Monday 18 January 2010

A Gap in the Banking Category?

“Banks have tended to treat loyalty not as something to be rewarded but essentially as something that can be exploited. They trade on inertia”
"Every business talks about putting customers first, but this really is at the heart of everything Tesco does"

Ex RBS, HBOS and Standard Life Benny Higgins, Head of Tesco Banking, in an article in The Sunday Times, sums up why Tesco and the grocers are going to capture a sector that still thinks banking is about banking. Bankers should reflect on the formerly 'specialist' petrol sector, where the 'shopkeepers' now have a 40% share…anyone still in doubt should check out the French petrol market where over 60% is sold via grocers.

Since buying RBS’s half-share in the Tesco-RBS joint venture in 2008, Tesco has set its sights on creating a fully fledged bank that will generate higher profit margins than its core grocery business. In a short time Tesco has attracted more than 6m financial-services customers, taken 8% of the credit-card market and become the UK’s sixth-biggest motor insurer. It also has more than 2,700 cash machines and says that they provide £1 in every £8 in circulation in the UK. In the past year, savers’ deposits have increased by 28% to about £4.5 billion.

Still small fry, but dangerous for bankers to underestimate Tesco's banking potential. The target market is Tesco’s supermarket customers. The stores get 20m visitors a week and there are 15m people in the UK with a Clubcard loyalty card…..

However, there are cautions here for suppliers in food and non-food categories.

Tesco are now competing with traditional bankers that have never had to compete, in a category that is more profitable and exciting than traditional grocery categories. Tesco's other key focus is upon overseas development.

This means that UK suppliers now need to analyse and demonstrate the financial impact of their brands on retailer profitability, in order to grab and hold a share of Tesco's mind-space…more than ever before, and fast.

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