Yesterday's figures spoke volumes. Profits over the half year were more or less static and are forecast to rise by a paltry one per cent over the full year. This is miserable stuff compared to the 10-20 per cent profits growth the company has enjoyed over the last 10 years. The great profits engine seems to have stalled. Sainsbury's problems centre not so much on mistakes, but inaction. It has stood by and allowed rivals to capture the imagination of shoppers with a series of initiatives.
Tesco has been prepared to accept lower margins to grow sales. It is experimenting with derivative formats such as the Tesco Metro and has launched the first loyalty card, which has already signed up seven million customers. Asda has attacked price maintenance agreements on books, magazines and medicines and is even backing the two minute silence on Armistice Day. Archie Norman has been wheeled out as the consumer's champion.
Sainsbury's marketing efforts look pretty tame by comparison. It has tried to re-assert its higher quality, better service proposition - only to find the real battle returning to price. Recent initiatives such as mini-trolleys for children and wider car parking spaces have failed to capture the imagination. Its marketing has lacked Tesco's flair and the company's appointment of a new, younger, marketing director last week, appears to recognise as much.
More changes to its somewhat lumbering structure may be needed. Tesco has been driven over the last two years essentially by just two directors, backed up by chairman Sir Ian McLaurin. The system is fast and efficient. By comparison, Sainsbury's has 12 executive directors, four non-executives, plus 44 departmental directors who participate in a web of committees that implement board policy. A pruning seems overdue. There is no whiff of crisis yet at Sainsbury's Stamford Street headquarters. The company is bigger than Tesco, more profitable and remains one of the country's most highly regarded retailers. But it needs to recover its pace and edge - fast.
The Chancellor can expect little mercy
Capital expenditure is almost always the first victim of an organisation looking for cuts and the Government is no exception. Even under plans already-published, a 10 per cent real fall in public investment is envisaged for the two years to April 1997. If the purported leaks of the present spending round turn out to be correct, those cuts are now going to be made even deeper, with what is left of an already emasculated road building programme the chief casualty. However much the Chancellor might protest that a reinforced private finance initiative can substitute for such expenditure, everyone knows that as far as road building is concerned, this is just so much tosh.
There are four road building schemes presently out to tender under the Government's design, build, finance and operate programme, but little sign of any progress being made in actually letting these schemes. If this is the future for road building in Britain, then the already beleaguered contracting and engineering sector might as well close down for good.
But this is only half the problem with private sector roads. The second is that they are not really private sector at all; funded via"shadow tolls" they are eventually paid for by the exchequer. There is a degree of risk for the private sector in that if road usage fails to live up to expectations, then it is the road builder that bears the cost. In essence, however, the Government ends up paying. The only difference is that it pays over a period of time rather than up front in one go.
Furthermore, this is ultimately a more expensive form of road building since the cost of capital to the private sector is invariably more than to the public sector. If this is how the Chancellor plans to fulfill the Government's tax cutting pledges - with mirrors - he can expect little mercy from the markets, or from the businesses fighting hard to protect what is left of Britain's public infrastructure spending.
The rising price of peace at Lloyd's
Nothing at Lloyd's was ever meant to be simple. While the victorious Names in the landmark Merrett High Court case are cheering the prospect of winning damages covering a good portion of their losses, there are probably as many Names fretting about how they will have to find more money to foot the bill. For if ever there were living proof of the old adage, that for every winner there is a loser, then Lloyd's is it.
The deep-pocketed auditors - cast for the first time as a result of the Merrett judgement into the same malodorous company as other Lloyd's negligents and reprobates - will probably have to pay the lion's share of the damages, which could amount to over pounds 200m.
But Ernst and Young, the auditors in this case, have professional insurance against such losses, much of which, surprise, surprise, is written at Lloyd's. Even the victorious Merrett Names may as a result end up paying a part of their own damages award.
But there is a more significant complication inherent in the Merrett judgement than this left hand taking what the right hand gives. Those hailing the victory over the auditors as a big boost for the prospects of a global settlement for Lloyd's woes are in danger of forgetting the never-so-simple rule. Certainly, the Merrett judgement will dramatically increase the pressure on the auditors, not just Ernst & Young, to support Lloyd's attempts to negotiate a full cessation of litigation hostilities. They would do so by adding their riches to the pounds 2.8bn credit and debt forgiveness already on offer from Lloyd's to induce Names to sue for peace. The auditors are the only factor not yet properly included in the Lloyd's rescue equation. With their resources, they could make a big difference to the amount on offer to Names.
The difficulty is that the Merrett judgement is just as likely to have raised the costs of any peace deal. The landing of the auditors in the net, and the devastating criticism of Stephen Merrett himself, until recently an eminent member of the Lloyd's establishment, can only have raised Names' expectations of what can be achieved by litigation. John Mays - the triumphant chairman of the Merrett action group - conceded as much by saying many Names could conclude that more is to be won by fighting on. After Merrett, there is likely to be more money on offer for Names. But the price of peace has probably gone up too.Reuse content