Musgrave could learn from Poundland

Dealz discount stores show how a group can expand overseas

Sat, May 10, 2014, 01:00

Expanding a retail business into another geography is a notoriously tricky business. Tesco only cracked the Irish market second time around by acquiring Quinnsworth in 1997. More recently, its much-hyped Fresh & Easy business in the US turned out to be a £1 billion flop.

Aussie group Harvey Norman has recorded hardly normal losses since travelling here from Down Under in the boom years.

Results yesterday from Cork-based cash and carry group Musgrave highlighted its overseas woes. Sales in Britain – where it operates the Budgens and Londis convenience brands – declined by 3 per cent last year to €1.5 billion and profits slumped. The group took a €131 million writedown on the value of its assets there. In Spain, it made a loss of just over €1 million while sales were flat at €184 million.

Musgrave isn’t a retailer in the traditional sense. It controls the brand names over the door but the outlets are owned and operated by local shopkeepers under franchise, with Musgrave providing an agreed level of goods via its traditional cash and carry business. It’s a wholesaler at heart.

Having operated in the UK for more than a decade with little incident, it seems that Musgrave relaxed the criteria around membership of its retail club in more recent times with disastrous results. It has now cleared the management decks and hired Peter Ridler, a 25-year veteran of Tesco, to lead the turnaround, which is likely to take two to three years.

Not every retailer struggles to make it work in other territories. In its pre-IPO prospectus in March, listed UK group Poundland detailed the success of its Dealz chain of discount stores in Ireland since its launch here in 2011. “The operations in Ireland became profitable in their first full year of operation,” the document states. Perhaps Musgrave should be looking to recruit from the Poundland/Dealz ranks for its British turnaround.

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