Support money is hello money in different guise and breaks spirit of restrictive practices order

On the face of it, the report by RTE's Charlie Bird on "support money" for Superquinn would appear to show that Feargal Quinn has, at the very least, broken the spirit of the 1987 Restrictive Practices Groceries Order.

Among its provisions, this forbids retailers asking suppliers to the grocery trade for donations to guarantee shelf-space for their products - the so-called "hello" money.

In this instance, Superquinn seems to have asked its suppliers to donate "support" money towards the costs incurred by the chain in opening its new £8 million store in Dundalk, with the possible implication that compliant suppliers would receive favourable shelf treatment for their products in the new store.

In both his television and radio interviews, Feargal Quinn stoutly defended his company's position, claiming that he had certainly not broken the law, but that acting on the best possible legal advice, he had "sought ways to get around it".

To the ordinary man or woman in the street, running a grocery store may seem a fairly straightforward business: you buy goods from manufacturers and suppliers and you sell them on to your customers, making your profit from the difference between the purchasing and selling price.

Indeed, that was the way things were until the 1950s, when Ben Dunne Snr and Pat Quinn introduced the concept of self-service supermarkets to Ireland.

This new type of store, among other attractions, was hell bent on wooing customers from the more traditional outlets by offering rock-bottom prices, and the era of the tough negotiator was born in Irish grocery.

From the viewpoint of the supermarket owners, there was a lot to play for - even in this predominantly technological age, 75 per cent of all grocery purchases are still paid for in cash - and the Irish grocery market is currently estimated to have a value of £4.5 billion.

As some supermarket owners realised early on, merely putting the cash coming through their tills into deposit accounts and clocking up the ensuing interest was all they had to do to become millionaires - that is until the Groceries Order stopped them from demanding excessive credit from their suppliers, some of whom were previously left waiting for payment for over six months.

Irish multiples declare that the Irish grocery business is among the most competitive and efficient in Europe, with net profits of between 1 and 2 per cent.

The usual reasons given for these low-profit margins is our reliance on imports, whether these be ingredients, foodstuffs, or equipment and services, and the generally higher cost of doing business here. Although I have no hard evidence to substantiate my opinion, I find these low-profit margins difficult to believe; part of my job involves talking to independent Irish retailers, and the successful operators among them tell me that their margins are well in excess of these figures.

And the question arises, why did Tesco, which is used to profit margins of 7 per cent in the UK, pay £630 million for the Quinnsworth/Crazy Prices chain in 1997 if 1 or 2 per cent is all it will return from its Irish operation?

The 1987 order stopped "hello" money, excessive credit, and selling goods below cost. It didn't stop the multiples demanding a discount from their suppliers, based on the volume of business done in their stores.

These discounts are the recently much-spoken of LTAs (long-term agreements), which can range from 1 per cent to 5 per cent, depending on the grocery category involved.

For instance, the massive investment in refrigeration in grocery stores must be paid for, and who better to help pay for it than the dairy suppliers?

That's the way the supermarket buyers view the situation, but as far as the suppliers are concerned, the agreement element of the LTA is of a one-sided nature.

Supermarkets have other means of extracting money from suppliers: contributions to the multiple's favourite charity, annual golf classic, or study trip abroad are among the items mentioned to me by suppliers, these on top of the regular promotions run for consumers.

You begin to wonder how any manufacturer or supplier can afford to be part of the Irish grocery business; however, if reports from the UK are to believed, the multiples there, which have nearly 70 per cent of the UK grocery business, are even more predatory.

Which brings us to the nub of the Superquinn debate. Despite the 1987 Groceries Order, suppliers say that Feargal Quinn asked them for "support money" when he opened his first provincial stores in 1993-1994 in Kilkenny, Clonmel and Carlow.

I believe that almost immediately after the order was introduced, Superquinn set up a company called Retail Logistics. At that time, Superquinn had the edge over its competitors in the information technology field, and the idea behind Retail Logistics was to sell information to suppliers about their products' performance in Superquinn stores, thereby making up the losses which followed the demise of "hello" money.

However, the information was not significant, and the practice of selling data seems to have fallen by the wayside - in any event Superquinn didn't open any new stores until its Dundalk one this week. Does Superquinn really need to get this kind of support money from its suppliers? The company is said to have an 8 per cent share of the £4.5 billion grocery market, and even if net profits are as low as 2 per cent, it still clocks up profits of over £7 million yearly. But even as suppliers grumble about being squeezed by Superquinn, they also want to see Feargal Quinn stay in business, seeing in him a bulwark against what they describe as even more predatory operators.

When push comes to shove, and in true tribal fashion, Irish suppliers would probably prefer to put their trust in Irish supermarket owners.

Mary Brophy is editor of Checkout Ireland, the trade magazine for the Irish food and drink industry.