Six months ago it was possible to think Aldi and Lidl had enjoyed their moment in the sun and that the fightback by the old guard – Tesco, Sainsbury’s, Asda and Morrisons – would have an impact. After all, the big four told us they were “investing” in price – their coy term for cutting prices – while improving service and the quality of goods.
The tactics aren’t working, or at least they haven’t been pursued sufficiently aggressively. The latest data from compilers Kantar shows Aldi and Lidl are accelerating again. As a pair, the discounters are now 10% of the market. Part of that increase is mechanical – if you open more stores when others do not, your share of the market tends to increase. But consumers are also happy to shop around: almost half of all shoppers now visit a discounter and a regular full-line supermarket every quarter.
As Kantar pointed out, Aldi and Lidl have grown from 5% of the market to 10% since 2012; it had previously taken the duo nine years to crawl from 2.5% to 5%. It is probably now too late to prevent the discounters from claiming 15% because they are flogging expansion for all its worth. But, if the mainstream brigade wish to stop 15% becoming 20%, they will have to start throwing some punches that the opposition actually feels.
It is jarring, for example, to hear Andy Clarke, the chief executive of Asda, after yet another weak trading quarter, talk about “closing the gap” with the limited assortment discounters. Why can’t Asda offer a core range of similar goods that eliminates, rather than merely closes, the gap?
The short answer is that Asda prefers to protect its profit margins as far as it can. But that strategy is starting to look extremely short-termist. David McCarthy, an analyst at HSBC, suggests the big boys should lower prices by 15% on their core ranges. That sounds more like what is required.
EasyJet profits fly higher
It seems like only yesterday that easyJet was ordering more aircraft to meet predicted demand, defying the wishes of its founder, Sir Stelios Haji-Ioannou, who thought the board was engaged in a “vanity exercise” that would destroy shareholder value. Actually, it was 2013, but now the airline has its chequebook out again. Another 36 Airbus A320s have been ordered.
We don’t know what Haji-Ioannou thinks today but, as last time, one suspects easyJet’s board would be able to deflect the suggestion of overexpansion. Predicting passenger growth of 7% a year into the middle distance may sound adventurous, but the truth is that easyJet and Ryanair are competing as strongly as ever with the old national flag-carriers. Those airlines may try to imitate the low-cost model, but easyJet and Ryanair remain streets ahead.
Last year was the fifth to see an increase in annual profits, a rise of 18% to £686m. Being picky, easyJet said nothing to prompt the City to raise forecasts for the current year, which is why the share price fell 4% after a strong run. But it’s hard to argue with a dividend that has gone from zero in 2010 to 55.2p a share now. For the Haji-Ioannou family, with a 34% holding, that’s worth £74m.
One of these years, Haji-Ioannou’s old worry that new aircraft will be used to chase growth on lower-margin routes in an oversupplied market may be proved correct. But, on easyJet’s current form, it still feels like next decade’s concern. Luckily for him, Haji-Ioannou didn’t follow his scepticism by selling many shares.
The banking debate must remain public
The banking lobby is feeling confident again, which is why Andrew Tyrie, the chairman of the Treasury select committee, felt compelled on Monday to warn regulators not to yield to special pleading. As mentioned here on Tuesday, he said new rules, including the erection of ringfences between retail and investment banking units, had to be implemented speedily, as parliament intended.
On Tuesday Tyrie had a chance to question regulator-in-chief Andrew Bailey, the head of the Prudential Regulation Authority. It gave rise to an odd exchange in which Bailey said he doesn’t like banks (Barclays was mentioned) airing their grievances via the press; he would prefer them to approach the PRA directly.
This seems unnecessarily fussy. The correct answer, surely, would have been to say that the PRA is confident in its judgments and quite capable of countering the banks’ lobbying machine wherever, and however, it operates.
Bailey, thankfully, said nothing to suggest he has gone soft, but this preference for conducting debates behind closed doors is not reassuring. The rest of us would rather hear the bankers’ whinges: it makes it easier to detect concessions.