Tesco PLC's Balance Sheet Re-set: why selling South Korea may not be enough

Following today's confirmation of the sale of its South Korean operation to MBK Partners, and according to The Motley Fool, Tesco is now in the final stages of its asset sell-off aimed at reducing its adjusted net debt of £8.5bn by the £5bn Moody’s rating agency believes is necessary to meet stock-market expectations.

Ideally, asset sales will yield: 
- South Korea £4.2bn
- Dunnhumby between £700k and £1bn

Given global stock-market uncertainties it is possible that these sales may not yield sufficient sums, in which case Tesco will have to resort to seeking more cuts within the business and/or attempt a Rights Issue to raise cash.

Rights Issue Risks
Whilst the latest share price is a daily reminder of stock market opinion re Tesco’s potential, actually asking shareholders to invest more in a falling share price - via a Rights Issue - would not only cause investors (and analysts) to take a really fundamental view of Tesco’s prospects of a successful turnaround in terms of re-balancing the business, but also question the retailer's ability to regain market share in a flat-demand market, re-assess their competitive edge vs. available alternatives and question their ability to compete with newer retail players.

And this apart from a Rights Issue yielding less as their share price falls in the current stock-market turmoil…

This leaves further cost-cutting in the business, a possible re-set of the product re-set, and a more aggressive approach to selling off redundant space, at any price…with no sign of a fat lady singer anywhere…

Germany moves towards credit card usage in retail - at a price!

                                                                                   Pic: Brian Moore - Berlin tourist shop 30-08-2015

Cashback cull: Tesco halves Clubcard points for 2.8m credit card holders

According to The Telegraph, EU rule changes on the fees paid by retailers accepting payments via Third Party credit cards has been halved to 0.3% of purchases to reduce shelf prices.

In practice, credit card owners like Tesco either have to reduce the reward points on usage of their card in non-Tesco outlets, or absorb the losses on such deals.

Tesco have decided to reduce the rewards from £1 per £400 spend (0.25%) to £1 per £800 spend (0.125%), whilst retaining the £1/£400 spend in Tesco stores. 

In practice, being a lead player, other retailers will follow Tesco, and savvy shoppers will probably switch to a more rewarding card for their non-Tesco purchases. This means that the viability of retailer credit-card schemes built on the assumption of access to the entire market, will become less profitable and/or will result in additional charges/points reduction to claw back losses...

However, the real downside is that any attempt at detailed explanation will only heighten consumer awareness of the miniscule rewards available via credit-card and loyalty schemes, with questions asked re what costs are involved and how much is distributed via rewards, in an increasingly suspicious mode on the part of consumers, especially those returning from their first holiday trip refusals to show boarding cards at checkout...  

Contexting global stock markets - mapped by size of market cap.

Helps explain who talks vs. who listens…?
More here

A Get-away weekend for NAMs?

Tesco setting a new KPI in fine wine appreciation?

The Guardian’s report on the retailer’s decision to close the Tesco Wine Community website on 28 August, and the slimming down of its in-store and online wine range are all part of chief executive Dave Lewis’s re-set quest to reduce the overall product range.

The key issue for suppliers is how these moves by the UK’s biggest wine retailer will impact alcoholic drinks’ off-trade sales, particularly as the website focused on blending wine-loving customers with other experts and wine-bloggers. 

Therefore, the resulting vocal response should come as no surprise as disappointed members urge more enlightened retailers like Lidl to leap into the gap…

Think also of the tell-a-friend implications resulting from alienation of this special-interest network…

Seriously, whilst Tesco’s current priority has to be profit performance, its buyer-led drive to educate UK palates to more subtle appreciation of what really matters in wine selection may result in unintended consequences in terms of how discerning shoppers view the retailer's other post-cull categories… 

Boarding passes - still a storm in a glass tea-cup?

Any airport operators and retailers in any doubt as to the depth of consumer feeling need only read the comments-section of the many news reports that continue to cover the issue. Unfortunately for airport retailers, it does not stop at the checkout... 

This tip-of-iceberg boarding pass issue is now causing savvy consumers to bring their normal high street shopping behaviours into the airport. In other words, when mobile phones might have been left off as part of the pre-holiday wind-down process, price-comparison apps are being consulted to reveal price-gaps that are even wider than the ‘same as high street prices’ assurances being issued by airport  retailers, as the issue escalates...

More importantly, with plenty of time to spare, airport travellers are able to indulge themselves in texting their feelings to friends. In practice this means applying the tell-a-friend rule: If a brand exceeds my expectations, I tell one friend, if short-changed, I tell ten friends... 

Then think plane-loads of passengers continuing to spread the word at destination airports currently unaffected by this uniquely UK issue... 

In other words, what was meant to be a shop-window for leading-edge retailers and brands is morphing into an outlet for pent-up frustration by vocal savvy passengers that fall out with the staff and vote with their feet...

Meanwhile, suppliers have to ask whether their brands’ presence in airport shops, and possibly the innocent target of consumer anger, is worth the damage, cost and growing inconvenience of travelling by air... 

Morrisons sale of C-Store Chain - a phoenix chicken under new ownership?

Details are obviously sparse at this stage, but logically, at breakeven on sales of say £300m, it is probable that the 160-outlet chain will change hands for no more than £250m - a financial relief for Morrisons, and an exciting convenience-challenge for the new owners.

The issue for suppliers has to be where the M local chain goes from here. 

Morrisons have already addressed the viability issue by selling off unprofitable outlets, but it is probable that some branches in high-rent areas will be prioritised in terms of driving footfall and basket-size to improve the bottom-line, before decisions are made re lease-forfeiture/closure, with attendant write-off costs.

The key will be to establish a consumer-franchise to capitalise on small, local and more frequent shopping. This means that, having refined the formula, the focus will be on extending into neighbourhood areas, ideally with lower rentals and possibly going a franchise route…?

Either way, suppliers might usefully support a chain that will make an interesting 160-outlet investment-backed convenience chain customer firing on all cylinders, and possibly even realise a ground floor opportunity in what could become a significant player as it rises from the ashes of structural change in the grocery sector…