Cost-cutting move spells trouble for home brands and discounters

Conall O Fátharta says Tesco’s strategy will boost imported own-brand products at the expense of familiar Irish brands – as well as Aldi and Lidl

THE announcement by Tesco that it has cut prices at 11 stores along the border by an average of 22% will largely be welcomed by recessionary Ireland’s more budget-conscious shoppers.

It is expected that more of the company’s 116 Irish stores will move in the same direction.

According to chief executive of Tesco Ireland, Tony Keohane, the move was a positive one for Irish consumers.

“This is a great day for consumers. This is the most significant move by a retailer ever and the price gap with the North is now at its lowest since 1979,” he said.

The move by the retail giant is certainly significant and appears to reflect the push towards imported own-brand products, which are generally of a high standard and, crucially, cheaper than Irish produce.

Irish consumers have traditionally been considered more brand-conscious than other countries.

However, according to Damian O’Reilly, lecturer in retail management at Dublin Institute of Technology (DIT), the profile of a typical Irish shopper is beginning to change.

“We are buying more and more own-brand products. For example, in its Irish stores, 25%-30% of what Tesco stocks is its own- brand range, like Tesco Finest or Tesco Value. This is over 50% in Britain, so this move is a push towards that model,” he said.

Other retailers are following suit, with shops such as Zara, H&M, Marks and Spencer and Dunnes Stores all stocking more own-brand products.

While people were loyal to Irish brands in the boom years, the exodus of people going north of the border to buy cheaper imported products shows this is no longer the case.

“It’s obvious that people are travelling north and buying own-brand products in Asda and Sainsbury’s. If the quality of own-brand produce is taken as a given, therefore it’s price that becomes the key,” said Mr O’Reilly.

According to the DIT lecturer, Tesco may gradually introduce more of its own-brand products onto its Irish shelves and “see how it goes”.

The big losers in such a strategy are clearly the Irish suppliers. It is understood Irish produce such as Ballygowan, Avonmore milk, Barry’s tea, Chivers and Brennan’s bread are to lose out on significant shelf space as a result of the Tesco strategy.

However, with the power now firmly resting with the retailer, Irish suppliers have little option but to lower their prices or face being squeezed out by cheaper imported products from Britain.

“It will definitely affect Irish suppliers. However, unless they come down and meet the pricing structures of Tesco, they are going to find it harder and harder to get shelf space,” said Mr O’Reilly.

So what of the other retailers in the Irish market?

The DIT lecturer feels that the discount stores and Superquinn may be the worst hit by the move.

“It will be very difficult for the likes of Superquinn, who just can’t compete with such low prices, but also for Aldi and Lidl. The discount stores have about 10% of the Irish market and a much smaller product range. If Tesco can compete with them on price and have a much larger range, then there is no real reason to shop there,” he said.