In the papers this week 8 – 15 May 2009

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Tesco may face the Oireachtas again over higher profits, Irish products lose shelf space in Tesco stores, Musgrave to help retailers drop prices, Aldi creates new jobs

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15 May 2009 | 0

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Following revelations about its profits in The Irish Times, Tesco Ireland’s bosses now face a recall to the Oireachtas Committee on Enterprise and Employment’s inquiry into retail margins. Willie Penrose, chairman of the committee said figures showing a significant differential between the company’s profits in Ireland and elsewhere, seemed at variance with the information given to the hearing last February.   
 

The news that Tesco’s profit margin in Ireland was 9.3% last year, and thus significantly higher than in the rest of the company, wasn’t the only information contained in the ‘draft business plan’ seen by The Times’ Paul Cullen. Tesco Ireland allegedly raised its prices at the start of 2009 to meet targets, and lowered them again in March to prepare for a price war. Unsurprisingly Tesco responded the document was inaccurate, but declined to say which parts were so

Tesco’s cost-cutting phenomenon could be short-lived though, according to Cullen. Its ‘draft business plan’ from February envisaged using a "war chest" of accumulated savings to make price cuts of around 20% on international branded goods, interpreted by Cullen as the current ‘Change for Good’ scheme in border stores. Tesco’s "war chest" could fall drastically short however if the sterling/euro exchange rate moves. But by then, Cullen writes, Tesco should have increased its share of the market, some competitors may be in difficulty, and Ireland’s distribution channels may be significantly hit.

 

The consumers affairs correspondent also considered in Saturday’s Irish Times, who would win in a supermarket price war. Would Irish suppliers lose out? In the 11 renovated border stores there was tea and "Lots of it; Tetley, Yorkshire, Ty-phoo, Nambarrie. Barry’s Tea?" Barry’s was on the shelves albeit with less space, while other familiar names seemed to be missing altogether, such as Chivers jam, Robert Roberts coffee and Dolmio pasta.

Not everyone is critical of Tesco’s strategy however. Sarah Carey says in The Irish Times, "whatever Tesco does will be demand-led. If Irish customers insist on buying Irish products, the products will stay on the shelf."

While commentators may be divided over whether Tesco secured more good or bad publicity in Irish newspapers columns this week, its misfortunes in the UK were a more straightforward error. The Guardian reports a glitch knocked out tills in about 100 Tesco stores around the country, forcing some to close for several hours; on the day Tesco had taken out lavish advertisements in all the national newspapers offering a special promotion for clubcard holders.

Meanwhile Britain’s third-biggest grocer, Sainsbury’s posted an 11% rise in annual profit and said it was pressing ahead with expansion into convenience stores and non-food ranges despite the recession. The Irish Times reports the 140-year-old company, which runs over 500 supermarkets and more than 275 convenience stores, said it made a profit before tax and one-off items of £543 million (€607 million) in the year to 21 March.

In the US, Wal-Mart has reported a flat quarterly profit. Low prices attracted shoppers amid a global economic slowdown, but the retailer’s results suffered from the stronger US dollar. For the current quarter, the company forecast results roughly in line with Wall Street expectations as it faces tough comparisons with a year ago, reports The Irish Times

Back in Ireland, Lidl was the first retailer to respond to Tesco’s border store price cuts, cutting prices across a wide range of fresh and packaged food from Saturday. Crucially, Lidl intends to roll this out across all stores, and has welcomed proposals from suppliers with spare capacity as a result of its rival’s change in distribution policies, The Irish Times reports.  

Musgrave has also announced it will help its retailers cut their prices by more than €140 million in response to the developing price war. Musgrave’s annual report outlined in The Irish Independent showed its pretax profit declined by 20% to €75.5 million. However while the Irish grocery market had contracted by 3 to 5%, Musgrave’s business was down only 2%.

Also in The Irish Independent Irish suppliers are said to be lining up to offer improved buying terms to Dunnes Stores and other domestically-owned retailers as they vent their anger at Tesco’s move to source more products from the UK. The paper reported many Irish suppliers have seen their shelf space at Tesco’s 11 renovated stores, axed by as much as 50%

Meanwhile, Minister for Foreign Affairs Micheál Martin has welcomed Aldi’s commitment to source more products from Ireland. Speaking earlier this week at the turning of the sod ceremony on the construction of Aldi Stores Ireland’s €100 million distribution centre and office facility at Mitchelstown, Co Cork, Mr Martin said he was confident consumers would continue to call for the sourcing of increased numbers of Irish products in supermarkets.

Overall Aldi announced 560 new jobs, with 500 more tipped to come as part of a €350m national expansion drive, reports The Irish Independepent. Building the new distribution centre in Cork would create 400 construction jobs, with 160 more to be employed on site when it is completed. As part of its expansion drive, Aldi plans to create 490 jobs in 35 new stores throughout the country by 2011.

Meanwhile, up to 15,000 jobs could be lost from the food sector this year if the Government doesn’t help suppliers struggling to cope with the weak sterling, says  Ciarán Fitzgerald, a former director of Food and Drink Industry Ireland (FDII). He states in The Irish Times that the Government urgently needs to obtain EU approval for a food sector stabilisation fund.

Celebrity chef Richard Corrigan was met with short shrift from the Irish food industry when he criticised Bord Bia. Michelin-starred Corrigan claimed Bord Bia should be abolished or overhauled, and producers from any EU country can buy into the body’s quality assurance scheme if they follow the correct guidelines. However the Irish Exporters’ Association and the Ibec group, Food and Drink Industry Ireland disagreed in The Irish Times.

Over 90,000 cigarettes with an estimated street value of €37,000 were seized at Dublin airport earlier this week. The cigarettes were seized from a number of passengers who arrived from Vilnius, Lithuania, with 13 people being questioned.
So far this year 13 million cigarettes have been seized by customs officials at Dublin airport, reports The Irish Times.

The voluntary code of practice on the sale and display of alcohol was officially launched on Tuesday. The Irish Times reports on the legislation, with which retailers are familiar. Minister for Justice Dermot Ahern said he had listened to the arguments of the industry before deciding to enact the provisions on alcohol separation, but these would go ahead if stores were unwilling to participate in the code.

 

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