SAINSBURY’S was one of the first new entrants into banking 16 years ago when it set up its operations in Edinburgh in a joint venture with Bank of Scotland.
It is perhaps a sign of the times that the supermarket group has followed Tesco in buying out its banking partner to go it alone.
But can the grocery giants really compete against the high street banks? To a degree, yes, but partly because their products are underwritten by existing financial services companies. They are targeting specific customers, essentially those who already use their stores, and they’re yet to offer a full range of products, so growth expectations should be kept in perspective.
Tesco continually delayed launching a mortgage, arguing that it wanted to get it right. But chief executive Benny Higgins also insists it cannot really call itself a bank until it launches current accounts and that will have to wait until next year.
Sainsbury’s, it has to be said, has been less vocal than its near neighbour, its 300 staff at Edinburgh’s Gyle business park dealing with a modest portfolio of branded savings, credit cards, loans and insurance products backed by established companies such as Axa, Direct Line and Legal & General.
But the supermarkets have made some inroads. Tesco has 6.5 million customer accounts, Sainsbury’s 1.5 million, and the latter says that one in 20 of its supermarket shoppers holds one of its financial products. Furthermore, once they’ve bought one they tend to become more loyal.
While the ambition of the group is to cross-sell to its grocery shoppers, it clearly wants to ramp up its operations significantly. It is injecting £100 million into maintaining its reserves and has hired former Barclays UK boss Roger Davis as non-executive chairman to lead a new board.
Supermarket banking is partly about leveraging big brands and developing new income channels away from a mature grocery sector. Group chief executive Justin King talks about it becoming an “important source of profit diversification and growth”.
But it is likely to remain on a modest scale for the forseeable future. Sainsbury’s Bank has delivered five consecutive years of profit growth, but its £59m pre-tax earnings for last year pales against HSBC’s £5.4 billion for the first three months alone.
Ferguson scores highly on and off the field
RARELY does the resignation of a football manager simultaneously dominate the news, sport and business headlines. But Sir Alex Ferguson is no ordinary manager.
Being a long-serving, exceptionally successful leader has also made him fabulously wealthy. He also plays a pivotal role in a company which joined the Nasdaq stock exchange last August where it is valued at just under £2 billion.
Ferguson can claim to have been the key driver of growth. Turnover has risen from £25.2m when he joined the club in 1986 to £320.3m last year. The club recently signed a world record £357m shirt sponsorship deal with Chevrolet over seven years.
But this is also about successful teams off the field as well as on. Ferguson enjoyed a close relationship with chief executive David Gill in building United’s commercial capability and ensuring it was able to sign top talent.
Gill said earlier this year he would leave the club in the summer, which prompted more speculation that Ferguson would follow him.