What Top Gear tells us about M&S, Tesco and Whitbread
To me, the sacking of Jeremy Clarkson from Top Gear speaks volumes about the BBC's relationship with its customers.
It became apparent that senior management had been spoiling for the opportunity to rid themselves of a hugely popular but politically incorrect personality.
It's a pity BBC Trust Chairman Rona Fairhead didn't procure some friendly advice from her fellow HSBC board members. Owners of investment banks are experienced at managing overpaid, highly valuable employees with egos the size of Uranus.
Trash
To nonchalantly trash a programme format sold in over 170 countries that earns the BBC an estimated £67m a year, in the face of a petition bearing over one million signatures, is a luxury reserved for those whose income is funded by licence-payers who have no choice but to stump up.
BBC Creative Director Alan Yentob defended the sacking amidst claims that the BBC is run by a metropolitan elite by saying "there are quite a lot of programmes that reach out to audiences who are C2,D,Es...". His contempt for the BBC's working class audience was comparable with Gerald Ratner's infamous rubbishing of his jewellery chain products, still remembered nearly 25 years on.
Consumer-facing commercial businesses can't treat their customers with contempt, but rather need to be highly attuned to customer opinion. It's especially important for companies that are high profile, and even more so when customer and shareholder groups overlap - analogous to the BBC's situation. The varying fortunes of companies such as Tesco (LSE: TSCO), Marks and Spencer (LSE: MKS) and Whitbread (LSE: WTB) provide useful insights for investors.
Empire-building
Many observers would ascribe Tesco's demise over the past three years to an arrogant and out-of-touch management regime that put empire-building above the customer. Tesco's chairman admitted that "the company lost touch with the outside world", and Morgan Stanley analysts pointed out that management was "obsessed about numbers". True, the market changed with the rise of the discounters, but the market-leader could and should have responded quicker if it was in tune with customers. Only a change of management is now, perhaps, restoring the company's potential.
Marks and Spencer has a mixed record. Long-known for superb customer service, its food division has thrived - despite the supermarket sector travails that so battered Tesco - by clever market positioning. The original 'Dine in for Two', which packaged a two-course meal plus wine for £10 in 2011, perfectly targeted the newly austere as they weaned themselves off dining out.
But around the same time in general merchandise - mainly fashion - M&S lost touch with its core 55-plus female customer base. Iconic M&S encapsulates the nexus of corporate and product branding: its 2012 AGM was beset by private shareholders demanding that the company stock more dresses with sleeves. This Thursday's quarterly trading update will reveal whether the chain has finally reversed 14 consecutive quarters of sales decline in general merchandise.
Premium - and value
Whilst M&S shareholders have had a bumpy ride over the past three years and Tesco's have grown poorer, investors in Whitbread have seen their stock rise by 80%. The shares' premium rating - 25 times earnings - reflects earnings growth, which in turn mirrors its brands' popularity with consumers. In contrast to M&S and Tesco, Whitbread's corporate name is not linked with its high street brands, including Premier Inn, Costa coffee shops and Beefeater Grill. Indeed, the man in the street would more likely associate the company name with the brewing business that it shed in 2001.
Whitbread's businesses are geared towards the value end of the price curve, though I doubt you'd catch a Whitbread executive doing a Ratner. The shares took off when Andy Harrison became CEO in 2010. He's a man in tune with those who appreciate a bargain, having previously run budget airline easyJet.
Many sophisticated investors favour consumer businesses that have repeat sales of small value: there is greater earnings visibility than in businesses which have few, large contracts. But that approach only works if the management stay close to fickle consumer tastes. Ratners, and Tesco, demonstrate how quickly they can lose touch.
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The author of this article, Tony Reading, owns shares in HSBC and Tesco. The Motley Fool UK has recommended shares in HSBC and owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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