Maggie Pagano Drastic Dave’s uphill battle
Eat your heart out aldi and Lidl, tesco is back in the game. Profits have broken the £1bn barrier again and sales have shown the first year of growth since 2010.
after a terrible few years fighting off Germany’s aggressive discounters, tesco saw a 30pc leap in operating profits.
Chief executive ‘Drastic’ Dave Lewis has every right to be feeling pleased. He has delivered. Food prices have been cut, trendy new own-label farm brands have been introduced and cut-price promotions have been slashed in favour of lower prices across the board. Hurray for all that.
Lewis has also been on a charm offensive, glad-handing suppliers badly treated during the accounting scandal. On the cost front, he is bringing down overheads, cutting distribution centres and switching stores to freehold. all good news.
Why then are the shares so droopy? there are two reasons. First, the pressure on supermarket margins because of cost-inflation and fears of depressed consumer spending. there was more evidence of the squeeze after employment figures yesterday that showed real pay is stalling. Second, worries over the proposed all- cashand-share £3.7bn merger with Booker, the cash and carry business, which is being probed by the Competition and Markets authority (CMa).
Investors Schroders and artisan, with 9pc of tesco’s shares, don’t like the deal, mainly because of the price. Expect others to follow. Not surprisingly, the UK’s convenience store retailers are also violently against.
they fear tesco will become even more dominant, making life tougher still for the small guys. as well as its cash and carry business for the catering trade, Booker supplies 72,000 small retailers including Londis, Budgen and Premier.
Were the deal to go through, tesco would be a food colossus in the convenience and the supermarket trade with nearly a whopping third of the market share of each.
We can only hope the CMa is going over this like a rash as the sector can’t afford much more cut-throat competition.
Of course tesco argues the merger will be a win-win for everybody; for customers because of lower prices and for investors because of higher profits from cost-savings and merger synergies. But that’s impossible to prove either way.
Lewis has managed to win over customers. Now, he will need to be more than drastic to convince the CMa and investors that going broke for Booker is the right deal at the right price.
Reinvent the City, again
SINCE the Great Fire of London, the City has been brilliant at reinventing itself.
From being the great entrepôt financing railroads and trade around the world in the 19th century, the Square Mile metamorphosed into having the most liquid capital market in the 20th century.
So it’s fitting the City claims to be the fintech capital of the world in the 21st; where all the techies and financiers bang heads to come up with the latest technologies.
Holding on to that crown was the main concern at the first fintech conference held in the City yesterday and launched by Chancellor Philip Hammond and other bigwigs. One of the tech industry’s big concerns has been the loss of techie talent from the EU ahead of any Brexit deal and making sure regulations are not too strict.
they should not be so worried; Hammond has hinted at relaxed work permits for specialist techies and, to date, regulations for new start-ups have been relatively loose.
Historians have an explanation for our trading success; they say it’s because the Brits are piratical tarts at heart, gifted at selling themselves to anyone, anywhere for the tiniest fraction of a pip. Heigh-ho!
United on the line
COMPaNIES beware. Your reputations hang on the line in a way never seen before. Look at United airlines: one video clip of a man being dragged off a plane knocked £800m off its valuation in under 24 hours.
this is the Ratner ‘crap’ effect to the power of a zillion. United is still worth £480m less than on Sunday but the cost to the airline’s reputation is incalculable.
It’s hard to see how United chief, Oscar Munoz, can survive. Nor should he.