Sunday, April 20, 2008

Getting the messages and message!

When I was a young fella growing up in rural North Tipperary, we used "to go to Borris (Borrisokane) to get the messages", usually from a small number of local shops. Groceries were things that Americans used to buy in large supermarkets and bring home in brown paper bags in TV shows like the Brady Bunch. Shopping patterns have changed a lot since then and many Irish consumers are now buying their "groceries" from large multiples like Tesco, Dunnes and SuperValu.

The week before last the Competition Authority brought out two reports. The first report focused on the effects of the abolition of the Groceries Order in 2006. The analysis suggests that while prices fell as a result of the Groceries Order being abolished, most of the gains have been wiped out by the significant increase in the cost of food globally. There has been quite a bit of comment in relation to this report, so I am not going to go on about it again.

The second report published on April 9th didn't get any coverage that I am aware of, but I found it fascinating. Its entitled "A Description of the Structure and Operation of Grocery Retailing and Wholesaling in Ireland: 2001-2006". Its very useful because in reality the Groceries Order was always in my view a minor factor in determining the cost of groceries. Yes I supported its removal, but it was not the magic bullet to cheaper prices. What we require to improve competition and ensure consumers get a better deal is a well informed policy.

The report tells us that the groceries market was worth €11.6 billion in 2006. It describes really well the nature and structure of the market, between what it calls the "vertically integrated retailers" such as Tesco, Dunnes, Aldi etc, the affiliated retailers operating under the brand of the likes of SuperValu, Londis, Mace and Centra and then the independent retailers. Many people complain about the decline of the local village shop or the corner shop and that is borne out by the report as the number of outlets has halved from 13,775 in 1977 to 6,293 in 2006, with about 55% of these being independent retailers.

Of course size is what counts and while there are less outlets, they have been replaced by large and medium sized supermarkets with a wide variety of products. I was surprised to read the significant position of the other retailers in terms of presence and market share. I had incorrectly assumed that the Tesco and Dunnes were the big beasts, under pressure now from Lidl and Aldi, but that the others were in the ha'penny place. However the report shows that while Tesco has the largest market share at over 18%, SuperValu and the Independent retailers are number 2 and 3 respectively, with Dunnes coming in 4th and Spar 5th.

The good news is that the report indicates that between 2005 and 2006 consumers were shopping around more, by visiting more retail outlets. Depressingly, if of no surprise, 82% of shoppers use their car to do their main weekly shop compared to 16% who walk and only 2% use public transport, and travel on average 22 minutes to do their main shop.

The report indicates that Irish shoppers are more brand conscious. A statistic that stood out for me was that own brand products comprised just 7% of total sales here compared to 45% in Switzerland, 30% in Germany, 28% in the UK and 22% in the Netherlands. While my assumption is that own brand products usually cost less consumers may worry about the quality or value of such products. Perhaps this is fed by memories of the now long gone, Quinnsworth's (now Tesco) own brand "yellow pack" range which is still used as a term to describe a product, service and even a job which is considered sub-standard. As well as price surveys, perhaps we need to work on encouraging Irish consumers to free themselves of brand loyalty or as some would call it brand tyranny.

The report shines a light on a very significant market and the details and information will hopefully be used to inform consumer policy. The Competition Authority is following up this report with a study on the retail planning system as applied to the grocery sector. That will also be very useful in light of the importance of location and convenience in terms of retailer selection.

I cannot let the day go without mentioning the great win by the Tipperary hurlers in Limerick today, couldn't make it due to other commitments, but had the pleasure of attending the game last weekend in Nowlan Park against Kilkenny. Here are some highlights of today's win courtesy of
Tiobraid Arann Abu...bring on the rebels in June!!