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| Supermarket suppliers could win from the horsemeat scandal | Supermarket suppliers could win from the horsemeat scandal |
| (7 months later) | |
| One place where horsemeat has not been detected is supermarkets' share prices. These have barely moved, even as the story has developed from a cue for jokes on Twitter to a scandal about the safety of the European food chain. | One place where horsemeat has not been detected is supermarkets' share prices. These have barely moved, even as the story has developed from a cue for jokes on Twitter to a scandal about the safety of the European food chain. |
| The City's complacency is perhaps understandable. The job of analysts is to guess where profits and share prices are heading, especially in the short term. On that score, it's a safe bet that consumers will continue to shop in supermarkets; they may buy less processed meat but they do have to eat. Do not expect to see an immediate hit to sales or profits. | The City's complacency is perhaps understandable. The job of analysts is to guess where profits and share prices are heading, especially in the short term. On that score, it's a safe bet that consumers will continue to shop in supermarkets; they may buy less processed meat but they do have to eat. Do not expect to see an immediate hit to sales or profits. |
| But the long-term impact could be very different. It now looks as if the end of the road has been reached for supermarkets' "divide and rule" approach to their supply base. Tesco chief executive Phil Clarke in effect conceded as much on Friday as he ordered a review of how relationships with suppliers can be made "more transparent and collaborative". That's not quite an admission that too many of Tesco's relationships are obscure and hostile – but it's not far off. | But the long-term impact could be very different. It now looks as if the end of the road has been reached for supermarkets' "divide and rule" approach to their supply base. Tesco chief executive Phil Clarke in effect conceded as much on Friday as he ordered a review of how relationships with suppliers can be made "more transparent and collaborative". That's not quite an admission that too many of Tesco's relationships are obscure and hostile – but it's not far off. |
| The substitution of horsemeat for beef is, of course, fraud – and, in that regard, it's fair for supermarkets to portray themselves as victims. At the same time, however, criminal acts are more likely to succeed if meat is passed through multiple hands before it arrives on supermarket shelves. | The substitution of horsemeat for beef is, of course, fraud – and, in that regard, it's fair for supermarkets to portray themselves as victims. At the same time, however, criminal acts are more likely to succeed if meat is passed through multiple hands before it arrives on supermarket shelves. |
| That's the problem the retailers now have to confront. And, to judge from Downing Street's hostile comments about supermarket bosses' "unacceptable" silence, the government is not keen to shoulder much responsibility itself. For the big retailers, a bill will arrive in some form – and the impact of a subtle shift in pricing power back towards high-quality producers should not be underestimated. | That's the problem the retailers now have to confront. And, to judge from Downing Street's hostile comments about supermarket bosses' "unacceptable" silence, the government is not keen to shoulder much responsibility itself. For the big retailers, a bill will arrive in some form – and the impact of a subtle shift in pricing power back towards high-quality producers should not be underestimated. |
| Is Vodafone's dividend vulnerable? | Is Vodafone's dividend vulnerable? |
| It's not (yet) a deal or even an offer, but Vodafone's income-loving investors should be on red alert. A €10bn-ish purchase of Kabel Deutschland would be a chunky outlay for a company that was supposed to be showering its own shareholders with cash. It might also signal the moment when chief executive Vittorio Colao is obliged to spell out how much his new taste for cable assets could cost and how he intends to pay. | It's not (yet) a deal or even an offer, but Vodafone's income-loving investors should be on red alert. A €10bn-ish purchase of Kabel Deutschland would be a chunky outlay for a company that was supposed to be showering its own shareholders with cash. It might also signal the moment when chief executive Vittorio Colao is obliged to spell out how much his new taste for cable assets could cost and how he intends to pay. |
| Last year's cable deal was innocuous. At £1bn, Cable & Wireless Worldwide was small enough to get lost in the wash and Vodafone's timing was commendably opportunistic. Bidding for Germany's largest cable company, on the other hand, could only be considered "strategic," which normally implies a strategic problem. | Last year's cable deal was innocuous. At £1bn, Cable & Wireless Worldwide was small enough to get lost in the wash and Vodafone's timing was commendably opportunistic. Bidding for Germany's largest cable company, on the other hand, could only be considered "strategic," which normally implies a strategic problem. |
| It's not hard to guess its nature. In a joined-up digital world, a wireless-only phone operator such as Vodafone risks being under-equipped for battle. Exhibit A is the iPad, where many purchasers don't bother to install a 3G internet connection on their new gadget: they're happy instead to do their downloading at home on a cheaper all-you-can-eat wi-fi tariff. So the bumper returns Vodafone once expected from mobile data traffic may be threatened. | It's not hard to guess its nature. In a joined-up digital world, a wireless-only phone operator such as Vodafone risks being under-equipped for battle. Exhibit A is the iPad, where many purchasers don't bother to install a 3G internet connection on their new gadget: they're happy instead to do their downloading at home on a cheaper all-you-can-eat wi-fi tariff. So the bumper returns Vodafone once expected from mobile data traffic may be threatened. |
| Getting big in cable would relieve the headache. It's just that Colao has been vague about his ambitions. It will make sense in some markets to buy; sometimes it will be better to invest; sometimes leasing wholesale capacity will be the way to go. All options are open, then. | Getting big in cable would relieve the headache. It's just that Colao has been vague about his ambitions. It will make sense in some markets to buy; sometimes it will be better to invest; sometimes leasing wholesale capacity will be the way to go. All options are open, then. |
| Is the same true of the proceeds from Verizon Wireless? That's the worry among shareholders who have waited patiently to see this prized 45%-owned US asset produce dividends. There have been two crops so far. But the first time Vodafone gave its shareholders a special dividend; the second time it chose a share buy-back. Significant? Well, buy-backs can always be halted should a strategic need arise, say the doubters. | Is the same true of the proceeds from Verizon Wireless? That's the worry among shareholders who have waited patiently to see this prized 45%-owned US asset produce dividends. There have been two crops so far. But the first time Vodafone gave its shareholders a special dividend; the second time it chose a share buy-back. Significant? Well, buy-backs can always be halted should a strategic need arise, say the doubters. |
| In the meantime, the arithmetic on the ordinary dividend is tight. Ignoring Verizon, free cash flow should be £5.3bn this year. But the dividend costs £4.8bn. That's uncomfortable, especially given Vodafone's struggles in southern Europe. And if cable assets now have to be bought or secured, the numbers look even more challenging. Clarity, please, Mr Colao, your investors are getting nervous. A 6% dividend yield is a fine thing – but only if it is safe. | In the meantime, the arithmetic on the ordinary dividend is tight. Ignoring Verizon, free cash flow should be £5.3bn this year. But the dividend costs £4.8bn. That's uncomfortable, especially given Vodafone's struggles in southern Europe. And if cable assets now have to be bought or secured, the numbers look even more challenging. Clarity, please, Mr Colao, your investors are getting nervous. A 6% dividend yield is a fine thing – but only if it is safe. |
| Drinks deal languishes | Drinks deal languishes |
| The idea of a competition inquiry into our big banks has inexplicably failed to excite government ministers. Do not fear, though, the Office of Fair Trading has its finger on the pulse of the burning competition question: will drinkers of Irn Bru and Orangina be disadvantaged if the manufacturer, AG Barr, combines with Britvic, the Fruit Shoot folk? | The idea of a competition inquiry into our big banks has inexplicably failed to excite government ministers. Do not fear, though, the Office of Fair Trading has its finger on the pulse of the burning competition question: will drinkers of Irn Bru and Orangina be disadvantaged if the manufacturer, AG Barr, combines with Britvic, the Fruit Shoot folk? |
| Yes, this modest £1.4bn merger really was dispatched to the Competition Commission this week. The presence in the soft drinks market of Coca-Cola Enterprises and a battalion of supermarkets with vigorous own-label operations didn't impress the market purists at the OFT. Boffins at the commission will now spend up to six months exploring the interplay between Coke's Fanta, Britvic's Tango and Barr's Orangina. | Yes, this modest £1.4bn merger really was dispatched to the Competition Commission this week. The presence in the soft drinks market of Coca-Cola Enterprises and a battalion of supermarkets with vigorous own-label operations didn't impress the market purists at the OFT. Boffins at the commission will now spend up to six months exploring the interplay between Coke's Fanta, Britvic's Tango and Barr's Orangina. |
| What a waste of time. Coca-Cola Enterprises in Britain would still be twice the size of a Britvic/Barr combo, which is the statistic that ought to have killed the theorising. Indeed, the prosperity of Barr – the junior partner in the proposed deal but the one with greater dynamism – is something to celebrate. | What a waste of time. Coca-Cola Enterprises in Britain would still be twice the size of a Britvic/Barr combo, which is the statistic that ought to have killed the theorising. Indeed, the prosperity of Barr – the junior partner in the proposed deal but the one with greater dynamism – is something to celebrate. |
| In Scotland, Irn Bru gives Coke a run for its money. Most consumers, one suspects, would be happy for Barr's management to be given a chance to square up to the US giant across the UK armed with a bigger portfolio of brands. And, let's not forget, nobody is forced to consume any of these sticky products. | In Scotland, Irn Bru gives Coke a run for its money. Most consumers, one suspects, would be happy for Barr's management to be given a chance to square up to the US giant across the UK armed with a bigger portfolio of brands. And, let's not forget, nobody is forced to consume any of these sticky products. |
| The other hope was that a merged Britvic/Barr might be a mini-national champion, a company more capable of generating export revenues. Educating continentals in the subtleties of Irn Bru seemed a challenge and a half, but the combo ought to be allowed to try. After all, most soft drinks firms are multinationals these days. | The other hope was that a merged Britvic/Barr might be a mini-national champion, a company more capable of generating export revenues. Educating continentals in the subtleties of Irn Bru seemed a challenge and a half, but the combo ought to be allowed to try. After all, most soft drinks firms are multinationals these days. |
| But the deal has now lapsed, which is often a prelude to collapse. | But the deal has now lapsed, which is often a prelude to collapse. |
| "If this is government industrial policy, I'm going to take French lessons," reflected Gerald Corbett, chairman of Britvic. Fair comment, monsieur. | "If this is government industrial policy, I'm going to take French lessons," reflected Gerald Corbett, chairman of Britvic. Fair comment, monsieur. |
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