The Superquinn saga

Chris Martin, chief executive of the Musgrave Group

Fionnuala Carolan looks back at how the events of the past six weeks have unfolded for the Superquinn chain and wonders how it will all end

News

8 September 2011

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superquinn1 When it was announced on 22 July that Superquinn had been placed in receivership by Allied Irish Bank, Bank of Ireland and National Irish Bank, it wasn’t a huge surprise. Rumours had been circulating for 18 months that all was not well in the business and that the group of property developers, namely Select Retail Holdings, that had bought the company from founder Feargal Quinn in 2005, were keen to wash their hands of it. Musgrave was often touted as the most likely buyer and when the receivership did come about, most were happy to hear that Musgrave, an indigenous Irish company would take over Superquinn rather than a foreign multinational.

Yet before Musgrave can claim Superquinn as its own, it has to wait for the approval of the Competition Authority which it is believed could take until mid October to give its verdict, leaving a lot of businesses in limbo in the interim. If the deal goes ahead Musgrave will for the first time directly challenge Tesco as the largest retailer in the country. According to Kantar Worldpanel, Superquinn holds just over 6% and SuperValu has approximately 20% of the market. Tesco currently controls 27.5%.

Debt mountain

While Musgrave was interested in taking over the running of Superquinn’s stores, it was certainly not interested in taking care of its outstanding property-related loans. When the receivership was announced it transpired that Superquinn had amassed more than €400 million in debt to the banks. Of these debts a massive €275 million was property-related.

Superquinn’s receivers, accountancy firm KPMG, said €22 million of this debt was covered by a special insurance policy held by the main suppliers but most of the group’s smaller producers have been unable to secure such cover meaning that they are seriously out of pocket with some even saying that they can’t pay staff or continue trading until they are paid.

What went wrong?

Aside from the huge loss in value of its property portfolio, Superquinn’s head office in Lucan, Co Dublin, was also said to be costing a fortune to run. Superquinn has only 24 stores yet its headquarters were said to be costing 3% to 4% of turnover, more than Tesco’s HQ (although this is mainly due to Tesco outsourcing most of its head office functions to the UK).

The ongoing recession has also hit Superquinn hard with it losing market share to the discounters due to cash strapped consumers.

Street walking

A couple of days after the company was placed in receivership, the chief executive of Superquinn, Andrew Street, resigned on account of how the receivers were conducting the operation and treating the suppliers. In an email to the board of directors he said it was ‘distressing to see queues of suppliers in the Superquinn reception area waiting to see if they will be paid and – in many cases – being turned away empty-handed by the receiver’.

In the email Street also said that the banks had selected the receivership process to secure the maximum amount of the sale proceeds for themselves at considerable cost to Superquinn suppliers who had to suffer losses of over €25m.

Following this turn of events, the Superquinn directors decided to challenge the receivership and went to the high court to seek examinership in order to buy them time to sort out its affairs. However the case was dropped when the Superquinn directors – Kieran Ryan, Bernard Doyle, Jerry O’Reilly, David Courtney and Terry Sweeney released a statement to annouce that they were withdrawing the court action on the back of Musgrave’s announcement that it had pledged to make available a fund worth €10m for the suppliers who didn’t have trade insurance.

Chris Martin, chief executive of the Musgrave Group said that the fund was set up to limit the exposure of suppliers

Support needed

In in meantime, the president of the IFA John Bryan called on the receivers to ensure existing suppliers to Superquinn were supported until Musgrave took over and payment for outstanding debts were made.

"Cash flow on farms is crucial and retailers cannot continue to force extended payment arrangements on suppliers,” said Bryan.

In addition, Paul Kelly of Food and Drink Industry Ireland (FDII) said he was very concerned that small businesses may not survive these losses. “Failure to pay these companies what they are rightly due will have a disastrous effect on the supply chain and affect the immediate viability of many food companies, placing thousands of jobs at risk. Any resolution must benefit all creditors,” he said.

Musgrave CEO, Chris Martin attempted to allay fears by stressing that the company was very much focused on supporting Irish suppliers and that it already supported “14,000 jobs across 600 supplier companies and contributes €2.9 billion to the Irish economy.”

Martin said he was aware of the financial challenges being experienced by certain suppliers and said he was doing all he could to improve the situation.

"This fund, in addition to access to our store network, will limit the exposure of these suppliers and will assist those companies that are in distress," he added.

Another statement from Musgrave said it was committed “to providing existing Superquinn suppliers with the opportunity to continue to supply Superquinn stores.”

Credit insurance

While the media storm raged in support of the suppliers, it died down very quickly once Musgrave made the gesture to provide the €10 million fund.

Aside from the Musgrave fund, Atradius, a trade credit insurer in Ireland came out saying that it would be paying out millions of euro in claims to insured suppliers of Superquinn impacted by the receivership.

Stuart Ramsden, manager of Atradius Ireland said: “We will be supporting claims to the value of several million euro in the wake of the Superquinn receivership. Our message to Irish companies is that trade credit insurance cover is readily available and we are already covering billions of euro of Irish trade.”

Trade credit insurance protects businesses against the impact of non-payment by insuring the “credit” period of a commercial transaction. The problem is that it is actually only a viable option for a big operator. Smaller businesses could not even contemplate being able to afford this type of insurance. However, aside from recouping debts, suppliers are also worried about the future of Superquinn in Musgrave’s hands.

Can Musgrave run Superquinn successfully?

The Musgrave empire encompasses SuperValu, Centra and Daybreak in its Irish portfolio, Londis and Budgens in the UK and a brand named Dialprix in Spain, so taking on a relatively small network of stores like Superquinn should not be an issue for the group. Early fears that Musgrave would just transfer the stores to SuperValus have been quashed and Martin has promised to “invest in the stores and work with the Superquinn employees to develop the future of the business.”

While the Musgrave Group does seem like a good option to take over Ireland’s best loved supermarket, there will certainly be challenges. Musgrave operates a wholesale network of independently owned supermarkets and convenience stores, which is very different to running a centrally distributed supermarket.

The question is, can Musgrave develop Superquinn while maintaining its traditional guise as a high quality chain or will it try to morph it into a larger version of a SuperValu? Despite Irish shoppers love of Superquinn, they haven’t been overly affectionate with the brand during the recession with many migrating to the discounters and other retailers to save money. If Musgrave tries to bring a better value offering to Superquinn, it is in danger of ruining the concept, that is a high end supermarket that offers exceptional customer service. Considering that most of the Superquinn stores are in the Dublin region, the capital is already well-served by Marks & Spencer and a number of high-end independents so Superquinn is in danger of being squeezed out of this market altogether if not managed correctly.

On the employment front, Martin has said it hopes to retain all the 2,800 Superquinn jobs, but surely Superquinn’s head office will be hit with redundancies due to it already been viewed as a drain on resources and the fact that many of the roles will be duplicated in the Musgrave head office.

Senator Feargal Quinn, the founder of Superquinn, is happy for Musgrave to take over the running of Superquinn

Feargal Quinn gives his blessing

Feargal Quinn, the man who founded Superquinn back in 1960, came out to endorse the prospective acquisition of Superquinn by Musgrave saying he was delighted that the supermarket chain will continue on as a separate entity under Musgrave ownership.

Senator Quinn commented as he visited a number of Superquinn stores in the wake of the receivership. He said: “Having built the Superquinn business and watched it grow throughout the years, I was delighted to see that the Musgrave Group, a strong, Irish family owned business is to take over the Superquinn chain. I was equally heartened to see that Musgrave Group has come up with a solution to address the financial concerns of suppliers.

“In years to come it would be great to see the company remain as a separate entity within the Musgrave Group, with its own traditions and reputation for unrivalled quality and customer service being retained.”

For now, the waiting game continues and the fortunes of Superquinn lies firmly in the hands of the Competition Authority.

ShelfLife survey of Superquinn suppliers

ShelfLife carried out a small online survey of 15 Superquinn suppliers over the past month to gauge their views.
The results showed that no one had received any money from the receiver or from the fund set up by Musgrave as of yet.
It also showed that:
:: Monies lost ranged from €8,000 to €150,000
:: 100% of respondents said they had not received compensation from a trade insurer
:: 73% seemed happy that Musgrave was to be the new owner
:: None had received promises of extra listings in SuperValu or Centra as had been reported in the press

Experience of a small supplier

While the larger suppliers will have suffered losses over the Superquinn receivership, it’s the small producers that are really feeling the pain. Fionnuala Carolan spoke to one supplier who wishes not to be named, about the severity of these losses and how doing business in Ireland is becoming a futile exercise

Superquinn’s suppliers are owed approximately €28 million in outstanding payments. Most small suppliers are now unwilling to talk to the media in case of being blacklisted or seen as troublemakers. This supplier, who we will call Sarah for the sake of this article, says that she is under severe stress ever since Superquinn went into receivership.

“It’s so tough now. I’m so stressed all the time. You set up a business because you’ve got a great idea and you’re positive and then you get stuck into it and suddenly you’re in debt, through no fault of your own, and then you can’t get out of it.”

Sarah’s products were in eight Superquinn stores and they were selling well. She had no idea that she could lose so much money overnight.

“We didn’t have a problem with Suprquinn at all. This came like a bolt from the blue to us. We only heard about it when it was announced on the radio because when a company goes into receivership, no one in the company knows. They’re not going to tell their buyers or their shop managers as they might start letting things slip to suppliers. We are the last people to find out”.

Sarah’s company is young and she is trying to grow it but she has been beset by problems in the last few months. Superquinn wasn’t the first company she was supplying that has gone into receivership.

“We got hit twice within six weeks as we were customers of SuperValu in Churchtown too. KPMG were the receivers there too. We’ve got nothing from them yet. The thing is you are guaranteed payment from the day they go into receivership so you might as well keep in with the shop and hope you get something out of it.”

She said that she was told that there was nothing she could do to get the money owed to her except wait it out, “Basically I made 100 phone calls when Supervalu Churchtown went into receivership to be told that even if they wanted to pay me, they can’t pay me. It’s in the hands of KPMG, who is working for the bank.

“When I heard about the Superquinn receivership I just thought to myself, what is the point of working in this country? When something like this happens, the Revenue is the first to get paid, then the banks and the small supplier is the absolute last in the queue and usually gets nothing. It’s fine if you are Coca Cola or Kellogg’s but if you are small they just don’t care.”

Sarah is hearing from different sources that it could be up to a year before she is paid and that is depending on whether she actually gets paid at all. “Everyone’s saying to put it out of your head and if you receive some money you’ll be doing well”.
While Sarah was glad that the media got behind the Superquinn suppliers and kept it in the news, she thinks that Musgrave orchestrated some clever PR by announcing the €10m fund. After this the media dropped all the coverage but she said that nothing changed for her and no money has come her way.

Being a small trader is difficult in the current environment and staying on top of all the red tape can be challenging. “Running a small business means you have to be an expert in all areas. You have to learn HR, accounts, employment law and a host of other things.

“The government gives no incentive to start your own business. Revenue is so unhelpful. It treats a small business the same as a corporation. There is very little appreciation that it’s generally just one person or a couple looking after all areas of the business as well as standing behind the counter and serving customers. There is so much red tape. You can be breaking the law without knowing it.”

Reflecting on her experiences she says that she learned nothing except to expect the unexpected. “Lessons learned – none. I wasn’t due a cheque for another week and a half from Superquinn so I had no idea I wouldn’t be paid. All I know is that no one has that trade insurance they are talking about except the really big guys. It would cost you more to have it.”

As regards Sarah’s business going forward she said that running a business is just a huge burden at the moment. “I am not enjoying it. I wish I could make the torture end! I’m employing over 20 people so that’s a lot of worry in itself. The fact is that there is no incentive to be a small trader in Ireland today.”

Superquinn will remain under the management of the Joint Receivers pending regulatory approval.

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