Below-cost selling and the rise of the discounters is hitting family retailers hard, writes Kyran FitzGerald.
A FEW weeks ago, a new Tesco store opened near my home. Within a couple of weeks, the shutters went down on the local family-run Londis.
Retail is a hard place to be if you don’t happen to have the equivalent of a bank behind you. Irish fruit and vegetable farmers certainly agree. The special 5c and 6c offers for bags of carrots may have wowed customers, but they have infuriated the Irish Farmers’ Association.
The German discounters drove this particular initiative, and other multiples have been quick to follow. 2013 was another good year for Aldi and Lidl, with year-on-year growth for Aldi dipping just below the 20% mark, according to analysts, Kantar World Panel.
In the UK, Aldi pushed up sales by 30%, although there the combined Aldi/Lidl share is still at a modest 7% compared to over 14% in the Republic.
The other big story of 2013 was the decline in Tesco’s share, down 8% year-on-year according to the latest figures covering the 12 weeks to Nov 10. Tesco remains the market leader with 26.5%. It has switched focus somewhat to the high street as it rolls out new Tesco Express shops, but when it comes to its larger supermarkets, it appears to have taken its eye off the ball.
While Ireland is an exceptionally poor performer, Tesco has also stagnated in Britain where group CEO, Philip Clarke, has his hands full dealing with the legacy of his predecessor, Terry Leahy, who drove a programme of ambitious expansion, particularly into out-of-town centres.
Dunnes Stores, meanwhile, has clawed back market share after a period of decline, while Musgraves’ SuperValu pressed ahead with its absorption of Superquinn.
Between them, SuperValu and Superquinn control 24% of the market. SuperValu has increased market share against the trend, trading on its strong community links and ‘Irishness’ and on the fact that Supervalu franchisees are effectively running their own business while drawing on the buying power of Musgraves.
The Cork-based group also operates 465 Centra stores in the Republic — their combined turnover does not appear in the Kantar figures.
According to Gillian Hamill of Shelf Life magazine, were these figures to be included, Tesco’s position as top dog in the Irish grocery sector would be under threat.
The convenience sector endured another torrid year, with more newsagents going to the wall, though many larger stores sought to reinvent themselves as providers of food to go.
Fionuala Carolan, editor of Shelf Life believes Aldi and Lidl fit well into the Irish mould, having tapped into the public demand for home produce. Irish goods constitute around 40% of Lidl products on the shelves, it is understood.
The onward drive of the Germans can be seen in the Greater Dublin area and further afield. New stores have opened in East Wall, Terenure, Ranelagh and (shortly) Greystones. One real concern is jobs displacement. The typical discount outlet employs 15 people, possibly slightly more, a fraction of the numbers at more established multiples.
Their spread inevitably puts downward pressure on employment in the sector.
Shelf Life surveyed 228 retailers in October and November — this revealed that one third of retailers have experienced a decline in turnover in the past six months. Tesco is the largest casualty — the view in the trade is that it will have to sharpen up its price offer considerably.
The look of its shops also needs to be re-examined.
According to Tara Buckley, CEO of RGDATA, the independent grocers organisation, “2013 has been extremely tough and challenging”. It is estimated that 57% of RGDATA members suffered a reduction in turnover in the past year. Ms Buckley believes that “the way people shop has changed”.
The response to the challenge has come in the form of lunchtime bundled offers in convenience stores, a drink, sandwich and chocolate bar priced at a competitive €5.
Stores have also expanded their frozen food offerings. Cost control has been critical — Ms Buckley reckons that her members have cut their costs by around 25% or more.
Much of this has come in the area of staffing, with jobs or overtime reduced and owners and family members taking on a bigger role on the business.
Newsagents and tobacconists have been hammered, not least by the spread in the sale of illegal cigarettes. A big concern for RGDATA comes in the form of threatened new Government regulations, in particular, new legislation on alcohol and tobacco retailing driven by the Health Minister James Reilly. There are plans to introduce new licenses for tobacco retailers which could come at an annual cost of €500 to €1,000. There are also fears that retailers could be forced to section off part of their shop for sales of alcohol, with separate entrances being provided.
This should not cause a problem to larger supermarkets, but it would create significant cost and disruption for smaller outlets.
Ms Carolan cites the prospect of the reintroduction of Joint Labour Councils (JLC) as another major concern for retailers, though not, of course, for trade unions such as Mandate which seek to underpin member pay and conditions.
There have been suggestions that JLC rates at around €1 or so above the minimum wage would be introduced for the symbol groups (Musgraves, Londis, etc), but not for the truly independent shops.
Here, we have a delicate trade off between wages and job retention, with concerns being raised about job losses in the convenience sector.
The sector will certainly hope that the State makes progress in its battle against the fuel counterfeiters and the peddlers of illegal cigarettes, though added taxes on cigarettes, while laudable in themselves, will do nothing to repress the trade.
Relations between shopkeepers and town councils continue to be fraught, what with high commercial rates, reevaluations and the constant presence of vehicle clampers in town centres.
Ms Buckley welcomes moves to clamp down on the clampers even among the most dogged anti motorist councils — Dún Laoghaire being a case in point.
RGDATA is pressing for national guidelines on the implementation of parking regulations. Its director is glad that the penny has dropped with councils about the link between clamping and the alarming number of vacant outlets in many centres.
However, Ms Buckley has called on councils to engage with her members on proposals for cost saving, with the aim of passing on savings in the form of a reduced commercial rate burden. To date, no response has been received.
Looking to 2014, one can expect slow but steady recovery in line with that in the wider economy, assuming this is not derailed by external events. Dunnes Stores has announced plans to reduce numbers at its head office and Marks and Spencer & recently closed three stores while promising a large new one in Limerick in 2015.
We can expect more such reshuffling of the pack as the established multiples respond to the threat of the discounters.
We can expect the Government to come under increasing pressure to reintroduce the ban on below-cost selling and to move to redress the unequal balance of power between the large multiples and local suppliers, many of whom will not come within an inch of an export market if they do not receive an initial lift off in the domestic arena. This is certainly one for the in tray of Enterprise Minister Richard Bruton.
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