Suppliers must focus on Europe to prosper

EVEN allowing for the strong links culturally with Europe, modern Ireland has looked to Britain, the US, and further afield as the driver of its exports.

The point was well made over the weekend when figures were released showing that a mere 30% of Irish food exports go to continental Europe with the rest shipped to Britain and other world markets.

The point was also made that the depreciation of sterling and the dollar by up to 15% in the first half of this year means profits are being eroded when it comes to currency translation from those markets.

Of the €8 billion in food and drink exported from this country last year just €2.5 billion was sold in Europe, where 15 countries share the common currency.

Yet despite this apparent opportunity knocking on our doorsteps Bord Bia has to keep reminding us to ignore Europe at our peril.

Bord Bia chief executive Aidan Cotter highlighted anomalies in Paris last Sunday at SIAL, where the world’s biannual trade show is taking place.

Apart from the lack of currency exchange risk Cotter also pointed out in diplomatic language that it was difficult for Irish companies selling in Britain and the US to achieve price increases to compensate for the currency losses they suffer as a result of the stronger euro.

Competition in these markets is huge.

Tesco is conducting an all-out war on its low-cost rivals Aldi and Lidl in the Irish and British markets and Cotter said the current environment is making it tough on consumers, suppliers and the retail multiples.

Slowing growth and falling incomes is forcing retailers to cut prices as they battle to retain their share of falling disposable income.

Caught in the middle of this are the food producers and processors who are also encountering fierce pressure from the multiples to cut their prices.

That is happening here as well as in Britain and indeed is something that Cotter and Bord Bia would be familiar with first-hand — hence the gentle nudge to Irish food groups to think beyond their comfort zones and look to Europe to protect their own business interests.

Reports in the British media in particular have highlighted in recent weeks that the Tescos of this world are putting enormous pressure on their suppliers to cut their prices, as it responds to the need to lower prices as recession starts to hit incomes.

There is mounting evidence that multiples in the Irish market are also starting to come down heavy on their suppliers.

It has been reported Tesco in Britain has demanded one-off cash payments from suppliers and better terms from suppliers to bolster its fight against Aldi and Lidl.

In its defence Tesco says all it is doing is looking after the interests of its customers who expect it to deliver the best deal on prices it can in order to keep its customers coming though its doors.

New figures show that Tesco’s plan to rebrand itself as “Britain’s biggest discounter” is not having the impact is hoped it would.

Last week, Aldi announced it had its strongest week on record, starting on September 29. A spokesman said the majority of its growth was coming from the big four supermarkets, particularly Tesco.

As the competition gets even fiercer Irish food groups will get caught in the pincer movement between consumers and the big multiples and some will struggle to survive.

In that sense Aidan Cotter’s suggestion that Irish food firms should put a much greater focus on the eurozone — where there are less multiples to contend with and deals are honoured — seems to make a lot of sense.