Dunnes Stores: How it transformed from value grocery to epicurean dining destination
After arrival of German discounters Dunnes chose to make a play on upscale Irish food
Through a range of acquisitions and strategic partnerships with upscale Irish food brands, Dunnes has pursued the higher end of the market
It is deep into the afternoon on a weekday and four young women have met up for a late lunch. They are all aged in their early- to mid-30s, well-dressed urbanites: probably city-centre office workers or professionals on a day off.
They’re a fun group, laughing and joking together; this is definitely not a business meeting. These women are obviously friends. As is the case with many younger urbanites, their food is almost uniformly healthy – mainly salads and juices.
This scene in Dublin, shortly before 4pm last Monday, could have been playing out at any one of a swathe of trendy casual restaurants across the city. But this wasn’t a restaurant at all. These women had met for a late lunch in the Baxter & Greene food hall within the Dunnes Stores grocery supermarket in the St Stephen’s Green shopping centre. They were dining in a shop.
Welcome to the fresh new image of Ireland’s biggest indigenous retailer, which in recent years has embarked on a journey from stereotypical family value grocery store to a would-be epicurean dining destination.
Insiders at Dunnes Stores, meanwhile, speak of it following their customers 'on a journey'
Through a range of acquisitions and strategic partnerships with upscale Irish food brands, Dunnes – where the traditional refrain was always that better value beats them all – has gone all posh and foodie.
It has bought James Whelan butchers and the Café Sol coffee chain as well as its Baxter & Greene food brand, and brought their outlets into its own supermarkets as standalones.
Dunnes took over the ABC Bread business. It tried to buy Avoca Handweavers and Donnybrook Fair, narrowly missing out on both.
It signed partnership deals for in-store concessions with Sheridans cheesemongers and the Nourish chain of health food stores. It was recently rumoured within the trade to be interested in the Fallon & Byrne chain, while it also made an approach for the Base Wood Fired Pizza restaurant group.
Its new flagship foodstore in Bishopstown in Cork also has deals with Naturally Nourished healthy cafe, and the Cork English Market’s K O’Connell fish merchants, whose owner was famously photographed laughing uproariously with the queen of England on her 2011 visit, as if his granny had just cracked a joke.
As Irish grocery consumers’ habits have changed in recent years, so too has our biggest supermarket chain. And Dunnes is still hunting for more takeovers.
Rulebook torn up
The entry into the Irish grocery market of the German discounters Aldi and Lidl during the last boom in 1999 and 2000, turned the sector on its competitive head. When it came to price competition, the rulebook was torn up. The recession that began in 2008 played right into their hands.
By the end of it, the Germans emerged with over a fifth of the market between them and shared the crown as the cheapest destinations for Irish grocery shoppers. The price battle was lost, so the big indigenous players, including SuperValu and Dunnes, had to play a different game.
Dunnes chose to make a play on upscale Irish food brands, quality and food provenance.
Echoing the brands strategy that it deployed in textiles and homewares to bring in names such as Lennon & Courtney, Carolyn Donnelly, Paul Costelloe and Paul Galvin, it started buying up small Irish food businesses as the economy turned upwards.
Better value used to beat them all, now it is better food products. The latest data from Kantar Worldpanel, which tracks grocery market share, has Dunnes at the top of the pile with 22.2 per cent.
The pivot in strategy coincided with a shift in power at Dunnes. Margaret Heffernan, the daughter of the chain’s founder and its matriarch, is now aged 77. She has passed over control of much of the business in recent years to her daughter, Anne Heffernan, and her niece, Sharon McMahon.
Sharon looks after the properties, while Anne spearheads the drive into the epicurean sector, with the development of upscale food halls. Her mother – deferentially known as “Mrs Heffernan” by insiders – is still deeply involved. Margaret always harboured a desire to drag Dunnes upmarket. Anne is executing a strategy of which her mother fully approves.
“Retailing these days is all about personalisation,” said Owen Clifford, who heads up the retail sector unit at Bank of Ireland’s business banking division. He was previously an accountant with Musgrave, the owner of SuperValu.
“Shoppers walk into a supermarket and ask: ‘does this place represent me?’ So when customers walk into a Dunnes now, they see brands like Sheridans, James Whelans, etc. If they think that represents the values that they have, you’re winning straight away in terms of engaging with the customer.”
Dunnes has more than a fifth of the €11 billion Irish grocery market. But while SuperValu reigns supreme in the regions outside Dublin, Dunnes is the champion in the capital. Clifford says a desire to protect this position is driving its strategy to go upmarket in grocery through by buying recognised food brands.
SuperValu owner Musgrave, meanwhile, has sought to attack Dunnes on its own patch with the recent purchase, for €25 million including debt, of Donnybrook Fair.
“Dunnes and Musgrave both came back to an extent from the UK market in the last few years, and they both thought: ‘so how can we add value so that we can maintain our sales and market share’,” said Clifford.
“Dunnes is really focused on Leinster, and Dublin in particular. It looked at the demographics of the people there, and wondered how it could hold its heartland. The people there are more into the foodie element. So Dunnes went up the value chain. It is quite noticeable that it is going after quality Irish food SMEs.”
Insiders at Dunnes Stores, meanwhile, speak of it following their customers “on a journey” as the economy improved and tastes went upmarket. Stephen’s Green, Cornelscourt and Bishopstown are seen as its three most important food hall plays.
Depth of competition
The 2015 purchase of Café Sol is usually identified as the genesis of the new approach but it actually kicked off the strategy quietly during the last recession, when it took over artisan bread brand ABC, the Alternative Bread Company. Since 2015, the takeovers and partnerships have come thick and fast.
Both Musgrave and Dunnes lost out to multinational caterer Aramark for Avoca Handweavers in 2015. The battle for epicurean supermarket chain Donnybrook Fair last year really illustrated the depth of competition between the two.
Anne Heffernan believed she had almost nailed a deal to buy Donnybrook Fair for €20 million from its founder Joe Doyle at the beginning of last year. Then it did due diligence, and believed it had reason to haggle on price.
By the summer, Dunnes was out and Musgrave came in and stole a march on it. As late as a week before that deal closed, Heffernan was making phone calls to try to get back into the process, sources say.
When Dunnes buys a food brand, it takes on the company’s existing management, feeding off their sectoral expertise. It usually leaves them to run the brand under the eye of its senior team. Emmet Daly, who sold Dunnes Café Sol, has since progressed to be the head of Dunnes’ group hospitality division.
We are determined not to change from the values that my parents instilled in the business
While it keeps the management teams, however, it tends to replace as directors the board members of the businesses that it buys.
Daly is no longer on the board of Café Sol, for example, while craft butcher Pat Whelan stepped down as a director of James Whelan, which was founded by his parents, when Dunnes bought it in 2016.
Tipperary businessman Whelan operates a seriously upscale butchers chain that already had a concession partnership with Avoca when Dunnes took it over. It still has its deals with Avoca, but so far, it has not expanded its footprint with it since Dunnes came along.
Over a coffee in a Dublin hotel this week, Whelan was keen to refer to both Avoca and Dunnes as its “partners”.
“But Dunnes is now our parent, as well as our partner. We really like to look upon it as a partner that creates opportunities for us,” he said.
Since the Dunnes deal, the Whelans chain, which supplies high-end products such as wagyu beef as well as premium household products, has kept its Clonmel family flagship and its two Avoca outlets in Kilmacanogue and Rathcoole.
But it has also expanded quickly to add in-store outlets at Dunnes in the grocer’s Dublin heartland at Rathmines, Cornelscourt, Swords, Blanchardstown, and in Cork at Bishopstown.
“That’s what we have for now. There’s no grand plan to hit a certain number. But we will look at every opportunity,” says Whelan.
In an illustration of how Dunnes’ new strategy has taken the company into food arenas where it would never have been able to compete previously, it is set to benefit from a partnership that Whelan has just signed with Northern Ireland uberbutcher Peter Hannan of Hannan Meats.
Hannan, which supplies Michelin-starred restaurants, specialises in a complex and celebrated method of ageing beef in salt chambers. It has won a raft of awards, and Whelan has inked a deal to stock its meats in his outlets. That means, de facto, that the mass market supermarket chain Dunnes also gains access to Hannan’s meats.
This sort of thing is basically virgin territory for Dunnes, and would have been out of reach for it in the old days.
“We are determined not to change from the values that my parents instilled in the business,” said Whelan. “And that is: serve the customer as if they were your mother, treat your colleagues like a brother and have pride in how you treat your family.”
It is precisely to benefit from alluring and folksy narratives such as this that Dunnes bought James Whelan butchers, and the spin-off benefit of a partnership with Hannan is a prime example of its new foodie strategy in action.
“I don’t believe Dunnes will stop where it is now,” said Bank of Ireland’s Clifford. “Confectionery is probably an area that I think will be targeted. Asian food, high-end Italian food, smoothies, ice cream, cakes. Some or all of this could eventually find its way into the Dunnes food hall.
Looking further ahead, he says, Dunnes will eventually have to decide if and how it will sell online. So far, it has kept out of the web sales and grocery home delivery market. But the market is shifting.
“I think the next big thing for Dunnes will be to go online. Maybe they will pick a partner, like Ocado, to do it for them. But look at the evolution of the business and of consumer behaviour. They’ll absolutely have to do it.”
The sense emanating from within Dunnes is that wherever consumers go – be it towards upscale food brands or on to the internet – it will feel compelled to follow.