Tesco's first half profit up 11%.

Supermarket giant Tesco today announced a 11% rise in its half-year pre-tax profits which rose to £1.44 billion from £1.29 billion last year with sales rising 13% to £25.6 billion. Like-for-like sales grew by about 7% which seems very good especially since consumers are cutting back on their spending and discount retailers like Aldi, Lidl, Netto, Iceland, Wilkinsons, etc. are attracting customers from large supermarkets.

It was reported earlier this month that Tesco's market share had decreased by 0.2% to 31.5%. However, it still has a much greater market share when compared to stores such as Aldi which has 2.9% market share which allows Tesco to benefit from economies of scale. This means it can buy its stock in relatively large numbers at lower cost which would normally allow it to increase its profit margin, but in the current financial situation, it allows Tesco to reduce its prices thereby attracting shoppers looking to reduce their grocery bills.
Tesco introduced a new discount range of about 400 products aptly named "Discount Range" with the aim to compete with discount stores and offer customers value for money. Tesco's chief executive Sir Terry Laehy claimed that sales of its discount range was rising faster than that of Aldi or Lidl.

HSBC, Bradford & Bingley and Seagate cut jobs to cut costs.

HSBC announced today that it was going to sack 1,100 of its 335,00 employees employed worldwide. According to the BBC, half of these job losses will be from the investment banking section of HSBC whose headquarters is situated at Canary Wharf.

Mortgage lender Bradford & Bingley announced yesterday that it would sack 370 of its employees in a bid to cut down its costs. 300 of these will be from its mortgage processing centre in Borehamwood, Hertfordshire, while the rest will consist of mortgage advisers and sales staff. Bradford & Bingley believe that these job cuts will save them around £15 million in costs. However, it also plans to add about 70 more staff to collect repayments from their customers who have failed to pay up. B&B specialises in buy-to-let and self-certified mortgages and has been hit heavily by the falling property prices since the fall in price leads to negative equity of its assets, i.e., the value of the property is less than the loan secured against it. B&B is also finding it hard to attract depositors because last week, B&B’s credit rating by the credit rating agencies Fitch, Moody’s and Standard & Poor’s was downgraded to just above junk status.

Electronics company Seagate Technologies, which is one of the world’s largest manufacturer of hard drives, announced yesterday that it is moving its manufacturing from Limavady in Northern Ireland to Malaysia which will see 1000 employees lose their jobs. The factory at Limavady has operated for the last 10 years and was due to be shut down around October end this year but its closure was brought forward. Although Seagate may not be a household name, its hard drives can be found in consumer electronics ranging from computers, portable music players and games consoles such as the PlayStation and Xbox.

http://www.bizeasy.wordpress.com

Lloyds TSB confirms HBOS rescue.

Lloyds TSB confirmed the speculations and rumours about the rescue deal of HBOS which is to be worth around £12.2 billion. This deal is still awaiting the approval of the majority of the shareholders and the Financial Services Authority to go ahead. Should this deal go ahead, it will create a bank which will be worth about £30 billion and will have about 28% of the mortgage and savings market.

However, the staff at HBOS may not be celebrating as yet from the news of the takeover since it is very likely that many, some estimates being around 40,000 members of staff, will be made redudant. It is likely that in places where branches of HBOS and Lloyds TSB are too close to one another, the least effective branch will be closed. This will certainly reduce costs for the new bank, something it needs in such times, but will also contribute to unemployment.

http://news.bbc.co.uk/1/hi/scotland/7622711.stm
http://bizeasy.wordpress.com/2008/09/18/lloyds-tsb-confirms-hbos-rescue/

AIG bailout and HBOS trouble.

The US Federal Reserve, which is America's central bank, threw a lifeline and saved one of the world's biggest insurance group, American International Group (AIG), from collapse by lending it $85 billion, which would have to be paid back over two years at a high interest rate. Just recently, the US Government took over the US mortgage giants Fannie Mae and Freddie Mac in a deal which is reported to be worth around $200 billion.

In Britain, media reports are emerging about banks Lloyds TSB and HBOS being in the advanced stages of a possible merger deal or even a takeover of HBOS by Lloyds TSB. According to the Council of Mortgage Lenders, should this deal go ahead, it would create a lender which would have a 28% share of the mortgage market in the U.K. Currently, HBOS has a 20% share of the U.K. mortgage market whereas in comparison, Lloyds TSB have only 8%. Back in Frebruary of this year, Lloyds TSB was interested in taking over the troubled bank Northern Rock, but the Government were reluctant, and Northern Rock has been nationalised since. Looking at the current state of the markets, its seems unlikely that the Government will create any obstacles in this deal. On the contrary, according to the BBC, the Treasury and the Financial Services Authority are infact encouraging the deal so as to prevent any more turmoil in the banking sector.

HBOS was formed by the merger of Halifax Plc. based in Yorkshire and Bank of Scotland based in Edinburgh back in 2001. HBOS's main source of revenue is from its mortgage products, but with the current increase in repossession of properties due to default payments and the drop in house prices, HBOS will be left with properties worth less than the mortgage secured against them and hence, with little left in its pockets.

It will be interesting to what happens to this proposed deal.

http://bizeasy.wordpress.com/2008/09/17/aig-bailout-and-hbos-trouble/

Richard Branson need not worry

Richard Branson is under pressure. He is opposed to the proposed BA-AA deal. I don't think, he needs to worry.

First of all, its a free world. To say that this (BA+AA+Iberia alliance) will create monopoly is exaggeration.

Secondly, he needs to make Virgin Atlantic more competitive. Virgin is known for good customer services. There is always a market for good airlines. Come on Sir Richard, be competitive. A good businessman should never be afraid of competition. Differentiate (Michael Porter), create a niche market and you will reap rewards.

Further reading: http://uk.reuters.com/article/businessNews/idUKLC60329820080912

Morrison's Profits boosted by Bargain Hunters

Retailer Morrisons reported that its profits in the first half of the year rose by 19% to £295 million. Shoppers, who are faced with rising utility bills and higher mortgage repayments, are seeing a reduction in their spending power and are hence switching from more expensive products such as premium branded and organic products to more basic value for money products to reduce their shopping bills. Morrisons, who reduced prices on several everyday items to 50p, believe they have attracted about half a million new customers from their rivals by offering them bargains.

Interestingly, the Times reported that sales of Tupperware lunchboxes, sandwich bags and aluminium foil rose by 40%, 34% and 27% respectively at retailer Sainsburys, but the Thermos flask was clearly the winner seeing its sales double as compared to last year. This shows a clear shift and increase in the number of people who prefer to prepare their own lunch at home rather than spending, what seems like a fortune in these circumstances, on food and drink outside. It seems that shoppers are beginning to scrutinise whats in their shopping basket and making sure they only buy what is needed and that its value for money.

http://bizeasy.wordpress.com/2008/09/12/morrisons-profits-boosted-by-bargain-hunters/

Customer Service - do the businesses really practice it?

"Your call is important to us but all our advisers are busy at the moment. Please call later on.."
How many times have you experienced this? Many times, I am sure. Does this mean that there should always be a person ready (24x7) waiting for your call?

No, what I mean is that the businesses do not take customer services seriously. There are businesses that are notorious for exceptionally long delays in answering your phones. There are businesses that are known for very poor customer services. We are not here to name and shame businesses and the people behind it. It is a fact, however, that many businesses don't like the very customers they are dependent on for their survival.

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Then why does every business you name it professes lofty mission statements about serving the customers? In my personal opinion, it is just to create an air about the whole thing. Just to make the poor customer feel good. It is just to attract more customers and also an effort to retain the existing customers.

Why is that if you want to open a new account or buy a new product or service, the lines are never busy and the company is happy to offer a toll free number (0800). Whereas if you are an existing customer, the lines are busy, your letter never reach them, your 'previous call' is not traceable in their records and so on. And by the way you have to dial through a chargeable line (0871).

Does this work? Well, it does - many a times. Otherwise, how on earth you see those business thriving and flourishing?

Why does this work, then? There is no simple answer. May be it works because of general ignorance, apathy and last but not the least - monopolistic situations. In many businesses, there is what is called an 'entry barrier'. It simply means it is not easy for any one just to start that business. It may be due to technology, huge setting up costs, requirement for big infrastructure etc. It is not a coincidence that the businesses in these areas have poor respect for customer service. This applies to small business as well. Look at trades people. I do not mean to suggest that all of them are dishonest or don't care for their customers. It's just a question of shortage of good trades people.

There is another side to this issue. Businesses are primarily to make profit and create wealth for their owners (shareholders) and managers (through performance linked pay). 'Satisfying the needs of the customers' is just an excuse for making more money.

The real problem is that some short sighted business managers do not understand that, in the long run, creating value for their customers (by exceeding the expectations) creates more value for the shareholders and other stakeholders.

Unfortunately, in the long run, we are all dead (with apologies to J M Keynes).

Retail Sales affected by Wet Weather

According to the figures released by the British Retail Consortium, retail sales fell for the third consecutive month as the wet weather kept most of the shoppers indoors. Like-for-like sales for August were 1% lower than last year. DIY and gardening product sales fell due to the wet weather. However, furniture and home ware product sales fell the most.

On the other hand, the appalling weather conditions and the fact that many

are avoiding eating out due to tightening budgets, meant that many preferred to cook at home which in turn saw the sales of food and drink grow significantly.

http://www.londonstockexchange.com/en-gb/pricesnews/investnews/article.htm?ArticleID=18770586

http://uk.reuters.com/article/businessNews/idUKL89821720080908

Food prices rise by 8.3%

It was reported this week by the BBC that food prices have risen by 8.3% since January this year. This is based on the figures from a survey carried out by Verdict Research specifically for the BBC.
A packet of ham, a pack of four croissants and a medium sized chicken were among the seven products whose individual prices had risen by more then 40%. Among the 13 categories into which all the products were classified, Meat and Fish rose the highest, by 22.9%, followed by Store-cupboard items and Fresh Fruits and Vegetables which rose by 15% & 14.7% respectively.
Inflation is also affecting the sales of organic produce which fell by 8.1% as compared to last year according to the analysts TNS. Families with low income are unable to afford the high price of organic produce and more people are increasingly switching to buying supermarket own-brand products.

Supermarket Sainsbury's believes that most people no longer perceive supermarket own-brand products in a negative manner nor are they embarrassed of buying them and are beginning shift to buying own-brand products to help cuts their costs. According to Marketing Week, Sainsbury's research showed that a minority of the people believed that the brand they bought reflected on them as a person. To make the most of the current situation, Sainsbury's launched an ad campaign on the 5th of September called “Switch & Save” to encourage their customers to buy the supermarket's own-brand products. The link to watch the new Sainsbury's advertisement is given below.

http://news.bbc.co.uk/1/hi/business/7597703.stm

http://www.marketingweek.co.uk/cgi-bin/item.cgi?id=62302&d=254&h=5&f=3

http://www.youtube.com/watch?v=6u-P9C2obec

Free Laptops

For some time now, mobile phone networks and retailers have been offering free or subsidised handsets when you sign up for one of their plans usually for a period of 12 or 18 months. Its great for consumers since they get the latest handsets without having to pay the full price and the networks are happy since they are assured custom for the stipulated length of the contract, in other words, the customers are locked to the network. However, the market for voice and text services is riddled with competitors and is also becoming saturated since there is a limit to how much people would talk or send text messages.

However, many people are now beginning to access the internet for applications such as chatting, e-mails, local maps, etc. via their mobile phones. But, the mobile phone has limitations, the most obvious being processing power and screen size. Laptop computers have become the new "handsets" which mobile networks are now offering for free when you sign up for one of their mobile broadband deals. It all started about a year ago when Carphone warehouse started offering a Dell laptop when you signed up for their Talk Talk or AOL broadband package. Now, Orange, T-Mobile and Hutchitson 3 have joined the bandwagon with their own mobile broadband deals offering free laptops. More networks offering such deals would force them to reduce prices on their tariffs. This would be beneficial for those looking to surf the internet on the move as they wouldn’t have to invest in a laptop, especially for those who don’t already own one or are looking to upgrade theirs soon.

However, with the credit crunch affecting high street sales, it is likely that stores will offer heavy discounts on consumer electronics making it cheap to buy laptops which might deter people from signing on to such deals.