Inside the world of business

Musgrave battle could bring cheer to shoppers

THE UPHILL hike faced by Musgrave as it beds down its purchase of the Superquinn chain is clear to all with a passing interest in the grocery market.

Superquinn, somewhat neglected by its previous owners over a period of years, needs a good dollop of tender loving care if it is to be brought back to the position Musgrave clearly believes it should occupy.

For Musgrave, as owner of SuperValu, the challenge comes in achieving this without cannibalising its existing sales. In a market such as this one, no such task will be easy.

The extent of the challenge is highlighted by figures from research firm Kantar, which helpfully entitled its results: “Grocery Market Slides Back into Decline”.

Aside from reminding us of Tesco’s dominance in the Republic, Kantar concluded that Superquinn’s share of the grocery market fell from 6.5 per cent to 6 per cent in the third quarter, when compared to the same months of 2010. It might seem like a slight fall, but it equates to an 8.9 per cent drop, the largest recorded by Kantar for a single supermarket brand in the period. On top of this, SuperValu’s market share also declined, this time by a lesser 2 per cent, bringing it down from 19.8 per cent to 19.5 per cent. This compares to a considerably smaller shrinkage in the overall market of 0.5 per cent over the same months, leaving Musgrave with some thinking to do.

In particular, the Cork-based group will be examining the growth experienced by German discounters Aldi and Lidl, both of which have seen their market share expand by a double-digit percentage over the year.

Much of this will be due to expansion rather than organic growth, but the reasons for it punishing SuperValu and Superquinn more than other chains should provide Musgrave with particular food for thought.

A cut-throat Christmas grocery campaign surely awaits.

Bond payout may yield nice surprise 

THE EXTRAORDINARY tightening in Irish bond yields may continue for some time yet, but not necessarily for the right reasons.

Just in case you have not noticed, the nominal yield on Irish 10-year bonds has been falling steadily over the last few months from well above 10 per cent to comfortably below 8 per cent, the level at which the Irish bailout became inevitable last December.

Despite the turmoil of the last few days they finished last night at 7.65 per cent, not too far off the recent low of 7.5 per cent.

Many, including the Government, would like to put it all down to improving international sentiment towards Ireland as a steady flow of relatively positive news replaces two years of relentless bad news.

Undoubtedly this has been a part of the story, but a number of “technical factors” such as the covering of short positions by hedge funds and other “quarter-end dynamics” have also been involved, according to Glas Securities.

However, another, more substantial factor will come into play shortly, believes Glas, which predicts that about €20 billion worth of of privately held sovereign and bank debt will be repaid over the next six months. Some of it no doubt the much discussed Anglo senior bonds.

This debt will be redeemed out of the bailout facility agreed with the troika and State’s own cash balances, not through the raising of fresh debt in the markets. Even the most optimistic of commentators don’t see the National Treasury Management Agency doing anything more than dipping its toe in the debt markets over the period in question.

The net effect of the redemptions will be to reduce the stock of Irish debt in the market, which should in turn boost demand for the remaining Irish bonds, argues Glas. And this in turn should shrink yields even further. Perhaps down towards the levels at which a real return to the markets is feasible.

It’s not quite the way a country would want to manage its national debt, but beggars can’t be choosers.