Vulnerable small firms
There are two ways of looking at Tesco's figures this morning: as a bit worse than some of its close competitors, particularly those perceived to offer better value for money; and massively better than most retailers.
Tesco is far too big to be dismissed as an interesting exception. Its sales in the UK alone (and it has big overseas operations) are over Ā£40bn.
So it matters - and not just to Tesco's shareholders - that in the seven weeks to 10 January Tesco's like-for-like sales (or sales per unit of selling space) were 3.5% higher than in the previous year.
And the resilience of Tesco's sales extended wider than relatively recession-proof food. Tesco says this morning that non-food sales rose a bit - and that it captured market share in electricals, clothing and entertainment.
That said, Tesco's performance appears to have been less robust than its closest competitors, Sainsbury, Asda and Morrison. And smaller retailers that position themselves as offering the cheapest food around, such as Aldi, have enjoyed much stronger sales increments (this morning's FT says Aldi sales rose 22.2% in December).
But Tesco is incomparably bigger than all of them. Aldi's UK sales are almost the equivalent of a rounding error in Tesco's profit-and-loss account. Tesco is as big as Sainsbury and Asda combined.
So it would be unrealistic to assume that Tesco could escape unscathed from the end of the longest, strongest consumer boom in British history.
But nor are its figures exactly consistent with the screaming headline this morning from the British Retail Consortium, which says "Worst December in survey's history" when summarising its members' trading performance in December.
The store groups that belong to the BRC suffered a 1.4% drop in total sales in December and a 3.3% fall in like-for-like sales.
Meanwhile the British Chambers of Commerce, representing a much wider range of businesses - some 6,000 of them - says that its survey of economic conditions in the last three months of 2008 discloses "a frightening deterioration" in the health of the British economy.
The BCC says that domestic demand is collapsing, exports are falling and confidence is through the floor.
So who do we believe, Tesco - which talks of a "steady UK performance - or the BCC and the BRC?
To reiterate, it would be wrong to dismiss Tesco as just one firm. In the UK alone it employs more than 280,000 people - compared with 680,000 people for all BCC members.
However, although Tesco, the BCC and the BRC may seem to be saying contradictory things, they are all telling the truth.
Tesco does have the advantage of being in food, which we have to buy even when the economic going gets tough. But it has two other enormous advantages.
It has a massive and fantastically strong balance sheet - so it is not constrained by the shortage of credit that's mullering smaller businesses.
And as a business it's so big that it can cut prices to win customers, and then share the pain of those lower prices with suppliers.
In other words, the most exposed business right now are smaller ones, with limited buying power and a dependence on credit that's harder and more expensive to maintain.
Some of these will fail because they borrowed imprudently during the boom years, or because they are badly managed or because they are in industries or markets in terminal decline.
Although there is a human cost to such failures, we shouldn't weep too much or try to prop them up. The fastest route to long-term economic decline is to put lame ducks on life support.
What should worry us however is that many fundamentally sound companies may fail, simply because some international banks have massively reduced their presence in the UK corporate-lending market and British banks have perhaps become excessively averse to taking risks.
These vicious trends have been conspicuous for months. And, after months of evaluating how to maximise the therapeutic bang for the taxpayers' buck, the government will tomorrow unveil measures that it hopes will correct some of those market failures.
To state the bloomin' obvious, even Tesco couldn't thrive if the productive capacity of Britain's small and medium sized firms were wiped out in the coming months.
I'm 
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And just how many small suppliers will Tesco personally drive out of business with it's practices?
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"Although there is a human cost to such failures, we shouldn't weep too much or try to prop them up. The fastest route to long-term economic decline is to put lame ducks on life support."
So why are Banks (or should I say most Banks any different?
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So did Flash save the Universe or not?
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If Tesco is true to form it has been bullying its producers in to lower prices. Result: we are alreadys seeing a number of producesrs and processors going to the wall.
Yes small businesses are often between a rock and a hard place in these times. However there are plenty of bigger companies that have borrowed too much when it was cheap and are now having difficulty refinancing.
As part of a cash rich small company I welcome the recession to sort out the wheat from the chaff. Many of our competitors have been subject of M&A in the last few months because they had over borrowed, we have seen steady self financing growth.
Just like all small producers not headline stuff but when it is your own money you are investing rather than soemone elses it makes you use it wisely!
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What I?d like to know is when the BBC News and other News services report the DOOM And GLOOM.
Where do they get the figures it seems every day new info on the doom and gloom emerge!
What ever happened to waiting and seeing what is happening?
The Data seems to come out by the second millisecond even.
Total NONSENSE !!!!!!!!!!
We are being solw a load of BULL every time we read and look at the news.
I have no trust in any of it!
Experts who chaneg their view by the minute.
Utter Nonsense. All of IT.
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I work in a small firm in engineering. Financially, the business is self supporting, but obviously if our customers are not so fortunate, then we'll get hit anyway, so a good little business could get wiped out through no fault of its own.
One thing that could be done, and it would cost nothing, is for a more measured approach to the situation by the media and various bodies like the BCC and the FSB. What is the point of competitively ramping up the hype? All it serves to do is to demoralise individuals and businesses, and we are constantly told that what the market needs is confidence. People will not spend if they are endlessly told, usually in blood curdling terms, that we're all doomed! I know bad news sells, but the wallowing and exulting we see and hear every day really is giving aid and comfort to the enemy. Good job we're not at war-we'd lose!
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"The fastest route to long-term economic decline is to put lame ducks on life support"
Please tell nurse Mandelson and nurse Campbell the that despite their best efforts the lame duck appears dead and they can remove the breathing tubes.
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Perhaps Tesco should then provide some loan guarantees to smaller suppliers it uses, rather than penalising them for a lack of credit which no fault of their, but their bankers.
Tesco just bought out RBS's share in their financial services business for one billion pounds.
What about some supplier credit facilities to the very people that give Tesco its brand value - good quality goods at competitive prices. After all...every little helps!!!!!
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It won't stop Tesco's from screwing their supplier base even more!
You mark my words. They are just too pig headed and arrogant to get the bigger picture!
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Tescos will out-compete non-food rivals such as Argos, Currys, Comet, M&S, Woolworths, etc.
Tescos' financial strength effectively puts pressure on other UK retailers within the domestic market.
The general retail trend is down, but those retailers, like Tescos, with low overheads relative to their market activity will perform better than the average.
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Mr Tesco squeezing the balls of its suppliers and ensuring they help the small business go belly up quicker than you can say depression.
As anyone privy to a Tesco - supplier meeting would tell you, every little helps and faced with the biggest player in the market pulling your wares unless you reduce your prices to them further leaves you facing obsurity and they showing a modest 2.5% as against a small loss.
There tactics, while in the interest of the shareholders will ultimately destroy them as with the banks. Just as the burden of debt has crashed their financial model, Tesco and the other big supermarkets shoppers will / have destroyed many suppliers. This will further limit choice, quality and therefore, their future profits.
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Money being tight stands to reason that people will shop at the cheapest shops. this must be very worring for the smaller food shops. And should be even more worrying for the public at large. As things take hold more and more it will mean less people will be able to get to places like tesco etc. and with small shops out in more rural areas closing this come be quite a problem. specially for the elderly.
Which suprises me why morrisons is employing 5000 extra staff Robert.
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Unless Flash nationalises credit, using the Tory model small businesses will go to the wall in droves. I know from experience the questionable practices of small business lending by HSBC and the impact is has on small business. Unless Flash acts now we will lose 1000s of credit worthy businesses because of yet more Labour dithering!
http://news.spotz.com/groups/gordon_brown_must_go/default.aspx
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A Lot of our problems Are due to supposed improvements.
Supermarkets which = fewer jobs in return for bigger profits on smaller margins.
Sunday Trading = kill the small family business as they need a day of rest unlike super markets.
The Internet = tighter margins lower profits.
Robots making cars at Nissan = Fewer JOBS.
Soon we?ll all be able to just sit at home and do nothing just get had outs form the GOV and on and on it goes.
Improvement can = Nothing but Nonsense.
The supermarkets are now selling home wares so good-bye to John Lewis in the future too any minute they will be stocking furniture.
There needs to be a structure.
Otherwise we will just have 3 big retailers employing 100 people running software.
Oh and maybe a security firm or two.
We have been heading into the new age of people in work are not needed and death to the high street.
All due to a lack of foresight with no inability to add up and subtract a GOV who are incompetent and idiotic.
Planning for 12 months time
Rather
Than
Planning for the next 100 years
How we have failed ourselves!
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This firm is too big, too powerful and should be broken up.
I saw a related news item this morning which said that British pig farmers did not get a fair share of the market price for their products.
The balance of power between big supermarkets and their manufacturers is too skewed towards the supermarkets. This should be an election issue.
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It's a tale of two economies.
While people are frightened but still employed they shop at the big stores as before but they cut out the rest of their spending like cars, home improvements, house moves etc.
Most BCC member's businesses are in the second category.
Sadly it's our own fear that will become a self-fulfilling spiral of doom especially when stoked by miserable reports like the BCC one!
This is a war. We don't want the truth, what we need is propaganda from cheer leaders - otherwise we're 'all doomed Captain Mainwairing'!!
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Judging by the current adverts, I would guess that ASDA are kicking Tesco where it hurts. They can't continue to hide overall uncompetitive prices behind the smokescreen.
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Firms and Families should club together to purchase items and services at reduced / wholesale prices with the threat of taking sizable business orders elsewhere.
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Another corporatist perspective that risks missing the esential point.
So Tesco has a fantastically strong balance sheet and can cut prices and share the pain with its suppliers. Strange how there is no mention of the suppliers balance sheets - my guess is that they are likely to be fantastically weak. Nonetheless they will be expected to share the burden with the fantastically strong Tesco.
How smart do you need to be to spot the likely problem? How indoctrinated do you need to be not to mention the likely problem?
So some companies will fail because they either borrowed too much, are badly managed or in industries that are in terminal decline.
If you are spending 46 pence to produce a cauliflower and then selling it to Tesco for something less than 46 pence then I imagine that top rate managers may not be overly interested in the cauliflower growing industry. Maybe these people have needed to borrow merely in order to meet their commitments to Tesco. It would seem to anticipate events somewhat to classify food production as an industry in terminal decline.
Still maybe our omniscient and omnipotent rulers may cobble together some form of "aid" for small food producers. Once this is in place there can be no excuse for their not lowering supply prices still further to the greater benefit of Tesco. Let“s just hope that no sneering commentator dares suggest that this would be equivilent to a direct gift to Tesco - with the obvious, and no doubt intended, advantage that Tesco themselves would not be liable for any terms and conditions attaching to any such "aid."
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Robert,
The sting comes at the end where you convey the government view that sound companies may fail because of "market failure". Whilst the withdrawal of funding by overseas banks might be classed as market failure (and HMG is pressuring UK banks to withdraw funds from our overseas markets!), labelling British banks as "risk averse" begs too many questions. Frankly, I'd much rather trust the risk assessments of an independent bank such as HSBC, than that of the politicians or the B of E.
And we can dismiss the straw man of Britain's SMEs being wiped out: there is a world of difference between a cathartic shake-out (ultimately good) and a wipe-out (bad but highly unlikely).
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I just posted this on Roberts last blog.
UK RECORD global goods trade deficit for november was 8.5 billion
this to me seems a very large number . do people think this will rise month on month. and if so then surely our overall debt is going to be much more than thought.
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I suspect there is much worse to come before the economy recovers. With the pound well below its usual levels and the government about to print money consumers are tempted to buy now in case it costs more in the future. Their experience of recent recessions is of inflation despite the current talk of deflation. With interest rates close to zero there is no point in saving or hanging on to savings. I suspect that some people have brought forward inevitable expenditure in case the price goes up. This will not last.
The next few months will be horrid for all retailers. We have yet to see the effect of rising unemployment on spending. When the devaluation of sterling puts up prices consumers will stop spending in protest. Few retailers will be able to absorb the higher costs.
Reducing interest rates to near zero is a mistake in the long run as we need higher savings ratios not lower. How else are we going to generate capital from which to lend. The era of cheap and available credit is over.
The small cut in VAT is far less effective than removing VAT on property repairs completely for 12 months. That would get people back into work and renovate our housing stock at the same time. Even out of work hege fund managers could learn to use a paintbrush!
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Robert says
"Tesco ...... has a massive and fantastically strong balance sheet - so it is not constrained by the shortage of credit that's mullering smaller businesses."
and
"What should worry us however is that many fundamentally sound companies may fail, simply because some international banks have massively reduced their presence in the UK corporate-lending market and British banks have perhaps become excessively averse to taking risks."
Robert, you excuse these firms which simply fail because those evil banks will not lend to them while at the same time congratulate TESCO for their prudent balance sheet. You are helping the failures to enter the great Gordon Brown pastime of blaming any one except themselves !!
The truth of the matter is the firms which fail have only themselves to blame for not having strong balance sheets which would give the confidence to their bank managers to help them.
The firms that fail have no proper contingency planning - would you go out in a boat without a life jacket even if a storm was not forecast ?
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Reforse wrote:
And just how many small suppliers will Tesco personally drive out of business with it's practices?
I think you need to replace the word 'will' with 'does'
This issue applies to all the supermarkets.
Buy One Get One Free offers are paid for by the manufacturer of the product. The supermarket demands the manufacturer provides the product and often insists that the manufacturer pays for all the marketing for the offer! The manufacturer makes a profit only after shifting volume x. If the manufacturer refuses to run the promotion then its product will be sidelined or dropped.
Supermarkets are, like the utility companies, a cosy cartel. The modern day Untouchables thanks to the close relationship that big business and government (of any political persuasion) maintain. Regulators exist to provide the illusion that they work in the interests of the consumer when in reality they are toothless tigers. All mouth and limited action.
Tesco's own brand products are poor. I'd rather pay more for a Sainsbury equivalent or go to Morrisons.
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Surely it is normal for some sectors and individual firms to appear to be performing well whilst others are being 'mullard'.
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@6
You said good job were not at war we,d lose?????
Well what have our troops being doing for the last 6 years in IRAQ and AFGAN
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In this environmentwe could have a series of cascading failures. This is not a question of supporting weak companies and keeping them in business. This is a question of avoiding an economic equilibrium which will hurt all of us and leave the entire world much poorer.
Free-market theories aside, we have to get banks lending and insurers insuring, or we have to get the government to do both, or to supplement both.
If we allow business and consumer confidence to deteriorate further we will never get out of this.
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"Although there is a human cost to such failures, we shouldn't weep too much or try to prop them up. The fastest route to long-term economic decline is to put lame ducks on life support."
So why did we do that to lame duck banks and why are the government avocating doing it for the likes of Jag/LR and no doubt a host of other lame duck businesses that Brown and Co choose
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I read the # 6 comment by gordont10 and I totally agree that there is a strong possibility that the media is making what is admittedly a bad situation considerably worse.
On a business news network in Canada I actually heard one commentator react to stronger than expected retail sales at one point by saying I wonder how long it will take them to realize the value of thrift. From the context of the statement I took that to mean that if someone has money and spends it, providing jobs and supporting businesses in the process, they are not with the agenda.
On a national news network in the United States we are constantly bombarded by a stream of negative news.
Speaking on a personal basis, I find it almost impossible not to panic with this steady stream of negativity.
It is past time to focus on the solutions and not the problems.
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The news presentation now lacks good solid journalists reporting with facts. It is all about the ego. We know things are bad but do not need continual doom and gloom.
Personally I do not shop at Tescos as their treatment of their suppliers is appalling, and I am sure some of them are pushed to the limit by Tesco.
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New on BBC NEWS.
Every thing is now
Frightening deterioration
FRIGHTENING !!!!!
DETERIORATION!!!!
MARKED DECLINES !!!
It?s propper doom and gloom
Sorry
DOOM and GLOOM
Are we all so NAIEVE ?
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For example the reduction in costs that Tesco achieves by outsourcing etc goes directly into their own pockets and they already have a very big slice of the cake. There is room for cheaper prices if customers place bulk order together (eg via an internet service) and then allow firms to outbid each other for the cheapest offers for the business. This is how Business operates to make profits (but in reverse).
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I do understand why people want an end to the bad news, but perhaps a words of scriptural caution:
Ecclesiastes 1:18 "..in much wisdom there is much grief; and he who increaseth knowledge increaseth sorrow."
Of course, just because it's from the bible, or from any other book, doesn't make it true automatically. However, I've long thought this was a good one.
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One of our clients (a small business) has been told by its main customer ( a large and profitable business) that in future it will take 150 days credit instead of 30 on some of its contracts because "it doesn't want to have an overdraft"!
Well aren't they the lucky ones!
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#5 & #6
So the reports in the media and hence the chatter on here are having a negative effect upon the economy as far as you think.
I take the contrary view. The more that we are informed about what is happening around us, the better we can be prepared for what is to come. Do you really believe that the public should be left in the dark? In the 1930s workers could not understand why they were being laid-off when they were doing a good job.
People are seeing the general and personal effects of this slump being played out in front of their eyes.
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Hi Robert,
Most large retailers do not "share the pain " They screw small suppliers into the floor. I work for a small business supplying major retailers, we are the ones that have taken the pain as we have soaked up 30% increased costs, margin has all but disappeared.
Response fom the retailer is "tough, we will source product ourselves" At this point quality goes out of the window and the retailer buys on price only. Most retail buyers in our sector do not have a clue about the product they buy or where it comes from. An awful lot of product is not what it says it is, but hey! the price is right
The net result is shelves full of cheap tat and more people out of work.
This is the result of out of control capitalism and the most lunatic economic policy ever seen.
Thats all for my first post, sure it won't be the last
PnB
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At least some positive news and let's not deride it. There are too many people using extreme language re our situation serious tho' it may be and the road to recovery must start with positivism, tinged with cynicism concerning politicians and the press
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morning all
I think this blog from RP, whilst interesting, suffers from the common tendency of a lot of the media at the moment to put too much reliance on figures issued by others, especially % changes in sales etc, and for the journalist to simply accept the press-releases at face value when they should be doing some analysis!
Pretty much everything needs a reality-check, after all.
In the case of these figures from food retailers you seem to have concluded that all the major supermarkets have seen increases - some smallish and some huge.
Why's that then?
We're talking like-for-like sales (ie revenue) and not foot-fall (people don't go into supermarkets to just look around.....) or actual weight or number of tins sold
So, assuming the whole nation hasn't gone on a recession-related comfort food binge, the answer would appear to be obvious:
FOOD PRICE INFLATION
anyone bought a courgette lately/
I suspect food prices in 2008 will turn out to have gone up by well over 10%
Which would mean that Tesco are going backwards unless they have squeezed the suppliers hard and passed the cuts on to them (and the latter is probably true); only Aldi and perhaps Morrisson's are really improving sales if my theory is correct
Also, if we say for the sake of argument that actual amount of food purchased is holding its own but at 10%+ higher cost to the consumer, then in a recession when people are spending a lot less, this means even less money being spent in all other retail.
Perhaps this is all very obvious and could be said in fewer words, but it is worth discussing where figures come from and what they might mean.
PS: thanks to yesterday's repliers to my post asking about JCB and the building industry; having grown up on a farm I well understand the reasons to buy 2nd-hand machinery when times get tough
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The key thing to scare me today is not that tesco's has had a bad year; many companies have.
it is the last line of Robert's report. The government is going to 'do something.'
I would argue it has a very poor track record in this matter over the last 15 months. Only the saving of RBS and HBOS was correct, nearly everything else was wrong.
What is more brown is throwing more of our taxypayers money at the situation, I never voted for him to do this.
it is all going to end in tears this time
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Tesco are part of the problem, not part of the solution.
If they kill many more town centres we will be renaming our towns Tescotown, Tescoville etc..
Have they actually got a competitive advantage apart from their overbearing presence? Oh that and the flowers, I suppose.
The one where I am is a shambles.
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The worsening UK trade gap at a time when sterling has devalued by 26% against the dollar and 33% against the euro confirms that Tesco has succesfully been selling buy 2 get 3 promotions whilst UK plc has not!!!!!
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Good for Tescos!
And the fact that they want the smaller retailer to survive.
Good. As a small retailer, I want to survive as well.
Maybe they could start by championing equal business rates for all.
As most of their stores are "out of town", they only pay agricultural business rates while the rest of us are paying a tax just for having a business and in no way related to what we take.
Even in an economic slump, business rates remain the same and the chancellor will want his pound of flesh.
Doesnt matter if you are struggling to make payments on your shop, pay creditors and still make enough to live on and pay your morgage, he still wants his money.
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A major reason the Government must be regretting now having such large stakes in banks is if they need to be increased/nationalised, the Government will not be able to hide behind the banks in unpopular lending and borrowing cost decisions which will directly lead to many becoming unemployed, and of course then not inclined to vote Labour.
Unfortunately there are an awful lot of non-viable businesses in our new consumer debt-averse society. Consumers are realising those "luxuries" and "services" are just not worth it - even food is affected - 25% rise in canned beans sales, 10% drop in organic food sales.
The political reason is probably as bad for Labour as the economic disaster full nationalisation would be - watch how fast the UK's credit rating would further drop if the banks were further nationalised.
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"This firm is too big, too powerful and should be broken up."
Companies should not be punished for their success. If firms wish to compete with the likes of Tesco, they should do so by providing services that Tesco does not and not by relying on handouts from the government.
Government intervention in the free market only sends the message to companies that they can take whatevever risks they want as they will be bailed out if anything goes wrong. Meanwhile, the prudent firms are left wondering where is their reward for being risk-averse?
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"And as a business it's so big that it can cut prices to win customers, and then share the pain of those lower prices with suppliers"
yeah right as has been mentioned above countless times, Tesco will have no pain, their suppliers will.
Can a company become too big, I believe it can, Tesco customer service is rubbish, Tesco Online is rubbish( check out online reviews)
and they have too much clout at a local level, keeping other business from operating in the area, google Tesco town where there are 4 tescos already and planning has been granted for another, Asda keeps getting turned down mmm
Morrison did better as there prices are cheaper, they care more and there service is better, Tesco has to peak sometime, it cant keep getting bigger and bigger like our economy did, so there profits only went up a wee bit, so thats another gazillion pounds then, meanwhile our town centre looks like a ghost town with empty shops and to let signs all over the place.
Speak to all your friends Robert and ask them this,
Will interest rates and inflation rise this year, if so when , thats all I want to know
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Is Tesco seen as a high street store anymore?
They seem to be taking market share in other areas, and therefore the traditional stores are suffering.
When I go to buy my food, if I can get toys for the kids, and DVD's, soft furniture all under one roof I will.
Plus I get my Tesco points.
I love Tesco, they are great for the Consumer.
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I take issue with your statement "Some of these will fail because they borrowed imprudently during the boom years".
It has been standard banking practice to encourage borrowing as much as you can - they call it gearing and the more you borrow, the higher a gear you are perceived to be in. The M&A specialists have encouraged borrowing to grow by acquisition - with them earning massive fees. Shareholders have been advised to avoid companies who were not borrowing in this manner, painting them as underperforming.
Prudent accountants were vilified for not leveraging their assets and only the bravest stopped the banks and shareholders pushing them into imprudent borrowing. Even RBS wasn't immune with the ABN Amro takeover looking like one too far even at the time - but their competitive urges meant they thought they'd got one over on Barclays.
Suddenly the rug has been pulled from these companies by the banks. Now, if you are to be believed, it's the company's fault for imprudent borrowing. I think not.
The sooner we encourage companies to live within their means without bank borrowing the better - but point the finger of blame correctly, not at the companies but at the banks and the regulators who allowed them to scam UK companies into such an uncompetitive position, just to improve their own balance sheet.
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The variations in the results reported point to the obvious conclusion that those firms which previously relied heavily on credit are suffering the most from the "credit crunch".
The lesson for the future is that firms should develop business models which do not rely so much on credit. Legislation which made heavy penalties for the late payment of bills standard, would help. Up front payments to cover suppliers' expenses
as they occurred would be more efficient than relying on insurance.
In the meantime some contraction of high street retailing in the face of internet trading is inevitable. If jobs are protected in the failing firms then they would simply go in the more efficient firms.
Alternative work must be made available. What about training some of the unemployed as social workers specialising in the protection of children?
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Yes Robert, Tescos and others are really worried about the financial security of their suppliers. That is why as broadcast on the last BBC Country File they and others are paying 25p for a UK grown cauliflower when the farmer advises the cost of production is 39p and they can no longer make the gap up from selling seed to seed merchants. And the farmer has to pay for the plastic bag they go in. Net result the farmer is along with other farmers in the UK no longer going to be growing caulis, as broadcast by the BBC. As I posted yesterday on your own blog. You really ought to get out a bit more, out of the plush management offices, away from the spin and share propping, read your own blogs bloggers, watch the BBCs own broadcasts. Every little helps give independent perspective, not just what the CEOs want you to hear.
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As well as looking after the 4 million or so existing small businesses, the government should be doing more to encourage and support the rise of new small businesses. Organisations like enterprise agencies should be suopported to provide advice and training to the 400,000 or more people starting small businesses every year- especially as many newly unemployed pople will be looking to become entrepreneurs.
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If this were a normal recession then the wheat would indeed be separated from the chaff - bad businesses would collapse and good businesses would prosper.
Unfortunately, this is not a recession it is a worldwide depression, i.e. the whole economic system has died and it is simply being mainatined on life support, namely ever more elaborate government (US and UK) financial con tricks, which are unravelling almost as fast as they are announced.
In this arena no business is safe. For sure, the might of your supermarket giants will hold up better than most other business models, at least in the short term, but the fact is that as unemployment snowballs this will impact upon everyone including them. People will struggle to pay for the essentials let alone the discretionary's.
We are facing the consequences of years of macroeconomic incompetence, which built a world economy on thin air and masked the growing gap between earnings (which were shrinking) and the ever increasing costs of living. Credit was the convenient bridge. It was a con trick. The only amazing thing is that they got away with it for so long, but now their luck has run out.
So the reason the banks are not lending any new money is because they are sitting on multiple toxic timebombs of debt worth trillions, which was used to fuel this spurious growth, and no amount of government bailouts will be able to solve this - it is the equivalent of someone in debt to the tune of £10,000 (and growing by the day) being given £100 believing this will enable them to just carry on as before. It won't because it can't. It neither comes anywhere close to paying off the existing debt nor creates enough to continue in the manner accustomed to.
As the extent of the problem becomes clear everything will fall in on itself and this is likely to be sooner rather than later. 2009 will be a year to remember, but for all the wrong reasons.
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Many goood points made on this blog, the inbalance in power between the large supermarkets and its suppliers is exploited by all of all the major chains albeit to varying degrees. suppliers are bullied into paying for promotions, killing their margins, paid late when the supermarket choses, and forced to give settlement and volume discounts. The major chains all need accept that they need to protect their suppliers more if they are to survive.
the second point is that the reason Tesco's and others have grown and continue to grow is that the do usually give the customer what they want, unlike M&S who imo, keep falling into the arrogant mode of thinking people will always buy their brand even when their products are no better than discounters
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I called into my local small DIY shop on Sunday morning.
You know the sort of place, it sells tins of paint, screws, small diy items etc and probably struggles at the best of times to keep going what with the megastores doing everything in a standard package even if you only want half a dozen of something.
'How's biz ?' said I
'Not good, we will be lucky to take a tenner this morning. Probably I will have to cut Sunday mornings out now as it costs more than we take on the heating and lighting'.
Small local businesses need supporting locally otherwise we are going to lose them.
Probably too small a business for Brown and Co to worry about but there are lots of them suffering in real world land.
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34 3CA3CA
I'm sure that when you set up your first priority was to say our mission is to provide substantial finance to large business at our own cost. Not produce goods, provide finance. It just shows how far it has gone. Perhaps you need to retype your business mission statement and show it to them.
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Many people on here have expounded on the rules of business according to Tesco
No doubt they have another arrow in their armoury now as they might state "well at least you're doing business with us"
I agree with Peston about everyone being right and that goes to the very heart of the statistics
For every company above average there has to be another one balancing it below average
If we utilise these figures to suggest that there is some cheer then prepare for worst.
As stated above by others, a very good company will be brought down if it no longer has suppliers or customers.
There is a fundamental issue in the economy directly attributable to the treasury policy, and a tantalising insight from Peston about a release tomorrow (presumably after PMQ's) just adds vim to another non news item.
Why embargo the news? It must be bad if there hasn't been a "leak"
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#18
"Firms and Families should club together to purchase items and services at reduced / wholesale prices with the threat of taking sizable business orders elsewhere."
There are already several wholesale food co-operatives in the UK. People just need to use them.
There are also worker's co-operatives and judging by current trends, society would benefit from the formation of a lot more of them.
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Robert your sychophantic enthiusiasm for Tesco is truly dreadful.
They have screwed suppliers to the point where they can give no more.
We should not be congratulating Tesco but damning them for abuse of position and strength in no less a way than banks shoudl rightly be damned fo their atrocious performance.
We need a strong economy not one where a few companies are bleeding every supplier and competitor in the chase for lower prices.
We need to move away from eth big and brash where teh product range is large but the quality is garbage, and revert to the local stores and service providers where the human touch is still there.
When Big chains like Tesco say they are creating "new" jobs lets not forget how many they put out of work through deep subsidised discounts.
We don't need them on every street and local coubcillors need to basis change parking restrictions to get and reduce rates to get the commuities thriving again.
Big is no longer better but a sham under the guise of improvement. Local will always be better socially and economically if supported.
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Tesco?s results need to be viewed in light of Walmart?s latest financial results in the US. Namely that it was doing well but as unemployment ratcheted up then results become more disappointing. It is no surprise that jewellers, furniture retailers and other big item retailers are suffering, but what may surprise is that some of the medium sized retailers are loosing out to super markets on price as consumers start to price watch.
I am glad that somebody is finally admitting that the fastest route to long-term economic decline is to put lame ducks on life support. Financial institutions excepted off course, but how do we know which are the lame ducks. Credit default swap values, rating agency reviews or financial accounts all look to be somewhat questionable.
Quite clearly some international banks have massively reduced their presence in the UK corporate-lending market. Asserting that UK banks need to pick up all this slack may not exactly be the correct solution though. There was a good reason why those international banks had a presence and it was by mispricing risk, undercharging and sometimes lending to those who in a different light might be considered insolvent. UK banks need to sift carefully through this market to only pick up the slack for well run businesses, otherwise the bank or most likely the tax payer will face a big bill.
I guess Robert already has some sort of inside information on what the government will annouce, but what many forget is that UK banks are actually international banks. That is that actually most of their business is not in the UK, so that any help needs to be specifically targeted towards UK lending , otherwise they could just take the money and lend to more subprime borrowers in the US.
For those who think that reporting is mostly of the doom and gloom variety then I would be quite happy to point those to university economists who believe things are far worse than anything reported by the BBC. All economics reporting could be banned just as we could all stick fingers in our ears and say la la la la as many have done over the last few years. Part of the problem we are in is because many have been so financially and economically illiterate that they have got completely out of their depth. In my book, news is part of the education that needs to take place. News can adversely affect public sentiment and confidence, but that sentiment change is probably a natural adjustment to the situation which would happen anyway even if on a slower basis.Just as bad news will travel fast so will good news when the recovery starts to take place.
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is the moderator constipated??
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"Although there is a human cost to such failures, we shouldn't weep too much or try to prop them up. The fastest route to long-term economic decline is to put lame ducks on life support."
You mean like banks?
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Tesco,have been given a free role in our economy for far too long i wont weep for them losing market share....i am still waiting for the food price reductions from the fuel price decrease...i wont hold me breath.
I stopped using Tesco some years ago and will never return because of the many exposures there have been of their underhand business practices,other firms might be as bad but they havent been exposed yet.
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Yesterday there was a posting on the insurance issue saying the insurance industry was required as part of the bridging between point of invoice and point of payment. That the gap was 30 days at one point, had moved out 111 days was quoted I believe. My response, posted, was the only limit to the outward drift in the payment interval was the self cannibalism of the supplier or the limit on the financial and insurance provision. That the bridging activity had become an industry and therefore profitable for somebody (who did not produce anything). Today on this blog there is a comment that 150 days has been asked for. What pray is there to stop it becoming 500 days. Is this a sound business model. Meanwhile suppliers are in a cleft stick and trying to survive and hoping competitiors crash to ease the problem, ie last man standing. Can nobody other than the supplier see this is an insane model. That is why we, having been caught once a long time ago, will point blank, not under any circumstances, any which way whatever, deal with a large multi. A more public airing of this sort of supply chain abuse should be made. Now I must go and do something useful.
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Mr Pirate - good spot - food prices are up 10% so the amount of sales at last years prices has gone down - so we're actually eating less food from Tescos - so the Great Recession will save our nation from being the obesity capital of Europe - so good news really??
Also #16 is correct - retail and food aint seen nothing yet due to Christmas, necessity and the job losses only just starting.
Now the credit card bills have landed and redundancy numbers growing then retail and food will start catching up with the drops we've seen in housing and motor industry - you can buy a tin of beans for 40p or 18p and people are going to start buying the 18p.
Big winner - Aldi
Big loser - M&S - those luxury food adverts are going to bite them on the behind.
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44 planetmarshalluk
Sorry what planet was that.
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Fianlly strength of Tescos - this is a mirror of what has happened in the world manufacturing economy.
Tescos is selling everything cheaper like for eg China.
So everyone else stops going anywhere else and just gets from Tescos.
So everyone else goes out of business and then there's only Tescos.
At which point Tescos should be able to put up prices and coin it in except...... oh, there's noone left with any money coz Tescos have put them all out of work! so even Tescos/China suffer and collapse - there's something wrong with this MODEL somewhere!
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#37
Sorry, you're wrong. Positivism is beiing willing to be led by the nose wherever these jokers fancy, and you know where that just got us. On the other hand, Chicken Little negativity may be a self-justifying form of suicide, and the job of an economist is to find the f
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Big or small - it's a tricky balance.
Obviously there comes a point when firms become so big and so few that low competition drives prices up and choice down.
But equally we need strong British retailers to compete with the likes of WalMart.
Otherwise, we still get bully boy supermarkets, and they take the profits overseas as well.
It will also be interesting to see whether the supermarket trend reverses as oil prices rise over the coming decades, as big central depots and huge lorries become less economic.
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RP
Shortcircuiting the banking system's too late now, he should have done that in September when they failed to react to the first wave of injections. The Wall's moving and anyone displaced's going to end up in the drink. The thing which will sink them is the timing - it takes time to get stocks in, manufactured and out. The biggest risk is this will go exactly where the bank dosh went, straight into the pockets of Wun Hung Low (Trading) Pty Ltd.
#36
Remember, for a small business the way out is to retain capacity to advertise at the bottom and the quality to win the customers' trust as a result. This is why Marks is going down the pan, they've traded in on quality. It nearly destroyed them last time, and will probably do so properly this time.
In addition, keeping dividends going as if nothing's happening is also a recipe for disaster, this is life-bood being sucked from companies. Chief Execs should be asking their investors to defer their income, preferably, or pushing scrip over cash.
#37
Sorry, you're wrong. Positivism is beiing willing to be led by the nose wherever these jokers fancy, and you know where that just got us. On the other hand, Chicken Little negativity may be a self-justifying form of suicide, and the job of an economist is to find the facts to find an objective path forwards. That is starting to look to most correspondants here as though we need to release the air from the bubble and find a market price and volume which remains stable enough to allow as many of the unemployed back in as possible. The days of exponential growth formulae have passed, and that's what the different marginal figures here are - it shows Teso still has a way to fall, and the higher they fly at the moment, the harder they'll fall.
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@5
More doom and gloom for you.
China exports fell by 2.8% in dec its biggest fall in almost ten years. But even more worrying is 21.3% decline in its imports. Even though the china,s cheque deposits and other deposits grew by 17.8%. for dec. This being due to interest rate cuts. So this looks like protectionism working alongside the lack of credit for other countries to export.
Some economists say that if a very sharpe down turn in exports keeps going month on month over 2009 then china could well be in recession in 2Q OF 2010.
And in the usa network carrier planes stocks are at an historical low. And internal flights are down by nearly 50% in sum areas. looks like flying is becoming a thing of the past. So that stands to reason why crash Gordon is thinking about building a 3rd runway at heathrow.
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STERLING. SORRY!!!!!!!
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You can bet your bottom dollar that Tesco are -at this very moment- lobbying the Govt. to tell them Tesco are part of the solution! not part of the problem, and protect their dominant position.
No Tesco, you are a problem in your own right.
One would suspect that Tesco have been able to produce 'decent' figures because they have stripped any margin from their supply chain. Therefore for Tesco to look good, how many thousands of suppliers figures are going to look wretched.
.........no need to moderate.....
Tesco's effective monopoly over their suppliers is a major problem, they are way too big and must be forcibly split into at least three I reckon. As Sasha Clarkson said somewhere, 10% market share max. is enough for any competitor.
If not, just you wait til they get their banking arm up and running, they will be unstoppable.
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Why is there such so much weight attached to the figures released by the BCC?? They represent only 6,000 business in the UK. Out of the 12.7 million businesses. Their numbers are totally meaningless. The media is too quick in quoting anyone who comes out with any sort of "research" or "survey" and if it's good news, then it's no news. The fact that for example Waitrose has had it's best run up to Christmas ever and Morrisons is recruiting hundreds of extra staff disappears in this media created cloud of gloom.
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Ref 35
I asked for more measured reporting, not censorship.
The media does have some responsibility, I would have thought, not to make matters worse, especially in the ill informed, self aggrandising, reporting by many lead news presenters, (not R.P.). Trade Bodies too should exercise some restraint, although one also has to recognize that there is usually a political slant in some of their pronouncements.
It's the glass half full/half empty approach isn't it?
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That's 4.7 million businesses, not 12.7 million.
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So many people moan on and on
regarding small businesses and so
many are simply not prepared to pay,
unless everything is on sale at Primark
prices.
YOU CANNOT HAVE IT ALL WAYS.
The same applies to UK manufactured
goods. . . .
But so many people brag over the
VALUE of their house as they think
when that money is realised they have
a DIVINE right to get it.
WE HAVE BECOME A SPIV SOCIETY
THAT EXPECTS SO MUCH FOR NOWT.
To put this mess right UK PLC needs
to do a days WORK for a FAIR DAYS
PAY.
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Apropos of nothing,
I haven't heard of any major redundancies in the banking sector... or did I miss something.
RBS said 3,000 worldwide in November, equivalent to less than 2% of the workforce. Probably get that in natural wasteage.
This is going to be a very uneqaul recession, so if your current empoyment is at risk, get a job in a bank I reckon, or the public sector as fast as you can.
Regards
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#38 Somali Pirate
absolutely ..... this is what I was trying to get at with my contributions yesterday on models.
Huge swathes of people in business and media have no ability to interpret data objectively.
Perhaps something to do with the lack of regard in our society for scientific or applied maths training? oh, but commerce and media studies are sooooo much more useful!
As many above have pointed out, any business that erodes its suppliers constantly is not a sustainable business model.
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It is all about money stupid! (a version of 'it is all about the economy stupid')
There is no economy without money - zero interest rates destroy the value of money - hence savers will not spend and as there is no spare liquidity borrowers cannot get money to spend and hence the whole economy winds itself down to a stop.
Interest rates must be put up NOW. This gives a positive value to money and it becomes worth something and then savers can have the confidence to spend and borrowers will see improved liquidity and hence will have access to money again and the whole economy will start up again.
If interest rates are kept at zero, or effectively negative, the situation with the economy will only worsen.
Just like VAT going up in the autumn/winter there should be a parallel announcement about interest rates returning to 5 - 7 percent. This will stop savers from stopping spending and also stop borrowers borrowing more that then can possibly repay and re-inflating the credit bubble. If borrowers borrow on the basis that interest rates will never go up they will take on too much debt! (as they did in the noughties.)
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Confidence is low at present.
Is this caused by:
(i) Robert Peston, and the media?
or
(ii) Falling stock markets, falling pound sterling, falling employment, falling house prices, falling corporate revenues, falling profits, falling cash reserves, big banks falling over......?
You can try blaming the media for (ii) above, if you like.
The forces in our economy are very, very powerful. Economic activity is falling in search of a new equilibrium, which ultimately means a much lower standard of living for all of us.
The huge excesses of overlending must now be reversed, which means at least 6 years' worth of artificial growth will be reversed before this slump can bottom out.
The media is just reporting what is happening. The offending banks' share prices were collapsing before Robert Peston began his now famous news reporting.
Trouble is, the harm to the world economy caused by extremely excessive lending, which included "ninja" (no income, no job) loans, is very hard to reverse.
The best minds in the world are now working hard to find a way to reverse the harm. We must trust them to find the best way forward......
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Whether Robert Peston or others are doom mongering or not, the problem was, is and will be with us, being optimistic about it won't help I'm afraid.
The capitalist system, dependent on unsustainable growth jus't can't keep it up. And that's just as well, for the logic of continued growth means the world will eventually turn into a vast Tesco megastore and carpark.
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# 38 - Somali Pirate
Another excellent post.
I completely agree with your theory on food price inflation. I have noticed, in particular, the price increases in dairy, beef & poultry produce.
Having a look at my online bank statements I can see that in 2007 my average weekly Tesco shop was around £88. For 2008 it was £102. My maths, not fantastic, says that's an increase of almost 14%.
Ok, so I may not be able to remember every single purchase but I'm pretty sure that my eating habits didn't change drastically last year!
That's why I've always been confused by the insistence by 'those in the know' that inflation is running at 5% (or lower). Surely, our biggest expense every week is food, so the inflation figure must in reality be higher than the 'official' line.
As others have pointed out previously, please visit the following link for the real deal on how the govt have massaged the inflation figures
http://www.howitends.co.uk/
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Tesco nails their suppliers to the floor and leaves them there to rot. The thing is the other major supermarkets do also. It seems to be the way of things at he 'blunt end' of retailing. As for all you loonytunes complaining about the reporting of the current 'crisis': pack it in. We don't 'quite' (although if New Labour get in again, we might) live in an authoritarian state. All this yak yak about putting 'an optimistic gloss' on economic events is rubbish. Sure you can't believe everything you hear on the box or read in the press, but come on, do you really want to be spoon-fed cuddly news stories that'll comfort and sooth your troubled minds.
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Apart from Mr Pestons' annoying drone inflicted on us by the BBC on a regular basis, we now have a rather basic analysis of Tesco that fails to recognise that they can do whatever they want - whoever is in the marketplace and a rather blase analysis of human pain when companies go to the wall.
That statement is rather Thatcherite and really is akin to Tebbit, his party having laid waste to British Industry, telling us to get on our bikes to find work. And, of course, there was the classic remark that job losses were a price worth paying!
Actually, Norman, the bike manufacturers were amongst the victims - and, of course, losing your job is a price worth paying if it's not you paying it!
We cannot and must not ignore the pain of redundancy and lay offs. I fully accept that there must be casualties, but please stay away from even touching on the economics and socail consequences of this because they don't equate.
Please, as others have intimated here, also take account of the point that the more the press talk recession the greater the lack of consumer confidence will be and the nastier the vicious circle will be that you are creating.
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Robert writes:
"The fastest route to long-term economic decline is to put lame ducks on life support"
- ---but aren't we doing exactly that with the Banks ?
Should we not build new ones and scrap the failures ?
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Hi Robert
Another point to remember is that all the figures that are released now by the retailers are for stock that was ordered and price agreed in contracts back in May/June/July.
The sting will come this year when all this stock has to be replaced. We are net importers, the value of the pound has decreased by approx 30% since the summer. The continual reduction in interest rates along with fuel and energy costs increasing is killing the supply chain.
Prices WILL go up, i presume at this point house prices will be put back into the inflation figures to massage the numbers
back down
We need a major rethink in this country about how we go forward. We can no longer rely on goods being imported from all round the world at whim or fancy. We need to seriously look at rebuilding a manufacturing base, we need to rebuild and support agriculture, if we need to subsidise this then so be it, it is for our childrens and grandchildrens future, instead of robbing them blind as we are now.
If our continued buckling to the EU with its rules and regs. is a stumbling block, there is an answer, return to the original theory of a common market, not a European superstate, or just pull out.
times like these give opportunities for change, we must grab them with both hands or sink without trace!!
PnB
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"it is not constrained by the shortage of credit that's mullering smaller businesses"
define mullering; this isn't a word in common usage (or in the dictionary afaik)
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Let's hear how come Aldi are doing so well.
How about Lidl?
How do they treat their suppliers?
What lessons can the others learn from them?
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Very little has been said about the effects of the devaluation of our currency and this, I believe, will be Tesco's biggest problem in 2009 and perhaps even beyond.
Many of its higher profit yielding non food items are imported and those prices will have to rise significantly to maintain margins. The result is bound to lead to lower sales.
Wine, an excellent profit source in recent years, will be similarly affected and the inability to manipulate prices by pseudo reductions will be curtailed by the higher costs of importing.
A much higher percentage of food is imported too, more reason to curse the sinking pound's value.
But the key to riding this recession is efficiency ... and here too, Tesco's is not best placed to succeed. Having your finger in too many pies that stretch from catalogues through insurance to 24 hour trading will pose personnel problems (labour being a major on-cost) that will have to lead to changes in practices. The current attitude of simply defining staff as multi skilled will not meet the consumer's needs in the future. They'll be seeking knowledgeable service if they are going to part with their money.
There are going to have to be BIG changes if Tesco is to remain king.
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I think it's very sad that Tesco's aggressive expansion is affecting towns all over the country. Particularly during the current economic hardship, small businesses are just can't compete.
In the district of Devon where I live, consisting of seven towns, there are Tesco stores in four, and groups in three towns are fighting proposals for new or bigger stores, on the basis that Tesco will damage independent traders and the fabric and uniqueness of the towns will be lost. Similar battles are being fought in other areas of Devon and I'm sure, across the country.
Even if defeated in the first instance, which can only be done through huge amounts of work and campaigning, Tesco lodges appeal after appeal and district councils can't fund the fight anymore.
I think this is a really worrying trend and I worry that it's the beginning of the end for market towns. A massive massive shame.
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Since the Northern Rock expose of last year Mr Preston has continued to have his ego massaged at our expense. I believe that he salivates at the thought of us all hanging around waiting for his erudite doom mongering comments about the economy and his insider knowledge. Perhaps he could give us all a nice rest from his insightful knowledge and smug 'I told you so' comments whilst pocketing a nice salary from us and from his other activities. I seriously wonder if he is a journalist or a gossip columnist. I think the latter is more appro pro - no doubt a page in Hello magazine beckons!
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"the fastest route to long-term economic decline is to put lame ducks on life support. "
What has happened in the UK is that the parasite (government, banking and property) has outgrown the host (productive economy).
Many 'lame ducks' are only lame because they are overburdened with taxes, regulations and charges.
The fastest way to economic decline is to put the parasite on life support rather than the host.
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33.
I am all for getting the truth, although I think there is as much joy to be found in knowledge as sorrow. Lucky I am not an avid student of the bible!
What really winds me up, though, is the sensationalist and biased reporting we tend to get. Not only from RP - actually this was a more balanced effort - but from the trade bodies who are banging the drum for the businesses they represent.
This morning was absolutely classic - "worst December in retail since records began" - failing to mention that the BRC records only started in 1994, after the last recession. Hardly a surprise there. Another quote from the BRC press release;
"But overall the food sector was almost the only one to show growth. And even this was at the slowest rate since last March."
So things were worse last March?! (That would be the obvious conclusion).
Also buried in the press release was that internet sales were 30% ahead of December last year. Thus it is not only the crunch, or Tesco's predatory pricing that is impacting the smaller retailer, it is the increasing penetration of the internet, particularly around Christmas.
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#15 sashaclarkson and other are right
Big is not always beautiful
If this Gov has shown Tescos one thing over the past year it is that with 280,000 employees it can pretty much do as it pleases.... it can't fail because the Gov won't let it fail!!!!!
There is a level at which the Free Market stops working..... as Tescos are showing!
Just how big does it have to get?
.... one other point that's been bothering me, the simplistic use of Keynesian economics to buy ourselves out of a debt related problem.....
The basic thinking behind it being that if you pump money into your economy people will spend, which pays wages, which gets spent, which pays wages and so on.......... works perfectly in a Closed Economy - unfortunately the money we are pumping into our economy is in most cases just 2 steps away from helping someone elses economy overseas - what a waste!!!!!
Please look further than the top line of his work GB!!!
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75 alexandercurzon
Have you seen that 31 the1beard is adopting your style for his/her blog comments? Though unlike you he/she doesn't actually make a coherent and precise point. If you had a patent on it you could charge a royalty. Maybe this is the sort of dynamic new business model this country needs!
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I guess nobody took history at school.
With regards to the armageddon comments from the1beard et al (progress will kill us all) - I remember something about looms and Luddites.... Yes, advanced tech removes basic labour jobs. However the machine needs someone to design, make, fix and maintain it. As has been pointed out here and in other places, Britain can never compete on cost grounds with the Far East etc when it comes to labour costs. We do invention and progress quite well though.
In respect of the "small businesses get screwed by Tesco" comments I would like to put forward a whole new idea called the co-operative! You club together, set your prices, and improve your bargaining power. I heard someone called OPEC might be trying the same thing...
The solutions are there - if you can't be bothered or are you would rather see your business go to the wall than ask for help then so be it.
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What we do not need is a complex ill conceived politically motivated hotch potch of proposals
We need far reaching simple guarentees that unblock the credit market .Anything is a distraction.
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71. At 12:32pm on 13 Jan 2009, allmyfault wrote:
"You can bet your bottom dollar that Tesco are -at this very moment- lobbying the Govt. to tell them Tesco are part of the solution! not part of the problem, and protect their dominant position.
No Tesco, you are a problem in your own right"
Too bloody right mate. They redeveloped an old coal merchants (remember Charrington's anybody?) to open up in Thornton Heath many years back and the old high street shops promptly died around them. There used to be a CHOICE of butchers and fishmongers forchrisssake!! Now its the usual takeaways, ethnic food stores, barbers and cheap hardware like every other victorian suburb.
Tesco are like a drug habit, its hard to get weaned off when there is no easy alternative way to get your fix.
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76.
Trust me, you missed something. Banking job losses are huge and there are plenty more to come.
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Maybe the UK could be just renamed TESCO's when we join the Euro!
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Hi Folks
My little rants are just a way of expressing my frustration at what is going on in this country.
I'm no economist, just a hard working bloke who is concerned about his future/job security
#68 rahere; thanks for the comments, we do trade on quality, if the retailers want tat at a price point they can find it elsewhere, but that means loss of business for us, which in turn means loss of jobs for main breadwinners, in turn loss of houses etc, more bad debt, more social payments. It all stinks
There has must be a better way(status quo, or is that a contradiction)
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Dear Robert,
The BRC is a trade association / lobbyist for retailers and the retailing industry.Tesco ( a member) surveys the recessionary landscape from a position of unusual strength. Its FD makes the point that as it owns 80% of its stores it doesnt have to pay large amounts of rents like its other counterparts. The BRC says its other members are struggling with declining sales, crushed margins and steeply rising costs - particularly property rates and energy.
The BRC have a good moan about the consumer lacking confidence to spend and refusing to be "seduced" to do so. Actually, there are some areas of growth tucked away in the figures ( internet retailing one) but this is typically drowned out in the headlines, which are hardly meant to inspire confidence. What they seem worried about is Government plans to put up property rates, so why not hype the bad news to publicise their vulnerability.
Nobody is suggesting that things are good but lets be wary of these so-called "news stories" please - the sound bites reverberate and make things worse !
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86 duncan and 90 liesandstats:
Pheewee! don't you get tired of writing this sort of stuff?
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Or maybe the 'Peoples Republic of TESCOS'
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#93 I don“t see how you can conclude that Tesco can“t fail.
If they go round and kill off thousands of small suppliers then they ultimately kill themselves. Unless Gordon Brown and his cohorts all start cabbage farming I don“t see what the Government can do.
They“ve saved the banks - but they“re not lending. What happens if they save the supermarkets but they“re not selling?
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# 63 grimupnorth #77 dogdelusion and #81 screaming donkey
nice to see that you agree with my hunch about the underlying message in these % sales figures
with the huge volatility in input/resource costs, exchange rates etc over 08 and again in 09, it's hard to interpret all the figures that are coming out; I worry about all those people out there who emerge from school barely understanding percentages, let alone taught how to analyse or question things
for some years now there has been growing inflation in some sectors (housing for a decade; food for a year or so) but deflation in others (imports from China, electronics etc) and govt/institutions decided to ignore the dangers inherent in that volatility; heh they neatly cancelled each other out........ especially if you massaged the CPI and RPI figures. Globalisation, speculation and over-consumption were placing an increasingly intolerable strain on all our economic systems, and on the planet itself. When the oil price starts gyrating by 300% in 6 months you know the engine is about to blow up and it's time to pull off the road and have a look under the hood.........
just heard a chap on Radio 4 News at One saying that he's done a study showing that the success of stockmarket traders in the 'good times' can be correlated to the length of their index fingers
and that they are now all measuring their's
I thought those guys spent all their time measuring some other part of their anatomy .... one that generally describes their overall character
we do indeed live in interesting times!
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Anyone know Ben Bernanke was in london on tuesday?
Rumour as it that jobloss in usa could hit 20%. that would be around 45 million. meaning 9 million per 60 million people. X that by twice and 18 million joblosses in uk if IMF and others are correct that uk is in twice as much trouble.
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I understand that Tesco are claiming compensation from Irish pork suppliers for their losses in relation to the dioxin scare just before Christmas. The suppliers have protested against this as I imagine it will put most of them out of business. It will be interesting to see the outcome of this.
In recent months and despite the 'credit crunch' I am reducing my purchases from any supermarket and supporting my local butcher, greengrocer etc., thus supporting my local economy and not the fat cats. Tesco have far too much power in the retail market as a whole, dictating our diet to us by their offers each week.
Reduced profits is still a profit - the media shouldn't scaremonger us into an even worse recession - print media is in decline as it is without them bringing it on themselves when we choose to buy a loaf of bread instead of a paper!
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for #3 joetheplumber
Roberts next blog bit says Flash is going to do it again tomorrow when he announces his much (properly) leaked (no visit from the flying squad expected) help for small & mediul sized businesses !!!!!
Ahaaa saviour of the universe etc etc
Sorry rather hardened cynic by now
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#95 OK in theory but the supermarkets have long since closed off this option.
Take a look at how they can influence the planning process, and if influence is not enough how they just go ahead anyway and use their "fantastically strong" balance sheets to ignore planning restrictions and if necessary tie up local Councils in all manner of expensive legal processes.
If you“re really interested a good book is Tescopoly by Andrew Simms.
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Just one or two comments:
1) Yes Tesco do squeeze suppliers but they gave me a choice of TWO USB WIFI sticks on Saturday when my nearest big name electrical stockist (which sells lots of computers) didn't sell any. They also make things as CONVENIENT as possible for the consumer (phone top ups and lottery tickets from every checkout) AND long shopping hours AND all under one roof AND free parking... Say what you like, when it comes to convenience why should I be at the shopkeeper's behest and convenience rather than him making things easier for me? If one wants money, one has to work for it. Tesco are constantly working to improve service convenience and meet social trends. When they try to influence trends, THEN I might have doubts.
2) That being said I am not here to totally laud Tesco. What the HECK is their latest ad about ? lots of blue and green shopping baskets with spurious stats that even the lightest of maths lightweights must see as questionable. As echoed previously, methinks Tesco are losing out on the price front.
3) Ref. UK economy, is there an elephant in the room or is it just wishful thinking? When (not if) will house prices FINALLY succumb to reality and the law of gravity? Prices are still WAY over-valued and with unemployment, credit shortage and lack of confidence in houses as cash cows any more, the market must be due for a collapse?
4) As for all those political answers to the huge economic problems that face us all...Sorry but why should our tax money go to prop up thousands of businesses? Markets SHOULD mean businesses come and go. Business should survive on price and quality of goods/services. When these things don't matter is the time businesses don't bother about their customers (the total opposite of Tesco!)
PS Pls read or Google "Atlas shrugged" by Ayn Rand - It's a fictional view of an America stifled by well meaning regulation and subsidies that only make everyone poorer...
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#106 - don't get me wrong - I think things are going to get really really bad and may even get as bad as you suggest is possible.
However a possible visit to London, a rumour, a could, an if they are correct and applying it to a different population does not add up to anything that has any solid foundation.
Are you an actuary perhaps? (only joking!)
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In normal conditions the success of a company, whatever its size, is a function of the competence of its management.
Having said that though the success of an economy is a function of the competence of its regulators.
If the regulators get it wrong then the competence of commercial management is irrelevant, at best they will struggle.
We are all struggling now - even Mr.Tesco.
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Robert Peston has acknowledged before that the media are sometimes blamed for talking the economy down, but does appear to dismiss the significance of this.
Look at the hard facts. Tesco, who are the UK's largest retailer, has posted an increase in sales- across all their sectors and a large increase in their online sales. Woolworths has gone into administration together with several other high-street names. Clearly much of what we are witnessing is recession-driven but much of it is as a result of changing times. High street sales are reducing as a result of increased on-line shopping and the emergence of major players such as Tesco, which is a significant reason for the demise of Woolworths et al.
This article compares the Tesco results to the BRC survey. The Tesco results are based upon hard fact, the BRC survey is based upon sentiment and confidence. Sentiment and confidence is, to a large extent, driven by the media. The media and particularly the BBC and Robert Peston has a lot to answer for (presumiably the other stations don't take such a pessimistic view as they are for more dependent upon advertising and subscription revenue than the BBC). Headlines such as 'Economy in a frightening decline' or comments such as 'if there was even a scintilla of doubt that we're in a very painful recession, that doubt must be eliminated' lack sound editorial judgement and I would expect to see on the front page of the Daily Express, not from the BBC.
I also think that this recession is further fueled (compared to previous recessions) by the fact that we have such easy access to the media via our PCs at work, mobile phones etc. We don't listen to the news on the radio in the morning and for a few minutes at night anymore- it's available 24/7 everywhere.
All that I can hope is that once the BBC has decided that there is no further for us to fall you will perhaps be able to produce a balanced view and repair some of the damage done by talking us all up again!
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100 notcom
You ardent capitalists are as bad as the leninists, all dogma and no dog. I recall Ayn Rand as a minor figure with fascistic leanings or, as Wiki quotes :
"The influence of Rand?s ideas was strongest among college students in the USA but attracted little attention from academic philosophers. ? Rand?s political theory is of little interest. Its unremitting hostility towards the state and taxation sits inconsistently with a rejection of anarchism, and her attempts to resolve the difficulty are ill-thought out and unsystematic."
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sorry 100, last post should have referred to 110 notcom
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Quite. Not good definately but not all bad. Nothing but bad if you are in the wrong place.
And why do people put such faith in economists. lead BBC Business News includes - BCC economist 2.2 forecasted decline for 2009, (I fail to understand the phrase negative growth), into 2009 by less than 2 weeks and it is adjusted to 2.4 percent. What sort of error band is that over the year. Statistical confidence. Tell you what ask an ecomonist if they will bet on their forecast being accurate to any close statistical confidence either way, a narrow band. Put money on the table with Ladbrokes, they would take a novelty bet for publicity. if you are wrong you lose. I doubt there would be queue. Come on BoE and Treasury economists, you have access to the data and the models you trust and which were used to guide the economy based on your opinion. Put it on the table. After all we are all having to bet on the economy, why not you.
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#104 armagediontimes
- you're suggesting that Tesco's will fail because no one will grow food anymore!
Tescos will keep suppliers just above the breadline, when you are that big you weald an awful lot of power...
... a number of years back we turned down work from a large developer of computer operating systems and Office products.... they wanted to know ridiculous levels of detail, told us what our profit margin should be and kindly provided a list of companies that we should choose not to deal with if we were to work for them.... working with large companies is not always easy!!!!
Keep an eye on Tescos profitability... the cuts you are seeing will mainly be forced on the suppliers... I'm betting their margin remains the same... well done Tescos
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THE GOV should regulate business.
They have failed to regulate the banks.
They have failed to regulate other businesses too.
A supermarket per sold item employs ½ or maybe less than that.
I am sick of not having the true facts and figures
The figures should be available.
Online
We are not given the facts and figures.
Ref ThorntonHeathen alexandercurzon
ThorntonHeathen I don?t have all day to post up here so sorry for my rushed miss spelt style this is a blog not war and peace! Who cares it the content not the style.
A bit like the economy!
What is sad is that our government has no long-term plan
Supermarkets should have a licence to sell fruit and veg milk nut what about electronics? What about newspapers?
Maybe this is a step to far but I am convinced that in the end a few big retailers will lead to fewer jobs unlike the agricultural revolution this global revolution will leave us with far Fewer Jobs.
The Job future is bleak for us humans no Question!
We are heading to small workforce.
Manufacturing in the Far East will robotise it already is.
The billions of us are moving towards an era of technological perfection wich will leave us without work.
So we will see a change which will lead to the government taxing the few companies and banks who will be left and spreading the wealth through to those who have not worked.
This is just the start of that process.
BANKS RUN BY THE GOVERNMENT.
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Message 113 reubenpeckham
If I follow your logic it would seem that if a couple of hundred people turned up in Gaza later today wishing and talking about peace then peace will break out?
This time last year I was telling colleagues, customers and suppliers that 2008 will turn into a bad year. All I got were responses that they had had a great 2007 and expected a great 2008. So the view was positive: so how come things went pear-shaped then?
The recession (slump?) came about due to fundamental failures in how debt was structured. This has led to a collapse in credit. Without this essential lubricant business cannot function properly. This is leading to a degree of economic degeneration expressed in unemployment, closures, repossessions and the like.
I do agree these have a cumulative effect but it will take more than positive thinking to turn this round.
The fact that we are able to talk about it within the media helps us all to understand and hopefully identify potential solutions.
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#117 I agree that the policy has been and will be to keep suppliers just above the breadline.
In a stable environment this is fairly easy to achieve. However in a downturn where all kinds of things are subject to volatility (e.g. interest rates, oil prices) outwith previously experienced ranges it is easier to make mistakes.
Allied to this the supermarkets themselves will be under pressure. People under pressure tend to work even harder at doing the same things that have been successful in the past - in this instance squeezing suppliers.
Destruction of the food supplier base may not be a central projection, but it is possible. The consequences of this would be catastrophic - a classic low probability, high impact event. Although in this case no-one really knows what the probability of the event is.
We are in this position because the Government long ago abandoned the representation of the people in favour of representation of business. The intelligence or moral integrity of Government is illustrated by the fact that in order to avoid catastrophe it is essential that the supermarkets squeeze suppliers to the maximum possible without actually destroying them. Paying a fair and reasonable price for food that takes account of costs is not even an option.
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Many a true word etc...
http://newsbiscuit.com/article/village-to-close-after-contributing-nothing-to-local-tesco-430
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#38 Somali pirate
price of courgettes?
no, but here is comparison of my shopping basket in the last two years -
2006 2009
cereal 1.89 1.99
coffee 2.29 2.75
six pack milk 2.93 3.85
oatcakes 0.66 0.97
tea 1.65 1.99
tonic 0.45 0.48
soup 0.69 0.77
bag juicing oranges 2.49 2.49
black pudding 0.99 1.19
bacon 2.19 2.39
total 16.23 18.87
percentage increase = 16%
I'm sure you are correct in that the increase in profits may not be due to more tins of beans sold, merely more expensive beans, or am I missing something
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the only time we go near tesco is to dispose of our waste plastic bottles, bags etc
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119- Stanilic
Your analogy to the situation in Gaza is ludicrous!
The message that I was trying to state was that there is a strong relationship between confidence/ sentiment and the economic environment. Clearly if Mr. X thinks he may become unemployed this year he will rein in his spending- when this happens across the country/ globe we have a problem.
Reports in the media have a huge affect on sentiment and confidence. When those reports are unnecessarily negative (such as the analysis of the Tesco/ retail situation which has blamed poor retail figures entirely on the economic downturn and has not considered the effects of changing times) then the situation becomes a self-fulfilling prophecy.
I fully understand that the economy was in overdrive, too much debt, risky lending and the consequences of the resultant credit crunch and a recession was inevitable. The point I'm making is that the media have a huge responsibility to report objectively and to provide a balanced view. I stand by my position that I feel that the BBC and Robert Peston in particular are not doing so.
We are in a crisis and we all need a positive mental attitude to see ourselves through it.
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"It would be wrong to dismiss Tesco as one firm". Oh dear Peston and this is based on them employing 280,000 people is it? Friend of the Earth report points out for every big box retailer opening there is a net loss of 2.2 jobs in the local economy. Because it's cheap? I did a price comparison on fruit and veg at my local market and EVERY item was cheaper than at Tesco's (10 garlic bulbs a quid). Not to add food miles, the constant price pressure on suppliers, the blandness of every store and the destruction of small, locally owned businesses, sourcing supplies locally. And "they have a fantastically strong balance sheet" - have we not learned anything, just because a business is financially strong seems to negate anything else in the eyes of the BBC. Primark anyone? This is schoolboy economics. People have to stop shopping at big box retailers. I suggest you read Tescopoly by Andrew Simms Mr Peston, it's all in there. Big is bad. Small is beautiful, and as the economist and author E.F. Schumacher rightly said ""production from local resources for local needs is the most rational way of economic life." We need a baying mob.
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is a 3- 4% drop in like for like sales all THAT bad ??? its better than a 50 % drop...or am i missing something
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#121
I particularly liked the headline
'Government to bail out Tottenham Hotspur with emergency injection of 50 points'
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33 Sashaclarkson
Good quote
The simple and often used idiom "ignorance is bliss" sums it up quite nicely too.
I really wish that I was ignorant.
There are lots of idioms and proverbs like this which have been around for CENTURIES because they have much more than just an intrinsic truth and they still have so much relevance today.
Heres some more. They are ignored but are so true it hurts
A PENNY SAVED IS A PENNY EARNED. no further comment required
You can't make a silk purse out of a sows ear. eg propping up banks and companies in terminal decline
All that glittters is not gold. Bank profits
Cut your coat according to your cloth. The problem with government spending
Familiarity breeds contempt. This government has been there much too long
Feast today famine tomorrow
A little knowledge is a dangerous thing.
Actions speak louder than words
Fools rush in where angels fear to tread
Don't add fuel to the fire
Why close the door after the horse has bolted
Discretion is the better part of valour
Empty vessels make the most noise
None so blind as those that WILL not see
and Gordons policies are based on this one
May as well get hanged for a sheep rather than a lamb
Finally "all over bar the shouting" well nearly but not quite
PPS
Pyrrhic victory. What Gordon will have if he wins the next election
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124 reubenpeckham
My analogy was meant to be ridiculous.
The media are about making a story out of information. Surely, you take that on board when you read it, so why get bent out of shape about it? Or is it that you have an agenda that goes beyond the transfer of information?
We are in the grip of history, we are not in control and so we must focus on survival.
This is what hundreds and thousands of people, if not millions, the length and breadth of this land and others are putting their minds to. They hear about this business closing, that guy being made redundant, a store closing here and a factory shutting down there. This is the reality to which people respond, the media reports are nothing more than the custad on the pudding.
Dare I say it; we are in the much vaunted new paradigm and we need to talk about it.
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129 stanilic
What possible agenda could I have?
The media do have to report and we have to talk about. What is not needed is the additional spin, the hype etc.
The media have access to all objective data why is it necessary to exaggerate the situation by using unnecessary adjectives such as 'dire', 'frightening'. Just report the facts and let us make up our own minds.
C'mon someone please back me up and explain the link between consumer/ business confidence and economic growth to Stanilic!
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Mr Tweedy at 179 wrote
The best minds in the world are now working hard to find a way to reverse the harm. We must trust them to find the best way forward......
The best minds in the world are now working hard to find ways of ensuring that, in spite of the crisis, their masters can remain in power.
The answers to each question are completely different and in the long run completely opposite.
As AC said a few days ago. Chemotherapy is needed. If the chemotherapy is applied it will eventually kill the problem but also kill our masters. Anybody for falling on their sword for the long term good of the country.
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tom edinburgh at 91
good post!!!!
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122 grannyfromstix
granny you are so unfooled. lovely. what we need is more grannies. do you remember 'Hells Grannies' that would sort them out
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Does anyone read the terms and conditions of loans offered by banks? They frightened me when I ran a company. We restricted our speed of expansion and pocketed the profits. Why would I want to give my hard earned profits to the banks to hire money.
Maybe I am just a dim (but rich) engineer.
Ditto insurance companies.
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If you do a fair day's graft for a 'fair day's pay' in this rotten country.....then you really are a complete fool!
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Hang on, Mr Peston. Tesco is selling food (mostly), and for most peopl that means a basic cost, with little discretion. A large proportion of our food is imported, meaning that the raw materials cost of our food will have gone up by about 30%, and probably 10% in real sterling terms if not more, and you think it is a good sign when like for like sales are up by only 3.5%. That is a 6.5% decline in the volume of actual goods bought.
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#72. You're spot on.
It amazes me that so much media attention is focused on so called "surveys" from these business lobby groups such as the British Retail Consortium. Of course they have a vested interest in sending out a disaster message!
The worst thing is that noone seems to notice that the British Retail Consortium estimates are derived from data that is voluntarily provided by only ~70 (yes 70!) of their members!!! (http://www.brc.org.uk/RSM_rsi.asp) The media attention their estimates get would imply that their survey is comprehensive of the whole retail sector - not just 70 selected large businesses who could be bothered to supply their data to their own lobby group.
Hype and more hype if you ask me.
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130 reubenpeckham
It seems there are no takers, mate.
I raised the issue of the psychological aspects of economics several blogs ago. What I said there was that most economists and correpsondents saw the economy as a mechanism. This meant they inevitably excluded the pyschological aspect as it made their models too complex and uncertain.
I got no takers either.
Journalists are there to make a story. They take the facts, sex-up some and ignore others. They are journalists not necessarily experts. Usually their expertise and knowledge comes from their sources. Some of these sources have an agenda, some don't. You won't get objectivity, also events move too fast and nobody knows how they are going to end up or even where the end is going to be.
For example, yesterday there was a report on international shipping in the Telegraph. This is an area where I have technical knowledge. The reporter did not have the necessary expertise to understand the information. The headline was a distortion of the facts, the way the story was presented was muddled but it conveyed the right picture overall. Not a good report but sufficiently accurate for the layman.
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The best way. is divide the large sum of money figure say £300 bn divide it between everyone who currently pays tax. They then have to use it to do one of the following:-
Spend in the shops.
Savings, or pay towards mortgage
Invest
Either way its our money, and this way we get the benefits, and it helps grease the credit wheels.
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