Committee Reports > List of Committees > Joint > 1999 > Committee on Enterprise and Small Business > Report - Superstores

TITHE AN OIREACHTAIS

Joint Committee on Enterprise and Small Business

Report on

Superstores

Contents:

1 Introduction

1.1The Joint Committee on Enterprise and Small Business was established in November 1997 by orders in Dáil Éireann and Seanad Éireann. A list of members of the Joint Committee is available at Appendix 1 with its Orders of Reference at Appendix 2.

1.2Immediately following the establishment of the Joint Committee it met to decide on its work programme which is at Appendix 3. The food retail trade in Ireland was identified as a major area which the Committee decided to examine. This included areas such as location and size of superstores, parking and traffic issues, the introduction of U.K. and European multiples to the Irish market, threats and opportunities which this causes to Irish suppliers, the challenges specifically facing distributors and agents due to the increase in centralized distribution and the issue of trading hours including Sunday Trading.

2 Approach

2.1The Joint Committee decided that it would take a fourfold approach to this area. First it would invite all the major organisations and people involved to make presentations to the Joint Committee detailing their points of view and their recommendations for change if any. A total of 29 organisations made presentations to the Joint Committee, some making more than one submission on various issues and concerns. A list of organisations who made presentations is at Appendix 4. Transcripts of these meetings will be published separately.

2.2The Joint Committee also decided to investigate the effects of the proliferation of superstores in the United Kingdom and in France and Italy. A summary of the recommendations which arose and were adopted by the Joint Committee as a result of these visits is available at Appendix 5.

2.3A number of members of the Joint Committee acted as rapporteurs and produced reports on specific areas. The names of the members and titles of their reports is at Appendix 6.

2.4In addition the Joint Committee are considering hiring consultants to prepare a report detailing specific proposals as to how distributors and agents can address the challenges of centralized distribution.

2.5We have been aware of the commercial reality that while we have been having discussions with a number of people involved at all levels in the retail trade it is patently not possible for all of such people to say in public exactly what they think. There may well be commercial penalties to pay for speaking plainly. However we believe that we have, over the many meetings and many discussions that we have had, come to a real understanding of the difficulties that face this sector.

3 Content and Format of the Report

3.1In this report the issues involved are discussed in simple terms and in ordinary language. We consider this is appropriate as while the issues involved are quite complex there has been much public debate and we believe that there is wide public knowledge of those issues.

3.2Recommendations which the Joint Committee make are in Section 4.

3.3Section 5 provides a brief summary of each area which the Joint Committee considered.

3.4Transcripts of each presentation and questions and answer sessions with members of the Joint Committee will be published separately.

4 Recommendations

4.1That the cap in place preventing superstores of greater than 2,500 square metres be retained.

4.2That the Government continue to support and monitor the policy of entering into commitments with all operators of the supermarket industry to develop Irish suppliers and distributors.

4.3That new entrants be required to have a real purchasing office in this country and that this be monitored.

4.4That the Minister for Enterprise, Trade and Employment set up a monitoring group which can ensure that such commitments are actually carried out and to report on the matter.

4.5That the Minister for Enterprise Trade and Employment immediately carries out an analysis of the State support and assistance programs available for the retail and food trade in Ireland with a view to improving the services available for this vital sector.

4.6That the Minister for Enterprise Trade and Employment be asked to investigate the possibility and the practicalities of setting up co-operative trading organisations to reduce the losses to smaller suppliers and distributors which the increasing use of centralized distribution is causing.

4.7That a tender for an environmental impact study be issued by local authorities and paid for by proposed developers within specified cost limits for all applications for stores larger than 1,000 square metres.

4.8That legislation be brought in so that stores of a size greater than 1,000 square metres are not allowed to trade between the hours of 12.00 midnight and 6.30 a.m.

4.9That stores in excess of 1,000 square metres selling convenience foods should be closed all day on Christmas Day and all public holidays.

4.10That legislation be brought in so that stores above the size of 1,000 square metres are not entitled to trade on Sundays other than between the hours of 2.00 p.m. and 5.00 p.m.

4.11That local authorities be required to have an independent impact study carried out on all applications for stores or centres larger than 2,000 square metres to examine the probable impact of such developments on existing businesses and employment prospects within a ten mile limit.

4.12That all stores by a certain date at least one year in advance of the implementation of the EURO be required to show the EURO price as well as the Irish pound price on till receipts and shelf displays.

4.13That stores over 2,000 square metres be encouraged to display the ratio of Irish produced goods to imported goods on till receipts and shelf displays.

4.14That provision of free parking at stores or centres over 2,000 square metres be monitored particularly where such a car park may interfere with other local provisions.

Incentive schemes should be introduced to encourage people to shop in urban locations, rather than out of town locations. In this regard, the Government should consider introducing a fee system for parking in out of town centres. This fee should be levied against the operators of the edge of town centres and be linked to their car parking capacity. Such an initiative would recognise the harmful impact of car borne traffic on the road network and equalise the imbalance between the treatment of town centre and edge of town parking regimes.

4.15That stores over 1,000 square metres should be prevented from selling petrol and diesel.

4.16That with the increased use of bar coding regular monitoring be carried out on behalf of the Minister for Enterprise, Trade and Employment to determine that goods are charged for correctly and that realistic penalites be imposed for failure to do so.

4.17In addition to the above that criminal sanctions should apply where evidence is discovered that a store is deliberately overcharging its customers in a systemic manner.

5 Superstores - size

5.1The question of size of superstores is probably one of the first issues which comes to mind when the question of superstores is raised. The accepted definition of a superstore is a store which is a single level self service store selling food and possibly other products in addition to food which has more than 2,500 square metres of trading floorspace and which has supporting car parking. A supermarket on the other hand would normally be a single level self service store selling mainly food and possibly other products in addition to food and having less than 2,500 square metres of trading floorspace and which often has parking.

5.2The Minister for the Environment introduced a cap on the size of superstores of 3,000 square metres in June 1998 and a consultants report on this issue has now been published effectively recommending retention of the cap (and increasing it to 3,500 square metres in the Greater Dublin area) in advance of the development of plans by county authorities.

5.3Investigations carried out by the Joint Committee in the U.K., France and Italy have led us to believe that a cap of 2,500 square metres should be applied. The problems associated with large superstore developments were particularly noticed in these countries. Problems associated with over-large superstores include traffic congestion in the area of the store, which is often at the edge of a town or village, the reduction in the viability of local stores which cannot compete with the superstores in terms of economies of scale, environmental considerations (even aside from the problems associated with the increase in traffic) such as landscaping or the lack of landscaping and a failure to maintain the surrounding areas, and the problem of social exclusion which can affect people who do not have transport themselves and are therefore very affected by the reduction of the number of local stores and also by the damage to the local town or village centre.

5.4We believe that a 2,500 square metre cap is reasonable. We feel it will allow plenty of scope for the large multiples who prefer to operate at that level while also avoiding in so far as is possible damage to the local stores and to town and village centres. We would point out however that we are not attempting to protect any one sector of the retail area as opposed to any other. Competition is good for the consumer and for the trade. We are however attempting to ensure that fair competition is applied.

5.5Experience has shown that the large multiples can operate quite easily within a 2,500 square metre cap. We would point to the number of new entrants to the market. These companies, many of them public companies, are answerable for profits to shareholders and would not be investing in these stores if they were not confident of operating profitably.

5.6Consumer choice and competition can and should be provided to the Irish consumer by having a number of different types and sizes of stores and by ensuring that a situation is not allowed to arise where the introduction of one type of store will lead to a disappearance of others. This is not to say that the introduction of, for example, the large U.K. and European multiples will not change the Irish retail trade. It will, but change is unavoidable and change in any case is occurring in the Irish owned market. It is important to ensure however that while competition and change occur the interests of the Irish consumer which include choice in all areas, are protected.

6 Location of superstores

6.1The location of superstores is an emotive issue. By their nature they are large stores with huge car parking space and they will attract increased amounts of traffic to their location both in terms of consumers and deliveries.

6.2Traffic congestion is a problem that is not the remit of this Committee. It is however a problem that has to be addressed particularly for the greater Dublin area.

6.3Out of town or edge of town locations have become increasingly popular in Dublin in recent years. The advantage of these locations for the consumer is that, particularly given the traffic in Dublin, they are out of town and have large and free parking. Access is not therefore a problem. The advantage for the operator is that it is easy to attract large numbers of consumers who have cars and delivery access is also easy.

6.4Disadvantages for consumers are that access is generally not easy without cars. While public transport can be used to most centres, the journey would of necessity not normally be as straightforward as a bus trip into the centre of town. The longer term disadvantage of the out of town centres for consumers may be a progressive deterioration in the provision of stores in the centre of towns and villages and in suburbs thereby reducing their choice and not replacing it with a real and accessible alternative.

6.5It may be that when considering applications for out of town centres, local authorities must consider how such a centre will affect existing businesses in the nearest town centres. However this is a difficult case to make without legislating against competition.

6.6The retention of town and village centres is important in order that we maintain traditional communities. The retention of Dublin as a viable and thriving city centre is also vital. While the city centre is currently thriving commercially, we believe that care should be taken in planning to ensure that in less successful economic times it will remain successful.

6.7Environmental considerations must be considered. We believe that an independent environmental impact statement must be tendered for by the local authority and paid for by the proposed developer subject to reasonable charge levels before any application for a large development whether in town or out of town is decided. We do not believe that an environmental study provided by the developer is an acceptable alternative.

6.8In relation to environmental considerations we consider that the landscaping of the centre must be included and commitments must be entered into regarding the upkeep of these centres to avoid the proliferation of large dilapidated centres which members have seen in the U.K. in particular.

7 Effect of introduction of multiples on Irish suppliers

7.1Tesco are the largest of the U.K. multiples who have entered the Irish market. They are an extremely large firm and their introduction to the Irish market was it is fair to say greeted with some amount of concern from employees, suppliers and distributors in the Irish food trade.

7.2Tesco entered into an agreement with Government when they arrived which made certain promises and guarantees including operating an Irish autonomous head office, retaining of employees and sourcing of Irish products. All of these items are laudable. However while those commitments may be viewed as an ideal model for any new large entrant to the market the more important issue is that there must be a system to monitor the success or otherwise of these commitments and there must be some penalties for unreasonable failure to carry out the promised commitments. While the Joint Committee accepts that this is not an easy matter to legislate for none the less we are of the opinion that this must be done.

7.3We feel that maintaining an autonomous Head Office in Ireland which has responsibility for purchasing is vital however we accept that it may be difficult to monitor how successfully or otherwise that operates. We feel that rather than concentrating on this issue, the commitments entered into should instead concentrate specifically on levels of Irish goods to be sourced and on opportunities to be provided for Irish suppliers to gain entrance into the foreign markets of that multinational. Commitments on employee numbers must be made also although this is not within this Committees remit.

7.4If the multiple is coming into the country as a new competitor i.e. not in a take-over position then precise agreements regarding sourcing of local suppliers and local products should also be entered into having regard to the requirements of competition and European law.

7.5It is the opinion of this Committee that commitments which are measurable and enforceable should be drawn up with new multi-national entrants into the market.

7.6Commitments entered into with multi-national operators must also have regard to the opportunities for Irish suppliers to supply products whether own brand or otherwise to the stores that the multi-national operates in other countries. This possible enlarging of markets is one of the benefits of the entrance of multi-nationals into Ireland.

7.7The Committee is also aware of the importance of individual consumers. If a multi-national store takes over an existing Irish chain and if the choice of goods and indeed the number of Irish goods deteriorates then the consumer can have an impact.

7.8A number of the new entrants appear to operate with a restricted number of lines. While this may cause serious and immediate difficulty for individual suppliers whose markets are reduced it may result in an additional opportunity for other stores and perhaps smaller stores who are providing greater choice.

7.9We feel that while there are somethings we can legislate for we cannot and indeed should not legislate to reduce competition.

7.10One item which was raised by many of those who made presentations to the Joint Committee was the absence of state aid for retail companies. It was felt that state aid is much more easily available for manufacturing industry rather than for the retail food industry. This Joint Committee agrees that the availability of state aid for Irish food stores and suppliers should be examined with a view to ensuring that there is no differential between various sectors. The Irish food trade makes a large contribution to the Irish economy and particularly in a time of extreme change is deserving of more support.

7.11We feel that with both the increase in the number of multiples and multi-nationals operating in Ireland and indeed with the increased use of centralized distribution which is discussed below the market place for Irish suppliers is becoming more and more competitive.

8 Grocery Order

8.1The Groceries Order was discussed by the Joint Committee. We feel that this must be retained. The opinion of the majority of organisations who made presentations was that it was an extremely valuable tool and was a definite aid to the survival of Irish suppliers. One organisation in particular disagreed strongly with the retention of the Groceries Order but it is the Committees belief that it must be retained.

8.2The advantage of the Groceries Order is that it protects both small retailers and suppliers. While the main issues referred to in public debate tend to be below cost selling and requests for suppliers to provide finance to have their products sold, the Order performs a number of other useful functions as well. This Committee is of the opinion that it should be retained in its present format.

9 Distributors and Agents

9.1We believe that the challenges facing distributors and agents as a result mainly of the increase of centralized distribution are immense and because of that we are in the process of hiring consultants to produce a report on what specific steps can be taken by distributors and agents to deal with this situation. It should be noted that this is not a problem caused by the introduction of the U.K. and European multiples. Both Dunnes Stores and Musgraves operate centralized distribution systems.

10 Other Employees

10.1When the impact of superstores and multi-nationals is considered the question of possible job losses for Irish direct employees, suppliers, distributors and agents is normally raised. However we feel that there are people working in other areas who may also be affected including in-store demonstrators, packers etc.

11 Trading hours

11.1With regard to six day trading hours we believe that it is not now possible to legislate for a reduction in these hours other than as stated in our recommendations above. Consumers have proved that they enjoy the facilities of early morning to late night shopping.

12 24 hour trading

12.1We do not believe that there is any obvious necessity for 24 hour trading and we believe that legislation should be put in place to prevent such trading between the hours of 12.00 midnight and 6.30 a.m. for any store which is larger than 1,000 square metres. We consider that 24 hour trading is in fact needlessly disruptive to residents particularly where large stores and centres are involved.

13 Sunday Trading

13.1Sunday trading has become increasingly common in the last number of years. While previously Sunday Trading was restricted to small local grocer and newsagent type stores it is now prevalent for very many large and small stores. We believe that the consumer wants Sunday trading and we do not see any compelling reason to prevent it. However we do feel that legislation should be put in place to prevent stores which are large than 1.000 square metres opening before 11.00 a.m. on Sundays and opening after 6.00 p.m. on Sundays for the reasons stated above.

13.2We believe that workers must be protected with regard to the increased extension of trading hours in terms of security, health and real opportunity to decide whether or not to work increased hours.

14 Conclusion

14.1In conclusion we believe that the Irish food retail area is currently undergoing extensive change brought about mainly but not solely by the increased use of centralized distribution and the increasing number of foreign operators. We believe it is important to ensure that fair competition is maintained to the benefit of consumers and operators in the area.

14.2We believe that the recommendations we have made will aid the development of this valuable sector and assist it to address the current challenges.

Ivor Callely T.D.

Chairman

5 May 1999