WEDNESDAY, NOVEMBER 12, 2014 BUSINESS Changing UK shopping habits help suppliers LONDON: Changes in British shopping habits have forced suppliers of goods such as ice-cream and soap to adapt, strengthening their hand in negotiations with supermarkets battling for lost sales. Consumers are turning away from the four major chains to save money at discounters or treat themselves at upmarket shops, reducing suppliers’ dependence on any one customer. More accurate forecasting and faster manufacturing also means they can offer alternatives to straight discounts, such as exclusive products or packages. “There are many things that lead toward the same conclusion: consumer packaged goods manufacturers being in less of a corner during negotiations,” said Fabio Vacirca, managing director of Accenture’s consumer goods practice. The big four-Tesco, Asda, Sainsbury and Morrisons-still control 73 percent of UK grocery turnover but discounters such as Aldi and Lidl, e-commerce sites like Ocado and higher-end stores like Marks and Spencer and Waitrose are gaining ground. Smaller packs Unilever says it keeps margins with discounters, which account for over a billion euros of turnover, in line with its overall business by supplying packs that can sell for 1 pound such as a smaller Cornetto ice cream or larger value packs such as Surf detergent for 90 washes. “Rather than see them as the enemy, it’s part of our business,” said Unilever Chief Financial Officer Jean-Marc Huet recently. PZ Cussons, maker of Imperial Leather body wash, gets about half of its UK sales from the big four, down from 90 percent five years ago, as it expanded to stores such as Poundland. “You have to be very nimble,” said CFO Brandon Leigh. “That’s suiting us.” “We can put a new request in to our manufacturing team this week and the product can come out next week,” he said, thanks to a factory that runs so close to real-time it only holds four hours’ worth of raw materials. Imperial Leather’s “classic” range has fewer moisturizers than its “signature” range so can be sold at a discount price without undermining pricing at the major chains. “The pack sold in Lidl isn’t the same pack that’s sold in Tesco,” said Will Hayllar, co-leader of OC&C Strategy Consultants’ consumer goods team. Tiering may become more common, especially in retailers’ own labels, if more major chains match prices of the dis- counters, as Morrisons has effectively done. “They won’t match a box of Kellogg’s Corn Flakes with an Aldi price,” said Investec analyst Nicola Mallard. “Maybe with their own label they might do, but it can’t ever just go across the piece that we have everything selling at a discount price.” Premier Foods avoids brand dilution by selling Bisto gravy and Ambrosia rice pudding at major grocers and Paxo gravy and Bird’s rice pudding at discounters. “We’ve got the flexibility to use our support brands ... to offer bespoke products to discounters,” said Premier’s corporate affairs director, Richard Johnson. All eyes on Tesco Tesco, the market leader, is known for pushing suppliers but has seen its negotiating power crimped by shrinking market share. Analysts say Tesco, facing an accounting scandal, could put through another round of price cuts that would make a pressurized situation even worse. “We might have a reputation somewhere of being a little too aggressive and maybe not recognizing that we’re not growing the way that we did,” said Tesco’s new boss Dave Lewis recently. Tesco can fund discounts itself, but analysts expect it to lean on suppliers. But they “can now be a lot more scientific about whether they will or will not comply,” said Ken Harris of Cadent Consulting Group in Chicago, due to advances in data-tracking and technology that detail the financial implications of promotions. Fear of being taken off shelves has ensured the compliance of small- and medium-sized companies, especially private or familyrun firms that supply retailers’ own brands with staples such as fresh produce. Many already run near recordlow margins. “Some are rabbits in headlights still,” said Duncan Swift, head of Moore Stephens’ food advisory group. “But the more informed ones with knowledge and confidence are being brave enough to say ‘we can’t go beyond this point’.” Pushing too hard for discounts could also turn savvy shoppers off, especially after last year’s horse meat scandal. “You can always get a cheaper deal but that cheaper deal often involves lower quality,” said Investec’s Mallard. “No one’s going to buy a 69 p box of 25 burgers anymore because they’re going to question what’s in them.” —Reuters Ireland’s FBD issues fresh profit warning DUBLIN: Irish general insurer FBD Holdings Plc issued its second claims-driven profit warning in six months yesterday, saying it could face a fullyear loss and sending its shares tumbling 25 percent. FBD cut its full-year guidance range to an operating loss per share of zero to 10 euro cents from a profit of 70 to 80 cents that it expected in August, which was in turn just half the level it had forecast in March. Shares in the group, which posted an operating profit per share of 136 euro cents in 2013, fell to 10.80 euros ($13.40) by 1117 GMT, near their lowest level in almost two years. Its latest claims included an above average level of large claims. It also cut its earnings guidance for the fourth quarter by 10 million euros, citing the recent “unprecedented volatility in claims costs”. “The claims environment in recent months has been far more challenging than expected,” the Dublin-based firm said in a trading update. “Following a detailed review, there is no reason to believe that this development is systemic or that the experience will recur in future periods,” it added. It said the board’s dividend policy would remain unchanged and that the growth in economic activity in Ireland, which is expected to be the fastest growing economy in Europe over the next three years, would help the company in the medium term. The Irish insurance market grew for the first time since 2003 in the first nine months of the year, and FBD’s gross premium level written to date is up 4 percent year on year, marginally increasing its market share, the company said. Davy Stockbrokers said that given the unprecedented level of claims volatility and a lack of visibility, it was revising its rating of FBD to ‘underperform’ from ‘neutral’. Merrion Stockbrokers said the latest news might further undermine credibility in the FBD investment case, which could take some time to be restored. — Reuters UK caps interest on payday loans LONDON: Interest charged on loans offered by payday lenders in Britain will be capped from January to cut the cost of short-term loans criticized for causing misery among borrowers, the country’s financial watchdog said yesterday. Payday lenders offer to tide borrowers over until they receive their salary, and antipoverty campaigners say the sector has grown sharply in recent years as the cost of living rises and some people struggle to have access to credit. Loans will be capped at 0.8 percent a day, equating to an annual rate limit of 292 percent. Britain’s biggest short-term lender Wonga, says on its website that its representative annual interest rate is 5,853 percent. “People using payday lenders and other providers of high-cost short-term credit will see the cost of borrowing fall and will never have to pay back more than double what they originally borrowed,” the Financial Conduct Authority (FCA) said. Default fees will be capped at 15 pounds ($24), the watchdog said. “For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts,” FCA Chief Executive Martin Wheatley said. “For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.” The FCA has estimated that lenders will lose about 42 percent of their revenue, or 420 million pounds per year, because of the new rules. But some payday lenders warn privately the restrictions could force some companies out of business and push borrowers into the hands of back-street loan sharks. The new rules are in line with proposals the FCA put out to public consultation in July and will be reviewed in 2017. “This is all part of our long-term economic plan to have a banking system that works for hardworking people and make sure some of the absolutely outrageous fees and unacceptable practices are dealt with,” said British finance minister George Osborne. —Reuters GUANGDONG: Soldiers walk to a Gulfstream G650ER business aircraft at the Airshow China 2014 in Zhuhai, south China’s Guangdong province yesterday. Global aviation firms flocked to China yesterday to show off their wares as economic development and an expanding middle class promise a bonanza in one of the world’s fastest-growing aircraft markets. — AFP Global aviation firms flock to China’s fast-growing market China will need 6,020 new airplanes over next 20 years ZHUHAI: Global aviation firms flocked to China yesterday to show off their wares as economic development and an expanding middle class promise a bonanza in one of the world’s fastestgrowing aircraft markets. Chinese defense companies and the People’s Liberation Army’s air force are also putting the latest weaponry on parade at the country’s premier Zhuhai airshow this week, including the new J-31 stealth fighter and its biggest-ever military transport plane. For foreign companies, the airshow offers a chance to tap a market in which air travel grew by an annual 11 percent last year to 350 million passengers-a gold mine for plane makers such as Europe’s Airbus and Boeing of the United States. “China will become the world number one aviation market,” Airbus China President and Chief Executive Officer Eric Chen told a news conference. Just days before the show, Airbus announced a $10 billion deal for China Aircraft Leasing Co. to buy 100 planes from its A320 family. Crowds gathered to take photos with the dou- ble-decker A380 superjumbo, which Airbus is showing off at the show. The company says Chinese deliveries already represent 25 percent of its global production. US rival Boeing forecasts China will need a total 6,020 new airplanes valued at $870 billion over the next 20 years. “That’s a lot,” Kent Fisher, vice president for supplier management of Boeing Commercial Airplanes, told a signing ceremony at which the company announced China’s AVIC would produce tips for the vertical fin and horizontal stabiliser of its 777. Problems Despite the optimism, industry officials see problems in the short-term: a slowdown in the economy, strict controls on airspace and a corruption crackdown. China’s economic growth-which has a direct correlation with air traffic eased to 7.3 percent in July-September, the lowest since the depths of the global crisis in early 2009. “The Chinese economy has been slowing, it has been impacting the development of the civil aviation industry,” said Chen of Airbus. But he added: “A growth rate of six or seven percent, compared to the other parts of the world, is still very impressive.” Massive flight delays across the country in July, blamed on military exercises, cast the spotlight on another problem-controls on airspace that leave only 20 percent of China’s skies open to civil flights. “It’s so important for China to fix their air traffic management issues because it’s starting to have economic impact,” Briand Greer, president of aerospace for Asia-Pacific at US conglomerate Honeywell, told AFP. A crackdown on corruption launched by China’s leader Xi Jinping after he came to power in late 2012 has also hit the aviation market. Government officials stopped flying higher classes, prompting two Chinese airlines to cut or remove first-class seats. The graft crackdown has also affected the small but growing market for private jets in China, where owning an aircraft is often viewed as a needless luxury. — AFP Gold steadies as 2% slide prompts buyers KUALA LUMPUR: People play chess on a street in Kuala Lumpur yesterday. Malaysia’s premier said Monday his government would continue to make unpopular cuts to subsidies that have kept prices of key consumer items in check but which have helped fuel worryingly high levels of debt in Southeast Asia’s third-largest economy. — AFP Turkey’s Bank Asya falls to Q3 loss ISTANBUL: Turkey’s Bank Asya yesterday posted a third-quarter net loss on loan provisions and a shrinking balance sheet but said its operations were healthy despite political turmoil that has surrounded it for much of the year. The Islamic lender fell to a 301 million lira ($133 million) net loss from a 60 million lira profit a year earlier, it said in a stock exchange filing. Assets of 16.5 billion lira at the end of the third quarter were down 40 percent from the end of 2013, while deposits almost halved to 10.07 billion over the same period. “ The bank continued its operations healthily with a 2.2 billion lira equity capital and capital adequacy ratio of 18.32 percent, despite a 9-month loss due to higher loan provisions as part of efforts to increase asset quality,” Chief Executive Ahmet Beyaz said in a statement. That was up from 17.35 percent as of end of June and one of the highest in the industry. The Turkish banking sector’s average capital adequacy ratio stands at around 16 per- cent. Bank Asya, which has more than one million deposit-holding customers and 282 branches, has been caught in a power struggle between President Tayyip Erdogan and Fethullah Gulen, an Islamic cleric whose sympathizers founded the bank. Erdogan has accused Gulen - now based in the United States - of seeking to overthrow him by staging a corruption scandal and has pledged to purge institutions such as the police and judiciary of his supporters. Gulen, via his official websites, denied any involvement. Seeking to show loyalty to Erdogan, depositors including state-owned firms and institutions this year withdrew 4 billion lira ($1.75 billion), or some 20 percent of Bank Asya’s total deposits, according to media reports. The bank has declined to comment on those figures. Loyal clients have been battling to shore up the lender against what they say is a government-orchestrated bid to scuttle it, selling everything from their sofas to their wedding rings. — Reuters LONDON: Gold steadied near $1,150 an ounce yesterday as demand for physical metal picked up after the previous day’s 2 percent slide, though prices remain under pressure from gains in the dollar and stocks. Buying of physical metal gathered pace in major consumer China yesterday, traders said, supporting prices after dollar strength pushed them sharply lower in the previous session. Spot gold was flat at $1,150.45 an ounce at 1021 GMT, while US gold futures for December delivery were down $9.90 an ounce at $1,149.90. The metal slid to a 4-1/2 year low at $1,131.85 an ounce last week, and is currently down 4.3 percent this year. “Retail demand is very strong since prices came off,” Heraeus trader Alexander Zumpfe said. “Overall, physical demand is lending some support - Asia is also showing steady buying interest, though not on extreme levels.” A 0.2 percent rise in the dollar index is keeping pressure on gold. A stronger dollar makes assets priced in the US unit more expensive for holders of other currencies. Appetite for other assets is also improving. European stocks rose, with investors bullish after Wall Street posted a fourth straight record close and Tokyo’s Nikkei hit a sevenyear high. Gold’s inability to retain Friday’s 3 percent jump suggests investors are selling into rallies, expecting more losses on the back of the US economic recovery, a robust dollar and expectations that the Federal Reserve will raise rates sooner rather than later. Gold could fall towards $800-$900 an ounce, a level not seen since the 2008/2009 financial crisis, as the metal is no longer seen as a decent portfolio diversifier, hedge fund Red Kite said on Monday. Holdings of the world’s largest goldbacked exchange-traded fund, SPDR Gold Trust, fell 1.8 tons on Monday to 725.36 tons, a six-year low. The fund has seen outflows of 15.8 tons so far this month. Silver was down 0.3 percent at $15.51 an ounce. Spot platinum was down 0.2 percent at $1,190.24 an ounce, while spot palladium was down 0.2 percent at $757.35 an ounce. — Reuters TOKYO: IBM Corporation Chairman Virginia Rometty delivers a speech at the 16th Nikkei Global Management Forum in Tokyo yesterday. Rometty spoke on the session titled “Reinvent Your Company” during a two-day business forum. — AFP