Loungers PLC – LGRS – Covid-19 Update

Loungers PLC – LGRS – Covid-19 Update

Following our update on 22 April announcing the Placing and additional banking facilities, we would like to update the market on how we have used the closure period to protect and evolve the business.

With the Company's financial position secure, our focus has been as follows:

o  Communicating with our team and continuing to engage with our communities and customers

o  Evolving the business for a post Covid-19 trading environment and beyond

o  Preparing for re-opening

Our team are at the heart of everything we do. Alongside providing reassurance and information we have worked hard to ensure we have positively enhanced the culture within the business.  On a practical level we have introduced initiatives such as a new app to allow our teams to communicate together more easily and to ensure the voice throughout the business is heard. We have also asked our teams how they feel about returning to work, what measures they want to see put in place to protect them and we are working on specific training materials to ensure they are not put at risk in any way.  InYourLoungeFest was our amazing, live-streamed annual staff party, carried out online in place of our usual company festival, LoungeFest, where we close the entire business for a day and party in a field in the Cotswolds.

Our engagement with customers has been based on supporting them through this difficult time with competitions, acts of kindness in the community and reminding them about what makes their Lounge or Cosy Club special. We have also surveyed significant numbers of our customers in both Lounge and Cosy Club to understand their attitudes towards visiting our venues when we are allowed to re-open. Encouragingly, the vast majority of those surveyed are looking forward to returning (only 2% of customers out of the 6,000 respondents said they would not be comfortable resuming their normal visits to Lounge and Cosy Club when Government restrictions are lifted), and their feedback has given us some great insight into what they will expect to see in place in terms of physical distancing and hygiene measures. We will continue to survey our customers in the coming weeks to understand how attitudes are shifting and to make sure our strategy is on point.

We have opened 17 Lounge sites for takeout and will open a further 10 sites on the same basis over the next week. Takeout, 'From our Lounge to your Lounge' is a completely new model for us but our objectives here were to understand if it could provide an additional revenue stream once re-opened, to help us understand operating in a physically distanced environment, to get the supply chain back up and running, to bring team members back from furlough and working, and most importantly to further energise the culture of the business and generate some excitement. It has been a big success, hugely welcomed in the communities where we have opened, and we don't rule out following up with more sites in the coming weeks. It won't move the dial financially on a standalone basis but could potentially provide a further revenue stream when re-opened, as well as providing a service to anyone who is less comfortable eating out.

We have chosen not to go down the delivery route, and still don't think it appropriate for our concepts which have customer and community engagement at the very heart of them but operating an order and collect model suits Loungers' personality.

As we prepare to re-open, we are challenging aspects of the service model in both Lounge and Cosy Club. We are looking to trial order-at-table technology, for example, and whilst this is something we have ruled out several times in the past, we would be keen to try it post lockdown if it makes a minority of our customers feel more comfortable. Likewise, we are considering menu size, understanding what efficiencies we might achieve with slightly smaller menus, a change we will trial whilst operating physical distancing in our kitchens. We also plan to trial going cashless when we re-open. Importantly these changes are not just relevant in the immediate months following re-opening but may well teach us more about how our brands can evolve in the longer-term.

We are naturally preparing to re-open, anticipating some - and potentially the majority - of sites being allowed to open in July, assuming the hospitality sector gets the go-ahead from the Government to do so, as anticipated.  As a business that is used to opening a new site every two weeks, this is the kind of logistical challenge that we relish and perform well at. We are in the process of planning revised layouts and removing and storing surplus furniture to allow for the introduction of the physical distancing rules. Due to the size and layout of the majority of our sites and the spread of our trade across the day parts, we anticipate being able to trade profitably with distancing rules in place. There is, however, a marked difference between 1 metre and 2 metre distancing, and if 2 metres is implemented, it may not make sense to open a small number of our more compact sites immediately. We are also using the closure period to perform regular site visits and using our in-house build team to carry out both essential and preventative maintenance work that will help our P&L going forward by avoiding interruptions to trade. Our approach to partitioning and physical distancing in the sites has been to challenge ourselves to find ways to improve the sites from a design point of view, regardless of Coronavirus. Naturally, it will be necessary to have PPE and additional hygiene protocol in place for a period of time but we think the measures we are taking from a design perspective will feel very complementary to the look and feel of a Lounge and Cosy Club, whilst providing reassurance to our customers.

In terms of re-opening, given the suburban and market town locations of the majority of our sites, alongside the fact that we are not in central London nor in transport hubs or tourism locations, means we are optimistic with regards to the future and expect to benefit from more home-working. The versatility of our all-day offer, use of multiple day parts and occasions, alongside our value for money positioning, means we are well placed to resume trading. Regarding the roll-out of new sites, we are keen to re-start our new site opening programme as soon as it is sensible and we expect to be able to secure great property opportunities in the coming months in a tenant-friendly market.

In summary, we have used this time constructively and positively. As full re-opening gets closer, and with the valuable intelligence we have gained from participating in the latter stages of the lockdown, we believe we are in a strong position and look forward to the future.

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