CONSUMERS CANNOT be blamed for buying goods at the lowest possible price and retailers cannot be faulted for meeting their needs. But when that involves cross-Border shopping which last year was estimated at up to €550 million and resulted in a tax revenue loss of up to €90 million, there are clear grounds for concern. The Government hardly helped matters last October by raising the standard VAT rate to 21.5 per cent just when the British government was lowering its rate. And it did so as the euro strengthened and sterling weakened, which made UK goods even cheaper.
The exchequer’s revenue loss was mirrored by a sharp fall in retail sales in the Republic as more shoppers travelled to the North to gain the benefit of lower prices. What has been good for consumers, unquestionably, has been bad for retailers in Border towns, for jobs there and for the overall economy.
Tesco has this month cut prices at 11 of its stores in the Border area in a bid to recover some of the trade lost to its supermarket rivals – Sainsbury’s and Asda – which are better placed to exploit the huge outflow of shoppers from the Republic. Tesco’s price cuts cover 12,500 items and have averaged 22 per cent.
These cost savings have been secured by eliminating some Irish distributors, by sourcing goods to UK-based suppliers instead and by forcing Irish suppliers to compete on price against British brands. An inevitable consequence will be job losses among those Irish distributors and suppliers unable to compete. Tesco has introduced this pricing strategy in a few supermarkets in the Border area. In time, this plan will be rolled out to its national network of stores.
For consumers, the benefits of the Tesco strategy are clear: lower prices. For the exchequer, the benefits are more qualified. The decline in cross-Border shopping would mean less tax revenue lost to the British exchequer. However, this would be offset by the cost of job losses among distributors and suppliers. As yet, the overall national costs and benefits of Tesco’s pricing strategy – and the response to it of the company’s rivals – remain difficult to quantify.
As one of the world’s biggest retailers in sales terms, Tesco’s size and pricing power should not be underestimated. Tesco Ireland accounts for €1 in every €4 that Irish households spend on groceries; it has estimated its overall value to the Irish economy at €2.5 billion. However, what’s good for Tesco Ireland, on balance, may not prove quite so good for the Irish economy and jobs.