Decision time as supermarkets prepare to rob banks’ business

George Pitcher is chief executive of issue management consultancy Luther Pendragon

It’s fun to have a love/hate relationship with the supermarkets. I love their ability to build dinner parties in my head without me having to think about it. I love the lack of pomposity (and price) with which they sell me claret. But I hate being a pinball in a gondola machine. And I hate being patronised by price wars that promise cut-throat competition, but deliver only me and my wallet to check-outs with the same basket of vital but non-sale produce.

As an observer of the business of supermarkets, it’s reassuring to note that they have their own love/hate relationships. We know all about their tempestuous tiffs with the suppliers of big brand names. On the whole, it has been good spectator sport and in the best interests of consumerism (who gives a tuppenny wrapper whether Kelloggs doesn’t make cornflakes for anyone else?).

More recently, they have upset the comfortable world of petrol retailing by building their own forecourts on their ample car-parks. Innovative motor retailer Daewoo has even stuck showrooms on a supermarket – which I feel unable to name without charging an advertising fee.

Now, however, we are witnessing the distressing scene of supermarkets falling in and out of love with banks. Or, more particularly, Tesco abandoning NatWest at the altar and running off with the Royal Bank of Scotland.

Tesco is to be taken seriously in all that it does, not just as a matter of fashion but also in the context of its history. Recently, it has knocked Sainsbury’s into a cocked hat in terms of marketing initiative and application. Historically, it should not be forgotten that its founding father, Jack Cohen, saw off retail price maintenance, which through its state-recognised acronym (RPM) was granted a respectability it did not deserve, not to mention a mandate to rip off the British shopping public.

These days, Tesco is presided over by Lord (formerly Sir Ian, formerly Ian) MacLaurin, who is fond of appearing in Sunday-for-Monday photo opportunities at checkouts brandishing convenient pieces of plastic card. It would appear that this good peer of the realm is finding it harder to be a people’s champion in financial services than he has been in providing financial reward for loyalty.

The merger of grocery retailing with financial services is frankly rather more logical at first sight than with petrol and motor cars. But, sadly for consumers, competition is a fickle friend. While it was all right for the supermarkets to compete with petrol retailers, and fine for NatWest to support Tesco’s launch of its Clubcard Plus debit card, it became impossible for the bank to countenance assisting the grocery behemoth into a wider range of financial services.

Why neither Tesco nor NatWest saw that this was the way the relationship was bound to go beggars belief. No-one enters the banking market these days with the expectation of prospering – or even surviving – through a limited range of credit account facilities. The customer expects to see a full range of pensions, insurance and equities products. There really is no reason to suppose that retailers as innovative in prospect and iconoclastic in tradition as Tesco won’t harbour ambitions in such markets.

The very fact that Tesco has transferred its affections to Royal Bank of Scotland would appear to prove the point. The provision of financial services through better-organised outlets than the high street banks will happen. It is simply a question of which banks choose to capitalise on the process and which choose to fight it out.

To date, Barclays and Lloyds TSB have chosen to spurn the grocers, and they have now been joined by an apparently chastened NatWest. Meanwhile, Bank of Scotland has linked with Sainsbury’s, Abbey National with Safeway and now Royal Bank of Scotland has jumped into the place vacated by NatWest.

This has, in the short term, much to do with market share. Those with grocery links have the smaller and more regionally oriented networks. The likes of Barclays, NatWest and Lloyds have national branding that would suffer should it be delivered into the nation’s shopping baskets.

The problem here is that the nationwide (if I may call them that) banks are nothing more nor less in this scenario than brand names up against the own-brand strength of the supermarket chains. And we know how tough brand manufacturers have found life when the supermarket chains have turned the pressure on.

While it is true that it is harder to be a seller of financial services than a purveyor of the proverbial can of beans, it is nevertheless the case that an increasingly deregulated environment allows a different breed of business into the banking world. It should also be said that the track record of financial services regulation in recent years has done nothing to bolster the case of those who believe financial services should be confined to the traditional banks.

By the same token, there is no earthly reason why the banks should shoot themselves in the backside by helping the grocers to rob them. So there is only one irresistible conclusion: either the banks must sharpen their own marketing acts, thereby emulating the grocers, or join said grocers. The battle lines are drawn. If the big banks don’t make up their minds soon, their smaller rivals won’t be so small for long.

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