Increased competition drives grocery costs down

Increased competition in retailing is driving down the cost of food on Irish supermarket shelves, according to a leading analyst.

The news comes days after an Oireachtas committee asked the Minister for Enterprise, Trade and Employment, Micheál Martin, to retain the ban on selling packaged groceries below their invoiced wholesale price.

The ban, contained in the Groceries Order, is seen by the Competition Authority, National Competitiveness Council, Consumer Strategy Group and many other groups as a bar to full competition in the Republic's grocery market.

Rossa White of Davy Stockbrokers says in a Weekly Market Comment published today that the arrival of German discounters Aldi and Lidl has led to "fierce competition" among big players in the Irish grocery market."These players have already built up a meaningful market share of 5 per cent and their squeezing margins was significant enough to influence the sale of the bastions of Irish retailing, Superquinn," he says.

"It is obvious why these new entrants have had an impact. Price inflation had been high in the Irish food arena throughout the late 1990s and early part of this century - much higher than elsewhere in the euro area - as the market leaders maintained margins in the face of rapid increases in labour costs."

Mr White points out that in 2003 and 2004 the market had turned around completely and food inflation in the State had dropped below that of the euro area. "The gap is widening in 2005: in recent months, Irish food prices have been declining at an average annual rate of more than 1 per cent. In contrast, after a brief period of deflation, euro area food prices are rising again," he says.

"In fact, the potential scrapping of the rule prohibiting below-cost selling means that it may be a while before Irish food inflation exceeds the euro area average."

Mr Martin is due to make decision on the ban's future in the autumn. He has asked for submissions from all interested parties, and last week, the Joint Committee on Enterprise and Small Business, chaired by Donie Cassidy TD, delivered a paper arguing that it should be retained.

The committee has been investigating retail prices in the Republic for over a year, and has already come out in favour of keeping the ban, which it says has not acted as a barrier to competition in food prices.