Tizz over fizz leaves institutions with hangover

COMMENT

Babycham, when you stop and think about it, was the original alco- pop - a mildly intoxicating mixture of fizz and pears designed for youngsters not quite old enough to enjoy a proper drink at Christmas. There is a certain irony, then, in the battering that its makers, the cider firm Matthew Clark, took yesterday after warning there would be a large hole in profits this year, courtesy of the "unprecedented growth" in sales of the new breed of alco-pops.

Investors, however, are unlikely to see the funny side of things following the brewers droop that the shares predictably performed. It is a strange tale indeed.

Only two months ago, Peter Aikens, the accident-prone chief executive of Matthew Clark, was reporting a doubling in annual profits and telling shareholders that everything was hunky dory. Now we are told that orders fell off a cliff in July and August, with sales of Babycham and the cider brands down by an incredible 60 per cent.

Now it has always been a bit of mystery who bought Babycham, much less enjoyed drinking it. It is also true that the brash and dubious promotion of brands such as Thickhead, Hooper's Hooch and Two Dogs, together with the blaze of publicity, have conspired to leave the Babycham Bambi dead in the water.

But in a business like the drinks industry, where production is geared to forward orders, it looks odd, to say the least, that management were not aware of the dire state of sales when they were briefing analysts and investors on full-year profits in July.

It is still possible that the company or the markets, or both, have overreacted. But given the appeal of the alco-pops and the reluctance of the authorities to stamp out all but the most blatant marketing to under-age drinkers, it looks unlikely.

Mr Aikens last courted controversy after being paid pounds 430,000 in relocation expenses to move from Reigate to Shepton Mallet after the company changed hedquarters.

Juding from yesterday's shock announcement he did not move close enough. Whereas the fiasco over his relocation expenses was an error of judgement that shareholders can probably forgive, Matthew Clark's failure to read its market is much more serious. Shareholders may feel he needs to be left with more than a Thickhead for the turn of events.

Don't be misled by BT cuts

Time was when BT needed to be dragged kicking and screaming by the regulator, Oftel, into tariff cuts of any variety. They used to be done grudgingly and with little fanfare. These days BT makes a virtue out of necessity and trumpets everything the regulator requires it to do. If nothing else, BT seems to be learning some of the basic skills of marketing.

Don't be misled by yesterday's package of cuts, however. Generous though they might look, they actually amount to only a half of the tariff cuts required by the regulator this year. More will have to follow. Furthermore, they have been cunningly slanted at routes where prices need to fall anyway because of increased competition - long distance and international. In other words, regulation is biting in areas where it may no longer be needed, the areas of telecommunications where competition is beginning to provide all the safeguards the consumer needs. The weakness of the present controls have been in significantly cutting the bills of low user residential customers, which is arguably the area in which they are most needed.

It would obviously be an exageration to say that price regulation has as a consequence been failing the British public. Even in areas where competition is now thriving, you can bet your boots BT would not have cut prices by as much but for the strictures of the regulator. But the point has none the less been taken on board by Oftel in its latest review of the price controls. The new system, which comes into force next year, will weight control towards the charges that really need it.

As for long distance and international tariffs, they should continue to fall sharply. The cost to telecoms operators of long distance calls these days is not so much greater than that of a local call. We are entering an era of ever cheaper and cheaper telecommunications. The challenge to BT and other national telephone companies will be balance this commoditisation of the basic service with value added services that both secure the customer base and provide a fatter margin.

Courtaulds locates its sweatshops elsewhere

The new man at Courtaulds Textiles has wasted little time in accelerating plans to shift production offshore to developing countres with cheap labour saying he wants to double the current 15 to 20 per cent share taken by foreign factories. The company is less clear on how long the transfer might take to complete, but after yesterday's all too disastrous figures, the stock market will be pressing the new chief executive to deliver.

Good news then for the likes of Morocco, Tunisia, Sri Lanka and Turkey. Not such good news for British textile workers, notwithstanding the new investment promised by Courtaulds in Britain for meeting the needs of high fashion. But whatever the issues of this particular case, the proposition that British jobs more generally are being exported to cheap labour countries just doesn't stack up.

For a start the numbers do not support the contention. During the past decade, employment in the UK has increased - a bit for men and a lot for women. Nor have all these jobs been part-time "McJobs". Female full-time employment has increased about as much as part-time employment. Average earnings have climbed steadily in real terms. Greater inequality means the poorest are worse off but there is no general immiserisation of the workforce taking place.

For another thing, the jobs being created in the UK by foreign investors - even some "third world" investors from Taiwan and Indonesia - are better than the ones being created in low-cost countries by British firms. Why on earth should a prosperous developed country want to hang on to the kind of jobs that pay starvation wages? Do we really want to be the sweatshop of the world, competing with India and China for mechanical and boring work like weaving commodity textiles - or even data-processing for that matter. Better by far is the new generation of jobs in sophisticated and capital-intensive factories making reasonably hi-tech goods. But there is a further point here. Manufacturing, which continues to bear the brunt of any job losses in Britain, is now a comparitively small part of the British economy, accounting for less than a quarter of total output. Any job lost is painful enough, but when the wider picture is taken into account, the export of textile jobs to third world nations is not a hugely significant phenomenon.