Price cuts show consumers getting raw deal for years

 

ANALYSIS:THE TESCO executives who gathered at one of the retailer’s large stores outside Drogheda yesterday morning could have been forgiven for silently cursing the curmudgeonly reaction of the assembled journalists to what had been billed as the biggest shake-up in the Irish grocery sector for more than a generation.

It quickly became clear that Tesco Ireland chief executive Tony Keohane and the media weren’t on the same page when it came to discussing the impact its major stock restructuring will have. He wanted to talk about the savings shoppers in 11 northeastern towns will enjoy but the questions focused on what brands will be available and the shake-up’s effect on suppliers, producers and ultimately, jobs.

While these are legitimate questions, and ones which have yet to be adequately answered, the news that Tesco has cut the price of 12,500 goods in the affected stores by an average of 22 per cent will be welcomed by the thousands of shoppers from the Republic who routinely spend hundreds of millions of euro in cheaper Northern supermarkets.

Repeated studies from the National Consumer Agency over the last 18 months have shown that a basket of goods in Tesco outlets in the North cost about 30 per cent less than identical baskets in the Republic. From yesterday, in the 11 affected stores, that price differential will be about 10 per cent, Tesco has said, and given the higher overheads in the South, it is unlikely that differential could be any smaller.

The fact that Tesco was able to cut the price of so many products by so much illustrates just what a raw deal Irish consumers have been getting for years. In a heartbeat, Gillette Fusion razor blades fell by nearly 45 per cent from €14.99 to €8.99. Birds Eye fish fingers dropped in price by 40 per cent from €3.65 to €2, Bite Size Shredded Wheat went from €4.65 to €2.65, a fall of 43 per cent, while 200ml bottles of Aptamil baby milk fell by a similar percentage from €1.19 to 68 cent.

The list of price decreases is long and Tesco is keen to stress that they are long term. While the news is good, consumers will wonder why it took so long for Tesco to pass on the savings resulting from a significantly weakened sterling and why the discounts have not been extended to all of Tesco’s 116 outlets across the Republic with immediate effect. The retailer yesterday declined to put a timeframe on precisely when the savings will

be passed on to consumers nationwide other than to say it is taking “a phased approach” to the roll out.

While Tesco will now present itself as a consumer champion, the truth is it had little choice but to act. By its own reckoning, 4 per cent of the Republic’s grocery business has migrated across the Border in recent months and although it does have a significant presence in the North, none of its stores there are in Border towns so it has been forced to watch its customers from the Republic desert it in favour of its more strategically placed rivals Asda and Sainsbury’s.

While customers may now start benefiting from lower prices, they may also find choices are being curtailed. Shoppers in the Republic are widely considered to be more brand conscious than those in the UK, but with most people now taking home less in their monthly pay packet consumers appear more willing to buy cheaper but less familiar products. Sainsbury’s and Asda – and Lidl and Aldi closer to home – have benefited most from this shift in loyalty and Tesco is keen to capitalise on this emerging pattern.

Established Irish brands do retain a presence on the shelves in the northeast, but many have seen their prominence significantly downgraded. Tesco has denied reports that the stock restructuring will lead to a smaller number of Irish products on its shelves but evidence suggests the contrary.

It is telling that in the tea aisle, which last weekend would have largely been the preserve of the two main players in the Irish market, Barry’s and Lyons, there has been a sudden proliferation of unfamiliar British brands including Tetley’s, PG Tips and Yorkshire Tea. “Finally, I will be able to get Punjani tea in Ireland,” one Tesco executive was overheard saying to a colleague before the store opened its doors to the public. Irish tea drinkers, who are fiercely loyal tea-drinkers, are unlikely to be so pleased.

Other products familiar to Irish shoppers also saw their presence diminished – Roma pastas and Fruitfield jams were significantly depleted. Uniquely Irish products such as TK Lemonade, meanwhile, appeared to have disappeared entirely.

Swapping brands aside, the main reason why Tesco can pass on the savings is down to an overhaul of its purchasing system. When announcing its profits last month, Tesco said it was transferring its international supplier purchasing to its British parent allowing it to better exploit its buying power. It has also started to use its warehousing and supply facility in Donabate to service the entire island allowing it to order its supply from Britain, pay in sterling and ship it to Dublin for distribution.

Although there are certainly question marks over the Tesco move, many suppliers and some producers will be horrified by this turn of events and have warned that it will cost jobs, consumers are unlikely to be so concerned, particularly, if the price decreases prove to be long-lasting. It also remains to be seen how the other players in the Republic’s grocery sector – notably Dunnes Stores – will react to the Tesco moves.