24 November 2016
Week in Brief:BUSINESS AND THE CITY
SAFE HAVEN: Twelve years ago Ken Morrison, chairman of the supermarket chain he built up to be one of Britain’s big four food retailers, was heavily criticised for the acquisition of Safeway for £3.35bn, a competitor almost the same size as Wm Morrison. It was said he had overpaid, had no plan for the merging of the businesses, and had added too much duplication. Within four years he had proved the critics wrong and was able to retire, with his reputation restored, to raise beef cattle in North Yorkshire. He must now be permitting himself a wry grin at the news that Morrison is to reintroduce Safeway in the UK market, as a free standing brand for independent food retailers.
Morrison’s has had several attempts at breaking into the local convenience store market, the latest being with the stores branded “M”, which ended with an admission of failure and the closing of most of the network, with the remainder being sold to the venture capital fund Greybull Capital. The Safeway revival is a wholly new line of attack where Safeway will supply Morrison made goods, especially food, and also Morrison sourced goods (but branded Safeway) to local independents at wholesale prices. David Potts, chief executive of Morrison is very keen on this new approach, the first time it has been tried in the UK, which should give Morrison increased turnover through its factories and supply lines but without the cost and risk of running its own outlets. Local independent retailers often have a better knowledge of their local markets than national chains, and can identify niches and react to opportunity and change much more quickly. Safeway still has good brand memories with the public even from more than ten years ago, so Potts hopes that the independents will find it a positive name in combatting Aldi and Lidl, who are targeting the local retailers as much as the major chains.
DRESSING WELL: An iconic British clothing brand is set to return to the High Streets of the UK shortly; Austin Reed seemed to have reached the end of its 116 year history when it closed down earlier this year, but the brand has been acquired by Philip Day, the owner of leading retailer Edinburgh Woollen Mill, who also acquired its clothing labels Viyella and Country Casuals. Mr Day has now announced that he will be rolling out a chain of perhaps 50 shops bearing the Austin Reed brand in early 2018, investing £100m to recreate the famous name, with an updated approach to its traditional formal wear offer. As a precursor to this, he is in advanced negotiations to buy a property in London’s West End which should open next year as a flagship for the revived brand
EATING WELL: It seems that there is no end to the appetite for new restaurants in the London market. Perhaps not so much from consumers, who are showing signs of some price resistance, as well as increasing brand fickleness, but from investors, who seem willing to continue to invest heavily in the sector. Last year, reports Harden’s London Restaurant Guide, 200 new restaurants opened, and only 76 closed. But this disguises the fact that the food business is getting more difficult – consumers are increasingly attracted to new brands and when something fresh appears will abandon their former favourites. It has always tended to be thus; but the problem is that creating a branded dining outlet is a very expensive business – often, the more simple and austere it looks, the more it costs to build. That means the payback period is often three or four years, so new and shinier competition just up the road eighteen months later is bad news indeed. Another problem is that popularity can also kill the golden goose before it has laid those payback eggs – the wrong type of clients can drive away the core loyalists; lack of booking slots or queues outside means the punters go to find something more accessible; even just building works next door can put the diners off. Japanese and other eastern cuisines continue to be the most popular openings – including what is said to be Britain’s most expensive restaurant, The Araki, which charges £300 for a set sushi menu, but Harden’s say Italian food is currently making a strong come back.
BROADLY SPEAKING: The controversy as to how to address the universal provision of broadband continues, even as the Chancellor announced more government support for technology investment generally and broadband in particular – including £400m in grants for smaller broadband providers who will look for underserved users who are finding it hard to get a good broadband connection (the providers have to match the government’s largesse 50/50). But Tom Mockeridge of Virgin Media, who are one of the largest service and fibre providers in the sector (after British Telecom) has attacked this as “unnecessary largesse”. He says there is plenty of money in the private sector, even for smaller companies, and the government should not be using public money for a purpose which the private sector can fulfil. Instead, he says, what is needed is deregulation of the business – easier planning, simplified wayleave agreements, lower business rates on providers (noting the irony that the government continues to subsidise with one hand and tax with the other) and most, of all, removal of Openreach from control by British Telecom so it can be accessed more easily by all providers. He says that he is not trying to force small providers out of the market and that there is demand and capacity for all – including the £3bn which Virgin is spending on expanding its own network.
DRIVING WELL: Anybody who makes regular slow congested journeys on UK trunk roads will be astonished to hear that there is a serious shortage of truck drivers in Britain, to such an extent that logistics and delivery firms are saying that they may have problems meeting their Christmas delivery commitments. In fact, the numbers employed in the industry are at their lowest level for ten years whilst the internet economy means that the delivery business is ever growing. The gap in provision has been previously been met by Eastern European drivers, but with better opportunities at home (especially in Poland, a major source of driving talent for the UK) many drivers have returned there and there aren’t enough Brits taking the wheel. The reason for the local shortage is primarily that wages for drivers have been dropping, in comparative terms, for years, whilst the cost of training to get a HGV licence, and the cost of the licences themselves, is ever increasing. Also the hours are often anti-social and lonely – few drivers now have mates with them in the cab of the truck.
KEY MARKET INDICES:
(as at 22nd November 2016; comments refer to changes on last 7 days; $ is US$)
Interest Rates:
UK£ Base rate: 0.25%( unchanged): 3 month 0.40% (steady); 5 year 0.84% (rising).
Euro€: 1 mth -0.37% (steady); 3 mth -0.31% (steady); 5 year -0.04% (falling)
US$: 1 mth 0.57% (rising); 3 mth 0.92% (steady); 5 year 1.74% (rising)
Currency Exchanges:
£/Euro: 1.17, £ rising
£/$: 1.25, £ steady
Euro/$: 1.06, € falling
Gold, oz: $1,225, steady
Aluminium, tonne: $1,739, slight fall
Copper, tonne: $5,618, steady
Oil, Brent Crude barrel: $49.25, rising
Wheat, tonne: £138, rising
London Stock Exchange: FTSE 100: 6,885 (slight rise). FTSE Allshare: 3,729 (rising)
Briefly: The markets continue to be steady in most areas, with oil being this week’s fastest riser, bobbing just below the magic $50 level, with gossip in the market that OPEC is supporting buying to push the price up into a new trading band. Longer term interest rates continue to rise, if more gently than in recent weeks, led by the US$.
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