Fall in grocery prices can't hide lack of competition

 

ANALYSIS:Considering how vastly inflated Irish prices became during the last decade, it is questionable whether they are coming down far enough or fast enough, writes CONOR POPE

YESTERDAY’S TIMELY report from the National Consumer Agency, which indicated that the price of branded goods in our major supermarket chains has fallen by around 14 per cent in the last 18 months, is not quite such good news as it might at first appear.

The fact that some grocery prices are cheaper is certainly to be welcomed. But question marks hang over whether prices have fallen far enough or fast enough for

Irish consumers, particularly when one considers how vastly inflated these prices have been in the Republic for almost a decade.

A survey published by Eurostat earlier this summer showed that in 2009 the Republic had the second-highest prices for food and non-alcoholic drinks in the European Union. It reported that prices here were nearly 30 per cent higher than the EU average – by comparison prices in Britain were just 3 per cent about the average.

Yesterday’s reported price fall – much of which happened in the first half of last year, so it will have been factored in by the 2009 Eurostat survey – will not make much of a dent in those price differentials.

Another black mark against the retailers, which the NCA report highlights, is that while prices of some branded goods have fallen, the averages are being skewed by special-offer deals rather than long-term across-the-board price cuts.

The country’s main retailers are now competing largely on the basis of special offers and promotions and seem to be spending their time toying with frequent but small price changes on individual items.

This is of little long-term benefit to consumers who would much rather that retailers stopped all the messing about and introduced sustained price cuts, instead of two-for-one deals, which encourage people to buy produce they neither want nor need and which all too frequently ends up in the nation’s bins.

Of even more concern to consumers is the level of price matching which yesterday’s NCA survey revealed. The agency compared the price of a basket of 103 branded grocery items with a price of around €280 in Dunnes Stores, Tesco and Superquinn and found a price difference of only €1.14 or 0.4 per cent between the cheapest, Dunnes Stores, and the dearest, Superquinn.

This suggests that the three stores that have carved up in excess of 70 per cent of the Irish grocery pie between them have declared a ceasefire in the food-price war. That war drove prices down significantly in the early part of last year but according to the NCA, while prices fell significantly in the first half of last year, they have been virtually static since.

The NCA’s chief executive Ann Fitzgerald said this freeze on price cuts suggested that the big retailers were in “a comfortable place”. She said their margins were “unacceptably high”. While it is hard to argue with this statement, it is frustratingly hard to prove it too. No one except those at the highest echelons of the big three retail giants know just what their margins are as they have long guarded them like the Vatican once guarded the Third Secret of Fatima.

Fitzgerald attributed the cosy price matching to an absence of competition and called for a removal of the cap on the size of retail units under planning regulations, claiming this would stimulate competition by encouraging a big overseas retailer to come to Ireland.

“The results show that while grocery prices have dropped across the board over the past 18 months, there is evidence that the most powerful retailers in the State, between them controlling 70 per cent of the market, are still price matching in core branded items to a significant degree, albeit at much lower levels than in 2007 and 2008,” she said.

“This suggests that competitive pricing is still not a feature of the Irish grocery market and to address this there is a real need for a new entrant to the market to offer consumers a real alternative.”

While the entry into the Irish market of big players such as the Walmart-owned Asda or the French retail giant Carrefour would undoubtedly increase competition and drive prices down in the short term, until there is greater transparency in the market when it comes to pricing across the board and in terms of profit margins, there is not likely to be a major push toward significantly enhanced levels of competition.

The NCA talks a good fight and to its credit its grocery price surveys have been a thorn in the side of the retailers, particularly as they have shown the comfortable nature of the relationship the big four have on prices and revealed how much more groceries cost in the Republic when compared elsewhere.

But the bottom line is that the retailers with their vast marketing budgets are more than a match for NCA. The big retailers can stock in excess of 10,000 products and they know which products the NCA is likely to include in its price surveys. All they need to do is manage carefully the prices of the goods likely to be included to create the impression they are becoming more competitive while at the same time hiking the prices of other lines which may be less popular but which still sell in vast quantities.

Until all the big retailers have all their prices available in real-time, in an easily accessible digital database, so accurate price comparisons can be drawn, price surveys will be at best patchy and at worst useless.

Conor Pope is editor of the weekly PriceWatch pages in The Irish Times