Tesco in Ireland: its toughest market

Some 4 per cent of the grocery market in the Republic of Ireland has migrated to Northern Ireland, according to Tesco. Given this as well as the country’s general economic woes, Tesco Ireland has had perhaps its most difficult year.

In Retail Week last week, international director Phil Clarke said it was the company’s toughest market anywhere in the world. To help it cling to its top market share position, the grocer has launched initiatives to combat the discounters and counter the lower prices offered by Asda and Sainsbury’s in Northern Ireland.

Tesco has slashed prices in its stores close to the Irish border, and committed to extending these to the rest of its stores in the longer term. It has done this by cutting space for Irish products, reportedly by up to 50 per cent, and introducing more international brands, transferring the sourcing of the latter products to the UK. It will also make 140 Irish head office posts redundant.

Tesco Ireland chief executive Tony Keohane said that the aim of the sourcing changes is to reduce prices on certain lines, and Irish-based suppliers will have to respond if the retailer sources products from overseas that are cheaper.

TNS Worldpanel Ireland managing director Marie Burke says that Tesco has had to make changes to help it get back on track as it has been losing out, both to local competitors such as Dunnes and discounters Aldi and Lidl. It’s lost grocery market share in the past year, whereas Dunnes and the discounters have grown theirs (see panel).

Aldi has recorded sales up 23 per cent in the first quarter of 2009, and its footfall is thought to have risen by 27 per cent in the past year. It will open a further 35 stores and a new distribution centre over the next three and a half years.

Burke says it is too early to say how successful Tesco’s recent price and assortment changes have been in the eyes of customers, but she warns there is little loyalty among Irish shoppers, and many are shopping around among the grocers to take advantage of offers.

Musgrave-owned SuperValu already had a sterling price-match promise in place, while Lidl responded to Tesco’s move almost immediately, cutting prices across a range of fresh and packaged food in all  stores. Its website proudly states “one country – one price” in a dig at Tesco’s pricing strategy for its border stores.

A banner on the grocery special offer page of Dunnes’ website more ominously states: “The battle begins…”.

Burke says that Dunnes is doing well, partly off the back of publicity around a potential sale to Asda – although a source close to the company says this rumour is unfounded. Dunnes is also clearly cutting costs, having mandated that all suppliers must use a new web-based pricing and invoicing system.

Irish suppliers have hinted that they will begin to offer improved buying terms to domestically owned supermarkets – which could benefit Dunnes further – to help them fight back against Tesco.

Burke believes this is likely to happen. “If you are an Irish supplier and you no longer have a presence in Tesco, you will do everything you can to make up those sales with other retailers.”

Ireland’s Minister for Foreign Affairs Micheál Martin has spoken out, saying consumers want to see large numbers of Irish products stocked by supermarkets there. Burke clarifies this, explaining that Irish consumers merely favour branded over private label goods. This does not equate to loyalty to Irish suppliers in general, which the number choosing to shop over the border shows is not strong.

Price promises

The Irish press has not been kind to Tesco, suggesting price reductions merely address its previous lack of price competitiveness. It has been said that Tesco Ireland met profit targets by charging high prices towards the end of its last financial year, before the latest round of price cutting. The Irish Times claims that Tesco’s profits were E248m (£219.2m) last year, and the grocer is projecting E255m (£225.4m) profit this year.

Certainly the National Consumer Agency grocery survey, undertaken in January, showed Tesco was 1.2 per cent more expensive than both Dunnes and Superquinn on a basket of branded goods. Tesco’s basket had increased in price by 4.9 per cent between December 2007 and January 2009.

Comparing own-brand goods, Lidl was the cheapest, with Aldi and Dunnes both coming in cheaper than Tesco too. The price of Tesco’s basket of own-brand goods had increased by 9.3 per cent between December 2007 and January 2009 – the largest increase of the four retailers compared.

This is despite the launch of the Cash Savers range in July last year, which was introduced to compete against the discounters. In a move that pre-empted the UK launch of its Discounter range, a mixture of private label and branded goods was created to give Tesco a “new strategic position in the retail market”.

Keohane said at the time of the launch: “Our aim is to give our customers value and convenience under one roof, saving several trips for shopping around.”

The range has grown from 1,000 to 1,500 products, and accounted for 7.5 per cent of Tesco Ireland’s sales in its last financial year. But the grocer’s like-for-like sales were still down 4.2 per cent despite the introduction of Cash Savers five months into the year.

A survey of over 500 Irish consumers into how the range is perceived has shown that 86 per cent shop at Tesco, and of these, 62 per cent are buying from the Cash Savers range. Importantly, some 55 per cent who had begun purchasing from the range said it encouraged them to shop at Tesco rather than discount stores. However, Aldi’s recent results would suggest that it is not feeling the pinch from this.

Minister for Enterprise, Trade and Employment Mary Coughlan has yet to decide whether to make public a recent report from the Competition Authority on retail distribution channels. It would expose the retailers and suppliers considered responsible for the high prices Irish consumers have previously faced.

Whether this gets published or not, the prevalence of cross-border shopping has created a much higher degree of price transparency in Ireland than existed before. Irish consumers are no longer prepared to put up with feeling like they are being ripped off.

Tesco will need to demonstrate to shoppers that it can get the Irish brands they really want, as well as cheaper international products, at genuinely competitive prices if it wants to maintain its like-for-likes and retain its market-leading grocery position.