jack Calland, a South African masters student at the London School of Economics, was told one-fifth of his classes would be cancelled last term he took matters into his own hands.

Having been charged more than £23,000 for his international development degree, he decided to withhold his tuition payments in protest over “extortionate” rates for a reduced course and “unacceptable” conditions for staff.

A further 200 of his peers have either demanded refunds or refused to pay fees until a long-running industrial dispute between teachers and the university’s management is settled.

Their frustration reflects a simmering discontent among students in Britain who after two years of Covid disruption are facing fresh strain as their lecturers vote for another round of strike action.

“UK fees are [among] the highest in the world,” said Calland. “At the same time the academic staff . . . have experienced reduced real terms pay and pension cuts, and huge workloads. It just doesn’t square.”

Since 2020, national lockdowns have confined students to their rooms causing unprecedented interruption to their education. Now walkouts over pay, pensions and working conditions are continuing to threaten to derail learning just as other sectors are getting back on their feet.

This month 40 universities voted to participate in further strikes between June and October, including Durham, Exeter, Edinburgh and Newcastle from the top tier Russell Group. The University and College Union has warned that the dispute could further erode teaching quality as demotivated staff scale back their work or leave.

The disruption adds to the toll on students wrought by the pandemic. The proportion of those satisfied with their course dropped sharply, from 83 to 75 per cent between 2020 and 2021, according to the National Student Survey.

Two-thirds of undergraduates in their third year or higher said the pandemic had a significant impact on their academic performance, according to the Office for National Statistics. And nearly a third of all students said their mental health had worsened in recent months.

The current dispute has piled on further pressure. “There’s a real sense of anger among students,” said Raul Zepeda Gil, a PhD student at King’s College London who has chosen to ally with her professors on strike. “Maybe before during Covid there wasn’t because the disruption was so hard, but I think there’s going to be more appetite [to support the strikes] now.”

Although most universities have returned to face-to-face teaching after classes moved online in lockdown, students remain concerned about low levels of contact. According to ONS surveys conducted in November and March, at least a quarter of students said they had not attended in-person teaching in the past week.

How much of this is due to classes being cancelled or people not showing up is not clear. Chiara Ingravallo, a film and media student at Northumbria University, said first years had developed the habit of logging on rather than coming in to lectures. At a recent Friday morning class, just three of 15 students attended. “People have got used to just opening their laptops.”

Ingravallo pays nearly £17,000 per year in fees. This term, five full days of classes were cancelled by strikes, and the disruption has affected access to her tutors, she said. “I do think the teachers should get treated better but I also want my money back.”

Grinding pressures have led to low morale among academics. A recent survey by the University and College Unions found two-thirds of staff said they were likely to leave the sector within five years. Among those aged under 30, the number rose to 81 per cent. Northumbria University said it was determined to “minimise the impact on hard-working” students.

In an effort to mitigate the disruption for students, many universities have given concessions such as coursework deadline extensions and a promise to avoid assessment of subject areas that have not been taught.

The LSE said that it understood student concerns about the impact of industrial action on their studies and were “committed” to supporting them.

“We are providing comprehensive information, resources and guidance to our community, and will continue to review how we can best support our students during this time,” it said.

The measures were “reassuring”, said Evie Croxford, president of the student union at Sheffield university in the north of England, where staff have voted to strike. But, she added, the “disjointed” nature of the strikes, with some departments more unionised than others, had made supporting students harder.

Meanwhile, universities have been working to deliver quality education in adverse circumstances. Universities UK, an advocacy group for the sector that represents 140 members, highlighted that undergraduates who feel unsupported had a right to “escalate” grievances by contacting the Office of the Independent Adjudicator, which assesses student complaints.

It added that British universities had a global reputation for excellence, and urged institutions to “work closely and positively together” to ensure “a high quality and positive experience” for students and staff alike.

At LSE, staff strikes will not continue next term. But Calland remains concerned that poor staff conditions will have a detrimental effect on his learning long-term, and for now he intends to continue withholding fees.

“It’s not just about us getting our money back — it’s part of broader solidarity to strengthen the hand of staff.” Ultimately, he said, “staff standards are students’ standards”.

Pandemic boom in online food delivery has not helped make $7.3bn acquisition any more appetising

The secret to successful food delivery is to manage a speedy pick up and drop off without letting the grub go cold or misplacing half the order on the way.

The mouthful that is Just Eat Takeaway.com may do all right handling dinner from the local pizza place or kebab shop. But in its corporate endeavours the recipe has gone seriously wrong.

For a start, a quick turnround isn’t the aim in strategic dealmaking. JET, after coming under investor pressure, says it is considering a sale of Grubhub, the $7.3bn US acquisition it completed less than a year ago and that it announced in June 2020 as locked-down populations sparked a boom in online food delivery.

And look at what has happened en route. Investors have gone cold on JET. The company’s Netherlands-listed shares were at close to €100 when the deal was announced. They were trading at around €27 on Wednesday, having fallen 70 per cent over the past year.

This is another cautionary tale about empire building. Chief executive Jitse Groen, who founded Takeaway.com in the Netherlands in 2000, had only just inked the deal to combine his company with UK-listed Just Eat earlier in 2020.

Still, he fought off interest from Uber to buy Grubhub. That brought together the three legacy food delivery platforms, which all started with a marketplace model of offering software to connect customers with restaurants that handled the delivery themselves.

The deal always looked like it could go sour. JET paid a 40 per cent premium for a combination where no geographical overlap meant no antitrust concerns (unlike Uber), but also no cost savings or benefits from consolidating a fiercely competitive market.

Grubhub, like the European legacy marketplace businesses, had once been profitable. But its market share and margins had been shrinking thanks to competition from companies with their own delivery networks such as DoorDash and UberEats.

Groen, even in 2020, was dismissive of those rivals (which include the UK’s Deliveroo) as offering “empty calorie growth” or having “irrational business models”. But in fact, the company was already building its own logistics network to compete. The notion of redeploying European profits to reverse Grubhub’s decline evaporated as it invested heavily to capture pandemic growth.

JET’s group ebitda fell from €363mn in 2020 to a loss of €350mn in 2021, even as gross transaction value rose by a third. Grubhub’s share in the US has continued to shrink.

Activist investor Cat Rock Capital has criticised management’s communication with investors and called for a sale, arguing that JET had been left vulnerable in a market that relies on having deep pockets to deter or fight new entrants. The company pledged on Wednesday to refocus on profitability. But it also downgraded 2022’s outlook for GTV growth from the mid-teens to mid-single digits just seven weeks after reiterating the higher figure at full-year results.

Finding any punter willing to gobble up Grubhub would be considered a win. JET’s market value of about €6bn is now less than the purchase price and it also has a 33 per cent stake in Brazilian business iFood, which analysts value at anywhere from €1.5bn to €4bn, that could be sold.

But the fact that JET management was, until recently, ruling out a Grubhub sale leads to doubts about how motivated they are to get a deal done. And it is a terrible time to be selling. Shares in all food delivery companies have slumped as investors contemplate the adjustment to a non-locked down world. It remains hard to predict where consumer behaviour will settle, especially given the squeeze on incomes from inflation. Fee caps put in place during the pandemic could be made permanent in New York, Grubhub’s most important market, a measure that costs it €200mn in ebitda annually.

JET’s boss has been known to get into the odd spat with sector rivals about the relative appeal of their businesses. But it is he that in the last couple of years has served up a real dog’s dinner.