THE Quinnsworth/Crazy Prices and Stewarts chain, which the British group Tesco is buying for £630 million sterling, will be "earnings enhancing" in the first year and will make a significant contribution to profits thereafter, Tesco's chairman, Lord lain Mac Launn, has said.
However, Tesco has indicated that it will examine whether distribution in Ireland should be centralised. Such a move could affect the major Irish distribution companies.
"We are very pleased with the Irish operations which give us market leadership North and South, with prospects for growing it further," Lord MacLaurin said. He was speaking at the presentation of Tesco's annual results in London yesterday.
Tesco, which is Britain's leading food retailer, reported a 10 per cent increase in annual pre-tax profits to £750 million sterling. Its overall group sales were up 15 per cent to just under £15 billion, with the British market accounting for around £14 billion.
However, the petrol price war with Esso and others in Britain cost Tesco round £35 million, the company admitted. This hit its operating margins, which slipped 0.4 per cent to 5.8 per cent.
It managed to increase its share of the British food market and now claims to have 14.5 per cent of the market, up from 13.7 per cent in 1995. Its nearest rival is Sainsbury, whose market share is said to be around 12.5 per cent.
The company is to pay out £32 million (up from £29 million in 1995) under an employee profit-sharing scheme, which will be shared among 63,000 staff.
The deal with Associated British Foods (ABF) to buy its Irish interests, excluding the Penney's clothing chain, is subject to merger-approval by the European Commission. Tesco's chief executive, Mr Terry Leahy, declined to comment on the outcome, but the company hopes it will get clearance on the deal by May 5th.
Mr Leahy said Tesco was very pleased with its proposed acquisition. "It is an Irish market leader which has traded through some very challenging times."
He added that the Irish economy was performing very well and the stores contained some "very encouraging" features. When pressed on the issue of central distribution, he said the Irish management had already been looking at the situation, prior to Tesco taking over.
He declined to be drawn specifically, but indicated that this could happen. Musgrave in Ireland already had a central distribution system, he pointed out.
Tesco also managed to save £20 million last year through reorganising its supply chain. Fears have been voiced in Ireland, especially by IBEC, the employers' lobby group, that Irish suppliers will lose out as Tesco will use more British suppliers.
Already the company has met the Minister for Enterprise and Employment, Mr Bruton, and his Fianna Fail counterpart, Ms Mary O'Rourke, to give assurances on the matter.
Mr Leahy said yesterday that he was "a bit surprised" by IBEC's reaction to the takeover announcement. He said opportunities existed for suppliers, not just existing suppliers, but small suppliers who may not have been able to supply Quinnsworth/Crazy Prices in the past, because of their size. Tesco has promised to consult them and advise them on bow to tailor their products to Tesco's needs.
Mr Leahy said Tesco was coming to Ireland to ensure growth and maintain employment.
He said the British and Irish markets were very different but the company would improve its profit margins - currently more than 1.5 per cent less than Tesco stores in Britain - through improving sales, winning customers and improving their spend by giving them extra items to buy.
In Britain, Tesco currently has around 600 items on offer, which it markets as its "best value" items. If a customer can buy any item cheaper elsewhere, Tesco refunds the difference. This marketing ploy is expected to be introduced in Ireland.
However, Mr Leahy said Tesco was unlikely to get involved in a price war with its competitors. "The outcome of a price war is that it usually damages everybody," he said.
