Outlook: Tesco's Sir Terry taps into the convenience store format

Japanese banks; Sir Geoff goes

While others in the groceries premier league have been running their slide rules over Safeways and wondering whether the competition authorities would allow a consolidating carve-up, Sir Terry Leahy, chief executive of Tesco, has been beavering away on something else entirely – expansion into the still fragmented and under-exploited convenience food market.

With some 55,000 convenience shops, or corner stores, nationwide, this is a sector of the market which has always been huge, but up until quite recently it has also been regarded as in terminal decline and easy prey for the out-of-town stores with their everyday low prices and burgeoning choice of produce. While Britain has a state of the art supermarkets sector, convenience shopping has continued to look like something stuck in a 1970s time warp.

Busy lifestyles, smaller households and increased inner city dwelling have combined to make the cornershop market suddenly look one of the more interesting retail growth prospects. Tesco has been attempting to tap into these trends for some years now with its Tesco Metro and Express formats, but plainly it would have taken a long time to obtain the critical mass Sir Terry wants by organic growth alone. Hence yesterday's bid for T&S Stores, which will get Tesco more than half way to its eventual aim of 1,000 Tesco Express stores in one fell swoop.

There are very few companies that it is possible to buy which would have achieved the same purpose. Alldays was one of them, but the company was bust before it was snatched from the hands of receivers earlier this week by the Co-operative Group. Tesco reckons it is getting a much better deal with T&S, even though it is having to pay an enterprise value of £530m for the privilege. Is that expensive or is it a bargain? Both views had equal currency in the City yesterday, which probably means Tesco has pitched it about right. Too low and in any case it might have encouraged rival bids from Sainsbury, Marks & Spencer and others interested in expanding into the neighbourhood store format.

The Office of Fair Trading will certainly take a long hard look at the deal, given Tesco's already dominant size in the groceries market, but in the end the acquisition is too small to worry regulators very much. T&S has about 5 per cent of the convenience market and little more than 1 per cent of the total groceries market. Tesco regularly used to achieve that kind of growth in market share through organic growth alone. Besides, it is hard to see how bringing low prices and added choice to a sector renowned for poor value can in any way damage the consumer. Not good for the standalone corner shop operator, though.

Japanese banks

It was billed as a hugely radical reform that would finally solve Japan's burgeoning non-performing loans problem, and eventually set the Japanese economy back on its feet as well. In the end it was just another classic Japanese compromise. Having promised to think the unthinkable, to liquidate the bad loans and nationalise the banks that couldn't survive the implosion, Heizo Takenaka, Japan's financial services minister, yesterday announced a package of measures which doesn't seem to add up to very much at all. It's hard to know whether to laugh or cry.

Maybe the reforms lost something in the translation, but the bottom line seems to be the old one – sit back and hope that in time the problem will resolve itself. OK, so there's a more hard-nosed approach to assessment of bad loans being put in place. Banks will be forced to use discounted cash flow in assessing bad loans, rather than collateral, which should begin to speed up the process of bad debt recognition. But virtually everything else has been watered down.

According to official estimates, Japan's banking system has 52 trillion yen ($422.6bn) of bad debts on its books, a hideous leftover from as long ago as the 1980s stock market and property bubbles.

Normally, bad debts simply get written off, the companies they support go to the wall, and everything moves on again. In Japan's case, the enormous scale of the problem has made such an approach hard to contemplate. Banks would collapse, leaving millions of depositors high and dry, there would be multiple bankruptcies in the construction, real estate, transport and retail sectors, and unemployment would rise steeply. In the short run at least, Japan's already deep economic malaise would be further exaggerated.

Unfortunately, there is rarely any gain without pain, and the proponents of radical reform would argue that this is precisely the approach that needs to be adopted. Cut off the supply of money to underperforming companies and they would close, stripping out the excess capacity and allowing the survivors to start making an adequate return again. Once that happened, they might begin to invest again. There would also be a much needed transfer of available capital away from the underperforming Old Economy into Japan's already fast growing New Economy.

That's the theory. It's just getting from here to there that's proving the difficult bit. Japan has once more looked into the abyss and failed to take the plunge. With yesterday's announcement, Mr Takenaka has withdrawn from the big bang approach to the problem, and reverted to a slightly more aggressive version of the original script, which is essentially a long workout of the non-performing loans. That means less pain in the short term, but it provides no kind of an immediate solution to Japan's long-term illness.

Sir Geoff goes

It's hard to feel too sorry for Sir Geoff Mulcahy as he sails off into the sunset with his £700,000-a-year pension safely banked and paid for. None the less, the manner of his departure from Kingfisher, the company that has been his life for nearly 20 years, is a faintly undignified one. No grand retirement parties at Claridges for Sir Geoff, complete with fawning testimonials, which was the treatment handed out to Sir Stanley Kalms when he retired from Dixons last month. Instead, Sir Geoff is being bundled out the door three months before his successor, Gerry Murphy, is even in place, this to stop him meddling any further in the series of decisions Kingfisher has to make over the coming months.

It was left to his spin doctors sheepishly to ring round pointing out that actually Sir Geoff's record at Kingfisher wasn't nearly as bad as it is often portrayed. In his time, Sir Geoff must have executed more corporate U-turns than he's had hot dinners, and he ended up with a retailing conglomerate of hideous complexity and questionable raison d'être.

Even so, he did create value. A thousand pounds invested in his original Woolworth's buyout vehicle, Paternoster, would today be worth nearly 30 times that amount. There have been better investments, but not many, and Sir Geoff has easily out performed the stock market over that period. In recent years his purpose seemed more focused on personal survival than value creation and, as the share price plummeted, the City turned against the dithering schemer that Sir Geoff had become. The will he, won't he sell/demerge Woolworths saga, dragging on as it did for the best part of a year, was the final straw.

Unlike Sir Stanley, who is Conservative Party Treasurer and an active anti-euro campaigner, Sir Geoff has few diversions outside Kingfisher to fill his time with. So what's be going to be doing next? His boat is called No Comment, and that's presumably where the old workaholic will go to lick his wounds and plan his next heist.

jeremy.warner@independent.co.uk