We now turn to the presentation by both Tesco and Superquinn. On behalf of the committee I would like to welcome both delegations. I welcome the delegation from Tesco (Ireland), which is represented by Mr. Dermot Breen, director, and Mr. Gordon Fryett, the chief executive. I should remind the visitors that while members of the committee are protected by parliamentary privilege, witnesses coming before it are not. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name so as to render him or her identifiable.
Grocery Prices: Presentations
Mr. Gordon Fryett
I thank the committee for welcoming and inviting us to attend; it is an invitation we readily accepted. It is important that we should be here and we will be as helpful as possible. This committee should have first-hand information on how grocery retailing works in Ireland and why grocery prices are among the highest in Europe.
The purchasing of groceries is an everyday experience for millions of people for whom value for money is a priority on each and every occasion. Our focus is always on the consumer. In our submission we will give the committee an understanding of our approach to business in Ireland and how we compete in a competitive market place — by understanding what our customers want, providing the broadest possible product ranges, continually lowering prices and encouraging competition. In addition, we will endeavour to demonstrate the contribution we make to the food industry and the economy.
Mr. Dermot Breen
I shall give an overview of Tesco Ireland. We have provided leadership in price reductions and competition for consumers in recent years. We are now consistently the cheapest provider of groceries in Ireland. We are a multi-format retailer with 86 stores in 24 of the 26 counties, ranging from convenience stores and small and medium-sized supermarkets to large supermarkets selling food and non-food products. We employ 11,300 people and, since 1998, have created 4,600 jobs in Ireland.
We seek to offer consumers choice, lower prices, service and high quality shopping. We strongly support Irish suppliers, both locally and as an exporter. The Tesco group is now the biggest buyer of Irish food in the world. The group purchases €1.5 billion worth of product from Irish companies annually, of which €420 million worth is exported to our business in Britain. Our annual tax contribution is of the order of €134 million. We have been voted Irish supermarket of the year for the past two years independently by Checkout magazine.
The committee has asked us to touch on some grocery trends in the last five years and over the next five. In the past five years there has been increased competition, with more participants in the market, some of which were identified in the earlier session. A key feature in recent years has been the price reductions led by Tesco since 2000. Increased consumer sophistication, both for choice and service expectations when shopping, is evident. There is a growing consumer expectation of lower prices which has been particularly apparent since the introduction of the euro in 2000. On an operational level, there has been an increase in the use of centralised distribution systems and improvements to the supply chain from producer to consumer.
For the next five years we have identified key factors such as the increasing influence and input of consumers into policy, operations and retailing. There will be a continuing consumer expectation of low prices, service quality and greater product choice. Ultimately, consumer demands will drive greater competition in the grocery market.
As Mr. Fryett said, our business is all about the customer. It is at the centre of Tesco's outlook. Creating value for customers drives everything we do. Our success and growth are entirely dependent on providing value and competitive prices to earn customer support which is not a given and must be earned. So far, we have had a positive experience in Ireland. Customers determine the product range, Irish product levels, the design and layout of stores, our approach to prices, value for money and new products. Shopping must be customer-centred, a fact we understand from listening to customers through focus groups, research, feedback in stores and analysing shopping patterns. The bottom line is that customers determine the success of our business and share of the grocery market, currently around 25%.
Among the essential principles underlying our business is our approach to competition. We provide price leadership and competition and will compete in price all the time. Competition is good for consumers, business and the economy. Value for money is one of our key principles in terms of price, quality and choice for customers. Supporting local interests is another key principle — supporting and engaging with local interests in international markets anywhere Tesco operates around the world, particularly in Ireland. A further principle is our approach to cost management, with continuous cost reduction measures to improve our efficiency, enabling us to pass on cost savings in lower prices to consumers.
Supporting the economy nationally and locally is an essential element of our business and what we do for our customers. We achieve this by providing competition and the lowest grocery prices, through local buying and stocking of Irish products, developing Irish business and the exports from those businesses through continuing investment and creating new jobs. Tesco is now the biggest buyer of Irish food in the world, buying €1.5 billion annually at cost and €420 million in exports to our business in Britain. This level of export exceeds the total value of exports of Irish food and drink products to France, Germany or the United States. We have long-standing relationships with major Irish suppliers in Ireland and Britain and many food SMEs have developed or are now developing into significant export businesses on the back of the support we have generated for them.
Our policy is to maximise purchasing from Irish producers and suppliers based on competitive pricing. Stocking levels in our stores are determined by customer demand for Irish products. Approximately 50% of the food products sold in our stores are Irish produced, a figure that has remained consistent for the last seven years, reflecting customer demand and buying patterns. The retail value of this product is €1 billion per annum. Irish products include fresh meat, milk, vegetables and fruit. Many of the Tesco value and finest own label products are now produced in Ireland, alongside the wide range of grocery products produced here. All of our milk and fresh meat is Irish. Most of our product is sourced directly from Irish producers and manufacturers or through local distribution channels used for Irish and multinational supplier products.
We have adopted a proactive approach to working with and developing Irish supplier businesses, ranging from farmers to co-operatives, SMEs and large processing firms. We have approximately 800 Irish suppliers selling us food, non-food and services, most of which are SMEs. In 1998 we initiated the Irish supplier development programme jointly with Enterprise Ireland and Bord Bia which involved us advising and assisting more than 300 SMEs in the food industry. Eventually, 120 participated in our development programme, all of which have experienced significant growth in business, increased their technical capability and scope for new product development as a result of their support and work with us. In total, these supplier businesses have created 1,600 additional new manufacturing jobs directly attributable to the business we have generated for them. Companies which have benefited through this process include Carroll Meats, Castlemahon Chickens, Coolmore Foods, Dairygold, Dawn Farm Foods, Erin Foods, Glanbia, Glenisk, Glenpatrick, Granby, Green Isle, Irish Country Meats, Gubbeen, Irish Pride, Kepak, Kerry Foods, Keelings, Largo Foods, Nature's Best, Odlums, Pat the Baker, Rye Valley Foods, Seán Duffy Meats and so on. It is a long list, of which we are proud.
We have also established business relationships with the farming community through co-operatives, directly and with their supply businesses, helping to expand farmer output, provide certainty of market for farmers' produce and offer better prices for it. Examples include Dublin Meat Growers, Country Crest, Duffy Meats, Dawn Meats and Kepak. We are supplied by 10,200 approved Irish livestock farmers and fruit and vegetable growers.
Expanding exports and export development has been a key priority for us and is a major success. We have given active encouragement and support to Irish companies to develop their exports, particularly to the Tesco business in the UK, which is a substantial market. Business there is now worth €420 million per annum. It has increased by €70 million per annum in the past two years alone, so it is very substantial business.
The product range supplied includes mushrooms, potatoes, meat, pizzas, breads, petfood, tea, coffee, seafood, confectionery, soft drinks, cheese, yoghurts, biscuits, babyfood, vegetables, etc. One can go right across the Irish food industry in which we are doing business. Notable exports include Bewley's for its coffees — it is now a substantial provider of own brand coffees to Tesco in Britain — Irish Yoghurts from Clonakilty, Barry's Tea, Lir Chocolates — I am glad to see Senator White is here — C& D Petfoods, Mulrines of Donegal, Nutricia, Shannon Minerals, Silvercrest Meats, Wexford Creamery, Kerry Foods, Green Isle, Largo Foods, Fla'avan's and so on. That is quite an extensive list of exporters.
Many of those have grown from being SMEs to become larger businesses as a result of that business and, significantly, a number of those companies, most notably Lir Chocolates and Irish Yoghurts, were not in the export business before we did business with them. They are now very substantial exporters from Ireland to our business in the UK.
The success of that programme can be confirmed by some people who are present, and by Enterprise Ireland which has actively administered it with us. Significantly, we are now opening export opportunities for Irish suppliers to the Tesco business in central Europe — moving beyond the UK market. So far, some meat and snack food suppliers have opened new business there through their contacts with us.
Obviously, people are a critical part of the retail business. We now employ 11,300 people at our stores throughout the country. We have created 4,600 jobs since 1998. Some 1,600 of those jobs have been in the supplier businesses about which I spoke, but 3,000 of them have been in Tesco stores and operations across the country. For example, in Cork, we are currently in the process of employing 600 people in the stores we are developing there. We offer competitive pay levels and benefits to our staff. We implement fairly comprehensive training programmes for staff to develop their skills and their careers and we offer career development opportunities in Ireland and worldwide. A number of Irish staff got experience in the Far East, in central Europe and in the United Kingdom.
We have a good relationship with trade unions, of which there is 98% membership. The main unions are MANDATE and SIPTU. We have fairly robust consultant processes in place through steering groups and working groups with MANDATE and SIPTU. We also value the participation of people with different abilities and cultures and we benefited a great deal from our involvement with the Special Olympics in 2003.
Turning to community support, which is an essential part of our business here, we nominate a charity annually as "Tesco charity of the year". In the past four years, we raised €2.4 million for those charities which have included the Irish Cancer Society, The Alzheimer Society of Ireland, Down Syndrome Ireland and Childline. So far this year, we have raised more than €800,000 for Childline. Significantly and, in many cases, these contributions have been the largest single contributions these charities have received.
On the education front, our computers for schools programme has supplied more than €2 million worth of computer products to 2,500 Irish schools. We are also involved in the school business partnership which offers mentoring services to fifth and sixth year pupils for career development. We have actively supported employment programmes as well. We allocated 85 places at our Clare Hall store in north Dublin for long-term unemployed people whom we helped train through a joint programme involving FÁS, MANDATE, the Northside Partnership and us. We are currently implementing a similar programme for long-term unemployed people in the Mahon area of Cork where a new store will open next year.
Turning to the key issue of our business, which is meeting customer needs, our policy is to provide the lowest priced groceries in Ireland. We offer customers what they expect in their weekly or daily shop. As I said, we understand that by tracking customer opinions and buying patterns which help to determine the product range — the Irish products and so on and the service we provide in our stores. Key factors for Irish customers are choice, their overall shopping experience, the level of service, access, consumer information and, importantly, price and value for money.
Turning to choice and product range, we provide the widest choice of food and grocery products in Ireland, and that is confirmed by consumer research. That includes Irish and international product choice, the mix of which is determined by customer preferences and shopping patterns. We offer the full range of branded products as well as an extensive range of Tesco own label products including food and non-food ranges in our stores.
The composition of our range is designed to meet different customer needs. There is no such thing as a stereotypical customer. There are different customers with different needs and we seek to meet the needs of as many customers as we possibly can. We do that through a full range of branded product choices and through the own label range which includes the Tesco brand range — a range of about 2,000 products that match the quality of branded products but at prices that can be up to 40% less. Significantly, 1,000 of those 2,000 products are sourced and produced in Ireland. The Tesco value range is a range of 1,100 grocery products that are at the lowest grocery prices in Ireland. They are very important for families and people on low incomes and tight budgets.
The Tesco Finest range, on the other hand, is a range of 500 premium high quality, high value products. We also offer specialised ranges including the "free from" range — a range of products free from gluten, wheat, dairy and sugar content which is suitable for people with food intolerances. It is highly valued by coeliacs, in particular. We have a full range of organic products, including fresh fruit and vegetables, meat and groceries produced to recognised organic standards. We also have a growing and extensive range of non-food products in most of our stores, including clothing, household products, electrical goods, books, CDs, sports equipment, gardening needs and so on.
From a service point of view, we have extended opening hours in many of our stores and have introduced 24 hour trading which, as of yesterday, has been extended to 27 stores around the country. We find it facilitates consumer lifestyles and their shopping time preferences. As we know, many modern consumers are caught for time and find it difficult to get to the shops before they close. That includes many busy families and dual income households. Late night and over night shopping is very much welcomed by them.
Other services we provide include on-line grocery shopping which is now available to 80% of the population. We now have 120,000 registered customers who have used the on-line shopping service at some stage. We also provide a range of low cost financial services, including Visa cards, life insurance and personal loans. We will introduce low cost and competitive car insurance products in the Irish market shortly. I hope they will be available within the next few months.
The committee has not concluded its inquiry into insurance, so you might have to come in again.
Mr. Breen
In due course. We look forward to that as an exciting competitive opportunity and, I hope, a challenge to other competitors in the insurance industry.
The key factor for any customer is price and the value for money they get in shopping with us or with any of our competitors. We now offer the lowest food and grocery prices in Ireland, which I will confirm shortly. Value for money embraces the entire customer shopping experience benchmarked against the price paid. To that extent, price is the key element in determining value for money for customers. It is our policy to offer the lowest possible prices across all products but consistent with the cost realities of retailing in Ireland. Our retail prices are determined by supplier prices which is the largest single cost we face on any product and our operating cost which includes wages, energy, transport, rents, building costs and so on. Other factors which impact on prices are wholesaling and distribution structures and competitive and market factors.
What are we doing to reduce prices? We have been consistently leading food price reductions for customers as this is a core value of ours, not only in Ireland but across the world. We have reduced thousands of prices since 2000. Some 16,500 prices in our shops are now the same or lower than they were this time last year. We have introduced own label products at lower prices. As I mentioned, Tesco products are often priced 40% below those of the competing brand products and value products are in the lowest price range in Ireland. We continuously reduce operating costs to fund lower prices and we offer the same prices in our small, convenience stores as we do in our supermarkets. The same prices apply right across our stores irrespective of size or location.
On what we have been doing to reduce costs to fund price reductions for customers, we describe a virtuous circle of stages that we follow in terms of pricing and so on. We want to reduce prices for customers. That, in turn, builds volume and scale for our business. That enables us to increase our efficiency and helps us to reduce costs. Those cost savings may be then invested and passed on to customers in the form of lower prices. That moves on then to build further volume and scale, more efficiency, lower costs again and further price reductions. It is a virtuous circle which benefits our business and also our customers.
Turning to the specific measures introduced to reduce costs, we have made a significant investment in centralising our distribution, introducing modern information technology systems and so on. We have implemented various people management programmes which are adapting jobs and work specifications to suit new trends, technology, the focus on consumers, new types of stores etc. We implement firm but fair dealings with suppliers on prices. We like to build long-term relationships with all our suppliers to ensure the reliability and security of supply chains. However, we will always be firm but fair in dealing with them on prices. We have upskilled many of our suppliers to improve their efficiency and cost-effectiveness, Dublin Meat Growers being one example. We have offered new services for customers to bring down their costs and delays in shopping, which has also helped to improve our costs. That includes, for example, self-scanning in our stores and our on-line shopping service. We have also implemented consistent cost management programmes to reduce costs.
Turning more specifically to the issue of prices for customers, these are consistently the lowest in the market. What we have on this page is a graph and description of price comparisons among all the major multiples doing business in the Irish market. We investigate every week the most frequently purchased products in our stores and those of our competitors. That involves surveying the prices of 4,000 products in our stores and in those of Dunnes Stores every week, up to 3,000 in Supervalu and Superquinn and 500 in Spar and Centra. By comparing those prices we know exactly how we stand on the most popular products. This covers two-thirds of all the products bought by Irish consumers in supermarkets. We know exactly how we stand on prices, week to week. No other survey is being done to this depth or comprehensive level in Ireland.
Looking at that graph, basing our prices on a base index of 100, Dunnes is 1% more expensive than Tesco across the full range of branded products. Supervalu and Superquinn are approximately 5% more expensive than us, Spar about 25% more across the range and Centra approximately 29%. The low-price range products in the market includes Tesco and the German discounters, Lidl and Aldi. We survey those as well every week, 500 products in Lidl stores and 300 in Aldi, and compare them to our lowest price products, our "value" range, of which we have about 1,000. There are only 300 comparable food products in Aldi in regular stores, which is the reason for that figure. The left hand bar chart shows the cheapest products on display, which are the prices that may be seen in each of our stores and in the Lidl and Aldi outlets. Those show that Lidl is 8% more expensive than our value or low price product range, and Aldi is higher by about 5%. However, product weights differ between the German and Irish markets, so many of the Lidl and Aldi weights are different to what one will see in every other Irish store. We convert those prices based on equivalent weight products. Instead of comparing 450 g. with 400 g., we compare 400 g. with 400 g. equivalent weight products. When that is discounted we find that Lidl prices are 2% higher than those of our value products right across the range and Aldi prices are 4% more expensive. That satisfies us that the value range is the lowest price range of grocery products available to Irish consumers. It involves more than 11,000 day to day grocery products.
Is that a single week snapshot or is it an average yearly picture of a week?
Mr. Breen
That is an average over the year. I believe we took nine months since the start of the year. It is not just a snapshot. It is a continuous average throughout the year.
To describe how that operates within our stores and the different product ranges and their price positions, we have here a basket of about 65 regular branded products. We did this originally last year to inform ourselves on how prices compared. This has been updated for this year. In the centre is the Tesco brand, which compares with branded products in terms of quality. On the right hand picture is the same basket of Tesco value products. Below that may be seen the different prices at which those product baskets will sell at. This is current retail pricing, so the branded range basket will cost €149 at present, while the same basket of Tesco brand products will be €102 and the value range €62.
That gives an idea of how much money shoppers may save in their weekly shopping when they are price conscious and shop at different shopping ranges. Many customers will shop across all three ranges, but people on low incomes and in difficult circumstances find that the value range is a godsend for feeding their families. Also shown there are the prices for 2003 indicating that all the prices of the three baskets have actually come down in the past year. This was not planned. We have just discovered this.
To summarise and put all of this in the context of a single comparative graph, what the committee will have seen there is based on the price surveys we carry out across the entire market. We have positioned all of the different baskets in a single graph to show how it scales from the cheapest to the dearest in any one week. That shows that the Tesco value range is the lowest price range of groceries, followed closely by Lidl and Aldi which have mainly German products. The Tesco brand range is the least expensive and then we are into the brand range. Tesco's is the lowest price on the brand range, followed by Dunnes, with others in the middle. The dearest prices for brand products will be in Centra and Spar stores. I hope that has helped to inform members. We will be pleased to enter into any discussion as the committee wishes.
I thank Mr. Breen for his comprehensive report to the committee. I thank his chief executive also for his participation. I have a number of questions, before calling on Deputies Howlin and Hogan and Senator Leyden. The reason we are here is to ask why grocery prices in Ireland are so much higher than elsewhere in Europe. It is alleged that Tesco profits were 11% better in Ireland than in the UK. To what extent do higher margins contribute to dearer prices in Ireland, particularly as regards the differential between the prices in Tesco stores in Ireland compared to the UK? Is it not the case that the expansion of large multiples such as Tesco will inevitably drive small local retailers out of business? As politicians we are all aware of the terrible experiences of small retailers which they tell us about from time to time. Is it the case that centralised distribution will effectively cut out the suppliers from doing business with Tesco?
Mr. Fryett
I shall try to address some of those questions, which are very good. It has been widely reported and we recognise that prices of groceries in the Republic of Ireland are among the highest in Europe. One has to look at the various cost and economic structures of individual countries. It is difficult to draw an absolute comparison, price with price. To put that in a Tesco context, the stores we have in Northern Ireland are not operated by Tesco (Ireland) Limited. They are part of our UK business and all of the products sourced for those stores in the North are supplied by Tesco (UK) Limited. Tesco (UK) and the UK market is some 15 times bigger than its equivalent in the Republic of Ireland, so there are significant economies of scale that the North can benefit from which we do not enjoy here. Having said that, about 50% of the products we sell in our stores in the Republic of Ireland are sourced, as Mr. Breen said, from Ireland, either through Irish suppliers or agents of other multinational businesses. Tesco (Ireland) does not regularly monitor store prices in the North, the UK or any other country. It is important to look closely at the market in Ireland and compare our prices with those of our competitors. Our prices are the lowest we can supply here.
There are two elements which can cause prices to vary from country to country. The first is the price we must pay our suppliers for products. The second is operating costs which differ significantly from country to country. Supply costs for sourcing products in the Republic of Ireland are 9% higher than in Britain. The cost of operating our business here is much higher. Labour and pay costs are 20% higher while transport and distribution costs, getting produce to the shops, are 28% higher, partly because of economies of scale that the British business can derive from its size. There are other labour costs that are higher such as cleaning costs which are 70% higher and security costs which are 30% higher. Waste management is a huge cost, 2.5 times greater than similar British stores.
It is 250% more.
Mr. Fryett
Yes. Overall, the cost of running our business in the Republic of Ireland is 20% higher than the equivalent store within our British business. This was confirmed recently by the National Competitiveness Council report that highlighted the impact of the Irish cost base. Forfás also commented on the cost problem. When all of these factors are added together and we add in the disadvantage in economies of scale in our business here, it paints a clear picture as to why the retail price of goods in our stores is generally higher than in the North or Britain or other European countries. Having said this, there are many thousands of products that are cheaper in the Republic of Ireland. We reduce prices whenever we can.
Is it not the case that the expansion of large multiples like Tesco will inevitably drive small retailers out of business? I am thinking about the experience in County Kerry where Tesco sells diesel and petrol. Senator Coghlan has alleged that five filling stations within five miles of the Tesco run petrol station in County Kerry have shut. These were family businesses. Members have highlighted this issue to me and I am now asking the delegation about it.
Mr. Fryett
It was reported in the press some time ago that our business enjoyed higher profit margins than in Britain. That is not true. The margin in running our shops here is less than in Britain.
Does Tesco not make 11% more profit here than in Britain?
Mr. Fryett
We did not make 11% more profit than in Britain.
Therefore, the article is unfounded?
Mr. Fryett
I can categorically state the report was inaccurate and that we have a smaller margin in the Republic of Ireland than in Britain.
I was asked if we would drive smaller businesses out of business but I can only point to what is happening in the marketplace where there has been huge growth in the number of small convenience stores and independent outlets. Many of our competitors such as Spar and Centra have stated how much their businesses are growing. There are many new stores planned by both of these companies and we have seen them open in many towns.
Does that include the RGDATA members?
Mr. Fryett
Yes. Supervalu, Centra and other convenience outlets are opening new stores. There is a healthy independent convenience sector where we have seen no decline and which the sector itself admits is growing rapidly. I see no reason there should be any decline. The discounters are also opening more stores. Therefore, we see continual growth in the retail marketplace environment in Ireland. This is very healthy for all players and there is no reason for it to diminish.
Mr. Breen
On the petrol retailers in County Kerry, we do not intend to put anyone out of business. We offer customers value for money and new competition. Sometimes we will win and sometimes we will lose. In County Kerry we offered petrol at a competitive price, the consumer liked what we were offering and perhaps some stations went out of business. One could question if it was directly attributable to our business because in the last seven years 700 petrol stations have been closed down, most of them by the oil companies which have a policy of rationalising the number of filling stations. Last year alone 140 filling stations closed. There may be more of an issue of normal market forces rather than Tesco competition. Certainly, petrol retailers in other areas where we have petrol stations such as north Dublin have not closed. There may have been oversupply in the Killarney market. With 140 stations being closed per year, it appears there is a wider strategy at play in the declining numbers of petrol stations.
There is a planning difficulty because of an EU regulation. Mr. Breen's response is that if the price is right, people will come.
Mr. Breen
We do not want to put anyone out of business; it is a question of providing better value and competition for the customer. Market forces determine what happens after this.
Mr. Fryett set out the purpose of this investigation — to find out why grocery prices in Ireland are among the highest in Europe. I commend Tesco for its comprehensive presentation which addressed this issue on page 18. In normal circumstances a delegation would finish its presentation by blowing its own trumpet but this was very impressive, for which I commend Mr. Fryett.
The profits issue has been dealt with. Tesco has stated one of its purposes is to give price leadership but having listened to its presentation, I am not clear how it does this. My linked question relates to its weekly price survey which seems to be a comprehensive mechanism for assessing the level of competition. Does it adjust its prices in accordance with those of its competitors or does it provide the best value it can ab initio and take a snapshot for reference purposes?
My second question relates to the price differential with Northern Ireland. Tesco has addressed this by talking about economies of scale within the United Kingdom generally, although I would have assumed there was a cost involved in serving Northern Ireland in terms of transport and so on. Is the extra cost absorbed within the UK business as a whole and, therefore, not counted as a factor within Northern Ireland? Is there an impact in terms of currency fluctuations between sterling and the euro? Do they have an impact on price differentials or suppliers?
My third question relates to Tesco's expansion plans, particularly internationally. It is perhaps a question Tesco Ireland cannot specifically answer. As Tesco expands into new countries, it will want to be a good citizen as, I accept, it is in Ireland. Will we see penetration into the Irish market of products from countries in which Tesco is establishing? Is there a long-term commitment to Irish suppliers? Is this related to price or is there a genuine commitment not only to supply a proportion of the product it sells in Ireland from Irish suppliers, but also to maintain the important export component of what is sourced in Ireland?
I refer to the excellence of the Tesco presentation, presenting the company in the best light, and the spontaneous support we received from its suppliers, that is, the letters we received indicating how wonderful Tesco was as a company. That so many wrote to us on the same day is an impressive coincidence, on which I commend Tesco.
Uniquely among presentations made by groups before Oireachtas committees, Tesco has asked us to do nothing. There is nothing in its submission which states its business would be better if we changed X or Y. Is there anything by way of legislative or specific change which would have an impact on prices or improve its operational performance in the economy?
Mr. Fryett
I will take the questions asked in reverse order. I am delighted to hear our suppliers have written to the committee to confirm our support.
I can give Mr. Fryett the list.
Mr. Fryett
In our presentation and discussions we have outlined the issues surrounding the cost structure in Ireland, the costs we face in doing business and their impact on retail prices. My request to the committee is that it do anything it can through its good offices to help to reduce the cost base in Ireland. That would be most welcome. If there was a way to reduce it by 5% or 10%, I am sure we would see a corresponding decline in retail prices.
We hope there will be a reduction in insurance costs this year as a result of the work of this committee.
Mr. Fryett
We pass on any benefit we derive from reducing costs to the consumer in lower prices. This would really help in continuing the work on reducing the cost base in Ireland.
On the question of expansion into other countries, Tesco is very much committed in every country in which it operates to sourcing as much product as it can from the local market. Not only does this make economic sense, it is good practice from the customers' perspective. We have no intention of reducing the amount of products we purchase. Obviously, cost will be a factor, but we will always source as much product as we can from the local marketplace and Ireland is no exception.
We genuinely intend and want to have good long-term relationships with our suppliers. It is important for us to have a strong supplier base because it is the only way we can ensure continuity of supply to our customers. As we outlined in our presentation, it also gives suppliers an opportunity to access a much wider range of marketplaces to which they might not have had access before. We will always try to facilitate exports to other countries.
On the difference in prices between our business here and in the North of Ireland, Northern Ireland is part of our UK business. As a result, all the associated costs are aggregated across the entire UK business which, as I stated, is around 15 times larger than that here. Certainly from a supply base, it is probably the most efficient retail business in the world. The North can benefit significantly from economies of scale in being part of a much larger economy. Having said this, we, in the Republic, are determined to continually reduce our cost base. We have an annual programme whereby we remove costs from our business in order that we can reinvest the savings in lower retail prices.
We continually negotiate with our suppliers to see if there are ways by which we can attain lower costs. We work with and help them with their supply and distribution of products. This allows them to remove costs from their business which allows us to reduce the price at which we buy and, subsequently, the price at which we sell products. This is an ongoing process. As Mr. Breen outlined, we have what we call our virtuous circle. This means that if we reduce prices, we sell more products. With the help of the supplier we can reduce the cost of that product, make our business more efficient and, subsequently, reduce prices even further.
I hope I have covered most of the points raised by the Deputy. The commitment we have made is that we will always try to reduce prices. We do not willingly accept price increases from suppliers. We will always go back to see if there are ways by which we can help them to reduce their costs.
The terms of reference of this inquiry refer to the fact that costs here are deemed to be higher than in the United Kingdom. Tesco has gone some way to explaining why costs are higher here than in Northern Ireland and elsewhere in the United Kingdom. According to surveys carried out some of which have been referred to, some of its products cost 83% more than in Northern Ireland and elsewhere in the United Kingdom. Other British companies such as Marks & Spencer and Dixons are able to do business here at similar prices to those on offer in the North of Ireland and elsewhere in the United Kingdom. Tesco may have higher costs here, 20% as alluded to, but the remainder of the cost difference has not been explained too well. Perhaps Tesco might comment further on that. There is a perception that its Irish prices might be linked to an ambitious logistical programme of development within this jurisdiction. Apart from the 20% mentioned, perhaps it could give the committee an indication of the real reasons a certain basket of products here is up to 83% more expensive, according to a newspaper report and 43% more expensive, based on a survey carried out by my party earlier this year?
Mr. Breen
We are conscious that there are price differences and anomalies. While one finds prices that are higher in the Republic than in Britain or Northern Ireland, there are also thousands of products that are cheaper here than in the British jurisdiction. Domestically we survey across the whole range rather than taking snapshots of half a dozen products here or there. One may take half a dozen and get any answer one wants. However, when we survey across the board we find there is a standard 9% difference in the biggest single cost, the supplier, between the Republic and the UK. However, there are serious anomalies in those supplier prices as well. It has emerged in particular in recent years that in many cases supplier prices are 80% higher here than in the UK. I can quote a number of examples. A well known brand of mineral water, which is not produced here, costs us 78% more than the same bottle of water costs our business in the UK. A well known brand of baked beans costs us 14% more than it does in the UK. These percentages vary wildly and there is no standard number. We generally find that such anomalies and price differences are founded on higher supply prices. That is normally the case.
Other competing stores charge the same price here as they do in the UK. However, their prices there are 20% to 25% higher than ours, so they are working from a much higher base, in any event. Their prices here will still be higher than ours. In aggregate the price difference across our shops versus the UK is about 15%, whereas the international comparative surveys have shown that price differences in the UK in food are around 20%. The price difference in ours versus the UK is 15% and this may be accounted for in terms of the higher supplier prices, which is a standard 9% but can vary as high as 80% or 90%, and higher operating costs of around 20%.
Mr. Breen will appreciate that we find it difficult to understand when surveys are carried out, that there is a 56% difference in the price of washing powder between here and Britain or Northern Ireland. There could be up to 87% in respect of razor blades, which I still use, 43% in ice cream prices and 40% in cheddar cheese which one would expect to be a locally sourced product. Notwithstanding what has been said about aggregate prices across a wide variety of products, we get complaints from consumers about specific items which show a marked difference in price between here and the UK. The raison d’être of this inquiry is to try to find out the reasons.
Mr. Breen
Absolutely, and one will find that most of those product differences——
What was the percentage on the cheese, again? Was it 40%?
That was last February.
Mr. Breen
I believe that has gone 30% in the other direction, now.
Is that the situation today?
Mr. Breen
No, that happened months ago.
The cheese is out of date.
Mr. Breen
We share consumers' frustrations when they see these anomalies and price differences. We understand it does not make sense to consumers. Often it does not make sense to us. When we track back the price differences we discover, practically in every case, that they emanate from the difference in supplier price.
I am glad Mr. Breen has acknowledged the 40% difference in February.
Mr. Breen
We seek to track that price difference through the supply chain. We deal with the supplier in trying to bring those prices down. They should not cost any more here than in the UK, except to embed the normal operating cost increases experienced here.
We would accept that is the case. What profit did Tesco make in the Republic of Ireland in 2003?
Mr. Breen
As Mr. Fryett said, our profit margins were lower than in the UK, despite what was speculated in some of the newspapers.
Is there a figure?
Mr. Breen
No retailer publishes retail profit figures or accounts.
Some of them do, voluntarily.
Mr. Breen
No, some retailers publish their wholesale accounts, but nobody publishes retail figures. There are no published accounts for major retailers in Ireland.
Does Mr. Breen not accept that it is difficult for consumers or legislators to make their minds up on the profitability of products if we do not know the margins from which they are operating, on an aggregate basis, or their percentage share of the market?
Mr. Breen
It is pretty well established across Europe that retailing margins are low. Some 4% to 6% is pretty standard across Europe. That is a pretty low margin. As any business analyst will confirm, margins of 3% or 4% are pretty slim when compared with other industries such as the airline business which has operating margins of 25%, newspaper companies with 20% and a major soft drinks supplier with 17%. Retail margins of 4% to 6% are pretty slim by any standard and this is a highly competitive market. Subsequent speakers, I am sure, will confirm, as could others if they were here, that it is an extremely competitive market and that puts downward pressure on prices. Unfortunately, what keeps prices up is costs.
Mr. Fryett
All the profits we make are reinvested in this business in Ireland and none are repatriated to the UK. Everything we earn goes back into the Irish business in terms of improving the offer for customers, new stores, and the refurbishment of existing outlets. All the money comes back into the economy and effectively creates new jobs and lower prices here in Ireland.
Mr. Fryett will appreciate that 20% of all household income is spent on food. It is a high volume business. People do not fly every day, but they eat every day.
Mr. Fryett
I appreciate that.
There has been much talk about the cost of distribution from farm gate to shop. Has Tesco any recommendations for the committee as to how we may assist the consumer as regards reducing costs on that front? Has it any comments on the Groceries Order Act, notwithstanding that this does not cover many products? The retail planning guidelines have been another political issue. Has Tesco any views to express on those three items?
Mr. Fryett
In true form I will take the last question first, about retail planning guidelines. We have no issue with the retail planning guidelines. We have not lobbied for or against them and are happy with the way they operate. The guidelines work well for us. They do not prevent us from opening stores and we have no issue with them.
Mr. Breen
On the Groceries Order Act, when Tesco came into this country in 1997 it accepted the legislation in place. It has never taken a position on the Groceries Order Act, one way or another. We have not carried out an analysis of what the implications of change might be. We have never adopted a position and I do not believe we are going to do so at this stage.
Is Tesco happy with the status quo?
Mr. Breen
We accept the legislation as it stands.
What about distribution costs?
Mr. Breen
On the farm gate position, as I mentioned in the presentation we are big supporters of Irish farmers. More than 10,000 farmers are now dependent on our business for their incomes and we take regular supply from them. We empathise with the pressures on farmers at present, on incomes through CAP reforms and so on. We know it is a tough business from which to make a living and rear families. However, we pay our farmers a fair price. We negotiate prices annually, generally with them or through the major co-ops. We pay our farm suppliers the market price plus a premium for adopting our standards. Our farm suppliers do well with Tesco and we work proactively with co-ops such as Dublin Meat Growers, Duffy Meats and so on. As regards the price from the farm gate to the end user, that is a major area and there is a great chunk of distribution, processing, packing, cleaning, grading and so on that takes place between the farm gate and the retailer or consumer. We do not know the detail of what goes on in that supply chain. We take our price from the wholesale market. We know the Department of Agriculture and Food appointed consultants to look at supply chains and that will illuminate for consumer, farmers and ourselves where the price movements are taking place along the supply chain. A major study was carried out four years ago by the former Secretary General of the Department of Enterprise, Trade and Employment, Mr. Kevin Bonner, who was commissioned by the Departments of Agriculture and Food and Enterprise, Trade and Employment jointly to investigate the supply chain for beef and the difference between the farm gate and retail price of beef. Mr. Bonner investigated every stage of the supply chain, namely, the costs, profit margins, processing stages, the reduction of the animal throughout the whole process. He concluded that nothing abnormal was taking place, that it was a competitive supply chain with no unusual profit levels at any stage of the process. We should await the outcome of the economists as we do not know the detail of that yet.
Let me remind members that we must vacate this room at 6 p.m.
I compliment the delegation on their presentation. As a farmer, I acknowledge that Tesco co-operates reasonably well with suppliers and stocks Irish goods. Mr. Breen stated in the presentation that "All of our milk and fresh meat is Irish." Does that include Northern Ireland as there seems to be a bit of aggro among the farming organisations that milk from Northern Ireland is in competition with milk from the Republic in some of the stores. I appreciate that all fresh meat is sourced in Ireland but I understand foreign beef is also supplied. Can Tesco guarantee a traceability system for foreign beef? We expect beef prices will improve due to changes in Irish farm practices. If that is the case, will Tesco continue to deal with Irish farmers and sell Irish beef or will it seek out the cheaper product? An issue near to my heart is waste management, which I understand from the presentation costs two and a half times more in Ireland than in the UK. What is the explanation for this?
Mr. Fryett
I confirm that all the fresh meat and all the fresh milk that Tesco sells in the Republic is sourced from the Republic of Ireland and does not come in from the North or the UK.
Is that a categorical assurance to the committee?
Mr. Fryett
That is a categorical assurance, absolutely. As far as long-term commitments, Tesco intends that will continue to be the case and has no plans to change the supply of any of that product. Tesco is very happy to support Irish farming because it gets a quality product which is exactly what its customers want to enjoy. It would be always Tesco's intention to continue with its current sourcing policy.
On the question of waste management, the costs are significantly higher in the Republic. In Britain, waste is dumped in big holes in the ground and that is much cheaper. Ireland takes a different approach to waste management and consequently the cost of dealing with waste is significantly higher.
I extend a very warm welcome to Mr Gordon Fryett, chief executive and Mr.Dermot Breen, director of Tesco Ireland. I was delighted with their excellent and detailed submission and how they responded to the questions so far. The opening of a Tesco branch in Roscommon has been a happy experience. As a former councillor, I supported the lease and designation of the carpark to Tesco Ireland, irrespective of opposition from vested interests. I stated that people had nothing to fear but fear itself. Tesco is competing with other companies in the area. Tesco is now the market leader, with Dunnes Stores coming in behind it, followed by Aldi and Lidl.
A question please, Senator.
It is no harm to state that Tesco of its own free will has come before the committee to give evidence before us today.
The speaker may be going further in political life again.
Indeed, why not? That being said we have excellent character references for your company, including a reference from my constituency, which I will not raise.
Will the Senator ask a question, as I wish to take Senator Quinn at 4.30 p.m.
I received a submission from a company in Roscommon and I will deal directly with the chairman on this issue. In its submission Tesco emphasises that it supports local suppliers. This company employs 22 people in south Roscommon and I believe it should have an opportunity of quoting to supply Tesco.
The Senator may raise the issue with the gentlemen afterwards.
I certainly will, but I want to record that I will do so.
Feel free to do so.
Tesco now sells petrol, an issue raised already, at a low price. The price ranges from 99.9 cent to 103.9 cent for petrol and 99.9 cent to 94.9 cent for diesel. The only difficulty with Tesco's entry to this market is that of its cross-subsidisation by the grocery trade in Tesco. This does not apply in my area but it does in other areas. Will the delegation clarify how Tesco can give a three or four cents reduction on the price of a litre of petrol? This is below-cost selling.
It is a cause of concern that Tesco is selling petrol below what it costs another retailer to buy it. Is that not the point the Senator is making?
No. I am seeking clarification.
That was the allegation made to me.
The issue of below-cost selling was mentioned. The chairman stated it did not concern him greatly.
Senator Feargal Quinn has written an excellent book on retailing, which could be compared to the book of Mao. As a former Minister of State with responsibility for trade, I have had wonderful experiences with Superquinn, which has been very pro-Irish products. However, that was before Tesco came into the market.
I welcome Mr. Breen and Mr. Fryett to the committee. I should declare my interests before I begin. As is well known, I am involved in one of its stores in Killarney and I was nominated for the industrial and commercial panel of Seanad Éireann by RGDATA. Both delegates gave a very polished performance up to the standard of Mr. Pratt who appeared before the committee during the previous Government. I understand the multiples have between 75% and 80% of the market in Dublin, which is near market dominance. What would Tesco say to the view that there should be a moratorium on new developments by multiples in areas where they already have more than 50% market share to allow the discounters and independents gain a foothold and offer consumer choice? In regard to Irish products, what means exist to openly and transparently assess claims by retailers that Tesco is supporting Irish producers, suppliers and distributors? Is Tesco continuing with its Irish food and drink awards? If not, why not, given the endorsement they gave to Irish producers?
Anecdotally, there are suggestions that Tesco is increasing the presence of own brand products at its stores. Does this trend bring bad news for Irish suppliers, given that Tesco own brand products are usually produced outside of Ireland? Is it also true that Tesco is no longer a food retailer? What proportion of the goods sold in Tesco stores are non-food products and what percentage of its business does this represent? Witnesses spoke of the new lines into which Tesco is going. What comes across is that the company is all about expansion and dominance.
On the surveys, do the others accept the accuracy of Tesco's surveys? I presume they do similar surveys. Do they engage in chit-chat? I am not suggesting the existence of cartels, but is there any cross-referencing on these surveys? I do not pretend to understand this game of loss leaders, but is not all that about getting more people in to do their weekly shopping? I would like to hear further on that matter.
There is a view that for the good of society there should be a moratorium and I would like to hear Mr. Fryett on that issue. Tesco is a public company and its shareholders reside largely outside of the State. There is a view that Tesco's profits in Ireland are a drain on the State. What does Mr. Fryett think of the concept of providing a level playing pitch? This comes back to the moratorium.
It seems the multiples are all about increasing size, increasing share, creating, as Mr. Fryett stated, ever more lines and wiping out as much of the opposition as possible. Mr. Fryett might comment generally and, if possible, answer specific questions.
Mr. Fryett
We do not sell petrol or diesel below cost. We make a percentage on all of the petrol and diesel we sell. We have no interest in selling below cost and I can confirm that we do not sell below cost. I hope that covers it.
Does Tesco not cross sell? If one goes into the grocery store, one gets a 5c reduction.
Mr. Fryett
Those are short-term promotions that we may run when we open new petrol stations but even given that promotion, we would not sell petrol below cost.
Do the promotions last a year or two?
Mr. Fryett
No.
The length of term is only about a month or so.
Mr. Fryett
It is to raise awareness of the petrol station.
I welcome Senator Coghlan's declaration of interest and I welcome him as our landlord in Killarney.
It is only a small store.
Mr. Fryett
I will try to cover as many of the Senator's questions as possible. I am sure my colleague, Mr. Breen, will interject if I miss any. The question of dominance is a non-issue because we have not precluded or prevented competition from arising anywhere. We do not object to competitor developments or applications. Nowhere where we trade have we seen other retailers shy away from coming in. In fact, when we go into a town, inevitably and invariably other competitors come in. I do not think there is an issue around that at all. The issue of dominance does not arise. As I stated earlier, there is a thriving and growing independent and convenience sector in Ireland.
As far as own brand development is concerned, we bring in own brand products. It is another area of choice for consumers. We do not force consumers to buy them. We do not bring in own brand products at the expense of other products. We always stock the brands as much as possible. Irish suppliers for Tesco produce many of those own label products in Ireland. We do not believe there is any issue in that.
What is the estimated percentage of own brand products produced in Ireland? Would the figure be 20% or 30%?
Mr. Fryett
Approximately half of Tesco brand products are produced in Ireland. We are always exploring the opportunities to increase and develop that, both in terms of our fresh foods and our ambient products. Many own label products produced in Ireland are also now exported to our business in the UK and the suppliers benefit from that.
Less than 10% of our business involves the sale of non-food products, by which I mean hardware and clothing. We are predominately a grocery food retailer. We bring in non-food products and will continue to do so where we have stores in which we can put them.
I would fiercely contest the point that our profits are a drain on the State. Our profits are reinvested in the business here and subsequently go into improving the economy of the State and creating further jobs.
What about shareholders?
That cannot be discussed.
I welcome Mr. Fryett and Mr. Breen to the committee and thank them for coming. The presentation was comprehensive. On the question of meat I was interested in what Deputy Hogan had to say about the process the animal goes through from farm gate to presentation, the grading, etc. According to two surveys done within recent months on supermarket shelves and the butcher's shop on the corner, in all cases even where there were promotions in supermarkets where the supermarkets took out full-page or half-page advertisements telling us there is 40% off the price of the Sunday roast or loin chops, the supermarkets were at least 25% more expensive than the butcher's shop and where there were not promotions meat was sometimes 100% more expensive. Supermarkets purchase their meat through exactly the same process as does the butcher's shop — there are no short cuts. How does Tesco explain that? I can understand the costs of transport and the additional costs in respect of employment, but how does Tesco explain the difference in price of something that is presented in the same way? Obviously Tesco has greater buying power and can strike a better deal with suppliers than can the little butcher on the corner. How can Tesco explain that meat on its shelves costs, for instance, 25% more than the meat in the little butcher's shop on the corner?
I wish to return to two issues which have already been dealt with. The public perception of companies like Tesco is that they have problems with retail planning guidelines. The answers of witnesses suggest Tesco has had no problem in this regard. Is that correct?
Mr. Fryett
We do not have any problem with planning guidelines.
Mr. Breen was not as solid in his response on the Groceries Order. He said he accepted the legislation. If the ban on below-cost selling were removed, would Tesco be able to sell its products for less and claim a greater share of the Irish market? How would the ban affect business?
The committee received a submission on multinationals according to which such companies are at greater advantage when operating in Ireland as they do not have to take into account the legislation here. The submission says that while domestic firms must observe the law on below-cost selling, multinational competitors can ignore them. Is that correct?
Mr. Fryett
That is definitely incorrect. We are governed by the same legislation in Ireland as the next person.
Does that mean Irish-based companies which do not have branches abroad are at no disadvantage in terms of Irish legislation?
Mr. Fryett
None whatsoever.
I declare my interest as a co-founder of Lir Chocolates which supplies Tesco and Superquinn. I wish Deputy McHugh to note that. I am doing so as he referred to vested interests.
A small to medium-sized company like Lir Chocolates which does not have management accounting or engineering staff must bear the costs of consultants in accountancy, engineering and plumbing which are extraordinarily high. Outside consultants who advise us on the day-to-day running and sustaining of our business represent our most significant expense. We do not find labour costs to be extraordinarily expensive as we choose our staff carefully. Good staff represent value for money. We have had staff in the past who did not represent value for money which is very frustrating for a small company. The results cannot be hidden. Costs in Ireland are very high.
Does the Senator have a question for the Tesco delegation?
When Connie Doody and I started our business, Superquinn was our first customer.
Other members have questions for the Tesco delegation. Time is against us.
Superquinn was our first customer and never let us down from day one. I take this opportunity to say that Tesco and Superquinn have been loyal and trusting supporters of our company which has allowed us to employ 65 people.
Chairman——
This is not proper.
This is about employment in Ireland.
Senator White should have submitted a written testimonial in the same way as everyone else who supplies Tesco.
I care about employment.
This is not correct procedure.
Does Senator White have a question for the Tesco delegation?
I just want to say that——
You record your appreciation.
We started Lir Chocolates to create employment.
You are very happy with your business with Tesco and Superquinn.
I thank Tesco and Superquinn formally. Connie Doody and I supported Senator Quinn in his election to the Seanad and I was nominated as a result of the export business our company carries on with the United Kingdom. My nomination came from the Irish Exporters Association and I feel strongly the need to record that contrary to the perception of multinationals and large Irish companies, Lir Chocolates has never been squeezed or exploited. I am delighted to be able to say that. I thank Tesco and Superquinn for sustaining our business which employs 65 people.
I will be brief.
Thank you.
I welcome Mr. Breen and Mr. Fryett to the committee and thank them for an informative and comprehensive presentation. I apologise for having left, but I am attending two committee meetings simultaneously.
As a politician, I am driven by the need to secure the best deal for the consumer. I have no doubt about the accuracy of some of the statistics Tesco produced which demonstrate that the customer is getting the best deal. That makes me quite happy.
The delegation spoke about exports worth €420 million to Great Britain. According to the submission, Tesco is opening export opportunities for Irish suppliers in central Europe. What is the status of that important development? The cost of bringing goods to market is higher in Ireland due to infrastructure, economies of scale and, as Mr. Fryett mentioned, labour costs. What is the impact of insurance costs, which we have spoken about a great deal at this committee? If it is a sensitive question, the delegates need not answer it. Among Irish firms generally, insurance is the second highest cost of production. What is its impact on Tesco?
The Tesco delegation informed us earlier that it is moving into the insurance industry, which is good news.
Yes, I was here for that.
I welcome the delegates and thank them for their superb presentation. They answered most of the questions put to them forthrightly and well. As a farmer, I accept that Tesco's job is to provide the consumer with value for money but there are problems at farm level with falling prices. Were it not that farmers are subsidised — some would say not well enough — many would have to go out of business. Many are going out of business as it stands. There is a difficult business conflict but I do not know how to resolve it. Those in the poultry industry suffer greatly owing to price levels. While I appreciate Tesco's position with regard to the consumer, are its local managers authorised to buy locally where there is a demand for local produce?
That is a very good question. I ask the delegation to conclude on the questions of Deputies Lynch, McHugh and Tony Dempsey and Senator Wilkinson and the compliments of Senator White.
Mr. Breen
I shall deal first with Deputy Lynch's question. Meat prices vary from retailer to retailer, whether it be a butcher or supermarket. Sometimes they are more expensive, at other times cheaper. According to the survey, they are cheaper. We source our meat through dedicated supply chains — a dedicated pool of suppliers and farmers who operate to our standards in terms of production, processing, rearing and so on. In return, we pay them the market rate plus a premium. It is possible that we pay more for our meat than many competing butchers because we put such a heavy emphasis on quality standards and traceability throughout the entire system. That is how we operate our meat business. Meat comes from the suppliers and abattoirs to our central processing operation to produce all our pre-packed meats for our stores. We give a guarantee in terms of quality because we know the production standards which are applied in terms of traceability and so on. This explains in large part the price difference between the various meat suppliers.
Deputy McHugh raised a question on the Groceries Order which we have always accepted as a given. It has not come up for review and we have never been asked to express a view on it. Neither have we been consulted. If it changes, we will adopt the changes. We do not know what the impact or the implications of a change would be. We have not undertaken that analysis as we are not economists. We accept it as it is, have not taken a position on it or engaged in debate. It is as simple as that.
Mr. Fryett
I will answer the last two questions. On the issue of exports to central Europe, the position is that we export Irish snack products to our business in the Czech Republic. We are also exporting meat products to Poland. Therefore, we have established a market in central Europe for various Irish suppliers which is encouraging.
Turning to the comment about farm prices, we do all we can to support the farming industry. That is an absolute commitment. We will work closely with our suppliers — farmers — to ensure we can always offer the best deal possible.
In many instances, we buy local products. For example, on the east coast we have dedicated suppliers who only supply to our stores and will continue to do so. We have to have them accredited as suppliers because of the importance attached to ensuring hygiene and safety standards are always applied.
There are always opportunities for smaller businesses to come to us. They can benefit from our centralised supply chain because a small business cannot set up an expensive supply chain. We can work with them. There are many examples where we have done this.
What about insurance costs?
When will it start?
Mr. Breen
Our car insurance business will start within a matter of months. Obviously, we do not want to be specific about a date which I am sure competitors will be interested to know.
On behalf of the joint committee, I thank the delegation for its professional presentation. Every member has been extremely pleased that it has given of its time and much valuable information. Tesco is the first company to make a presentation and as far as the committee is concerned, it has been an informative briefing. I wish the delegation well. Perhaps at some stage in the future, when we are at a more advanced stage in the investigation, it will come back and help us further.
Sitting suspended at 4.35 p.m. and resumed at 4.40 p.m.
On behalf of the committee, I have the great pleasure of welcoming our colleague, Senator Quinn, chairman of Superquinn, and Mr. Eamonn Quinn, deputy chairman of Superquinn, who are before the committee to make a presentation on behalf of their company. I propose to follow the same format as before by beginning with the presentation. I invite Senator Quinn to make his presentation.
On behalf of ourselves and our colleagues in Superquinn, we are happy, honoured and proud to be before the committee and treated in the same category as companies much bigger than ours in the business.
Last week, I submitted a three and a half page document, which I am sure was not as nearly professionally produced as others presented today. However, it answered practically all the questions asked. Since I am in the supermarket business, I believe in giving two for the price of one and, therefore, I did not intend to read the document but rather talk about other issues. That gives me better value and the approach comes from working in the supermarket business. I want to address where Superquinn fits into the picture.
I am delighted to appear before the committee after Tesco because the company did a very professional job and answered many questions, thereby saving us having to go to a great deal of trouble to produce the sorts of figures Tesco did. The company can do so because it can compare Britain and Ireland whereas Superquinn cannot. Of the groups which have come before the committee, Superquinn is the only one which operates solely in the Republic of Ireland.
We have been in business for 44 years, have 4,200 colleagues in the company and hope to be in business in the years ahead. However, in those 44 years, I have never been able to go to bed at night believing we will be around next year because it has been a very competitive business. This is especially clear from a presentation the committee received from a company which is one of the ten largest in the world and operates in 22 countries. It is a reminder of the competition for a company like Superquinn.
When we went into business, we had to examine how we would compete with others. In those 44 years, some 21 companies which were larger than us went out of business. One is never relaxed enough to think one will still be around in five years' time. We have been in business for 44 years and hope we will in five years, but there is no guarantee. Therefore, we must work very hard and compete in a different manner.
I grew up in a holiday camp, which was interesting. My father's holiday camp in Red Island, Skerries, which he opened in 1947, brought guests from England, Scotland and Wales. They paid on the day they arrived. It was an all-in holiday so everything was included. The deal my father made with his customers was that they did not need to bring with them any spare money because the holiday was all-inclusive. It would have almost been a breach of contract if we had tried to sell them anything else. Therefore, the measure of success of the business was if, at the end of the week, the guests told my father they had a good holiday and would return.
When I went into the grocery business in the small shop in Dundalk, I thought the purpose of the business was to get the customer to come back again, even if one did not maximise the profit on that visit. To train, I worked in Lipton's which had 60 shops in Ireland at the time. That company's training was different in that it stated that when a customer comes in, one may never see him or her again and that therefore one should get as much money from him or her on that visit. That was in total contrast to the manner in which I wanted to run the business, which was to ask whether we could give people a reason for coming back again and make life-long customers of them. That is where the boomerang principle comes from.
That story is to place in context the difference between companies which are much larger and those of the size of Superquinn which has just 19 shops although, please God, that figure will be 20 on 16 November when we hope to open in Charlesland, County Wicklow. A company like ours must compete on different levels. We know that in the food and grocery business price is very important but it is not the only important issue. We have listened very carefully to our customers over the years and heard about changing tastes and views and, before any of our competitors, we began to hear about the importance of nutrition, health, allergies, food safety and we recognised the benefits of customer service. Then we understood why people would drive past other supermarkets and come to Superquinn for taste.
That was when we began to get the edge on some of our competitors, some of which comprised the 20 which went out of business. They did so because they were focused only on one area. I want to touch on what that meant for Superquinn and I will do so by relating the following story. In the 1980s on our weekly customer panels, our mainly city-dwelling customers informed us they were worried about pharmaceutical companies' radio advertisements for animal injections. Members may remember them because they were broadcast on the radio almost every lunchtime. Dublin housewives in particular were worried and asked if Superquinn could put their minds at rest that the beef, pork and lamb was not laden with chemicals. At that stage we established what was probably the first ever traceability scheme, whereby customers could identify the farm from which the meat came. We examined those farms to ensure good husbandry was practised on them.
In March 1996, the BSE crisis hit Britain. At the time, Bord Bia approached Superquinn and informed us that there had been a drop in the sale of beef. However, the only company it could find which increased its sale of beef was Superquinn, a small company with 15 shops. This was because people recognised we were doing something different, namely, beef traceability schemes. In 1997, a company in Trinity College Dublin called Identigen informed us it had come up with a DNA testing scheme which took a sliver of beef from every animal which could then be traced back, even after it had been cooked. We were very taken with this although it cost money and our beef was more expensive on that basis as well as because of the maturation we specified to ensure it tasted better.
Eamonn received a telephone call on a Friday afternoon last year from Japan to inform him of a crisis in beef sales. The company in Japan used the Internet to find a traceability scheme and found just one in the whole world — Superquinn. That day, a delegation flew to Ireland to meet farmers and processors. They visited Trinity College and the supermarket and ate the food in one of our homes. The story was covered on "Prime Time" and by Japanese radio the following Monday morning.
Deputy Lynch asked why beef is sometimes more expensive. Some years ago, we decided that price was not the most important aspect of beef from our customers' point of view. Taste and food safety were much higher priorities. That had not been the case because people had confidence in beef which they began to lose in the 1970s and 1980s. We now sell two types of beef, all of which is traceable with our DNA testing system. We know it costs more but we also found that it tastes better. We asked seven companies in seven countries in Europe how they processed their beef. We tested them with 700 cattle over two years to find out how to mature and hang beef. We keep the results a secret because we believe the beef we sell tastes better than anyone else's. That is why it costs more.
I could tell the committee of similar stories in a range of areas, for example, potatoes. However, for the past 20 years customers have been asking why they cannot have floury potatoes like those they used to have. We went to our potato grower in County Dublin, Michael Haughey, and asked him how we could get them. He searched the world and found in eastern Germany a seed of potato that we did not have in Ireland. We experimented with it and are the only shop in Ireland selling it. We call it Oileán or the island potato because it is distinctive. We believe it tastes better and is more floury than other potatoes. It does cost more but one can choose to buy the potatoes that match the competitors' prices. I could continue to give such examples but will not do so lest Deputy Hogan believes I am trying to plug Superquinn.
The Senator is making us hungry. He is doing well.
None of us has had lunch yet.
The reason I am saying this is price is important. The representatives of Tesco did a marvellous job explaining the cost factors in Ireland. Unlike us, they have the ability to compare them with those elsewhere. We did not even test in this regard.
We have recognised during the years that price is important. Therefore, we recognised some ten or 12 years ago that if our 19 stores were to compete against a company with thousands of stores, we would have to do a different job. With this in mind, we contacted an organisation based in Holland called AMS. It had members in 11 countries but now has them in ten. It is an association or buying group of non-competing supermarkets. There are members in France, Germany, Holland and Denmark, among other countries. The group represented 20,000 supermarkets. When we joined, the figure rose to 20,019, thus adding considerably to it. Our membership enables us to purchase products, mainly private label products, under the label of Euroshopper at a competitive rate. Very often these products come from the same supplier used by our German or British competitors in Ireland. Although we have only 19 shops, we have been able to exploit this purchasing power.
Last year Superquinn and a group of wholesalers in Ireland called Stonehouse formed a new association called Aontas under which we buy together, thereby doubling our purchasing power. This allows us to go to our suppliers and ask if we can lower costs. We are in the same position as that outlined by the Tesco representatives in that we have to compete, bargain and negotiate. Our purchasing arrangements have enabled us to reduce our costs as much as possible.
We took two other measures. Two and a half years ago we spent €35 million on a central distribution system which allows us to distribute to all of our stores in a manner we believe will result in considerable savings in distribution costs and which will enable us to compete with much bigger competitors. Not all companies in Ireland have done this. Tesco, Aldi and Lidl and some others have. It involves a very heavy cost but we believe we can make it pay. We would not have ventured into this arrangement if we had not believed the benefit to us and particularly our customers would be worthwhile. There is a also considerable benefit to the environment because, instead of having 400 vans delivering to each shop each week, we now have one to three big trucks delivering each day. This involves savings. We believe we can reduce the associated costs.
We are installing an integrated computerised system to enable our supply chain to operate better. If we can manage to get on top of this, as I am sure we will, customers will benefit from lower prices, thus allowing us to compete.
I was concerned about the figures which our competitor supplied to the committee, suggesting that there is a gap in price. We do exactly the same as our competitors in that we monitor prices of other supermarkets. Our competitor referred to monitoring the prices of 14,000 products. We certainly do not have this many products on our shelves but we do cover the top-selling ones and are obliged to match our competitors' prices. We could not survive in the business, in spite of offering better service, if we did not do so. Last year a survey carried out by the office of the Director of Consumer Affairs found that Tesco, Dunnes Stores and Superquinn were all selling top products — bread, butter, milk and sugar — at the same price. The director expressed surprise at this which I could not understand because we could not have afforded to have another company selling such products one or two cent cheaper. My colleague, Eamonn Quinn, surveyed a small number of prices this morning.
Is the Senator referring to the prices of butter, bread and sugar?
The essential products. One cannot afford to be in our business and allow a gap to appear.
Mr. Eamonn Quinn
My survey indicated that the price of 1 litre of Premier milk — a standard line — was 70 cent in Dunnes Stores, Tesco and Superquinn.
Was that this morning?
Mr. Quinn
One pound of Kerrygold butter was sold for €1.79 in Dunnes Stores and Superquinn and €2.03 in Tesco. A standard 800 gramme pan of Brennans bread was €1.25 in Dunnes Stores, Tesco and Superquinn. A 2 litre bottle of Coca-Cola was €1.70 in Dunnes Stores, Tesco and Superquinn. A 750 gramme box of cornflakes — a standard line — cost €2.85 in Dunnes Stores and Tesco and €2.87 in Superquinn on Monday. It has been reduced to €2.85 in Superquinn because we discovered the price difference of 2 cent. Heinz Tomato Ketchup is sold at the same price in all three supermarkets, as is Fairy Liquid. These figures present only a snapshot as one could obviously compare thousands of prices but they indicate how the pricing system operates.
Is that how the company survives?
Mr. Quinn
We must match prices because otherwise customers would say certain products were more expensive to the tune of 2 or 3 cent. What I have outlined is not atypical.
One aspect not covered by our predecessors before this committee — I am usually loath to use any name——
Name and shame.
We built our business on customer service. We believe this is still very much the case and one does not do it without people. We have a dedicated team, amounting to approximately 4,200 at present. Two of our challenges are to make Superquinn the best place in which to work in order that staff will stay with us and to find the best people to work with us. Since the survey of the best places to work was first conducted two years ago, Superquinn has been the only retailer in the top 50. Our aim is to be in the top 50 all the time but there is no guarantee that this will be the case. The survey included hundreds of Irish companies and we are in the top 50 because we believe having the right people to do the work is the only way we can provide the best customer service. This probably means that customers who shop in Superquinn instead of other supermarkets know that somebody will pack their bags for them and that they will not have the hassle they would otherwise have. There is a cost but on balance we believe customers will choose Superquinn rather than other supermarkets because of the taste, nutrition, service and food safety measures and because the price is as good as they will get elsewhere.
It is a competitive marketplace and we recognise that it is becoming more so. I visited grocery stores in Thailand and the Czech Republic in the past year. There is probably no local retailer with more than two or three shops in Thailand. The big international chains have taken over. In the Czech Republic I could not find a local retailer with even two shops. As retailing becomes global and international, it presents a challenge to everybody. There is a fair possibility that the sector will become one in which only large international companies can survive because they can purchase at cheaper rates and negotiate more effectively with suppliers. Therefore, if companies the size of Superquinn are to survive against them, they will have to be alert, listen to their customers and respond much more rapidly to changes in the marketplace than they would have to do otherwise.
I thank Senator Quinn and Mr. Eamonn Quinn for an enlightening presentation. They have certainly afforded us a good insight into the challenges that lie ahead for an Irish company such as Superquinn. In their presentation they state Superquinn believes the legal system has a built-in bias against companies operating in Ireland. Is this reference only to the ban on below-cost selling or are there other issues at stake?
The Groceries Order includes an inability to compete with suppliers for space. For example, if we have a space and there are four suppliers, but we have only room for two products, we can bring in the four suppliers to discuss which two of them will fit on our shelves, because we cannot afford four competing brands, but we are restricted from doing certain things. Other companies outside Ireland do not have these restrictions. In Ireland suppliers will not complain to the State that they did not get the business because if they did they would never get the business again. In trying to make a decision, if we asked if some of the suppliers would help us with advertising, they would say they cannot help us with advertising because it is not allowed under the Groceries Order. Suppliers cannot offer to help one company with advertising if they do not offer to help others.
During a large take-over in Europe recently, a retailer wrote to the suppliers and said that, because of the take-over, it would pay the company a month late for the next year. I am not saying we would do that, but it appears we will never know if our competitors can do so. There are various restrictions on our ability as an Irish company who operates only in the Republic. If one has to compete for space on the shelf, one cannot get the best deal from one's suppliers because they are obliged to give the same deal to everyone else.
The legislation was introduced to help small suppliers compete with large retailers. Picture us trying to bully Coca-Cola, Proctor and Gamble or Unilever. We are based in Dundalk in the Republic, not in Newry. Anyone based in Dusseldorf, London or Lausanne can negotiate and we would not hear about it in Ireland. It appears there are restrictions. It is the only law I know of in Europe that acts against the interests of local entrepreneurs in favour of those who operate outside the State. If there is to be such legislation, it should be European legislation, not Irish legislation, because it is biased against someone who operates only in Ireland and does not operate outside the State.
I would like to touch on another aspect of the Groceries Order, namely, the ban on below cost selling. I do not have a view on the matter but I fear that sometimes we introduce too many laws and believe we can solve everything by way of legislation. If below cost selling is perceived as a threat, I suggested in the document that we should refuse to allow anyone in the grocery business to say "trade only supplied is not allowed". This means that if anyone decides to sell below cost, their competitors could buy the whole stock. I recall a price war developing between two of us in the 1960s in Dundalk. We eventually offered to buy the product at a penny more than our competitor was selling it at. It was a great way to finish a price war. One could not sell below cost because one's competitor would come in and clear the shelf. It was a simple solution to such a problem. If it is believed that we must enforce a ban on below cost selling, we can do it by introducing a term in which one may not limit the ability of anyone to purchase goods.
I welcome Senator Quinn and Mr. Eamonn Quinn. The quality of Superquinn's produce is not in question, and the company asks consumers to pay a bit more for that. I have observed this as a customer in Kilkenny.
The IFA recently highlighted the fact that a price war has been initiated between Superquinn and Tesco in respect of fresh produce. It has been marketed as a loss leader by both stores in an effort to win market share. This action could result in driving some vegetable producers out of business. Senator Quinn claims to have a good relationship with Irish growers, which I am sure is the case. I wonder is there a solution in sight in regard to this price war and where will it end in the interests of keeping the vegetable growers in business?
What percentage of Superquinn's goods sold in the stores does the Groceries Order not cover? Is Senator Quinn in a position to tell the committee what percentage of the market Superquinn currently holds? He referred to modifications to the Groceries Order. Has he views on other aspects of Government policy or retail planning guidelines to which changes should be made to bring about greater competition and a reduction in price to consumers? Would changes in the retail planning guidelines contribute to that objective?
Mr. Quinn
On fresh vegetables and prices, we often take the opportunity to pass on good offers to customers. Vegetables come on the market because there is a glut of them from time to time. If we feel we can clear vegetables at a good price to customers we will do so. It is done with the co-operation of our growers. We would not ask anyone to sell produce below cost. If it is available, we take it and pass it on, which is good business, and it gives customers a good deal. The fact that other retailers may feel aggrieved by this should have nothing to do with us. If vegetables are available at a good price, we should take the opportunity and pass it on to our customers. We will continue to do so because it is good for the market.
In terms of fresh goods covered by the Groceries Order, approximately half our packaged goods are covered. We got into trouble recently for selling below cost a Santa Claus packet of Tayto. We thought it was seasonal but apparently it is not. The law is difficult to manage in these cases. One is allowed to sell off seasonal goods because obviously if Christmas finishes one must get rid of them. However, the law is not always clear. Fresh good are not covered but anything in a package is unless it is seasonal.
I want to touch on two questions Deputy Hogan asked, one of which relates to the share of the market. We are not sure we can rely on these figures. He criticised Tesco for reporting something. We must estimate whether we can take on board the findings of surveys carried out by independent groups. L & N was a very good store based in Waterford which was shown as having the same market share as we had. We were impressed because we thought we were doing a better job. When they closed down and announced their sales, we discovered they were only a fraction of our sales, yet the suggested market share was the same as ours. It is a bit like the election in America. Random surveys are carried out but, until the actual count takes place, one does not know the result. The most recent figure published by ADM was 8.6% for Superquinn.
The cap on the size of supermarkets was referred to. The present size is 3,500 square metres in the Dublin area and 3,000 square metres outside the Dublin area. We have nothing that exceeds that. I can understand if the State makes a decision for planning and social reasons rather than for competitive reasons. I can understand a past decision the Government may have made as a result of having seen, particularly in France and Britain, that where very large stores were allowed to open, they soaked up business to the extent that a number of towns and villages no longer had an existing grocery shop. I can understand the reason that for social and planning reasons, a state might say 3,500 sq. m. is large enough. However, that view does not reflect the benefits to the consumer because there is little doubt that a large hypermarket will have the benefit of reduced prices. A decision which regards the social and planning area rather than trade may not be in the long-term interest of the State as a whole.
It is nearly an acre of ground, which is a lot of floor space.
I welcome Senator Feargal Quinn and Eamonn Quinn and compliment them on the great work they are doing in the grocery trade as an Irish company. I also compliment Superquinn on its traceability policy because as a farmer I understand how important this is. Superquinn has done good work in the area.
Now that Superquinn buys in more bulk as a result of co-ordination with a greater number of stores, does it sell more foreign and fewer Irish products? I asked previously about milk. Does the company sell milk from Northern Ireland or does it all come from the Twenty-six Counties? Although this issue may not arise in the case of Superquinn, is there a fear, owing to the fact that it and other companies are getting together successfully, that they may become too powerful and form a cartel in future?
I thank Senator Quinn for his excellent contribution. He went beyond the written submission and worked without a safety net. I thank him for the submission's freshness and unique quality.
I am anxious to see Superquinn on a level playing field as I like to see indigenous companies progress and develop. Where we have multinationals that work on huge economies of scale, I would not like to see any impediment to the development of a local company. Other than the issue Senator Quinn raised about the possibility of a company doing a deal outside the country, are there other issues this committee should examine to ensure the marketplace remains competitive and allows indigenous companies to thrive and survive alongside multinationals?
I too welcome Senator Quinn and Eamonn Quinn and thank them for their presentation. Do they believe that in a competitive retail environment, all players in the market should be prepared to disclose their profits so that consumers can see clearly where they are being exploited and where they are being offered value for money? I agree with what Senator Hanafin said about a level playing pitch.
With regard to the ban on below cost selling, does Senator Quinn believe that if it were removed, prices would be lower, and if so, by how much? Would Superquinn's market share increase and by how much? Would this have an adverse impact on village shops and the independent sector? How would suppliers be affected? Would this encourage new entrants to the market?
I liked the Senator's remarks on the cap on the size of stores and accept his stores are within the law. I may have picked him up wrongly but did his remarks imply there is some store that is larger than the cap? If the cap on the size of stores were removed, would prices be lower and by how much? Would Superquinn's market share increase and by how much? What adverse impact, if any, would this have on village shops in the independent sector? What effect would it have on new entrants?
The Senator has asked a lot of questions in one.
I have, but I have tried to keep them under the two headings.
Senator Quinn attends this committee regularly so I welcome Eamonn Quinn especially.
Is there a Superquinn in Roscommon?
Not yet. During my time as a Minister with responsibility for trade, we had a buyers' campaign which was allowed then but is no longer allowed because of European trade laws. At the time every "Buy Irish" promotion was readily accepted by Superquinn, and that at a time when I did not know Senator Quinn as a colleague. Superquinn was always helpful and supportive of Irish products. With regard to traceability and identification from farm to plate, Superquinn was also ahead of its time.
One concern I must express with regard to supermarkets in general concerns 24-hour shopping. I do not know whether these opening times are anti-social. However, festivals such as Christmas, Good Friday, Easter and similar events should be respected and supermarkets should close for them. If legislation is to be introduced, I favour the Presbyterian approach to Sundays. As far as I can see, shopping seems to be the new religion and people seem to feel they should shop till they drop. The concept of 24-hour shopping is coming, even to Roscommon. I urge all supermarkets to come together and arrange that staff are on holiday during the Christmas and Easter periods. Give people a break from Christmas Eve until a few days afterwards to allow people, including Senator Quinn and Eamonn Quinn, quality time with their families. Agreement between all supermarket owners would be welcome in this regard.
We shall respond in turn to the questions. On the issue of Sunday trading, I agree with Senator Leyden. When Sunday trading by supermarkets started 12 years ago in Ireland, I wondered who would want to shop on a Sunday. We were reluctant to open on Sundays and stuck to that position for ten years. However, two years ago we found that we would have to open if we wanted to maintain jobs and look after our customers. Some of our customers said that although they thought we were great not to open on Sundays and Good Friday, they shopped somewhere else when we closed. We were unlikely to survive if we continued to close.
While I agree with Senator Leyden, I do not know whether it would be wise to legislate on the issue. In Germany, legislation was passed that ordered that all shops should close at 6 p.m., at midday every Saturday and on Sundays, except for those in railway stations. However, this did not work. While they attempted to make it work for a period, it was not in the consumer or market interest. I feel the same way as Senator Leyden about 24-hour shopping. I was surprised when I read in the newspaper that Tesco was going to open 15 more stores for 24-hour shopping for most of the week. Superquinn opened for 24 hours on the day before Christmas Eve last year and we were amazed by how many people came shopping at 2 a.m. or 3 a.m. We had not anticipated the amount of business we were going to do.
With regard to Irish produce, we identified the benefits of being pro-Irish some 30 years ago. Being pro-Irish and seeking out every Irish product we could was good for business and not just good citizenship. We also run a project called local heroes where local branches try to find and support a person who is producing something in the local area. This does not quite provide the manager with freedom to go out and buy locally, something about which Deputy Lynch asked. As we have strict food safety and hygiene standards, managers are not free to accept the produce of everybody who makes an approach to the store with a pâté or marmalade they want us to buy. However, we seek out local heroes and display their photographs in the store. Apart from the fact that we like doing this, it is good for business.
Deputy Callanan asked about Irish produce. When we decided to promote our Irishness and Irish products in 1990 or 1991, we came up with the idea of using a shamrock to denote an Irish product. We then went to our computer people and asked if in the event we could identify all our Irish products, whether they could include that information on the system and show on a receipt the amount spent on Irish products. As people leave the shop, they can also see displayed how much customers spent on Irish produce the previous week. In the early 1990s, in particular, when there was high unemployment, this information was a great incentive. It was very good for business and was very well thought out. It is being followed by people throughout the world who have come to learn this technology. We should have patented it but we did not think of that. Nevertheless, it was well worth while.
However, one of the first questions asked by some of our people was, "Do I put a shamrock on products from Northern Ireland?". I had not even thought of the question. My mother came from County Armagh and my father from County Down although they met in Dún Laoghaire and I was born in Dublin. It had not dawned on me to think they were not Irish. I regard products from every part of Ireland as Irish.
Hear, hear.
We did not have any query. I put a shamrock on products from Northern Ireland. I regard them as Irish products and we sell them as Irish products. I do not differentiate on the basis of religion or the side of the Border from which a product comes. However, we also know that Waterford people, for example, want to buy Waterford products and Clonmel people want to buy local Tipperary products. There is a bias in that regard. I have a strong view that if we are to have a one island Ireland in the years ahead we must not differentiate between Ulster, Munster, Leinster and Connacht. We must treat them all as one.
Hear, hear.
Mr. Quinn
I will pick up on some of the questions not answered. The answer to the question on bulk buying and the bad effect of foreign imports is, no. The effect of central distribution is to reduce cost. Reducing by 400 per week the number of deliveries to one's back door will have a good impact on cost. One also delivers the goods quicker and fresher so there is a double impact.
We recognise that we serve a number of different markets. If we are competing against discounters whose only advantage is price we must offer a price competitive product. We must also offer quality. A product such as milk includes low cost milk and more expensive varieties of milk including organic milk. There is also lullaby milk which, apparently, sends one to sleep more easily. Each market is different and there are different segments within each market. We must compete on each of those.
Will the local buying group make us too big? Even if we add both our market shares we still will be well below the other two players in the market. It is an effort for us to try to get bigger. In the world wide grocery market buying is taking place at a central level, whether in Europe or in the United States. Walmart, for example, employs more people than the Irish economy. People are trying to get bigger, not by merging their companies but by merging their buying operations. That is what we are trying to do. That is why the comment on the Groceries Order is correct. One can negotiate deals outside the State which do not apply to us.
We did disclose our profits.
Perhaps I could deal with that question. Approximately 12 years ago we realised the law had changed to require all companies, even private companies, to disclose their profits. Even though we begrudged telling our competitors how well or how badly we were doing we published our figures. However, nobody else did so. Tesco published its overall British figures and our other large competitor avoided publishing by some other means. We suddenly found our competitors knew our figures but we did not know theirs. We have had to take the same steps others have taken to avoid publishing our figures. If everyone published figures no one would have a problem but it would be against the interest of any company to disclose its figures to its competitors without knowing theirs.
Because we shook hands with our competitors here Deputy Callanan may have got the impression that we are forming a cartel. I have not seen either of those two men since a rugby match about six months ago. We do not bump into one another often and it would not be right to kick each other in the shins in public.
Mr. Quinn
If the Oireachtas cannot get us all into the same room it is unlikely we will do so.
I have read Senator Quinn's book.
There is no danger of a cartel. We are polite to each other but Ireland is a very competitive market and there is no relaxation in that.
Senator Coghlan asked if any stores were outside the cap of 3,500 square metres. When the cap was introduced one or two stores were above the cap. The only one I know which has been built since then is the Tesco store in Clarehall in Dublin. Tesco argued in court that the cap was introduced after the company had applied for planning permission. The store opened a couple of months ago and is bigger than the cap size.
What is the status of the court case at present?
Tesco won the case and built the store.
Where is the store?
It is on the Malahide Road but I am not going to give them publicity.
On behalf of members of the joint committee I thank Senator Quinn and Mr. Eamonn Quinn for their informative briefing. We are delighted they brought their experience to the committee. It will be of enormous help to us in putting together our interim report on their industry. I wish them well. Many Irish people are proud of their achievements and success.
The joint committee went into private session and adjourned at 5.30 p.m. until 12.30 p.m on 3 November 2004.