Category: Business


Supermarket price war commences


Competition drives supermarket prices down

Sainsbury’s have laid out a battle plan as the UK’s supermarket giants fight for customers. The call to arms comes as a direct reaction to Tesco’s big price drop campaign where prices for 3,000 staple goods including bread, milk, fruit and vegetables have been lowered.

From this Wednesday Sainsbury’s will issue coupons to the value of the difference between its branded goods and those of its rivals, Tesco and Asda.

Around 13,000 products are identified in this price comparison set and as of tomorrow, 12th October should the shopper select an item that is cheaper elsewhere,  as long as they spend a minimum of £20, they will be given the difference back via money or coupons.

The price match scheme comes as the market leaders try to attract new customers amidst a backdrop of difficult trading conditions.

Moneyhighstreet reacted to the move saying: “In reality, whilst this latest deal from Sainsbury’s may not actually save the customer a huge amount, it will no doubt be perceived as being very positive and provide reassurance that they are not being ‘ripped off’.”

Last week Tesco reported a rise in half-year profits despite a fall in underlying sales in the UK. Chief Executive Philip Clarke pointed to a price elasticity trend affecting certain products: “non-food business has been under quite a bit of pressure in the last quarter.”

Meanwhile Sainsbury’s reported slightly better like-for-like sales. For the first six months of the financial year, excluding petrol but not VAT, Sainsbury’s sales rose by 1.9 per cent as opposed to Tesco’s rise of 0.5 per cent.

But whilst this is a victory for Sainsbury’s the results have served to fuel the fire of an already highly competitive industry.

The reaction to the economic conditions from Sainsbury’s and Tesco will not have been received well by Asda who have an existing pledge to be 10% cheaper than their rivals and may now have to react.


Crunch time for Eurozone leaders

In an information light announcement at a bilateral summit in Berlin, President Sarkozy and Chancellor Merkel set October as a deadline to reach agreement on a package of measures to stabilise the Eurozone. This will include a recapitalisation of European banks if required. After months of dithering over the politics and ignoring the economics, their hand is clearly being forced by growing international pressure for action as the announcement will come just before November’s G20 summit.

Whilst detail is thin on the ground it does seem that recapitalisation of banks will be at the forefront of any announcement. For weeks there has been talk of a boost to the European Financial Stability Fund (EFSF) with figures as high as €2tn being discussed in order to offer liquidity to member states. But after the break up of the Belgian bank Dexia and downgrade in credit rating of 12 UK financial firms, attention has moved to avoiding a repeat of 2008’s banking crisis.

The international pressure for Europe to find a resolution is enormous. Today in an interview with the Financial Times Mr Cameron urged the euro membership to accept collective responsibility and backed an increase in the eurozone’s €440bn (£378bn) bailout fund. The hope is that decisive action will bring an end to the uncertainty that is currently destroying confidence in the markets.

But how will the cards fall for Greece? Whilst the current Prime Minister has refused to speculate on a Greek default, former PM John Major made it clear yesterday in an interview with the BBC that Greece would have to default.

“In the short term the banks need to be recapitalised and Greece needs to default, the sooner that happens… the sooner you remove something from the overhang in the markets.”

In this scenario banks would take a big haircut and if they weren’t sufficiently capitalised it would spark another banking collapse. But it seems increasingly likely that this will be the course of action as the German news agency DPA has reported a discussion between Eurogroup senior officials about a potential haircut of up to 60 per cent on Greek bonds’.

Reassurances by Sarkozy and Merkel that recapitalisation is on the table and banks would be given all the support they needed add weight to this likelihood.

A default would badly damage banks that are exposed to the Greek debt and would set a dangerous precedent to other heavily indebted economies. At the moment Italy and Spain are not insolvent but have liquidity problems that would not be helped by the drying up of lending likely to occur if banks take a haircut over Greece. But banks may be prepared to accept this so long as they are sufficiently recapitalised. The time for leadership and the use of EFSF funds has come and perhaps an acceptance of a default will end the uncertainty.

Has Apple lost its core?


Brief biography of Steve Jobs

  • 1976 – co-founded Apple with his childhood friend Steve Wozniak
  • 1985 – Fired from Apple having lost a power struggle with the board of directors
  • 1986 – Paid $5m for the computer graphics division of Lucasfilm Ltd creating Pixar Animation Studios
  • 1997 – Returned to Apple as CEO
  • 2006 – Sold Pixar to Disney for $7.4 billion and became the largest shareholder in Disney
  • 9th August 2011 – Apple briefly overtakes Exxon to become the world’s most valuable company
  • 24th August 2011 – steps down as chief executive

 

Upon returning to apple in 1997, Jobs oversaw a rise in annual revenues from $7.1bn (£4.6bn) in 1997 to the current figure of $65.2bn.

The extent of the rapid success of Apple in recent years was highlighted yesterday by the company’s position in Interbrand’s annual rankings. Apple Inc. broke into the world’s top 10 most valuable brands rising to eighth with a value of $33.5bn. The estimate is based on profit, future earnings estimates and the prominence of the brand and highlights the enormous success of the company since Jobs’ return.

Apple is one of the most innovative companies in the world often praised for its ability to know what the public want before they do. With their ipads they gave the world the tablet; a product that no one had ever heard of yet alone wanted, and yet now so many people cannot do without one. The question for Apple is that with the passing of Jobs does this instantly devalue the brand?

For many people the brand Apple is the brand Steve Jobs. It’s a lot like watching an episode of Dragon’s Den when one of the investors get out their cheque books not because of the business presented to them, but because of their faith in the entrepreneur. It was a worry when Jobs stepped down in August but now it’s an even bigger problem.

When Tim Cook took over as chief executive the company’s shares dropped in value by five per cent in after-hour trading. Whilst clearly bad news this was not as big an impact as many had predicted due to the perceived value of the man to his company. The drop in investor confidence was offset by the assumption that whilst Jobs was no longer in the forefront he would in essence be a backseat driver continuing to dream up new products. But now the company really has lost its genius and the question is whether or not with the loss of Jobs, Apple has lost its advantage.

Of course it’s far too early to tell. The brilliance of Apple over the last decade has been its ability to release one great product after another and so it will be judged on the products it produces without Jobs.

But there is cause for concern. Cook launched an upgrade to the iphone4 on Tuesday and with many people hoping for the iphone5 the atmosphere was one of disappointment. The initial reaction on the US stock exchange was for Apple’s shares to slump by 3.6 per cent immediately after the announcement, although by the end of the day they had recovered to a drop of just 0.6 per cent.

But such results could just indicate an adjustment period. Jobs were famous for his crowd-pleasing product launches. His relaxed style and infectious enthusiasm were part of the appeal of Apple’s products. He was geeky, but he still made his products look cool. Cook failed to get the same energy into his first product launch but then this was a less exciting product, as it was just an update to the iphone4. The first real test will be the launch of the iphone5 but this flat footed start will have done nothing to silence the doubters who believe that Apple hasn’t found the seed required to grow the company tree.

Jobs’ genius has been most clearly highlighted in these times of recession. He’s shown an ability to create essentially elastic products such as tablets and expensive smart phones, and manage to convince consumers that they need them every bit as much as they need bread and milk. Will the company’s development teams be able to continue in this vain or is this the bursting of the Apple bubble?