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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: Tesco’s move into coffee shops. Germany’s export challenge. So what about the BRICs? EU unemployment. That coin 

Tesco’s move into coffee shops

Take a gander around the web site of Harris and Hoole.   Looks good doesn’t it?  A bit quirky true, but you can practically smell the coffee, and there is this real whiff of independence about the whole thing. There are the founders on the web site – the Tolley family, who are three siblings.

It is just that 49 per cent of the company is owned by Tesco. And this is not obvious – not from a cursory look at the site it isn’t, anyway.

So what? You might ask. And indeed, there is another way of looking at it. 51 per cent of the company is still independent. Companies need investors, and there is nothing wrong with having Tesco as your investor.

It is just that not all customers appreciate it. They like their coffee shops to be truly independent, and there is this feeling that the company is not being transparent about its tie with Tesco.

Tesco’s CEO Philip Clarke has been defending his company’s investment. “Some people,” said Mr Clarke, “have asked why it’s not branded Tesco. The H+H brand is part of its value – its distinctiveness and appeal. It’s the Tolley’s business, their brand. Our investment helps them to take it further.” He continued: “So what’s in it for Tesco? I’ve talked a lot about loving the stores we have, making them an appealing destination for customers to come. Dobbies, another Tesco business, does this brilliantly with coffee shops which customers travel to just for the scones. When the Tolleys are ready, we will put them into some of our stores. They will have proved that their brand and their offer work, that customers like it and it will be another reason for customers to shop with us.”

Frankly, the story about the coffee shop’s independence may be a bit of a storm in an Earl Grey tea pot. Good luck to the Tolleys for pulling in such a powerful investor.

But here is another way of looking at it.

When did you last eat at a Tesco café? Did you spot Gregg Wallace and Michel Roux Jr trying to find the next contestant for Professional MasterChef?  It seems unlikely.  What is more likely is that you regretted the whole thing, and vowed never to eat there again.

The truth is that supermarkets are not usually good at cafés. Maybe their mistake is to try to invent a wheel which capitalism has already perfected.

Maybe Tesco could learn a lesson from Waterstones. Not in selling in books, but rather the way the bookshop licences out some of its space to coffee shops such as Costa Coffee. Now there is a coffee shop that has its act together.

Moving forward, if Tesco has any sense it will outsource space it currently uses as a café to an organisation with a bit more proven expertise, and indeed cache. Maybe the company Tesco outsources to should be Harris + Hoole. But Tesco would be making a mistake if, by investing in this company, it refuses to countenance working with other well-known café/coffee shop chains too.

Tesco is good at selling groceries. And if it has any sense it will focus on its key USP and expand overseas.  But it is not good at cafes’.  It would be better off if it remembered that.

Germany’s export challenge

The latest data was not so good, but Germany’s bulls are still out in force.

Data out yesterday from Germany’s Federal Statistics Office showed that the country’s exports fell 3.4 per cent in November, after rising just 0.2 per cent in October and slumping 2.4 per cent in September. Exports in the latest three months were down 2.0 per cent on the previous three month period. This represents the steepest quarterly rate of decline since June 2009.

Exports to the Eurozone were down 5.7 per cent. Exports outside the euro area were up 5.6 per cent.

And it is this mismatch between exports to fellow euro countries compared with those further afield, which provides the ammunition for the bulls.

This is how ‘Spiegel’ put it: “Exports, a traditional strength of the German economy, are on course to hit new records in both 2012 and 2013 thanks to strong demand for the “Made in Germany” brand outside crisis-hit Europe, official data released on Tuesday showed.” See: German Exports Seen Hitting New Record in 2012 

Alas, Chris Williamson, Chief Economist at Markit, said: “Until demand revives in the Eurozone it is likely that German manufacturing will continue to struggle and act as a dampener on German economic growth. German GDP rose 0.2 per cent in the third quarter but it is likely that a mild contraction will have occurred in the fourth quarter.”

Then again, he added: “However, with the all-sector PMI returning to near 50 in December, the economy is showing signs of stabilising again and renewed, albeit subdued, growth may be seen in the first quarter.”

So what about the BRICs?

As you know relief has been rippling its way across markets with news that China is back and the US has avoided the fate of falling off a fiscal cliff.

Then again, as you also know, politicians in the US are hell bent on ruining any prospects of economic recovery. But what about China and the rest of the emerging markets?

Capital Economics doesn’t share the general feeling of euphoria. It fears that emerging nations will struggle this year, thanks to its reliance on exporting to the troubled Euro area and predicts that “China’s recovery will peter out later this year.” Its forecast for 2013 is that emerging economies will expand by 4.5 per cent roughly the same as in 2012 (5 per cent).

Looking to the medium term it stated: “In China and India officials are struggling to push through the next wave of policy reform needed to sustain rapid growth. A new leadership in China has yet to announce any concrete steps to steer the economy away from its reliance on investment. In India, the package of reforms announced in late 2012 has raised hopes of a new approach, but these look likely to founder in the face of political opposition.

“Elsewhere, Brazil is reaching the limits of its consumption-led growth model. Growth over the next decade will need to be driven more by investment, but this will require difficult structural reforms. The same is true of Russia. In both countries, commodity prices are unlikely to provide the same prop to spending as they have done over the past decade.”

So what, as it were, is the bottom line? Capital Economics forecasts that growth in the BRICs will be slower over the next five years, compared with the period since 2005.

EU unemployment

It was told here yesterday how European Commission President José Manuel Barroso said the “Existential threat against the euro has essentially been overcome.”

Well, when those comments are seen in the context of the latest data on EU unemployment, alas, Mr Barroso’s words really do beggar belief.

Eurostat estimates that 26.061 million men and women in the EU27, of whom 18.820 million were in the euro area, were unemployed in November 2012. Compared with October 2012, the number of persons unemployed increased by 154,000 in the EU27 and by 113,000 in the euro area. Compared with November 2011, unemployment rose by 2.012 million in the EU27 and by 2.015 million in the euro area.

Let’s put it another way. Across the euro area, unemployment rose by just over 2 million in the year to November. The data also implies unemployment fell in those parts of the EU not in the Euro area.

In Spain unemployment was 26.6 per cent. In Greece it was 26.0 per cent. Those two countries were by far the worst. Countries with unemployment in excess of 10 per cent shown in order (with the countries with the highest unemployment first) were: Portugal, Ireland, Slovakia, Latvia, Cyprus, Lithuania, Bulgaria, Italy, Hungary, Poland, and France.

The UK was just over two thirds of the way down the list.

The country with lowest unemployment was Austria, followed by Luxembourg, Germany, the Netherlands, Romania, Malta, Belgium, the Czech Republic, and then the UK.

Worse than the UK but with unemployment less than 10 per cent were Denmark, Finland, Sweden, Estonia and Slovenia.

Of the big economies: unemployment was 5.4 per cent in Germany, 7.8 per cent in the UK, 10.5 per cent in France, and 11.1 per cent In Italy.

That coin

That trillion dollar coin is still in the news.

Here are a couple of points that were not covered here yesterday.

Defenders of the idea that the US government should mint a trillion dollar coin say ‘yes the idea does seem a bit mad’, but they argue that it would be even more mad if we see another two months of protracted talks with some not entirely satisfactory agreement stitched together at five to midnight on the day of the deadline.

Paul Krugman has suggested that the Fed would probably buy back the equivalent amount in US treasury bills, which would effectively nullify the monetary impact of the move.

 

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.


Showing 3 comments

  1. Michael
    My local Tescos Extra already has a Costa.

  2. So hasmine

  3. My small High Street has 35 eating houses,cafe’s,restuarants.pub grub etc and of course one of the secret Tesco outlets.The staff were friendley and informative on the secrets of coffee making and spent some time enthusing on the subject.I had to ask them to wipe down the table top though. A bit like my kids really. I will go again . Ray Dixon
    Ps I do hold some Tesco shares so my glasses could be rose tinted?
    ]

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