A look back over 2011 and predictions for 2012
Fionnuala Carolan spoke to some of the main players in the grocery retailing industry to hear how business fared over the past 12 months and their predictions for 2012
Print16 December 2011
It’s been a testing year. No one can deny that. While this time last year we were promised that things would definitely be on the up by the end of 2011, there is still little sign of improvement and even more uncertainty about the future of the economy. ShelfLife caught up with a few of the biggest names in the business to hear how the Irish grocery retailing groups really fared over the past year and to find out what their predictions are for 2012.
Business throughout 2011
Gary Desmond, CEO of Gala, said that 2011 was on par with expectations for the group and that they enjoyed a marginal net gain in store numbers, with 50% of new Gala stores migrating from other symbol groups. “I was very pleased with the caliber of new retailers that joined the group this year, complementing our established stores and location, so in this respect, we fared better than expected” he said.
The managing director of BWG Foods, Willie O’Byrne admitted that although food retailing fared quite well, the business environment remained challenging in 2011. “Our fortunes are inextricably linked with the domestic economy and within it the retail sector. The latter has been at the vanguard of the recession and no retail business is immune to its effects. Food retailing however has fared better than other categories of retail and we are fortunate to be operating in this space.”
Stephen O’Riordain, CEO of Londis, said that organic performance is exceeding expectations with sales on a like for like basis performing ahead of budget and in recent months matching 2010 levels. “Londis retail members were able to match and beat the multiples on many prices and still earn a sustainable margin. A value perception that challenges the multiples and consistent investment in value-led communications has really helped to sustain footfall and spend in-store.”
Tom Keogh, CEO of the AIM Group, the master franchisees for Iceland in Ireland, said that while business was challenging, the organisation are quite happy with the way 2011 will end. “Developing a new brand in a crowded market will never be easy, however, the reaction to the Iceland brand has been very positive. It is fair to say that we fared better than anticipated.”
Changes implemented over the past year
Desmond said that the Gala business model came into its own and attracted retailers from other symbol groups over the past year. “The business model hasn’t changed as such but has become more effective and crucial than ever before due to the current climate. We offer a dual approach – HQ structures, expertise and support personnel, coupled with our local network of regional wholesalers.” The group integrated the ‘Baker’s Corner’ concept into many stores, which has proved to be extremely successful, and Desmond said this is driving sales.
O’Byrne believed that the key to the company’s safe passage through the economic storm has been early and constant change and the ability to adapt at short notice. “Supply chain is a key area and in 2011 we implemented significant changes to our ambient distribution arrangements for our branded retail estate, spanning Spar, EuroSpar, Mace and XL, which delivered significant benefits,” he said.
He mentioned the launch of the Glenmór fresh Irish meat brand launched in 2010 as an important initiative for the group. “We rolled it out across the entire brand estate in 2011, achieving strong growth which lifted the meat category performance.”
Spar’s recent announcement that it was using product placement to become a part of the Fair City storyline will give the brand huge exposure over the coming year.
Stephen O’Riordain said that the biggest change within Londis during 2011 was the roll-out of two key phases of its five-year ICT (Information and Communication Technology) development programme, ISIS and i-Retailing which included the phased roll out of iPads to Londis retailers. “This strategy has revolutionized the way we do business across the group,” he said. “It enables intuitive, instantaneous, intelligent solutions from warehouse to in-store. The ISIS platform, integrated with our other business tools, allows retailers to fine-tune their offering and maximize margin, while the iPad gives them access to the entire store operation anywhere, at any time. This system is efficient, enhances the customer’s in store experience, and differentiates Londis as one of the most technologically progressive groups in Ireland.”
In terms of marketing strategy, Londis’ investment in Come Dine With Me delivered greater brand awareness with a daily prime time presence in households across the country.
Aside from opening a number of Iceland stores, The AIM Group moved to a new home in Greenogue, Co. Dublin this year. Keogh said that despite warnings against an invesmtent in the current climate, they committed to growth. “While it was an easy decision for us to invest in the future of the business, based on challenging market conditions there was a chain of thought from third parties to consider holding back on making the investment. We are glad we made the decision and we are now looking forward to 2012.”
Predictions for the retail industry in 2012
Gary Desmond was adamant that 2012 would be a challenging year but said there were small signs of optimism and that he expected Gala to grow next year. “The current EU uncertainty isn’t helping with the economic recovery, however I do believe that we’ve hit the bottom so the only way is up!”
Desmond said that the harsh climate has created a nation of savvy shoppers so discounts and promotions will continue to be a domineering force, coupled with digital marketing and new technologies.
“Stores nationwide need to continue to focus on controlling costs, and adding value in store. Consumers will pay a premium for outstanding service and products; therefore we’ll be aiming to strike a happy medium between offering our customers exceptional value and premium Irish produce, whilst reinforcing the brand’s community credentials,” said Keogh.
O’Byrne said that he did not predict an early recovery in domestic spending and consumption. “The national budget will effect further austerity measures in December and the contraction of E3.8bn targeted by the government and agreed with the Troika is a material blow to an already weak economy. The fact that the top VAT rate is now confirmed to rise from 21% to 23% means that retail sales will once again bear the brunt of the fiscal adjustment.”
He remembers last January and the impact of the ‘immediate and brutal’ effect of the Universal Social Charge which took some months for consumers to adjust and sales to settle at lower but manageable levels. “I expect an adjustment period in the new year to new cuts and as a result a weak first quarter. Overall though, I would be hopeful that we will see ‘the bottom’ in 2012, probably towards the end of the year,” said O’Byrne.
Stephen O’Riordan said that he expected continued difficult trading for the grocery market, particularly if the proposed removal of the retail planning cap goes ahead in its current form. “The proposed VAT increase will bring renewed pressure on retailers, particularly in the key border counties. Pressure on consumer spending will continue given the money which will be taken from the economy in the upcoming budget.
“I expect own label to further grow in prominence and as such Londis will continue to focus on developing our offering in this area. The value focus of the Irish consumer will intensify in 2012 but we have demonstrated our ability to compete effectively on that front.
Keogh was also realistic about prospects for 2012. “It will continue to be challenging, I don’t believe that we have seen the worst of what has to come within the retail sector. Many small retailers are currently hanging on and the continued lack of access to funds will mean the unfortunate closure of many local shops. Which is clearly evident on the streets of our local towns and villages.”
Will the changes in retail CAP size affect your business?
CAP won’t have a significant impact on the Gala business, said Desmond. “Gala stores aren’t about size; we’re all about convenience and service. Location, location, location! Our stores are central to the communities they operate in and customers are very loyal to our store owners. CAP will drive increased competition between the multiples however; more often than not, if a large multiple opens close to a Gala store, it drives increased business to the area.”
With the opposite view, O’Byrne said that the changes in retail CAP size are extremely unhelpful to the BWG business. “It is clear from other countries’ experience that a hypermarket retail layer does untold damage to the health of town centres and small villages. The Walmart-isation of the USA has killed off Main Street traders, and the Tesco-isation of the UK has mortally wounded its High Street shopping culture too. Increasing CAP sizes is an enabler to this process.
“I acknowledge that controls (albeit adjusted) have been retained, certainly preferable to a laissez faire result. But even within the existing CAP we have been fighting a rearguard action against the onward march of inappropriately sized supermarkets, mainly foreign owned, being granted planning permission to open on the outskirts of provincial towns and villages and sucking the economic life out of them.
“We know from our cohort of 900 retailers the length and breadth of the country, how devastating the opening of inappropriate retail developments on their doorstep can be. Much like the local florist or pharmacist, the majority of our retail stores are independently owned and operated by local people who actively contribute to, and participate in, community life,” said O’Byrne.
O’Riordain mirrors O’Byrne’s sentiments. “Any increase in the retail CAP or outright removal will have a very negative impact on smaller, independent retailers,” said O’Riordain. “The UK remains a very good example of how town centres and smaller communities are decimated with the arrival of large, out of town superstores. Competition within the Irish retail market is already at very intense levels. Any change to the retail planning cap will further consolidate the sector, with heavy discounting by the bigger players for a short term, only until other players are removed. Hence, any consumer benefit is very short term and indeed once competition in an area is removed, I believe consumers will only see prices rise.”
Keogh, like Desmond thinks that the CAP size won’t have a significant impact on his business but will impact significantly on niche Irish retailers who provide huge support for local communities, examples of these are local pharmacies, local florists, local boutiques, hardware and electrical retailers. “It will also impact on road haulage jobs with less work for local hauliers. You don’t have to travel too far to see examples of communities without any local retail offering, it would be a shame to see Ireland go in the same direction.”
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