Just when you might have detected signs of a truce in the supermarket price wars, with Sainsburys struggling to keep our spirits up, along comes Morgan Stanley to warn of escalating future hostilities. The bank’s analysts put even more effort into tracking prices than the average housewife and they reckon that Asda is currently 4.5 per cent cheaper than Tesco, the widest gap since last September.
This new round of price-cutting follows the latest Kantar survey showing that April was Asda’s worst month ever for loss of market share. The new price gap may reflect the first stirrings from the Walmart monster wanting to protect its British offspring, or as Morgan Stanley put it: “We continue to see Asda as the industry’s main wild card this year: in a bear case scenario where Asda decides to reset its margin, it could lead to a halving of the industry’s profit pool.”
The brokers have said this before, but it is clear that the threat is still there. It helps explain why Sainsbury is rushing into the catalogue selling business with Argos and why Tesco shares are almost back to their level of the darkest days of 2014. They are still not obviously cheap. The Germans, in the shape of Aldi and Lidl, continue to rampage through the British supermarket industry, and none of the big four grocers has yet found a way of halting their advance. Good news for customers, but a concerted Asda counter-attack would spell more carnage for shareholders.
Sharing the pain
It is unlikely that BHP and Vale will have to find another $44bn between them to draw a line under the Samarco dam collapse. However, they can expect to pay a few billions more on top of the settlement with the Brazilian government. There are clear parallels here with BP’s Macondo well explosion, beyond the prospect of making an army of lawyers rich.
In both cases, the companies had the chance to signal that they really did share the pain of the loss in the most direct way possible, by immediately suspending payments to shareholders. None of them did so. In the case of BP it eventually became clear that the likely size of the liability made the dividend unsustainable, but by then any political gain from cutting it had evaporated.
For Vale, the potential liability is life-threatening, since it equals the company’s current market value. BHP, meanwhile, appears to have learnt nothing from BP’s experience. It carried on with the fiction of its “progressive” dividend policy as if nothing much had happened, until the falling value of commodities, including the iron ore mined at Samarco, eventually made the payout unsustainable.
Just as at BP, this blinkered response has cost the company dear in damage to its reputation. Suspending the payout promptly would have helped limit that damage. Furthermore, in cold-hearted accounting terms suspension costs nothing, since the cash stays within the company. Look and learn.
Doing well by doing good
Andrew Cook did not set out to become an expert on pensions. He would much rather have spent more time with his steam locomotive, or even in making difficult (and thus expensive) steel castings. This week the chairman of William Cook explained why he had needed to mug up on retirement benefits.
It took five years and £5m, but in the end his actions saved the family company from bankruptcy from its (then) £28m pension deficit. The advice from the experts “was only waffle”. The real work lay in gradually unpicking the problem, and today William Cook Holdings’ pension liabilities are either insured or in defined contribution schemes.
There is a lesson here for Philip Green, were he to buy back BHS. The company’s headline pension deficit is £571m, but with care and professional management at the shops, the deficit could melt away. Sir Philip may prefer the quick deal to exercising patience, but patience saved Mr Cook’s business. Keeping BHS trading would propel Sir Philip from zero to hero, helping Top Shop, Dorothy Perkins,Miss Selfridge and the rest of his Arcadia empire avoid the threat of an expensive boycott. He might even make yet more money.
This is my FT column from Saturday