Scenes one would like to see, part 94: At the Tesco cheese counter.
Customer: I would like to merge with some Double Gloucester, please.
Cheesemonger: I’m sorry?
Customer: I believe we have reached agreement on the terms of a recommended merger to create a leading UK food proposition.
Cheesemonger: Do you want to buy some cheese?
Customer: No, I intend to merge with it. And possibly some pickle.
Cheesemonger: You do realise that you have to pay?
Customer: Of course. I am offering £2.55 in cash but anticipate cost synergies of 25p as increased supply chain efficiencies eradicate the need for a sneaky packet of crisps later on.
Cheesemonger: Right. Anything else?
Customer: Yes, I need some bread. I am pursuing a vertical integration strategy.
Cheesemonger: You mean making a sandwich, don’t you?
Tesco’s own recent food transaction — acquiring wholesaler Booker for £3.7bn — was also described as a “merger” on Friday. In reality, it is nothing of the sort: it is a takeover, at a 12 per cent premium to Booker’s previous share price, paid in cash and shares. All that will be merged are the two companies’ supply chains and logistical operations. And, here, the value of the strategy is questionable.
Conviviality, owner of Wine Rack retail outlets, has pursued a similar vertical integration: buying drinks wholesaler Matthew Clarke. On Monday, it reported that this helped triple sales to £782.5m in the half-year, but synergies would only be £6m, or 0.8 per cent of sales, in the first 12 months. Analysts say these rise to £13m in 2018 but cost savings remain “modest”.
Similarly, Tesco appears to be buying a business with rising sales but few synergy opportunities. It talks of using its 3,000 vans for wholesale deliveries between 5am and 8am, when the vehicles are currently idle. It suggests the 20 per cent of a broccoli crop not fit for supermarket aisles could be sold to caterers. But analysts note that the £200m of stated annual synergies — £175m from cost savings — are only 0.3 per cent of combined sales. It looks as if all Tesco is buying is the ability to squeeze suppliers a little bit harder. Cheaper Marmite. Irate farmers.
Richard Cousins, Tesco’s senior non-executive director, has resigned over the deal — and if anyone knows food supply chain synergies, you would think it is the man who has run Compass, one of the world’s largest catering groups, for a decade.
Tesco does gain another big cheese. Charles Wilson, the Booker boss tipped for Tesco’s top job, joins the board. A solution to its latest succession planning problem? If so, it is an expensive one, and not certain to succeed.
Conviviality’s rival Majestic Wine tried this kind of personnel integration, buying Naked Wines to secure Rowan Gormley’s services. After last year’s profit warning, shareholders are still drowning their sorrows, and feeling a tad cheesed off.
YouGov: wrong again
What were the chances of YouGov accurately forecasting its financial performance in the latter half of 2016?
Given the events of last year, it is not surprising that the opinion pollster behind such hits as “ Remain ahead with 52 per cent” and “Hillary Clinton maintains her 2 point lead” has failed to meet its own estimates. What is surprising, however, is the fact that it exceeded them.
And this illustrates YouGov’s great weakness and its hidden strengths.
It is still thought of as a media polling company — despite the fact that it now derives less than 1 per cent of its revenue and profit from drawing out your inner Brexiter or Trump Deplorable via online questionnaires.
In reality, it makes 60 per cent of its sales from custom research, where margins are widening, and is growing fastest in data products and services, thanks to its Brand Index for advertising agencies and their clients. In its last full-year results, Brand Index revenues rose 39 per cent and were up to one-sixth of total group sales. YouGov wants data, overall, to account for half. With plenty of data clients in the US and Europe, being wrong about the politics has also proved a blessing: a stunned forex market has greatly weakened the pound against the euro and dollar.
Why persist with the unreliable political polling then? Chief executive Stefan Shakespeare says YouGov still needs a “shop window”. But the danger is that its data customers start to react like voters reading an exit poll: I’m sorry, but I’m just not buying it.
Whiter shade of purple
The UK Listing Authority took action on Monday when belligerent remarks on a much followed but increasingly hysterical Twitter feed caused a company’s share price to whipsaw.
Unfortunately, the Tweeter taken to task was online estate agent Purplebricks, for talking about house prices. Not @POTUS for opining from the White House.
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