Supermarkets find move into banking difficult

March 18, 2014 11:02 pm
Supermarkets find move into banking difficult
By Emma Dunkley
It’s not just the grocery market facing troubles, as supermarkets trying to establish retail banks are finding out.
Sainsbury’s, which has reported its first fall in sales for nine years, was the inaugural retailer to launch a bank in the UK, as part of a joint venture with the Bank of Scotland, now Lloyds Banking Group.

But retailers leveraging off a big brand in the grocery market have found this does not necessarily translate into being a household banking name.
“There’s a lot of loyalty in banking; people are not prepared to switch banks as there’s a lot of apathy, even when customers are not satisfied,” said Neil Saunders, retail analyst at Conlumino. “The problem for Sainsbury’s is in terms of growth and getting customers.”
In its last interim statement in November, Sainsbury’s said the bank’s profit was flat year-on-year, in what remained a “challenging” marketplace. The supermarket’s share of the bank’s post-tax profit was £12m for the half-year, in line with the previous year.
Sainsbury’s said the bank had maintained profitability levels despite “extremely” high competition and a low interest rate environment.
On top of this, Sainsbury’s has “double running” costs after buying out the Lloyds stake this year. Sainsbury’s accrued costs of £17m in the 28 weeks to September as part of the purchase of the stake and expects related costs for the second half of last year to reach £25m.
But although ending the joint venture frees up Sainsbury’s to expand its bank, which outgoing chief executive Justin King sees as “an important source of profit diversification”, the retailer’s model has yet to prove a success.
Tesco Bank, another big supermarket in this field, was perceived as a threat to high street banks after it bought out the Royal Bank of Scotland’s 50 per cent stake in 2008. Indeed, antipathy towards high street banks during the financial crisis was thought to create a favourable environment for trusted supermarket brands.
However, it is only in the past 18 months that Tesco bank has geared up to launch mainstream products such as mortgages, with current accounts set for release this year.
And the Co-operative Group, whose chief executive Euan Sutherland resigned in early March, has seen its bank engulfed by controversy and failed takeovers.
Its talks to take over 600 Lloyds Bank branches fell through last year, and the bank’s chairman Reverend Paul Flowers was arrested on drugs allegations. The bank was also on the brink of collapse after finding a £1.5bn capital black hole, prompting a restructure plan.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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