Thursday 24 July 2014

Trouble at Tesco, & RBS

Enough of the international scene: back to business.  The Tesco crisis seems to have come to a head - well, the head has been chopped off, anyway.  Mr Q will have a better-informed view, but as a simple punter I'm bemused. 

The bottom line is the bottom line, of course, but as I go about my shopping Tesco doesn't seem to have screwed up visibly (unlike, say, M&S clothing).  In fact, I'd say my local 'superstore' has been steadily upgraded year on year, prices are OK, and if you are in a position to optimise the various promotions they run (particularly by buying in bulk and playing tunes on the petrol points) there is quite a lot of £££ to be saved.

I also thought that they'd responded intelligently to the recession with their phoney 'discount brands'.  But no, it seems not, and Aldi & Lidl have done for them.  Old man Cohen would never have let that happen: but since the days of MacLaurin they have been resolutely pushing the brand away from the bargain basement.  To have been caught in a pincer from below (the Germans), and from above (M&S Foods and Waitrose) is a strange outcome.

The new man ('Drastic Dave' Lewis - sounds promising) comes from Unilever.  By a curious coincidence I happen to know a bit about the energy purchasing operations of that company and of Tesco, and have been moderately impressed by both.  This may have nothing to do with the issue at hand but it's a data-point.

With an operation and asset-base as big as Tesco there is huge scope for turning things around: (they could start by selling land).  Sainsbury was languishing for years, but was never a lost cause and has engineered an up-cycle.  Surely Tesco will eventually figure out a formula for the 21st century.

Which is more than can be said for the recidivists at RBS.  Yesterday in the comments, Hovis brought our attention to this, the latest episode in what appears to be a disgraceful story we looked at back in February.  Were RBS putting the squeeze on SME customers in order to drive the into the hands of their investment arm at knock-down prices ?  It doesn't help their case when senior management is caught being economical with the truth.

As with Lloyds, the taxpayer-owner of these wretched institutions can only marvel that, across all the years we have owned the turkeys no-one from Whitehall has taken the management to the back of the bike sheds and marked their cards for them. 



Kemi said...

but as I go about my shopping Tesco doesn't seem to have screwed up visibly (unlike, say, M&S clothing).

They most certainly have, but I can't put my finger on why. When I walk into a Waitrose, M&S and Sainsbury's I feel cool and calm walking down the aisles. Tescos does NOT have that aura. Everytime I walk in there, I feel frazzled and have walked out more than once without buying anything. Go figure.

dearieme said...

"This may have nothing to do with the issue at hand but it's a data-point."

Hitler was agin sausages. It's a data-point. Small Italian from Corsica invaded Russia - it's a data-point.

Mind you, there are surprisingly few data-points for President Obama: there's some exaggeration around on this point, but the gist is true.

Bill Quango MP said...

We looked at Tesco about two years ago. general consensus from C@W readers was it was terrible.

Too expensive or too cheap {on the old blue stripe 'pauper' label}

Stores too large was the surprising conclusion. But Now its clearer what people meant.

The weekly shop is on the wane. The pop in shop for immediate purchase is on the rise. Smaller, but still wide variety, not so much out of town, stores are in for the twenty teenies decade.

I'm very surprised Tesco haven't sorted themselves out yet.

They went for a refitting of their very many older stores. Which was necessary, but wasn't what was losing them customers.

Way back in 2008, I had an argument here saying Waitrose would be in trouble if it didn't cut prices, without cutting quality. And Sainsburys too.
Many disagreed.

But Waitrose responded superbly. Ditching their insanely priced own label ketchup, and wet wipes, and moving 'everyday' items to usual lowly margins and prices.

Very near to BQ Industries are 4 supermarkets, all mid-sized and all in a line.

Waitrose have a big car park and our the busiest. Next door to them is lidl. The savvy Waitrose shoppers buy the wine and meats from lidl and the 'nice' food and bakery, salads, sauces from Waitrose.

This is VERY similar to the old M+S/Tesco operations where they opened jointly on retail parks, with Tesco taking on that Lidl role.

How both have suffered.
And although I predicted the rise of the discounter,; the 99p and the Aldi etc {nothing new, happens every recession}
I NEVER expected it would be permanent.

MyKidsOnBloodyHolidaysName said...

There is too much space allocated to retail in the UK.

Ocado - along with autonomous vehicles - will totally destroy the grocery shopping experience. Somebody has to be the first to go and its Tesco, I'm afraid.

We are in a deflationary depression-lite and in spite of the govts attempts to inflate everything from houses to gas bills it is becoming structural. You've called it right in suggesting a land sell-off, this will cause broader deflationary pressures but might keep Tesco (and the others too!) solvent for a decade or so. After that, all they are is Brand names and 'old-fashioned' style boutique shopping.

Aldi and Lidl are the UKIP of the supermarket world.
As UKIP have done (and will do for) labour and tory so the discounters will do for Tesco.
Sainsburys are the Tories, Morrisons the Labour party adn poor old Tesco left with the Lib dems.

Electro-Kevin said...

Tesco has not reacted to a fundamental change in Britain. The young generation are piss poor - their parents are hard pressed helping them.

Why shouldn't it be permanent, BQ ? It all goes hand in hand with zero hours, minimum-wage-becomes-maximum (cheap imported labour) student debt, large mortgage multiples, high tax...

The population is becoming polarised. Those with property backed wealth and those without - therefore the middle ground retailer is obsolete.

(Thanks for linking my post)

Bill Quango MP said...

EK - We can see it now but 2008 was 6 years ago. Wasn't expecting a recession to still be ticking along after 6 years.

Its historic. Even the US depression was over by now. Even the UK's terrible 1931 austerity was beginning to ease by 1937.

Sebastian Weetabix said...

I thought i'd try Aldi since there is one a couple of miles away from us. Awful awful awful. But I suppose being middle aged without a mortgage and comfortably off i don't feel i have to endure it. They sold gin but not tonic! I mean, wtf?

Tesco, as far as I can see, seems to combine the awfulness of Aldi with prices like Waitrose.

Steven_L said...

As some of you know, two years ago I moved to Scotland, where multibuy alcohol offers are not allowed under the licensing laws.

Tesco have very little answer to this, other than not to stock single cans of Tenants, allowing them to charge what they like for a multipack as there is no comparison.

Now Morrisons, instead of offering 4 for £5.50 like in England, simply rotate pretty much the full range of Williams Brothers bottled ales at £1.50 a pop.

This, coupled with me getting worse hangovers these days (and being under the thumb - "ahem, is that your last one tonight") means Tesco has lost pretty much all of what is left of my custom.

hovis said...

BQ: we are in a recession 6 years later as the market never properly unwound and the banks were bailed out. I maintain despite the figures we are all Wile-E-Coyote, just not looked down yet.

Blue Eyes said...

The market has moved, this time away from huge megamarts on the ring-road and towards smaller local shops, away from we-sell-everything shops to cheap-and-limited and specialist-but-expensive shops. The big players have found they are sitting on developable land and have no need to build tin sheds on it.

There is an oversupply of supermarkets and an undersupply of housing. The market is telling Tesco and Sainsbury to sell their land to housing developers.

Either the system works, or the world is ending. One or the other.

James Higham said...

Bill's right: Too expensive or too cheap {on the old blue stripe 'pauper' label}.

Timbo614 said...

I don't really want to talk about supermarkets, you can all go swing with your bearish and misery inducing comments to! Please change the subject.

I will only say that I have to pray that some sort of reasonable divi is maintained (from nearly all of them) in my retirement or my ISA is going to have a very sad return rate. As it's too late to bail out now. Should have done it at -10% but hung on for a while, then a while then... :(

Maybe some big German co. will try to buy one of them - that usually prompts a rapid recovery in the SP! Or one will prevail and its share price treble. Timbo, ever the optimist.

Bill Quango MP said...

Stay happy timbo. Tesco aren't going anywhere.
They are currently opening smaller units all over the countryside. Far larger than traditional village convenience stores, but tiny by Tesco own standards.

The ones I've seen are pretty terrible. It's like a big supermarket, but scaled down. They will pinch some top names from Aldi, Lidl, M+s foods! and Primark and then figure out how to make money.

Tesco are still the USA of supermarkets. Talk of their world domination ending seems premature.

Timbo614 said...

Thanks for the support BQ.

I'm not that worried - maybe a bit by Morrison's but they too have a massive property bank, I am looking at -30 on them. The others I did manage to sell on little ups and re-buy a bit lower. But Morrison's just slid (are sliding?) continuously.

The worst thing is I started out with the supers and Utilities,(PEN and UU) and they did so well I sold 'em and bought more supers. PEN & UU now have graphs the mirror image of the supers! Damn. But ho-hum they are for retirement income, not trading! Just definitely so now!

Anonymous said...

The thing with Tesco's land bank and possibly with others is that the book valuations will often be way over current value as they have paid all sorts of silly prices to assemble sites. Developing them out for housing as opposed to simple sales will probably be the best route for them.

K said...

We always went to Aldi or Lidls as students and that was 10 years ago. Everybody looked down at them until you moved out and realised that if you pick and choose there's a lot of good stuff for cheap. For a short while it was almost like a cult thing if you knew where to get Jaffa Cakes for 50p. If you were too cool to go to Aldi/Lidls then you weren't cool at all.

So really it doesn't seem surprising that they're now taking over. The only new thing is that even the media is talking about it.

andrew said...

The trouble is that Tesco's big out of town shops are based around the assumption of shopping as a destination/experience in itself and before '08 it seems we agreed with that.

We dont seem to enjoy spending money anymore.

We dont want to spend time just shopping (in tesco - waitrose with it's free nice coffee is a different thing) and some of that is driven by the internet.

Travel is more expensive, people without money have realised the veg stall is cheaper - and you can walk to it.

People with money get it delivered from waitrose.

The trend is inescapable.

20 years ago if you wanted to phone someone you called their house. Now you call them and most younger colleagues dont have a landline anymore.

Now we are in the habit of driving for 7 miles to a supermarket, wandering around it for an hour or so an then driving 7 miles back.
In 20 years time i think that will sound like a very strange thing to do.

Opening shops where people are (live and work) - revolutionary idea - is the future.

That is not to say tesco is doomed - far from it, I have been forecasting the demise of WHS as the internet rises, since '06 but they are doing fine.

As others have noted, there is too much out of town retail space in the uk.

Blue Eyes said...

People drive 7 miles to the supermarket??

I walk 15 minutes to the big Tesco if I can be bothered, around the corner to the Express if I need something right now, or if I am organised I get Sainsbury's to bring me a big shop in the evening.

I have long predicted that the big stores will turn into predominantly delivery hubs, with the facility for customers to visit them. They will look more like Aldi does now than Waitrose.

andrew said...

oops - depends what google you look at.

one says 6.7 miles, another 3.5 - possibly depends on whether uk wide or london biased.

Anonymous said...

'Across all the years ... no one from Whitehall has ... marked their cards'. Heaven forfend! You don't mean Regulators who do not Regulate do you? I thought the whole idea with Regulators was that you - well - regulated their activities. Don't want to spoil a good sell off or discourage the investors. Reports and Studies yes, pulling up the drains - no. Since when has banking regulation ever prevented crashes?

Jan said...

Well to give an opposing view, I like Tesco. I've stuck with them through thick and thin since the 70s when I was away from home as a student. I've lived in several places and always found a handy Tesco. Now I have a medium sized one which has both cheap/value lines and Tesco "finest" in the same store so I can buy both and it's within walking distance so on several days per week I walk there and back with my 2 bags of shopping which is a workout far cheaper than the gym and saves on petrol. There's also a small Tesco by the station which catches commuters but without the value lines so inevitably more expensive.

By the way I am not an employee/shareholder etc so this is my unbiased (by vested interest) view.

There aren't any Lidl/Aldis here so I can't compare. The Waitrose is small and more pricey. If I want a cup of coffee I'd rather sit down in a decent cafe than wander round the store trying to juggle a coffee with my basket and shopping list so they won't tempt me that way.

Jer said...

There are Tesco, Sainsbury and Aldi stores within 15 minutes walk of my house.

Aldi is very quiet generally. Tesco and Sainsbury much busier. The native English speakers tending to Sainsbury and the Russian and Polish speakers to Tesco.
I can see Tesco rising again, surely the Co-Op is the weakest retailer?