Savings claims ‘off the mark’

CLAIMS the consumer will save close to €500 a year on food bills from the abolition of the Groceries Order are seriously wide of the mark, a new study claims.

The projected savings of €481 per annum could be half that, a top food analyst said yesterday.

The near €500 savings on the annual shopping basket were based on an estimated 9.2% reduction being achieved in prices, according to a study carried out by the Competition Authority.

That was their estimate of what the consumer would save if the Groceries Order was changed to allow below cost selling.

But Liam Igoe, food analyst at Goodbody Stockbrokers, says the already intense competition in the market, as well as other factors, will make it difficult for the big multiples to pass on those kinds of savings in the years ahead.

Mr Igoe reckons the maximum amount of saving the market is capable of delivering is closer to 4% than 9.2%.

He argues the island status of the economy, the dispersal of the population and the lack of size poses problems for the market that cannot be easily overcome.

Mr Igoe warns also that the big chains such as Tesco and Dunnes will be the big winners in the changed retailing environment.

The big retailers and food manufacturers will get bigger and the small shops will struggle to survive, he said.

As the new selling regime starts to impact, Mr Igoe sees consolidation in the coming years through mergers and acquisitions.

“The net impact of the removal of the Groceries Order will be that the big (manufacturers and retailers) will get bigger. Costs in the food chain will be squeezed and, in time, overall retail costs in Ireland should fall by 3%-4%,” he said.

At retail level consumers should see a difference in headline prices for certain goods, but Mr Igoe warned the process would be gradual as the removal of the act allows retailers to cut prices on known value items.

The changes also put consolidation back on the agenda as intensified pressures on costs force manufacturers to seek new ways to become more efficient.

While companies will make internal savings, the other obvious route to greater efficiency is mergers and acquisitions, he said.

This will result in “less efficient players being acquired or merging with market leaders”.