Because Marks & Spencer, Aldi and Lidl stock limited ranges of products and because Superquinn is not competing country-wide, there are only two national multiples offering a full range of products — Tesco and Dunnes Stores. Their principal competitor is Musgrave, with its SuperValu and Centra stores. These three companies have about 70% of the market.

4.5 Numbers of Stores

Table 4.B: Numbers of Stores

Source: Information provided to the Joint Committee and obtained from the companies’ websites.

The above list of symbol stores does not include the forecourt retailers, for example:

—On the Run (Esso)

—Fareplay (Statoil)

—Select Prices (Shell)

—Star Market (Texaco), etc.

The Joint Committee has no information on the number of independent grocery stores. Many tobacconists and newsagents carry a limited range of grocery items. Independent stores include specialist food stores such as fruit and vegetable shops, butchers, bakeries, etc. Many restaurants also sell takeaway food.

Superquinn, StoneHouse, Mangans and Barry buy through Aontas, which has a combined retail turnover of €2 billion.

4.6 Market View

The Competition Authority stated:

•There are four ‘relevant markets’ within the Irish Grocery Trade Sector:

—Supermarkets

—Convenience shops

—Food distribution

—Food processing

•Because the supermarket and convenience stores offer different services, they should be treated as separate markets. However, there is a level of competition between supermarkets and convenience stores. For example, lower supermarket prices put downward pressure on the convenience stores’ prices.

•The supermarket sector is highly concentrated. About 60% is supplied by Tesco and Dunnes Stores, with the bulk of the remainder made up of SuperValu (20%), Superquinn (11%), and Lidl & Aldi (6%).

Table 4.C: Supermarket Sector

Source: Competition Authority

•The convenience shop market shares are given below.

•Dunnes and Tesco are entering the convenience sector. Many more entrants to the sector are expected.

Table 4.D: Convenience Retail Sector

Source: Competition Authority

•The convenience wholesale and distribution market is highly concentrated, with two companies (Musgrave and BWG) holding 68% of the market.

•According to the Competition Authority, the convenience retail sector is not concentrated at the national level. As the service is local, it is the local market in which competition occurs. Any concern with local concentration is tempered by the fact that it is relatively easy to enter the market.

4.7 Concentration of Non-Supermarket Convenience Stores

The Joint Committee asked Musgrave to comment on the Competition Authority’s analysis of the ‘convenience market’. Musgrave stated:

‘The Authority’s press release indicates that wholesale distribution to independent grocers is concentrated on two main suppliers: Musgrave and BWG. Without prejudice to our comments above on market definition, we do not know where the 68% market share figure comes from and, while we do not compile such statistics ourselves, we do not believe this figure is correct. We would point out that there are a number of other players in the market who actively seek market share and who provide serious competition. These included Mangans of Clare, Barry’s of Mallow, ADM Londis and StoneHouse who collectively supply thousands of retailers. We do not think there are any significant barriers to entry to this market and provided a company was able and willing to put sufficient investment behind retailers’ support and supply chain logistics, there would be nothing to stop them entering the market. They would need to provide a service that was competitive with the existing wholesalers in Ireland, which they may find more difficult, as the market is already highly competitive.’

4.8 Submission by BWG

The BWG response to the Competition Authority view that the grocery retail market can be subdivided into supermarket and convenience stores is contained in Appendix 5.

4.9 Conclusions on Grocery Retailers

While there may be merit in considering that there are two retail markets — supermarkets and convenience shops — there are difficulties in determining where one market ends and another begins.

With the top five companies having shares of 85%, the market is very concentrated. The entry to the market of Lidl and Aldi has had a pro-competitive effect.

5. Effect on Consumers

This chapter addresses the effect that multiple supermarket shopping is having on consumers.

Musgrave stated that, in recent research it carried out, convenience at 31% is the most important consideration for shoppers in determining where they shop. Price ranked second at 16%, range at 11% and quality at 9%.

Food Price Inflation

The table below gives the level of inflation in food prices compared with overall inflation for the past four years.

Table 5.A Food Price Inflation 2000—2004

Source CSO.

It can be seen that inflation in food and non-alcoholic beverages has been low compared with general inflation.

The Combat Poverty Agency stated:

•Food poverty is defined as ‘the inability to access a nutritionally adequate diet and the related impacts on health, culture and social participation’.

•Food poverty affects 5% of the population (200,000 people, which includes 60,000 children).

•Low-income households spend more, proportionally, on food.

•Market changes have resulted in reduced access to food and ‘food deserts’. Market changes include: larger retailers undermining the local shops, major food centres being hard to get to, and local shops only offering a limited range of goods at a higher cost. (‘Food deserts’ are disadvantaged areas with physical and economic barriers to accessing healthy food.) Sometimes the local grocery ‘shop’ is in someone’s home or is a garage forecourt.

•Access for all to healthy food should be the cornerstone of national food and nutrition policy.

•The cap on the size of food stores and ban on below cost selling should be retained. Below cost selling provides no long-term benefit for people on low incomes.

•Multiples should be obliged to cater for low income consumers through, for example, providing transport and home deliveries.

•Multiples should be ‘forced’ to locate in some socially disadvantaged areas.

•Alternative food outlets, such as local markets, food co-ops and health cafés should be supported.

•Neighbourhood shopping should be supported.

•There should be a national school meal system. This would result in a health gain for children.

•A Junior Minister should have responsibility for co-ordinating policy on food poverty.

•There are 79 charities collecting food for the disadvantaged. There is no need ever for food to be ‘drilled down’ into the ground when there are surpluses. Last year 700 tonnes of food were redistributed though the social network.

5.1 Price Comparisons within Ireland

Tesco stated:

•Tesco carry out weekly price surveys of competitors’ prices. Tesco estimates that it has the lowest prices across the entire market.

•When weighted prices of the Tesco ‘Value’ range are compared with those of Aldi and Lidl, Aldi and Lidl are more expensive.

RGDATA stated:

•RGDATA do not carry out price surveys similar to those undertaken by Tesco. However, when comparing prices in price surveys one may not be comparing like with like.

•RGDATA stated that prices outside of Dublin, where most of its members operated, were cheaper than in Dublin.

Musgrave stated:

•The allegations made by Tesco about SuperValu and Centra prices were of very serious concern. They do not represent the true position.

•Tesco’s price comparisons do not reflect Musgrave’s own price surveys, which show their prices to be competitive with those of Tesco.

Lidl stated:

•Lidl refuted Tesco’s assertion that Tesco’s Value product range is of comparable quality to that of Lidl’s product range.

•Lidl has had a dramatic impact on the price levels for groceries in Ireland. ‘Prices are coming down across the industry thanks to Lidl’s pricing policy ... Unfortunately, this development is not entirely visible in the slightly outdated material from Eurostat.’ Lidl stated that the CPI for Food and Non-Alcoholic Beverages has fallen continuously since discounters started to reach a significant proportion of the population.

•Lidl stated that it had reduced fresh vegetable prices. It provided survey figures showing that its competitors were charging lower vegetable prices since Lidl entered the market.

BWG stated:

•High food prices are not the result of profiteering in the manufacturing, wholesaling or independent retail sectors.

•There have been price reductions on 65% of lines in the last 12 months.

Marks & Spencer stated:

•Prices in Marks & Spencer in Ireland and the UK are generally the same.

5.1.1 Comment

Supermarkets can be further sub-divided into:

•Full range supermarkets

•Limited range supermarkets

Examples of ‘full range’ supermarkets are most of the Tesco branches, most Dunnes Stores branches and almost all of the Superquinn branches. Examples of limited range supermarkets are Aldi, Lidl, Marks & Spencer and Iceland.

Of course, the voluntary/symbol group retailers such as SuperValu, Centra, Spar, Gala, Mace, Costcutter, Londis, and Vivo compete with multiple supermarkets and influence the behaviour of multiple supermarkets.

An interesting study was carried out by Mr Jim O’Leary, Economist. In the Irish Times of 13 August 2004, he reported on the variety of prices he found in a supermarket for the same product. This study showed the difficult choices that consumers have to make and the difficulties in providing price comparisons between supermarkets and between countries.

Tesco stated that it offered a number of ranges of goods at varying prices to its customers. These included:

•Branded goods

•Tesco own brand ‘finest’

•Tesco own brand products

•Tesco value products.

The shopper in a Tesco, Dunnes Stores or Superquinn supermarket may, therefore, have a choice of products depending on whether they wish to purchase branded products, own brand products or ‘value’ products.

It is very difficult, therefore, to determine exactly what the price of any product actually is on a particular day. For example, there are a number of different brands of the 800-gram sliced pan as well as ‘value pack’ offerings and Tesco ‘own label’ offerings. The customer chooses the bread he/she wishes to consume.

There is, therefore, competition within each full range supermarket on price, brand and quality. In general, when purchasing branded products, the consumer is likely to consider that the products are of high quality. However, in the limited range supermarkets such as Aldi, Lidl, Marks & Spencer, Iceland, there is generally only one offering per product type. Generally the products being sold are own brand or brands owned by the multiple retailer.

There appears to be a wide range of price choices available to the consumer. In addition to the multiple supermarkets, the consumer has a choice of prices in the voluntary and independent stores.

5.1.2 Price Surveys

An interesting point that emerged during the course of the presentations by witnesses was the continual price checking undertaken by multiple supermarkets and voluntary groups.

This price checking, on the one hand, is evidence of an intensely competitive market and, on the other, facilitates price alignment. If one supermarket reduces its prices, all others, within a very a short time, can bring their prices into line with the first supermarket. In this way, the first supermarket does not retain any real benefit from a price reduction. However, as prices of supermarkets are in the public domain, any shopper or any competitor can gain access to these prices. Nevertheless, the practice could be having an anti-competitive effect. Consideration could be given in future to requiring that price changes should only take place once a week so that any retailer reducing prices would have at least a week to advertise the reductions before competitors could react.

5.1.3 Consumer Knowledge of Prices

While the consumer is aware of the total cost of his/her shopping basket each week, very few consumers are able to remember more than a small number of prices. Remembering is made all the more difficult because prices do not appear on the products and are included, instead, on the shelf-edge labels. It can be difficult to find the relevant shelf-edge label at times. Prices can also be obtained from the receipt given by the supermarket to the consumer. However, it is not thought that many shoppers compare prices of products on a weekly basis. Consumers, therefore, find it difficult to compare prices in one multiple supermarket with another or with prices in the voluntary group sector.

The Minister for Enterprise, Trade and Employment stated:

•Before assigning State resources to examining in detail price levels of different products in different sectors, it is necessary to be satisfied that it is actually possible to conduct such examinations and that the results would actually be of use to consumers and others.

5.1.4 Comment

Comparing prices cannot be easily carried out by anyone because of the different ranges of products in supermarkets. Nevertheless, it would seem that a quarterly comprehensive survey should be undertaken by the Office of the Director of Consumer Affairs or a similar organisation so as to make consumers more fully aware of prices in competing supermarkets. Surveys published by official sources would keep a focus on prices and provide useful information for consumers.

The Joint Committee recommends that:

Comprehensive quarterly surveys should be carried out on shopping basket prices in multiples, voluntary, and independent stores by the Office of the Director of Consumer Affairs or similar organisation to inform consumers of best value.

5.2 Price Comparisons with Other E.U. Countries

Table 5.B Price Increases

Ireland vs. Other EU Countries — Comparison of HICP (Harmonised Index of Consumer Prices) Inflation % Changes for year to December 2004

Source CSO/Eurostat.

The Minister for Enterprise, Trade and Employment stated:

•Irish food and non-alcoholic beverages inflation has been low in the past year and is slightly less than the average for the Eurozone.

•As to whether or not Irish consumers are getting as good a deal as their counterparts in the UK and other European countries, it is not easy to make direct comparisons, although the introduction of the Euro has helped.

•There is cause for concern at higher prices in Ireland relative to the rest of Europe. The Consumer Strategy Group was specifically asked to determine whether the Irish consumer was getting a fair deal.

•Ultimately, the most effective way to positively impact price levels in the interests of ordinary customers in the grocery sector is to facilitate effective competition in a market place where empowered consumers are making choices between retailers.

The Competition Authority stated:

•Irish consumers are not getting as good a deal on food prices as their counterparts in the UK and other European countries.

•A detailed comparison of prices in Ireland with those in other EU countries would not be helpful.

•International price comparisons may be illuminating but they do not explain why prices are high in some countries or give solutions.

Superquinn stated:

•Superquinn regularly checks the prices of branded products in Newry compared to Dundalk. Some of the biggest price differences can be attributable to the difference in excise duties between the two jurisdictions. The standard rate of VAT in Ireland is 21% compared with 17.5% in the UK.

Lidl stated:

•Consumer price surveys find it difficult to compile a representative ‘basket of products’ that allows real cross-border comparison.

•Cross-border price comparisons are only possible to a limited extent. Everyone who has shopped in Germany knows that food prices there are cheaper than in the UK, but Eurostat shows German prices to be higher than the UK.

•Retail prices are determined by four factors, which differ from country to country:

—Competition

—Supplier Prices

—Operational Costs

—Wholesaling, Distribution and Importing Structures.

•Full price parity across different countries is not achievable due to the above four factors.

•The reduction in Irish food prices, due to Lidl’s entry, is not yet reflected in the Eurostat figures.

Tesco stated:

•The retail price differences between Ireland and the UK is about 15%. These higher prices can be traced back through the supplier chain.

BWG stated:

•BWG compared the prices of its retailers in the South West of England with the prices of its Irish retailers. It compared the recommended retail prices of 73 common products. On average, prices for the South West of England were 5% lower than similar prices in the Irish market.

•Some elements of the price differentials will be accounted for by the existence of different VAT rates between the two territories. In addition, certain items, which are subject to VAT in Ireland, are not subject to VAT in the UK. Our sample includes a number of alcohol products, and the existence of different excise rates between the two countries will explain a certain element of the price differentials. This is also the case for tobacco products included in the sample. The sterling/euro exchange rate used is the current rate of £0.70 to €1.00. Obviously, exchange rates can also vary over time, impacting on the price comparison exercise.

Dunnes Stores stated:

•As a typical example and in an attempt to provide the Committee with a clear picture of price differences between the North and the South, we selected a sample of 56 branded products which are among the most frequently purchased in any week’s shopping and which have identical specifications (e.g. pack sizes) on both sides of the border.

•The total everyday (non-promotional) retail price of these 56 products in the South is €210.42. In the North, these same products have a retail price equivalent to €185.31 at today’s exchange rate.

•Therefore, in this sample the price in the South is 13.5% higher than in the North. This percentage could vary depending on the sample selected but we feel it is a reasonable representation of the retail price difference in groceries either side of the border. This 13.5% difference reduces to about 11.5% if VAT charges, which are higher in the South, are excluded.

•None of the 56 branded lines selected includes alcoholic drinks where tax differences between the North and South are more extreme.

Comment

•It has been widely reported that Irish food prices are dearer than in other countries.

•If Irish prices are significantly dearer than those in other countries, then the question of how well consumers are being served by multiple supermarkets arises. However, it is very difficult indeed to compare prices from one country to another. As there is a general perception that Irish prices are more expensive than those in other countries, this is an important issue for the Joint Committee to address.

5.3 Eurostat Price Level Index Comparisons

Eurostat publishes an annual ‘Price Level Index’ (PLI). The most recently published survey on food and non-alcoholic drink prices was carried out in 2003. The Central Statistics Office undertakes the surveys in Ireland on behalf of Eurostat and provides the information to Eurostat for cross-country comparisons.

Table 5.C 2003 Comparative Price Levels for Food

Average EU of 25 Countries = 100

Ireland vs. Selected EU Countries

Because the Eurostat statistics are used by the National Competitiveness Council and have been quoted by the Competition Authority and by many journalists in commenting on food prices in Ireland compared with other countries, the Joint Committee’s consultants met with the CSO to discuss the Irish statistics and how they were compiled.

In particular, the consultants questioned the difference between the Irish food and non-alcoholic price increases according to the EU Harmonised Index of Consumer Prices (HICP) and the increases reported by Eurostat Price Level Indices (PLI). The PLI shows increases that are about 20% above the increases shown by the HICP.

The response from the CSO is given in the box below:

5.3.1 Conclusions on Price Level Indices

It is apparent from the above that the PLIs reflect consumption patterns as well as prices. In general, the perception has been that Eurostat was measuring only price levels in each country.

The non-adjustment of the reported Irish prices to take into account prices outside Dublin also distorts the reported Irish prices.

It may also be that the selection of outlets in the Dublin area is not now representative of the true position since Lidl and Aldi entered the market. In addition, the widely differing prices for the same product within the large supermarkets, makes price comparisons difficult.

It is important for Irish policy markers to have accurate information on how Irish prices compare with those in other EU countries.

The Joint Committee, therefore, recommends that:

The necessary resources should be allocated by Eurostat to ensure that the Member State Price Level Index Surveys provide accurate comparisons of retail prices in each State.

5.4 Proximity to Consumer

In the Musgrave Survey, convenience is given as the main reason why consumers shop in a particular supermarket. Convenience can be:

•proximity to the consumer’s home

•adequate car parking

•speed of service.

It is, therefore, very important for consumers to have supermarkets located close to their homes. The numbers of multiple supermarkets is far less than the number of voluntary supermarkets and convenience stores. In addition, there are many independent grocers.

The Joint Committee did not receive any representations that there was an absence of grocery shops in any area of the country. Witnesses stated that, in Britain, many villages did not have a grocery store.

However, in order to ensure that there is competition and choice throughout the country, it is necessary not only to have one shop close to each consumer but to have several competing outlets within a reasonable distance so that the consumer has a choice of where to purchase. While many consumers will travel considerable distances to do their shopping if they are convinced that there is an advantage in doing so, there are others who, because they do not have a car or for reasons of age or time constraints etc., are not able or willing to travel long distances. Ideally, consumers should not have to travel long distances for grocery shopping, even if they have a car to take them there.

Therefore, in respect of the most important reason consumers give as to why they shop in a particular outlet, consumers are best served by many shops competing throughout the country. In general, this would seem to favour the existence of many smaller outlets rather than a small number of larger outlets.

5.5 Choice of Products

As seen in relation to price, many multiple supermarkets offer several different ranges of products. Undoubtedly, this offers the consumer the best possible choice of products. Larger supermarkets facilitate the offering of a range of choices by having products competing against each other on price within the same supermarket. In general, of the multiple supermarkets, only Tesco, Dunnes and Superquinn have large enough supermarkets to offer consumers different ranges of product. SuperValu and EuroSpar also have supermarkets that are large enough to offer a choice.

Some of the multiple supermarkets offer only one range. However, the consumer can have access to different ranges of products by changing the supermarket in which he/she does the shopping. For example, the consumer may choose to go to a SuperValu supermarket, a EuroSpar supermarket, a Lidl or Aldi as well as Tesco, Dunnes or Superquinn. In making the choice to go to a different supermarket, the consumer has a choice of the ranges of products available. However, it is not always practical for consumers to access different supermarkets because they may not be within a reasonable distance of the consumer’s home.

A further advantage of a large supermarket is that more products can be stocked. This allows for the introduction of new product ranges. Access by new or small suppliers to large supermarkets can be easier, because of the available shelf space, than access to smaller supermarkets, where the shelf space is more limited.

Although large Irish supermarkets can offer more ranges of products to the consumer, this advantage may be partly offset by a reduction in competition between supermarket companies.

5.6 Quality of Product

Many consumers have requirements for organic food, fresh food (rather than processed food), food without GM products, etc. Consumers have many different requirements in relation to the quality of the product. Many consumers also wish to have food traceability in respect of meat products.

Multiple supermarkets have become aware of the demand for quality through market research and discussions with their consumers.

The Joint Committee did not receive any submission criticising the quality of food sold in multiple supermarkets.

5.7 Excessive Impact of High Prices on Low Income Groups

The Competition Authority stated:

•The poor pay over 35% of their income on food, so any excessive prices impact excessively on the poor.

The Combat Poverty Agency stated:

•Socially disadvantaged groups in Ireland:

—eat less well compared to socially advantaged groups

—have difficulties accessing a variety of nutritionally balanced good quality and affordable foodstuffs

—spend relatively more money on food

—know what is healthy but are restricted physically and mentally by a lack of financial resources.

A targeted food and nutrition policy initiative as part of the National Anti-Poverty Strategy is needed to address food poverty among low-income groups.

5.8 Other Available Services

5.8.1 Car Parking

Supermarkets based in town centres often find it difficult to provide adequate car parking, unlike supermarkets on the edge of town or outside of town centres. It was stated by the Chairman of the Competition Authority that free car parking was a form of under cost selling, as there was a cost in providing free car parking. Undoubtedly, free car parking is an attraction to shoppers who otherwise might have to pay substantial car parking charges in city centre locations.

5.8.2 Check-Outs

Supermarkets generally appear to be considering changes to the traditional process of the consumer obtaining a shopping trolley or a basket and approaching the checkout where the operator scans the items through the till and the consumer loads the shopping basket into bags. Some supermarkets (including Superquinn) provide staff to fill the shopping bags. Some multiple supermarkets are now experimenting with self-scanning and with ways in which the shopper scans the products as the trolleys are being loaded.

Anything that will speed up the process of the shopper completing his/her shopping and of paying for the goods is to be welcomed.

5.8.3 Internet Shopping

Internet shopping in Ireland is offered primarily by Tesco and Superquinn. Again, this offers choice to consumers and enables those consumers (who do not wish to, or are unable to, travel to supermarkets) to have their groceries delivered to their door. Online shopping is beneficial to the consumer in so far as consumers can readily see the prices of the products they wish to purchase prior to deciding on the purchase. They can also more readily compare prices in different supermarkets. However, the consumer cannot compare the quality of the fresh products being supplied.

5.8.4 Miscellaneous

BWG agreed to consider a suggestion that all own brand products should display a photograph of the products to help those with literacy or language difficulties.

5.9 Conclusions on the Effect on Consumers

1.Inflation in the prices of food and non-alcoholic drinks was -0.3% in 2004 and only 1.4% in 2003.

2.Irish inflation for food and non-alcoholic drinks for the year to December 2004 at 0.2% is less than the EU average (0.5%) and less than the Eurozone average (0.3%).

3.There is a need for independent price surveys by official sources to inform consumers of best value.

4.A number of multiple supermarket companies found that prices in the Republic of Ireland were higher then in Northern Ireland or Britain. The differentials were stated to be 5% (BWG), 15% (Tesco), 13.5% (Dunnes Stores). Marks & Spencer stated that it was charging the same prices in each jurisdiction. Price comparisons are difficult to market.

5.While the Eurostat Price Level Indices may be a useful guide to consumer spending on food, they may not give a reliable comparison of prices in each country.

6.Consumers are best served by many shops competing throughout the country. In general, therefore, the existence of many smaller outlets is preferable to a small number of larger outlets.

7.A choice of products can be offered by large supermarkets offering different product ranges or through competition between many retailers with limited ranges.

8.Lower income groups may be best served by competition between retailers.

6. Effect on Small Grocery Retailers

It can be difficult, as we have seen, to define market shares in the sector. However, it seems that the percentage of the market achieved by multiple supermarkets has grown appreciably over the last 15 years. It is possible that the grocery multiples’ share of the market will increase over the next five years at the expense of the non-multiple sectors.

Table 6.A Market Shares

—* Assumption made that Aldi/Lidl have about 5% of market and Marks & Spencer has 1.9%.

—* Other symbols include Londis, Gala, Vivo, Costcutter, garage forecourts, etc. This is an estimate only.

—Other outlets/independents include Pettitt’s (five stores), Iceland (eight stores), non-aligned independents, specialist food stores such as fruit and vegetable shops, butchers, bakeries, etc. The percentage market share is the balance.

—Source for 1990 Statistics — Fair Trade Commission Report of 1991.

—Source for 2004 statistics — information provided to Joint Committee and other sources.

—Important Note: There may be changes in methodologies in the preparation of the statistics between 1990 and 2004, so the market shares may not be fully comparable.

In the non-multiple sector, the major change has been the growth of voluntary group stores as compared with the independent stores. The market share of the independent stores seems to have declined from 24.5% to about 5%. The market share of ‘other symbols’ has also declined.

As the voluntary group stores are owned and managed by independent retailers, it is reasonable to also regard them as part of the independent sector. The only difference is that, for purchasing purposes, they purchase almost exclusively through the wholesaler who operates the group.

One effect of non-aligned independent retailers joining voluntary groups is an increase in the level of concentration in the market for food suppliers in the country.

Non-aligned independent stores can deal with different wholesalers for some products and directly with processors and producers for other products.

In general, RGDATA agreed that the independent sector is in a healthy state and that many independent retailers are expanding and growing their businesses. However, RGDATA argued strongly that the position would be significantly altered if the Groceries Order and planning guidelines were to be changed.

In general, the Joint Committee did not receive complaints on behalf of independent retailers about the multiple supermarket sector.

Nevertheless, the above statistics show that the non-aligned independent grocery retailer is in very serious decline. The decline is being partly brought about by the lack of buying power of the individual retailer.

From the perspective of suppliers, competition is now between five multiples and five symbol groups. As one of the multiples (Superquinn) is jointly buying with three of the symbol groups (Stonehouse, Mangans and Barry), this leaves only seven significant buyers, of whom two mainly import their products.

The Groceries Order specifically states that the terms and conditions of suppliers (13[3][c]) ‘shall not be such as unfairly or unjustly to prevent a person from commencing business as a wholesaler or retailer’. It may be, however, that the future for independent grocers is to come together to form symbol groups or to co-operate with one another in joint purchasing so as to increase their buying power and achieve economies of scale.

The decline in the numbers of independent shops could have potential social effects.

The Joint Committee will further consider the possible decline of rural grocery shops and the decline of the non-aligned independent stores in its next review of the grocery sector.

The possibility that the decline in the non-aligned independent stores has been brought about by unfair discrimination in the application of terms by suppliers will also be considered.

6.1 Conclusions on the Effect on Small Grocery Retailers

The last fourteen years have seen a significant decline in the market share percentage of the non-aligned independent stores. This decline has been brought about by an increase in the market share of the multiples and by independents joining symbol groups. There are now over 2,000 independent grocery retail outlets that are part of symbol groups.

The decline in the non-aligned independents may be reducing the number of grocery stores, particularly in rural areas.

7. Effect on Small Grocery Suppliers

There have been a number of significant developments affecting small grocery suppliers:

•The entry to the market of Aldi and Lidl and their significant growth

•The growth in central warehousing of fresh products, ambient products and frozen products

•The reduction in the numbers of non-aligned independent retailers and the growth in the symbol stores.

These developments have provided opportunities for some food suppliers to substantially grow their businesses. Examples were given by Musgrave and Tesco of suppliers whose turnover had greatly increased by working closely with buyers to develop their businesses.

However, the Joint Committee received a number of complaints from suppliers of their inability to gain access to supermarkets in their local area because of the growth in centralised purchasing.

Undoubtedly the entry to the market of companies such as Tesco, Marks & Spencer, Iceland, Aldi and Lidl has led to an increase in the number of products being imported. However, it was pointed out by Tesco, Lidl and Marks & Spencer that they were now purchasing products from Irish producers for sale in supermarkets in other countries such as Britain and throughout Europe.

Buyer Concentration

The increased concentration of purchasing, being brought about by the growth in the voluntary group sector and by a greater level of central distribution by the multiples, undoubtedly presents opportunities for some and difficulties for many. For many small suppliers, it is now very difficult to gain access to large multiples or, indeed, to large voluntary groups.

Essentially, over 90% of grocery supplies are purchased by seven firms. As these include Lidl and Aldi who sell limited ranges and import most of their products, the number of buyers that most suppliers can sell to for 90% of their output may be only five.

The impact of these developments is a matter of considerable concern to the Joint Committee.

TASTE Council

The TASTE Council represents the artisan and speciality food sector. The work of the TASTE Council was formally launched in October 2003. The work of the TASTE Council is co-ordinated by Bord Bia. The TASTE Council stated:

•In reality, none of TASTE’s members trade successfully with multiples. An audit from a multiple on an artisan business can be more penal than one from the State.

•Ireland’s ‘green’ image and one of being a ‘food island’ relies upon the artisan food sector.

•The quality of food is particularly important if we are to offer tourists a successful food experience.

•Many artisan producers face barriers to entry with regard to the over-regulation of the sector and inconsistent application of regulations on the sector. Other EU countries have a better approach to regulating this sector. There is a need for a sympathetic application of the regulations.

•The artisan market is very fragmented. For example, there is no agency to contact regarding the establishment of an artisan business. TASTE would like to be able to liaise with an inter-departmental committee.

•Food production must exist at different levels, i.e. mass, regional and sub-regional.

•Intensification of agriculture results in increased quantity but decreased flavour.

•There is a lot of bureaucracy attached to producing artisan food, which hampers artisan food producers’ independence.

Recommendations

The Joint Committee welcomes the formation of TASTE and its co-ordination by Bord Bia.

It is important to maintain an emphasis on the quality of Irish food, both for Irish consumers and visitors.

The selling of the products of artisan and speciality food is being facilitated by the growth in farmer markets and by direct supplies to the restaurant and hotel sectors.

The Joint Committee recommends that:

The development of the artisan and speciality food sector should be facilitated by the Minister for Agriculture and Food; all State agencies having responsibilities in relation to the sector should include the development of the sector in their mission statements.

7.1 Conclusions on Effect on Small Suppliers

The number of purchasers available to small grocery suppliers has declined significantly. This difficulty has been increased by central warehousing and distribution. Many supermarket multiples and voluntary groups allow only a small proportion of their purchases to be bought from local small suppliers.

8. Groceries Order

A number of witnesses referred to the Groceries Order in the course of their presentations. In general, most of the witnesses wanted the Groceries Order retained. However, three witnesses were unhappy about certain provisions in the Order.

The Minister for Enterprise, Trade and Employment stated:

•The Minister has an open mind at present as to whether or not to retain the Groceries Order. The Minister noted the imminent publication of the Consumer Strategy Group (CSG) report, which he believes will make a recommendation on the Groceries Order. No decision will be taken by Government until the report of the Joint Committee is received.

•The Minister noted the need for a public debate on the issue of the retention of the Groceries Order. He stated that he would be bringing the CSG report to Cabinet once it had been published and that interested parties would be given an agreed time to send in submissions on the issue.

•The Minister stated that, in considering issues such as the Groceries Order and the Retail Planning Guidelines, there is a need to balance consumers’ changing preferences with social and economic issues. There was also a need to consider the position of people on low incomes and whether they benefited or not.

The Director of Consumer Affairs stated:

•The only real difficulty with the Groceries Order has arisen in relation to the definition of ‘grocery goods’. In District Court prosecutions in the 1990s packs of light bulbs were held not to be ‘household necessaries’, and sausages were held to be fresh meat, thus excluding both items from the definition of ‘grocery goods’.

8.1 Below Cost Selling

Superquinn stated:

•If below cost selling is to be stopped, a better way might be to end restrictions on offers so that competitors could buy up low cost goods.

BWG stated:

•The Groceries Order and Retail Planning Guidelines ensure a level playing field for all. Predatory pricing, that has the objective of putting competitors out of business, is prohibited by the Order.

The Competition Authority stated:

•The Competition Commission in the UK has not recommended a ban on below cost selling in the UK.

•Selling below cost by supermarkets is the most efficient way to give lower prices to consumers.

The Competition Authority objected to a ban on below cost selling in principle and believed that retailers should be free to offer goods below cost as part of promotions.

In addition to its general comments about below cost selling, the Competition Authority stated that the Groceries Order prevents the selling of certain items below the net invoice price. This prevents supermarkets from using discounts on specific everyday items to win business from rivals. Preventing them thus prevents competition. The Competition Authority stated that this amounted to resale price maintenance, which was prohibited under competition legislation.

Dunnes Stores and Superquinn stated:

As Irish businesses, they were at a disadvantage because they could not sell below their net invoice price while retailers with headquarters in other countries were able to obtain invoices at whatever price they wished from parent companies in other countries.

Superquinn believed that retailers should be able to obtain advertising allowances from suppliers and to charge suppliers for the use of shelf space (sometimes known as ‘hello’ money).

The Director of Consumer Affairs stated:

•Selling products below cost gets consumers into shops but these promotions are not indefinite. The Director stated that she did not think she was swayed by the arguments that consumers are deprived. There were lots of ways of competing.

•Complaints are sometimes made by small grocery operators that larger grocery operators were selling below cost. In reality, the larger operators were getting larger discounts than the smaller operators. The Groceries Order prohibits the supplier selling below cost to the retailer.

•It is uncertain as to what would happen if the ban on below cost selling were removed. The Director noted that the multiples appearing before the Joint Committee had no great views on the removal of the Order and that they tend to ‘follow one another on pricing’.

8.1.1 Comment

Many EU countries have bans on below cost selling. There seems to be no correlation between high prices and the ban on below cost selling. Instead, surprisingly, it almost seems that the opposite is the position. Germany, which, in general, has very low retail food prices, has a ban on below cost selling.

Nevertheless, as concentration in the grocery market appears to be high, the removal of the ban on below cost selling should be considered. The following points are relevant:

6.Essentially, a shopper buys a basket of goods in a supermarket rather than single items. However, shoppers can be persuaded by deep price cuts on individual items to change from one supermarket to another and then will purchase other items to meet their weekly shopping requirements. In this way, supermarkets can sell selected items below cost while recovering the loss by increasing the prices of other items in the store. Given the absence of prices on products because of shelf-edge labels, it is very difficult for a consumer to remember the prices of more than a handful of products.

However, the following points can also be made:

1.Because consumers are attracted by deep price cuts, the removal of the ban would intensify price competition between retailers

2.While some retailers would pass on some price cuts by increasing prices of other products, other retailers might use the cost of below cost selling as part of their promotion and advertising budget. However, for below cost selling to be effective, it must be advertised in newspapers and on radio/television.

3.The removal of the ban might make it easier for some new entrants to enter the Irish market. They would be able to sell products below cost for a long time to gain market entry and to increase patronage. However, in time, they would have to generally ensure that the total shopping basket of sales would yield a margin to allow them to make a profit to recoup their investment.

There are many other arguments for and against the ban. One of the issues of relevance to this report is the impact of the removal on suppliers. There are different views as to whether a retailer selling below cost will look for ‘support’ from suppliers or whether the retailer will bear the cost of the below cost selling. The deep price cuts that are permitted in a below cost selling regime could cause disruption for suppliers and generally could distort distribution and production.

The Joint Committee believes that, despite the assertion by some, including the Competition Authority, that the ban on below cost selling has brought about higher consumer prices, no convincing evidence has been produced to the Joint Committee to sustain this argument.

On balance, the Joint Committee believes that a ban on below cost selling should continue to apply.

The Joint Committee recommends that:

The ban on below cost selling of grocery products should remain in place.

The Sale of Non-Grocery Products Below Cost:

The Joint Committee was informed that some supermarkets are selling non-grocery products, such as compact discs, below cost.

The Joint Committee notes that, if the ban on below cost selling applied to all goods sold in grocery stores (with the exception of fresh produce) and not only to food and “household necessaries”, this would not be possible.

8.2 Net Invoice Price

Dunnes Stores stated:

•The Groceries Order allowed suppliers significant control in the marketplace, which they have used to their advantage.

•Suppliers, and no-one else, now control the minimum retail prices for all products covered by the Groceries Order due to the way its below cost selling rules and regulations apply (i.e. the same invoice price — the ‘cost’ price — is set by the supplier for all retailers).

•The practice in Ireland is for suppliers to set a higher invoice price and negotiate discount agreements separately with each retailer.

•Although suppliers and convenience groups were advantaged by the Groceries Order there was a relatively level playing field among the indigenous multiples until the late 1990s when Tesco entered the market closely followed by the German discounters.

•The grocery marketplace in the Republic then began to change considerably.

•The entry of Lidl and Aldi with their low price, largely own brand, offer has changed the price structure in the market.

•Their massive buying power on world markets enables them not only to source product cheaply but, because the vast majority of this product is imported into Ireland, to bypass suppliers’ control of retail prices.

•These discount operators are shielded from a full competitive response to their entry into the market by the Groceries Order (which prevents other operators from selling below a supplier set invoice price). It is nonsense that the Groceries Order affords them this protection as these are not the small independents of 1987 but are among the largest food retailers in the world, each with annual sales of around €30 billion.

•Tesco is an even larger international retailer than the German discounters.

Dunnes Stores stated (continued):

•Their very substantial own brand range, which forms a large part of their sales in their British stores, has been introduced progressively here and is increasing its sales participation. Grocery retailers’ own brand product has not been a major feature of the Irish marketplace in the past, with consumers preferring established brands to a much higher degree than in Britain. This is now changing due in large part to the introduction of the Tesco own brand ranges.

•The significance of this is that these products are mainly imported from the UK and again may bypass supplier retail price control because Tesco can set their own invoice price.

•In this scenario, where large international operators have entered the market, suppliers’ use of the Groceries Order to control retail prices affects mainly the indigenous retailers who do not have the advantage of international supply operations.

•Irrespective of what the Groceries Order was designed to do the first day, it is now discriminating against indigenous operators and in favour of large international businesses.

8.2.1 Comment

The Groceries Order bans the selling of goods below net invoice price (and not below cost, as is often assumed). The Fair Trade Commission, in its recommendation that a ban in below cost selling be instituted, expected that pressure from the major retailers on suppliers would ensure that all discounts and rebates available to the major retailers would be entered on the invoice so as to allow the major retailers to sell at the real cost level. However, in practice, this did not happen and the major retailers and wholesalers accept discounts from the published prices given in the form of credit notes or in separate payments. This has lead to many invoice prices being higher than the real cost. This, in turn, has ensured that independent retailers and convenience stores, who may not be in receipt of any invoice discount, can, nevertheless, not be undersold by a major multiple supermarket. There are a number of benefits to this system and it is arguable that it has not inflated prices.

Essentially, competition sets prices. Retailers have a mix of margins that vary from one product to another. Some of the margins are achieved by invoice discounts. Overall, the objective of a grocery retailer is to achieve a mix of margins so to give an average margin from which expenses are deducted that will lead to a profit. Any reduction in prices brought about by permitting supermarkets to sell goods at real cost, rather than net invoice price, might have to be made up elsewhere.

Essentially, the net invoice price does not apply in respect of fresh goods that are not subject to the Groceries Order. It also does not apply to own brand goods that are supplied to the specification of a supermarket. Any supermarket can sell own brand goods at real cost. The net invoice price and any excessive prices that may apply, therefore, relate only to branded goods. In Ireland, however, there has traditionally been a high proportion of branded goods sold. Irish people have been loyal to brands. This may be changing now due to Tesco, who offer a large range of own brand goods, and the entry to the market of Aldi and Lidl who generally do not stock international brands that they do not own. Low priced, own brand products exert price pressure on branded products with which they are competing. If the branded price is too high it will not be purchased.

Permitting the sale of branded products at real cost levels may lead to a reduction in the price of some branded goods. However, it may also have a significant effect on the competitiveness of some independent retailers and convenience stores. It could be argued that convenience stores will be less affected as the customer in many cases is more concerned with convenience than price. However, many poor and elderly persons rely on convenience stores for their weekly shopping and are very concerned about price.

The argument used by the Fair Trade Commission for the use of invoice price was the ease with which prosecutions for selling below net invoice price could be brought. It was only necessary to obtain the supplier’s invoice and a receipt for the sale of the goods to determine whether the goods were sold below net invoice price. If a ban on below cost selling is to apply to below actual net cost, then any investigator would have to examine whether there are off-invoice discounts which brought the price of the goods below the invoice price. However, this difficulty could be overcome by requiring suppliers to put all discounts and rebates on the invoices.

Maintaining a ban on below cost selling, while having the ban applying to real cost as opposed to net invoice cost, would remove one of the main objections to the Groceries Order. The essential purpose of the ban, the prevention of predatory actions by multiple supermarkets, would be retained.

A great deal of concern has been expressed about Irish prices compared with prices in other countries. Many of these comparisons are in respect of branded products where the customer is more likely to remember the price than for own brand products. If the ban is in respect of not selling below actual price it might lead to a realignment of prices within supermarkets and might mean that major brands would be cheaper than at present. This could improve the perception of value by Irish consumers.

The important issue to be considered is the effect (that changing the definition of cost from net invoice price to actual cost) on consumers and small grocery retailers. The Joint Committee will consider this issue in its next review of the grocery trade.

8.3 Perception of Unfairness

Superquinn stated:

•Superquinn would like to see the ban on below cost selling removed because it discriminates against indigenous Irish retailers and because Superquinn was unable to have suppliers pay for space, pay for advertising or offer extended credit.

•If there is to be a Groceries Order type of legislation, it should be a European wide piece of legislation.

Both Dunnes Stores and Superquinn complained that retailers with head offices outside of Ireland were able to invoice goods to Ireland below cost and that the Director of Consumer Affairs was not able to take any action against them for so doing.

However, all three of the major retailers complained of (Tesco, Aldi, and Lidl) are large multi-national companies and it does not seem likely that they would seek to breach the spirit of the Irish law by engaging in false invoicing. Where concern is expressed by a competitor or by another interested party, the Director of Consumer Affairs should consider obtaining confirmation from the organisation concerned that the goods are not being sold below the actual cost at which they have been purchased from the original supplier. If Irish retailers continue to be concerned that the Irish law is being broken in this way, the Director of Consumer Affairs should consider obtaining the advice and support of the relevant organisation in other EU countries to investigate the claims.

8.4 Advertising Allowances and Hello Money

The Groceries Order prohibits the obtaining of advertising allowances by supermarkets or wholesalers from suppliers and the provision of ‘hello money’ in certain circumstances. These prohibitions were introduced to try to ensure, as far as possible, that independent retailers, who would not have the same buying power as multiple supermarkets, would not be disadvantaged.

The prohibition on the buying or selling of shelf space prevents larger suppliers from buying shelf space in supermarkets. If shelf space could be bought, it would be likely to bring about an increased cost of entry for new suppliers and small suppliers. It could lead to a bidding process for the purchase of shelf space in which the largest companies would have the greatest ability to obtain the space to the exclusion of their competitors. The Joint Committee considers that these prohibitions should continue.

The Joint Committee recommends that:

The prohibitions on the giving of advertising allowances and ‘hello money’ by supermarkets and wholesalers should continue to apply.

8.5 Fresh Products

Fresh products include the sale of fresh fish, fresh meat, vegetables and fruit. These products are not subject to the Groceries Order and the ban on below cost selling does not apply to them. These products were excluded initially because, as they were subject to market fluctuation, the price of the specific products being sold on a day in a supermarket could not readily be established. However, distribution methods have changed over the past 15 years and the cost price of these products can now be obtained.

Many, but not all, of these products are produced in Ireland.

Because fresh products have been excluded from the ban, it would have been expected that the prices of these would have risen at a lower level than the prices of products subject to the Groceries Order. However, this has not generally been the case. There has been little or no difference between increases in the prices of the products excluded from the Groceries Order and of products subject to the Order.

Evidence given to the Joint Committee was that smaller retailers and specialised suppliers such as butchers and fruit and vegetable shops were often cheaper for fresh products than supermarkets. The Joint Committee did not investigate these claims.

Farmer groups and suppliers of these products consider that the exclusion of their products from the Groceries Order has led to more erratic pricing behaviour of fresh products than of products covered by the Groceries Order.

While there is merit in the arguments for the inclusion of fresh products in the Groceries Order, the exclusion does give freedom to retailers to offer deep discounts on some products, particularly where there may be seasonal surpluses from time to time. Given the concerns about the level of Irish prices compared to prices in other countries, it would seem that now is not an appropriate time to bring fresh products within the below cost selling provisions in the Groceries Order.

The Joint Committee recommends that:

Fresh products should not be subject to the ban on below cost selling at this time.

8.6 Other Provisions of Groceries Order

The Joint Committee has addressed the provisions of the Groceries Order that were brought to its attention by witnesses appearing at its hearings and by those who made submissions. The Joint Committee did not conduct a comprehensive review of the Groceries Order. If any changes are to be made to the Order, consideration should be given to a general modernisation of its provisions. Any proposals for change should be informed by a discussion document prepared for consultation with the grocery trade and all other interested parties before a new Order is made.

8.7 Conclusions on Groceries Order

A ban on below cost selling should continue. While there is merit in applying the ban on below cost selling to fresh products, this may not be a good time to do so because of concerns generally about Irish prices.

9. Planning Regulations

The Chairman of the Competition Authority and the Managing Director of Lidl expressed concern about the impact of the Retail Planning Guidelines on competition.

There are three major areas of interest in relation to the Retail Planning Guidelines:

•The cap on the maximum size of store.

•A reference in the planning guidelines to discounters.

•The quantum of land zoned for retail use.

9.1 A Cap on the Size of Grocery Stores

On 5 January 2005, the Minister for the Environment, Heritage and Local Government announced that he had decided to amend the Retail Planning Guidelines to provide that the floor space cap on retail warehouses will no longer apply within the functional areas of the four Dublin local authorities and in other National Spatial Strategy Gateways. No change was made to the floor space cap on the size of supermarkets.

Superquinn did not have an issue with the cap on the size of grocery shops.

Musgrave and RGDATA wanted the existing cap on the size of store to be retained.

The retail planning guidelines provide, in paragraph 14.9, a maximum size of supermarket of 3,000 square metres, except in the Greater Dublin Area where the maximum is 3,500 square metres. The guidelines state that the Goodbody Report indicated that economies of scale in food store operations may not be pronounced or, in any event, they are exhausted at a level of over 2,000 square metres. Consequentially, the imposition of a floor space cap above this threshold would not have pronounced anti-competitive effects. In fact, by encouraging competition at the local level, one effect of the imposition of a cap could be to reduce the potential for creating local monopolies. The limit applies to the total net retail sales space of superstores.

The advantages of a cap on the maximum size of store are as follows:

1.A small number of very large stores is not able to dominate the provision of supermarket services.

2.Large stores are likely to attract customers from long distances. The drive to large supermarkets involves, therefore, use of the roads system, pollution from the use of motor fuels and time delays for customers.

3.By providing a cap on the size of store, the development of supermarkets is more likely to take place throughout the country instead of in relatively few centres.

4.The provision of a cap, and the similar provisions seen below, in relation to the location of retail development in town centres or areas adjoining town centres, preserves town and village centres.

However, the cap may be having the following adverse effects:

As many of the large European and US retailers (for example, Carrefour, Sainsbury, Walmart/Asda) are unlikely to enter the Irish market unless the cap is increased or removed, the entry of such firms is effectively prohibited. While there may be no operational savings in the running of very large supermarkets, the exclusion of some supermarket companies may have adverse effects on:

a)competition in the Irish Market

b)the demand of such companies for Irish produce.

Of course, the entry of such companies might also increase the import of food from their country of origin and may not provide an outlet for the sale of Irish produce to the retailer’s home market.

The Irish market has Tesco, one of the world’s largest retailers, and two of the world’s largest discounters, Aldi and Lidl. However, other companies, such as Sainsbury, Asda/Walmart, and Carrefour have not entered the Irish market. This may be primarily because of the planning difficulties they would experience in becoming established. It may also be that they would wish to purchase an existing supermarket company and none has been available.

One issue of concern to the Joint Committee is that the Retail Planning Guidelines can be altered by a decision made by the Minister for the Environment, Heritage and Local Government. A view was expressed that the cap on the size of retail store is so important that it should be included in primary legislation. Any Minister then wishing to alter the guidelines would have to introduce legislation and have it adopted by the Oireachtas after a debate.

On balance, and having considered this issue, the Joint Committee strongly believes that it would be preferable to retain the cap on the size of supermarkets.

The Joint Committee, therefore, recommends that:

There should be no change in the cap on the size of supermarkets contained in the Retail Planning Guidelines and the cap should not be subject to change by Ministerial decision.

9.2 Planning Regulations Affecting Discounters

Lidl stated:

•Policies that encourage retailers other than the dominant three to expand and gain a stronger foothold in the market have to be pursued. Local Authority development plans in relation to zoning and the application of the Retail Planning Guidelines with respect to granting planning permission to discount food stores are the most appropriate tools. The failure to understand the important part a local Lidl store plays in bringing prices down, results in an apprehension to grant planning permission for such developments.

•There is a clear failure by a number of local authorities and, sometimes, An Bord Pleanála, to fully implement the Retail Planning Guidelines.

•As the Retail Planning Guidelines were drafted before the opening of the first Irish Lidl store, we feel that the wording referring to Discount Food stores in relation to their size is misleading and sometimes triggers planning authorities to implement an artificial additional floor size cap of 1,500 square metres gross for discounters.

The retail planning guidelines are issued by the Minister for the Environment, Heritage and Local Government. The guidelines are then implemented by the planning authorities throughout the country. One of the provisions of the guidelines in paragraph 60 refers to ‘discount food stores’. The guidelines state, ‘Smaller discount food stores of up to 1500 square metres gross have a potential role in extending the choice and range of retailing, particularly for certain sectors of the community.’

The evidence presented to us was that this reference to discount food stores with a maximum of 1,500 square metres could be adversely affecting the obtaining of planning permission for larger stores by discounters. It seems clear that this was not the intention of the retail planning guidelines but, nevertheless, it would be useful to provide clarification for planners and local authorities that the entry of discount food stores is to be encouraged and not discouraged.

The Joint Committee recommends that:

The Retail Planning Guidelines should be examined with a view to removing any misunderstanding in relation to discount food stores.

9.3 The Methodology of Retail Planning

Lidl stated:

•The underlying principle of the Guidelines is only to allow a maximum overall floor area in any town determined by the available expenditure in its catchment area. While this makes sense, it also opens up the possibility for a retailer to occupy all permissible floor area, therefore practically reducing any competition. Only a diverse retail landscape with outlet sizes that allow the individual retailer to operate productively will result in a healthy, competitive market. Any review of the Guidelines should strengthen this point.

•The current imbalance in the retail property market should be corrected by improving the potential land supply.

9.3.1 Retail Planning Guidelines

The Retail Planning Guidelines were issued in December 2000 and revised in January 2005. The guidelines are comprehensive and detailed. The planning authorities are requested to avoid taking any action that would have an adverse effect on competition in the retail market. Nevertheless, the actual operation of the guidelines may be having an adverse effect on retail development.

The guidelines envisage the drawing up by local authorities of development plans in which the local authority estimates the demand for retail space. The development plan addresses how the demand can be accommodated. There are the following objectives (paragraphs 22—36).

1.To ensure that all development plans incorporate clear policies and proposals for retail development

2.To facilitate a competitive and healthy environment in the retail industry of the future. It is not the purpose of the planning system to inhibit competition, preserve existing commercial interests or prevent innovation. In interpreting these guidelines, local authorities should avoid taking action that would adversely affect competition in the retail market.

3.To promote forms of development that are easily accessible — particularly by public transport — in a location that encourages multi-purpose shopping, business and leisure trips on the same journey.

4.To support the continuing role of town and district centres.

5.A presumption against large retail centres located adjacent or close to existing, new or planned national roads/motorways, as such centres can lead to an inefficient use of costly and valuable infrastructure and may have the potential to undermine the regional/national role of the roads concerned.

In paragraph 37, the guidelines state, ‘In dealing with these matters, planning authorities should take account of the views of the retailers, shoppers, property owners and transport operators. In assessing the need for additional development for different types of retailing, it is important that the assessments are based on a realistic appraisal of both expenditure change and market requirements. Plans should be based on up-to-date information regarding existing floor space and shopping patterns in the area.’

In paragraph 38, it is stated that, ‘It will be necessary for the more urban counties to prepare retail strategies and policies for their areas which are more detailed than in rural areas.’ In paragraph 40, ‘The relevant counties should assess the broad requirement for additional development over the plan period. This assessment should take into account both emerging demands in the retail market and a general estimate of future requirements based on projected changes in the local population and consumer spending ... These assessments of future retail requirements are intended to provide broad guidance as to the additional quantum of convenience and comparison floor space provision. They should not be treated in an overly prescriptive manner and should not seek to inhibit competition.’

9.3.2 Comment

Although it is clearly not the intention of the guidelines that competition should be inhibited or that entry to the retail grocery market should be difficult or unusually expensive, nevertheless, the effect of the implementation of the guidelines by local planning authorities may not always be pro-competitive.

If the quantum of land zoned for retail development is only what is estimated by the planners as being required, then any retailer wishing to enter the market will find it very difficult to enter if existing retailers are able to provide the projected quantum. In addition, the value of existing retail properties and of land available for retail development is more expensive if there is not land available for retail development.

In order to encourage new entrants to the grocery retail market it will be necessary to ensure that there is provision in development plans for additional retail space.

While each local authority has delegated powers in relation to its planning decisions, it is important that the guidelines for local authorities should stress the importance of competition between retailers in villages, towns and cities throughout the country. While no existing retailer should be inhibited or prevented from expanding his/her premises, the entry of new retailers to each market should be encouraged. The interests of consumers require a choice of shops and retail types so as to bring about the optimum level of prices and service to the community.

The Joint Committee recommends that:

The planning guidelines should specifically emphasise the importance of competition between retailers and of a choice of retail outlet being available to consumers.

9.4 Delays in Planning Process

Lidl stated:

•The length and unpredictability of the planning process places additional financial burdens on any new entrant to the retail scene.

The Joint Committee was informed of significant delays in the planning process and of allegations of abuse of the planning system. Undoubtedly, existing retailers and other interested parties must have a right to object to the grant of planning permission to a new market entrant. Where these objections are clearly to prevent additional competition for existing retailers, they should not be considered. However, existing retailers and their representative organisations have the right to put forward valid objections and these must be considered.

While delays in the planning process are frustrating for entrants to the grocery trade, they are, to an extent, an inevitable result of a planning system. Any future review of the planning legislation should consider how the process can be speeded up so as not to discourage new entrants to the market.

9.5 Conclusions on Planning

The cap on the size of grocery stores should continue unchanged. The Retail Planning Guidelines should be changed so that the misunderstandings about the maximum size of discount stores are removed. The guidelines should emphasis the importance of competition between retailers.

10. Overhead Costs

Many of those who gave evidence stated that overheads and employee costs were significantly higher in Ireland. Some of the statements made to the Joint Committee are recorded below. As costs, generally, have recently been examined by the National Competitiveness Council in its Annual Competitiveness Report 2004, the Joint Committee does not propose to examine overhead costs in detail.

Retail Ireland stated:

•There is a direct link between prices to the consumer and the cost of doing business for the retail sector. A debate about prices is meaningless without taking account of business costs. International price comparisons are irrelevant unless the differences in business costs between countries are considered. The important issue is whether the products are being sold in an efficient and fair way.

•A debate about international price comparisons is meaningless unless account is taken of the differences in incomes between countries. The average Irish person is facing a shopping bill that is far more affordable than the simple price comparison suggests. Higher Irish wages mean higher purchasing power.

•During the last three years, food prices increased by just 2.4% in total, far below the overall rate of inflation as measured by the CPI of 9.7% during the same period.

•A Retail Ireland survey of members revealed that they experienced a 22% cumulative increase in non-pay business costs during the two years 2003 and 2004. The non-pay business costs identified by survey respondents as the areas of most concern for the retail sector are insurance, energy, transport, local authority rates and waste disposal.

•Retail rents were up by 35% in the year to June 2004, while the increase in the Eurozone was 5% on average. Retail rents in Dublin are the third most expensive among the Eurozone capital cities and are 80% more expensive than the average for the Eurozone capital cities.

•Ireland does not have the economies of scale in supply chain management available on mainland Europe or even to the British market with its 60 million consumers. This is compounded by Ireland’s low population density and poor infrastructure.

•Ireland’s poor transport infrastructure is particularly significant for retailers because of our low population density. Ireland has approximately 55 people per square kilometre as against the average for the Eurozone of 121 people per square kilometre or the UK average of 245 people per square kilometre.

•The main recommendations that Retail Ireland wished the Joint Committee to endorse to help the food retail sector to function more effectively include:

—Reduction in local authority rates for the retail sector and improved value for money in the provision of local government services.

—The government should pay rates to local authorities for the properties it occupies.

—Reduction in waste disposal costs through provision of proper waste disposal infrastructure.

—Reduction in court awards to secure premium reductions in liability insurance.

—Reduction of standard VAT rate to 17.5% on a phased basis.

—Improvement in Ireland’s transport and distribution infrastructure.

—Government to curtail inflation in the services it provides or regulates.

Dunnes Stores stated:

•Other submissions to the Joint Committee have detailed examples of higher operating costs in the Republic — most notably labour, transport and distribution, cleaning, security and waste clearance. Dunnes Stores’ experience of cost differences between our operation in the South and that in the North would be very similar to those presented in these submissions.

•In addition, we must include the cost of new sites, building and refurbishment work, rates, insurance and marketing as other areas where we experience significantly higher costs in the Republic than in the North.

•Inevitably, a proportion of these higher costs has to be recovered in retail prices if we are to maintain a viable business in the future and to allow for continued expansion.

10.1 Costs of Wages/Productivity

Tesco stated:

•Labour costs are approximately 20% higher in Ireland than in the UK.

BWG stated:

•50% of BWG’s overhead costs relate to payroll. It is necessary to pay well above the minimum wage levels to get staff.

Musgrave stated:

•The minimum wage has had a knock-on effect on the scale of pay in stores. Effectively it did not just create a floor but resulted in an increase in all pay rates.

•Future national pay awards should be linked to productivity increases.

RGDATA stated:

•Staff starting off in the grocery trade are paid in excess of the minimum wage of €7.35.

•The wage bill represents about 12% of turnover.

Lidl stated:

•The minimum wage is not of concern to Lidl, as Lidl always paid above average wage rates to its staff.

•Retailing is a labour intensive, low margin business with high fixed costs. Increases in business costs inflate the cost base for retailers and feed into overall price levels.

Grocery retailing is a labour intensive business and it is the cost of labour above all other costs that affects prices.

Dunnes Stores stated:

•In addition to the use of direct labour, we are also major users of contracted services that have a high labour content (e.g. cleaning, security, construction). The cost of these services is constantly outpacing inflation.

•The cost of labour is influenced by the wage agreements, availability of people and social legislation. In the latter category, there is a steady stream of regulations, which is creating less visible but growing direct and indirect costs.

10.2 Cost of Insurance

BWG stated:

•Insurance costs are now on the way down.

Lidl stated:

•Until award levels are reduced to the level of other countries, insurance costs will not be competitive.

Musgrave stated:

•There have been big reductions in insurance costs in the last 12 months.

Retail Ireland stated:

•The insurance costs of Retail Ireland members increased by 14% in 2003 and 6.2% in 2004. The cumulative increase over the two years was 26.4%.

10.3 Waste and Environmental Costs

Tesco stated:

•Waste management costs are approximately 250% higher in Ireland than in the UK.

•Waste management costs are lower in the UK than in Ireland because of the abundance of landfill.

BWG stated:

•Waste management costs are a real problem. The cost of waste disposal in the UK is one-third the cost in Ireland.

•The restriction on landfill in Ireland has increased waste management costs. Repak fees have increased in recent years.

Retail Ireland stated:

•Ireland is 460% more expensive than Britain for landfill charges, at €180 per tonne here in comparison to €39 per tonne in Britain.

10.4 Cost of Professional Fees

BWG stated:

•Professional fees are high. The cost of professional fees is placing a competitive strain on business.

10.5 Cost of Cleaning

Tesco stated:

•Cleaning costs are approximately 70% higher in Ireland than in the UK.

RGDATA stated:

•With new health and safety standards, cleaning costs have increased. It is now increasingly necessary to have full-time cleaning staff.

10.6 Cost of Security

Tesco stated:

•Security costs are approximately 20—30% higher in Ireland than in the UK.

10.7 Cost of Supplies

Tesco stated:

•Supply costs are approximately 9% higher in Ireland than in the UK.

•In many cases, supplier prices in Ireland are higher than the UK. For example, a popular brand of mineral water is 78% higher in Ireland than in the UK, and a popular baked beans brand is 14% higher.

10.8 Cost of Transport

Tesco stated:

•Transport costs are approximately 28% higher in Ireland than in the UK.

10.9 Comment

The Joint Committee is very concerned with the substantial increases in costs that have had to be paid by retailers.

The Joint Committee notes that there is an Anti-inflation Group, established under Sustaining Progress, which is concerned with consumer prices increases. The Anti-Inflation Group is comprised of representatives from the Departments of the Taoiseach, Finance and Enterprise Trade and Employment, together with two representatives each from IBEC and ICTU. Representatives from the Competition Authority and the Office of the Director of Consumer Affairs are invited to participate as appropriate.

The Joint Committee considers that the Anti-Inflation Group or a similar group established under the Partnership Agreement should examine the increases in overhead costs to businesses with a view to bringing about a significant reduction in these costs.

The Joint Committee recommends that:

The Minister for Enterprise, Trade and Employment should establish a Business Costs Group to bring about a reduction in business overhead costs.

The Joint Committee makes the following comments on some of the costs:

10.9.1 Cost of Wages

The Joint Committee welcomes the increases in the standard of living brought about by higher wages and notes that the resulting higher spending benefits the retail trade. Of course, if wages and salaries are significantly higher than in other countries, it is difficult for prices to be the same, unless productivity is also higher.

10.9.2 Energy Costs

The Joint Committee notes the recent statement by the Minister for Communications, Marine and Natural Resources that he proposes to undertake a review of competition in the electricity sector. This is welcomed.

10.9.3 Insurance

The Joint Committee has issued two reports on insurance reform and will shortly commence its third module on the matter. The Joint Committee is satisfied that insurance costs are falling but notes that the costs of public liability and employer liability insurance have not yet returned to the levels that applied before the extraordinary increases of 2001 to 2003.

10.9.4 Waste and Environmental Costs

A significant problem appears to be the unwillingness of communities to have either landfill sites or incineration plants. This problem must be addressed so that the costs to business are reduced to reasonable levels.

10.9.5 Statistics

The Joint Committee notes that, while there are excellent statistics on the rate of increases in consumer prices (Consumer Price Index) and on the wholesale price of goods, the CSO does not at present issue any report on increases in overhead costs to business.

The Joint Committee concludes that, if there is an index of increases in business overhead costs, there would be a clearer focus on such costs and action would be more likely to follow.

The Joint Committee recommends that:

The CSO should prepare a quarterly index of movements in business overhead costs (both goods and services).

10.10 Conclusion on Overhead Costs

Retailers state that increases in the level of overhead costs is the reason why Irish grocery prices may be higher than in Britain.

There is a need for the CSO to measure the level of increases and for a group to be established with the purpose of reducing overhead costs.

11. Producer and Supplier Competitiveness

11.1 Competitiveness of Irish Farmers

The Minister for Enterprise, Trade and Employment stated:

•The demand for lower prices from retail multiples will necessitate innovation in operations and processes as well as more effective supply chain management to both take costs out of the manufacturing process and to preserve operating margins, as well as satisfying the stringent supply and distribution demands of the multiples. This is the type of incentive provided by open and fair competition in the market place, which will ultimately ensure a better deal for consumers.

Tesco stated:

•Tesco supports Irish farmers by paying the market price plus a premium for those farmers who adopt Tesco standards (relating to packaging, cleaning, distribution, etc). Tesco places a heavy emphasis on traceability.

•A study undertaken by Kevin Bonner, four years ago, showed that the beef market is competitive along all stages of the supply chain.

•All beef and milk sold in Tesco is sourced in the Republic of Ireland. This is a long-term commitment by Tesco.

The Competition Authority stated:

•Farm gate prices have risen by very little in recent years, suggesting that much of the explanation for any price increase lies within the manufacturing, wholesaling and retailing levels.

•More competition at retail level would be good for farmers. The Groceries Order has not benefited farmers. The Competition Authority had litigation outstanding against the beef industry.

•Products such as mushrooms may be too labour intensive to survive because of low labour rates in other EU countries. However, other sectors will grow.

Dublin Meath Growers (DMG) stated:

•The small scale of growing operations in Ireland, higher production costs than the UK or Holland, population distribution in Ireland and distribution mechanisms in Ireland militate against the price of Irish grown vegetables.

•Nothing can be done about products ‘dumped’ from other EU countries on the Irish market because of the EU single market. Supplies from Europe are part of the business.

•Costs in the Irish market place are 20—25% higher in Ireland than in the UK. Labour, inputs, waste management, refrigeration and machinery costs are all higher. The inputs are largely imported. Not all of the pesticides in use in the UK can be imported into Ireland because of regulatory issues.

•The grower in Ireland gets approximately 10% more for his/her produce than the Northern Ireland grower. This is essential for Irish growers to stay in business. There are only a handful of growers left in Northern Ireland. Retail prices in Northern Ireland are approximately 15% less than in the South.

•The distribution of the Irish population across the country is more dispersed than in the UK. Consequently, transportation costs are higher.

•Although DMG-produced vegetables may be higher priced than imported products, they are fresher and more nutritious. The consumer is getting better value, taking price, freshness and nutrition into account. Imported products must have a longer shelf life, thereby having an inferior taste.

11.2 IFA Submission

•The IFA, in a submission to the Joint Committee, stated that it estimates that the farmer is receiving 36% of the retail price for lamb, while the retailer and the processor receive the rest. For pig meat, the farmer receives 28% of the retail price, while liquid milk producers receive 32% of the shelf price for milk. Potato producers are receiving, on average, 35% of the shelf price, while vegetable producers receive between 30% and 40% of the retail price, depending on the particular vegetable line.

Table 11.A Overall change in farm gate returns between 1996 and August 2004

Source: IFA

Table 11.B Difference in the CSO Comparable National Average Retail Price Statistics for some agricultural products between August 1996 and August 2004

Source: IFA

The number of people directly involved in agricultural primary production is declining by 2% each year. However in certain specialist sectors the rate of the decline has been much greater.

Table 11.C: Decline in Farmer Numbers

Note: Production levels have remained constant.

Source: IFA

According to the IFA, the costs of farm production continue to increase ‘as Ireland is now one of the most expensive countries in the EU to do business in’. The IFA pointed out that farmers had continued to lag behind workers in other sectors in regard to earnings. With inflation since 1996 growing at 32.2%, all farm prices have declined in real terms. Cattle, sheep and poultry farmers have received little or no increase in money terms, while dairy and pig producers have suffered a substantial drop in prices even before inflation.

The IFA states that increases in food prices in the Consumer Price Index have not been passed back to farmers, who have received much lower prices when adjusted for inflation.

The IFA points out that farms are of a far greater scale in the UK than in the Republic of Ireland. The IFA states that ‘producing at the returns received by growers in the UK would make it unviable for Irish growers to survive, resulting in all our fresh produce being imported’. The IFA gives an example of the tomato industry which at one time had over 350 acres in the 1970s but has now fallen to 60 acres. Over 75% of Ireland’s tomato requirements are now imported, mainly from Holland.

11.3 Sales from Irish Farms to Irish Retailers

The IFA states that retailers in Ireland are, in general, very supportive of Irish agriculture. The main retailers (Tesco, Dunnes, Superquinn and SuperValu) are supportive of Irish meat, vegetables, poultry and dairy produce. The IFA states that there are issues with Dunnes Stores stocking frozen New Zealand lamb and Northern Irish milk, while Superquinn stocks Northern Irish milk at present. Lidl has a range of foreign cheese, milk and rashers on their shelves as well as frozen New Zealand lamb, while Aldi stocks foreign cheese, milk and lamb.

11.4 Comment

The overall picture presented by the IFA is a disturbing one. Irish producers and processors are under considerable threat as they have to compete with producers and processors in other countries throughout Europe. Undoubtedly, many Irish consumers wish to buy Irish produce and this provides retailers with an incentive to engage with Irish producers and processors to increase the share of Irish products in their stores. Irish consumers may be buying some Irish products, even though they are aware that these are more expensive than imported products.

Undoubtedly, the pressure to produce at lower prices is going to continue in the future. The future of Irish farming is the responsibility of the Department of Agriculture and Food. Bord Bia has responsibility for the market development and promotion of Irish food and drink. The Joint Committee notes that the future of primary Irish producers is of concern and that Irish agriculture is undergoing significant change in what is an intensely competitive sector.

The relatively low returns to primary producers and processors invites consideration of whether the profitability of retailers is excessive and, therefore, whether prices in the shops are too high.

11.5 Excessive Distribution/Processing Costs

The Competition Authority stated:

•Competition in the indigenous food processing sector is central to the commitment of supermarkets to Irish food products. Vigorous domestic competition between food processors makes them more innovative and customer focused, thereby enhancing the value they add to Irish consumers. This also improves their ability to compete internationally.

•Stronger competition at the retail level drives stronger competition at the food processing level.

11.6 Percentage of Imports from Non-Eurozone Countries

RGDATA stated:

•Over 50% of food imports come from the sterling zone. Alternative sources of supply for these goods within the Eurozone would guard against fluctuations in currency.

11.7 Percentage of Non-Irish Supplies Generally

Tesco stated:

•In excess of 50% of the products sold in Tesco are sourced in Ireland. About 50% of own label products are also sourced in Ireland.

RGDATA stated:

•50% of the products sold by its members are Irish produced.

BWG stated:

•Over 70% of products are sourced in Ireland.

•Almost 50% of products sold are Irish.

11.8 Central Distribution

Tesco stated:

•Over the past five years there have been significant developments in relation to centralised distribution.

Superquinn stated:

•Superquinn has invested €35 million in a central distribution system located in Blanchardstown. Superquinn has also introduced an integrated information technology operation that will further reduce costs by speeding up the way goods move through the distribution chain.

Musgrave stated:

•Musgrave has a system of central distribution for both chilled and ambient products.

•Centralised distribution has greatly benefited many Irish food suppliers.

Comment

One of the significant developments in the grocery trade in recent years has been the development of central distribution by Tesco and Superquinn as well as the extension of central distribution to frozen and fresh products by Musgrave.

Central distribution largely eliminates the distributor, as the supermarket multiple or voluntary group undertakes its own distribution. The Joint Committee learned of a number of cases where small suppliers, who had been supplying individual supermarkets, were no longer able to supply because they did not win orders to supply on a central distribution basis. Central distribution can also eliminate local suppliers of produce as they may not have the scale to supply to a central warehouse.

However, central distribution, because it may eliminate the need to distribute to individual stores, may make it easier for producers or producer groups to sell to multiple supermarkets.

Both Tesco and Musgrave informed the Joint Committee of the success that they had achieved in increasing purchases from Irish processors.

11.9 Irish Processors

Irish processors purchase from farmers and sell to supermarkets in Ireland and outside the country. Because Irish farmers are suffering from substantial increases in costs and have difficulties with competitiveness, Irish processors also have to deal with very competitive conditions.

As there are almost no products produced in Ireland that cannot be imported from outside the country, Irish processors constantly have to compete with imported products.

11.10 Importation by Irish Suppliers selling to Retailers

Irish suppliers include wholesalers, importers of products on behalf of processors in other countries and the Irish offices of food multi-nationals. Because of central distribution, this sector has undergone substantial change in recent years. As competition in the retail food sector in Ireland increases, the future of many Irish suppliers is likely to become difficult. Retailers will increasingly wish to purchase directly from food processors. Ultimately, the market will determine the most efficient method of importing food products from other countries to Ireland.

11.11 Importation by Supermarkets for Own Use

This is an alternative to imports by suppliers for onward sales to supermarkets. With the increase in own brand products, brought about by the entry and growth of Aldi and Lidl, multiple supermarkets are importing own brand products directly. If this reduces costs in the market and allows for the products to be sold more cheaply, then this development is to be welcomed.

11.12 Exports and Import Substitution by Supermarket Groups

Tesco stated that it is purchasing €420 million per annum from Irish producers for supply to its supermarkets in Britain. Musgrave stated that it has now entered into arrangements with some Irish suppliers in relation to the supply of its UK supermarkets.

Lidl stated that it purchased €132 million at retail price over the last 12 months from Irish suppliers. Lidl stated that it was offering Irish suppliers an opportunity to grow not only in Ireland but also gradually in other markets.

Marks & Spencer buys 100% of the meat and poultry products sold in its Irish stores in Ireland. Marks & Spencer is interested in purchasing more products in the Irish market.

11.13 Comment

The entry to the Irish market of Tesco, Aldi and Lidl has provided opportunities for some Irish producers to sell their products in the other countries in which these multiple supermarkets are operating. In addition, the entry of Musgrave in the last few years to the British market as well as the continuing involvement of Dunnes in Northern Ireland offers opportunities for Irish producers and processors.

Purchases by foreign owned supermarkets for supply to other countries are partly driven by the benefits of ‘back hauling’. This means that when containers or roll-on roll-off vehicles come to Ireland with goods from other countries, it makes economic sense to load the trailers or containers with goods for the market to which the vehicle is returning.

11.14 Conclusions on Producer and Supplier Competitiveness

Overall, the producer and supplier sectors are undergoing major change brought about by competition from imports and increasing buyer concentration. This is likely to continue in the future. However, competitive pressures at producer and distribution level will only lead to lower prices for consumers if there is also a strongly competitive market at retail level.

The participation of non-Irish owned retailers in the Irish market can open opportunities for Irish producers and processors to sell to other countries. Irish consumers should be able to purchase Irish farm produce and should be able, therefore, to know the country of origin of all ingredients in the products they purchase.

12. Miscellaneous

12.1 Statistics on Profitability

The Joint Committee was unable to obtain information on the sales levels, margins or the net profit of the supermarket sector. Musgrave informed the Joint Committee of its turnover and net profit and BWG stated its turnover. Superquinn, however, stated that it had published the information but that because its competitors had not done so, it no longer published its results. Tesco’s Irish results are not available as they are aggregated in the Tesco results, which are published by Tesco’s head office in the UK. Aldi and Lidl do not publish their results, and Lidl stated that it was not its policy to provide information on sales, margins or profits.

It is possible by registering a private company as ‘unlimited’ to avoid any obligation to file accounts with its annual return.

The Joint Committee would like to see greater transparency in the results of this sector.

The Joint Committee recommends that:

Companies operating in important sectors of the economy, such as the grocery trade, should be required to publish turnover and net profit statistics.

12.2 Dispute between Tesco and Musgrave

Tesco, in its presentations, stated that its surveys showed that its prices were cheaper than its competitors, including SuperValu and Centra. Musgrave strongly denied that Tesco’s prices were cheaper. Musgrave’s solicitors wrote to Tesco denying that its prices were more expensive. Tesco denied that it had made any error in its survey.

The Joint Committee’s concerns relate to average overall prices and not to whether one store is cheaper than another. The Joint Committee did not attempt to resolve this dispute. However, the Joint Committee has recommended that quarterly surveys be published by the Director of Consumer Affairs or by another organisation, to give an independent view of best value to the consumer.

12.3 Non-Appearance before Joint Committee

The Joint Committee was very pleased that Tesco, Musgrave, Superquinn, Lidl, BWG and Marks & Spencer all gave oral evidence and responded to questions by the Joint Committee. Two companies, who were invited to appear, declined to do so. Aldi’s non-appearance was disappointing.

The Joint Committee gave Dunnes Stores every opportunity to appear. It was very disappointed that a business employing 8,500 persons with a 22% share of the market would not appear before the Joint Committee. A written submission from Dunnes was received following the completion of the oral hearings.

12.4 Country of Origin

As already noted, many consumers wish to purchase Irish products even where they are more expensive than imported products. Clearly, consumers should have a choice of Irish or imported products, where possible. However, not all products state the country of origin.

Directive 2000/13/European Commission of the European Parliament and of the Council of 20 March 2000 states in Article 2.1:

“The labelling and methods used must not: (a) be such as could mislead the purchaser to a material degree, particularly; (i) as to the characteristics of the foodstuff and, in particular, as to its nature, identity, properties, composition quantity, durability, origin or province, method of manufacture or production.”

The Joint Committee also considers that consumers should have “traceability” information. The consumer should know where his/her food product has been produced, processed and the origin of all ingredients in the product. Furthermore, the Joint Committee considers that own brand products should show the name of the food processor and not only the name of the retailer.

The Joint Committee recommends that:

The labels of all food products sold in Ireland should show the country where the product was produced and where it was processed (if different), so as to allow Irish consumers to select Irish grown and processed foods and to provide information to the consumer on traceability.

The Joint Committee also recommends that:

Own brand products should show the name of the processor.

12.5 Pesticides

The Joint Committee is greatly concerned that the pressure on farming costs worldwide may be resulting in excessive use of pesticides. There is a need for the labelling of products that have been produced using certain types of pesticides so that the consumer is made aware and can make informed choices. A recent example is that where eggs are produced from ‘caged’ hens, the egg box must now state that this is so.

The Joint Committee recommends that:

Food labels should inform the consumer where products, including imported products, have been treated with certain types of pesticides.

12.6 Conclusions

1.It should be possible to obtain information on the sales and net profits of grocery retailers.

2.It would be helpful for the Joint Committee if all of those requested to do so, appeared before it.

3.Consumers should know the country of origin of all ingredients in the products on sale in grocery shops.

4.Food labels should inform consumers if products have been treated with certain types of pesticides.

13. Overall Conclusions

13.1 Response to Terms of Reference

In general, the Joint Committee did not find that the impact of grocery multiples on the grocery and retail markets was of serious concern. The grocery multiples are competing with the major symbol operators.

The Joint Committee is concerned, however, that consumers in the Republic of Ireland, while generally well provided with supermarkets and convenience stores, have to pay more for their groceries than consumers in Northern Ireland and Britain.

Many small grocery retailers have joined symbol groups. The market share of non-aligned independents gives rise to some concern about the future of small shops in rural areas. Small suppliers are also having a difficult time due to increases in buyer concentration and central distribution by multiples and voluntary groups.

The Joint Committee found that the level of commitment by multiples and voluntary groups to Irish products was quite high. The non-Irish multiples are importing but are also providing outlets in the UK and other countries for Irish produce. Dunnes Stores and Musgrave buy from Irish suppliers for their stores in Northern Ireland and Britain.

The Joint Committee has made a number of recommendations to improve the operation of the grocery market.

13.2 Conclusions Contained in each Chapter

Grocery Retailers

While there may be merit in considering that there are two retail markets — supermarkets and convenience shops — there are difficulties in determining where one market ends and another begins.

With the top five companies having shares of 85%, the market is very concentrated. The entry to the market of Lidl and Aldi has had a pro-competitive effect.

The Effect on Consumers

1.Inflation in the prices of food and non-alcoholic drinks was -0.3% in 2004 and only 1.4% in 2003.

2.Irish inflation for food and non-alcoholic drinks for the year to December 2004 at 0.2% is less than the EU average (0.5%) and less than the Eurozone average (0.3%).

3.There is a need for independent price surveys by official sources to inform consumers of best value.

4.A number of multiple supermarket companies found that prices in the Republic of Ireland were higher then in Northern Ireland or Britain. The differentials were stated to be 5% (BWG), 15% (Tesco), 13.5% (Dunnes Stores). Marks & Spencer stated that it was charging the same prices in each jurisdiction. Price comparisons are difficult to make.

5.While the Eurostat Price Level Indices may be a useful guide to consumer spending on food, they may not give a reliable comparison of prices in each country.

6.Consumers are best served by many shops competing throughout the country. In general, therefore, the existence of many smaller outlets is preferable to a small number of larger outlets.

7.A choice of products can be offered by large supermarkets offering different product ranges or through competition between many retailers with limited ranges.

8.Lower income groups may be best served by competition between retailers.

Effect on Small Grocery Retailers

The last fourteen years have seen a significant decline in the market share percentage of the non-aligned independent stores. This decline has been brought about by an increase in the market share of the multiples and by independents joining symbol groups. There are now over 2,000 independent grocery retail outlets that are part of symbol groups.

The decline in the non-aligned independents may be reducing the number of grocery stores, particularly in rural areas.

Effect on Small Suppliers

The number of purchasers available to small grocery suppliers has declined significantly. This difficulty has been increased by central warehousing and distribution. Many supermarket multiples and voluntary groups allow only a small proportion of their purchases to be bought from small local suppliers.

Groceries Order

A ban on below cost selling should continue. While there is merit in applying the ban on below cost selling to fresh products, this may not be a good time to do so because of concerns generally about Irish prices.

Planning

The cap on the size of grocery stores should continue unchanged. The Retail Planning Guidelines should be changed so that the misunderstandings about the maximum size of discount stores are removed. The guidelines should emphasis the importance of competition between retailers.

Overhead Costs

Retailers state that increases in the level of overhead costs is the reason why Irish grocery prices may be higher than in Britain.

There is a need for the CSO to measure the level of increases and for a group to be established to bring about a reduction in overhead costs.

Producer and Supplier Competitiveness

Overall, the producer and supplier sectors are undergoing major change brought about by competition from imports and increasing buyer concentration. This is likely to continue in the future. However, competitive pressures at producer and distribution level will only lead to lower prices for consumers if there is also a strongly competitive market at retail level.

The participation of non-Irish owned retailers in the Irish market can open opportunities for Irish producers and processors to sell to other countries. Irish consumers should be able to purchase Irish farm produce and should be able, therefore, to know the country of origin of all ingredients in the products they purchase.

Miscellaneous Conclusions

1.It should be possible to obtain information on the sales and net profits of grocery retailers.

2.It would be helpful for the Joint Committee if all of those requested to do so, appeared before it.

3.Consumers should know the country of origin of all ingredients in the products on sale in grocery shops.

4.Food labels should inform consumers if products have been treated with certain types of pesticides.