Analysis: Abolition of the Groceries Order should slow the rate of future price rises, writes Marc Coleman
The days of the Groceries' Order are numbered.
But will its abolition put money back in our pockets, or is it just a political placebo to exorcise the ghost of Eddie Hobbs from the mind of the electorate?
And if it is abolished, will small town Ireland become ghost towns of boarded-up shopfronts, as predicted by the grocers' organisation RGDATA?
The original Order of 1956 aimed to stop suppliers from forcing retailers to sell on their goods at artificially high prices. When Tesco entered Ireland in 1987, H Williams went out of business and Irish retailers began to fear for their future. They lobbied for the Order to be reworded to prevent so-called "predatory pricing".
This is a practice whereby large stores undercut small competitors, only to raise prices after they are dead. By rewording the Order, mom and pop stores would be protected from such unscrupulous competition and consumers would be protected from high prices, some said.
But a review of the Order conducted by civil servants for Minister for Enterprise Micheál Martin says that it does the opposite. By defining "below cost selling" with reference to prices that suppliers put on their invoices, the Order gives those suppliers the power to collaborate with each other to set high prices. Abolish it, Mr Martin says, and prices should fall.
But by how much and how significant will this be for consumers?
The Competition Authority recently implied that some goods were overpriced by as much as 18 per cent as a result of the order.
Such price falls are unlikely in the short-term. Industry insiders say that the immediate price reductions following the Order's abolition will amount to 2 or 3 per cent. The Minister is particularly shy of raising public expectations that might be disappointed.
But even if the initial price falls are small, the Order covers a significantly wide range of the average weekly shopping basket. Most processed food and drink products are included in the terms of the Order, as are alcoholic beverages and household goods such as toilet rolls. Fresh food produce is excluded.
And it is in the medium to long-term that the Order's abolition is likely to have most effect. Ireland's present status as a high cost country was achieved over several years.
The review of the Order gives some striking evidence of this long-term impact. In Ireland, Spain and Greece where a similar-style restriction has existed, food price inflation averaged 30 per cent in the last ten years. In Germany, the UK and Sweden, where no such restrictions are in place, it averaged a mere 13 per cent. At the very least, the order's abolition will significantly slow down the rate of future price increases.
It will do this by freeing retailers from the dictates of suppliers, and creating aggressive competition in the sector. In a move that suggests this is already happening, retail group Gala recently announced that they were investing €48 million in a new chain of stores, while Bank of Ireland have announced the availability of new financing for franchisers. In fact the review of the Order found that the retail sector in Ireland was more dominated by big players than in the UK, where there is no such restriction.
This undermines the second fear concerning the Order's abolition, that it will lead to "food deserts" in remote parts of Ireland. According to the review, the closure of small shops in Ireland has been continuing apace in spite of the order's existence. Indeed Mr Martin has stated that, if anything, the Order works against small shops by assisting large retail chains who have stronger relationships with suppliers. And according to the Competition Authority, fears of so-called predatory pricing are overdone. Their analysis has concluded that where small retailers have gone out of business it was due to inefficiency and was not followed by a larger competitor subsequently raising prices.
The benefits of the Order are long-term, says the Minister. Time is needed for market players to adjust and react.
The order's abolition is not an immediate panacea for hard pressed consumers. And it certainly does not spell the end of small shops. If anything, it will assist dynamic change in the market. Multiples will focus on their comparative advantage (selling large bulk items cheaply) and local stores will focus on theirs (newspapers, sweets, cigarettes and the ambience of local contact). Peaceful co-existence and competition may not be mutually exclusive.