The acquisition of Royal Bank of Scotland’s 50 per cent stake looked partly opportunistic, taking advantage of the mayhem visited on the banking sector. But the real interest lies not just in the possibility of Tesco current accounts, but in what it says about Tesco and its outlook.
First, the deal is a reminder of Tesco’s power. The total now shelled out by the grocer on big acquisitions since May, when it bought 36 Homever stores in Korea, is almost£2 billion.
While so many other retailers have flailed around in difficult conditions, it’s been business as usual for Tesco. The retailer is now likely to carry debt of about£8 billion by the year-end, but investors are not unduly worried, such is the esteem in which it is held.
Second, the deal is a reminder of a worrying trend for retailers. As Leahy pointed out on Tuesday, “services are bigger and faster growing markets than food”. Many retailers, such as John Lewis and Marks & Spencer, have also developed service businesses – but many have not, or have had limited success. In the long term, those without complementary services may find life increasingly tough.
Third, Tesco’s push into finance is evidence of the fundamental strength of its strategy. The retailer has plugged away at just four things – its core UK stores business, international growth, an increased non-food presence and retailing services, which also include ventures such as online.
It’s an incredibly simple strategy, but the grocer has displayed endless imagination in how it has addressed each component. Tesco has been able to claim countless firsts along the way, but has rarely forgotten its mantra of customer focus and value for money.
The final intriguing aspect of the deal is Andy Higginson’s changed role. The veteran finance director will take up the new post of chief executive of retailing services. That’s a sign both of the growing importance of services, from which Tesco intends eventually to achieve profits of£1 billion compared with£400 million now, and perhaps an insight into Tesco’s succession politics.
The grocer’s US boss, Tim Mason, has ruled himself out from taking over from Leahy. Higginson hasn’t yet. Are his new responsibilities a stepping stone to becoming group chief or, like Mason’s, the summit of a great retail career?
George MacDonald is deputy editor of Retail Week