Tesco: The Real Banking Opportunity...
By Brian Moore, Global Retail Consultant and CEO of EMR-NAMNEWS

The banking-facilitated global financial crisis has given Tesco the opportunity to take a 25% share of UK banking.  All it requires is transparency and defensibility…a need to play it ‘whiter than white’, with fair shares for all.  Otherwise other non-traditional bankers will take a piece of what is ‘rightfully’ Tesco’s.

If highly inefficient traditional banks, with all the advantages of being able to run a cost-plus business under benign oversight by the official regulators, who are even now unwilling to publish details of the RBS collapse… still managed to blow it, then surely Tesco and the ‘grocery’ multiples can see the advantage they have in being able to capitalise on their ability to move boxes around effectively, in a business where everything starts with the lowest possible shelf-price to drive costs down all the way up the supply chain (ask the suppliers) and start with a unique level of consumer trust and a clean slate in domestic banking…

Moreover, the multiple ‘grocers’ should not risk being associated with other store cards that operate with APR rates that leave even the non-savvy consumer with a sense of betrayal and a determination to use alternatives wherever possible.

In the same way, according to a recent report in The Guardian, when purchases are made outside the country on credit cards, Visa & Mastercard use prevailing wholesale rates of exchange when transferring the charge to individual credit card account-holders.  However, some banks/cards, including Tesco, allegedly charge an additional 2% above Visa rates, along with a 2.75% Foreign Exchange fee.  This is done presumably on the assumption that the ‘punter’ does not understand interest rates and that those who do, probably believe that they have little or no alternative.  This partly explains how levels of trust in financial services have fallen to unprecedented lows over the past two years.

Tesco and the major multiples can easily side-step this potential tar-brushing by offering a banking service that is transparent and defensible, charges a fraction less than traditional banks and offers interest rates on deposits that are marginally above alternatives available.

But clean-banking offers Tesco and the multiples an even greater opportunity, the excuse to reach new levels of fair-share dealings in their relationships with trading partners.  For instance, imposing a credit period of 40+ days on suppliers in a virtually daily-delivery business model will eventually be challenged by a government that wants to be seen to ‘do the right thing’.  A pre-emptive move in reducing credit periods to more defensible levels by the multiples could only add to their credibility in the eyes of all concerned.

Moreover, given the differences in added value in supply and retail – retailers buy at 75% and sell on for 100%, producing a margin of 25%, whilst suppliers buy in materials and services at 25%, add value of 75% and sell to the trade at 100% – this means that strong suppliers need to impose a credit period of up to 90 days on their suppliers in order to neutralise the 40+ days credit they have to give the major multiples.

Retailers and suppliers who put a ‘payment policy’ in their annual reports to the effect that ‘we always pay within agreed credit terms’ miss the point entirely, an insight that will eventually become obvious even to politicians…

Again, the adoption and practice of the GSCOP conditions, now coming up to its first anniversary, is another opportunity for grocer-bankers to capitalise upon public and private trust on the part of its trading partners.

By incorporating GSCOP into a new fair-share relationship with all business partners, the multiples can neutralise the whispering undercurrent of complaints about ‘abuse’ of power  that never quite reaches levels that can morph into productive whistle-blowing…

With all the leadership changes in the pipeline, and the need for new names to be made, the New Year represents a real opportunity for all, with Tesco as catalyst…

Helping your customer to play fair…see NamNews December 2010

Date article published: December 2010