I welcome the delegation from RGDATA, led by its director general, Ms Tara Buckley, its president, Mr. Ray Ryan, Mr. Jim Marshall and Mr. John Pettitt, a director and member respectively. I remind the visitors that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected. I also remind Members of the long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House or an official by name in such a way as to make him or her identifiable.
Grocery Prices: Presentations.
Ms Tara Buckley
RGDATA is delighted to participate in this examination of the grocery sector. The president, Mr. Ray Ryan, is from Limerick. Mr. Jim Marshall is a retailer from Mullingar and Mr. John Pettitt is a retailer from Wexford.
RGDATA is the representative organisation for the independent retail grocery trade in Ireland. Established in 1942, we represent grocery retailers who own and operate their own stores. RGDATA members operate all types of shops from sizeable supermarkets, convenience stores, shops on garage forecourts and corner stores. Some are part of symbol groups and others are not associated with a particular wholesaler organisation. They are local stores owned by local people, operating in the community in which they are based, employing locally, sourcing locally and investing locally. RGDATA members have a 45% share of the retail grocery market. That share is certainly not given; it is hard won.
Grocery retailing is a competitive, labour intensive industry and the standard of our grocery shops surpasses most other European countries. Many RGDATA members have invested heavily to develop and modernise their stores. Overall investment by retailers and wholesalers over the past ten years exceeds €700 million. Few of our members employ less than ten people and many of the larger stores employ over 100. We believe that the independent retail grocery sector employs about 40,000 people. In every suburb, town and village throughout the country there is at least one or usually two, high quality independent retail grocery outlets. They offer a reasonable selection of grocery items, household goods, fresh fruit, meat and vegetables as well as in-store bakeries, deli counters, local deliveries and a high level of service. These stores compete with each other and usually with at least one multiple and a discounter in their area.
Another feature common to most independent retailers is that they open early and close late. Over 85% of our members trade from 7 a.m. until 10 p.m.
All of our members source products from suppliers based in their own locality. Indeed, individual RGDATA members have provided the initial opportunities for many Irish food companies to enter the market place. Many of our members source the bulk of their products from particular wholesalers while some with greater scale have the potential to source directly from individual suppliers. RGDATA estimates that in excess of 50% of the products sold in our members' stores are Irish produced. Given that one in five manufacturing jobs in Ireland is associated with the food sector it is important that we have a diverse, competitive and transparent retail grocery trade at home. This is the best assurance that Irish suppliers can have that their business can grow and trade internationally. Over dependence on large supply contracts with big multiples may be attractive in the short term, but there are pitfalls for companies. A retail grocery trade that provides suppliers with alternative routes to market is critical and should be encouraged. Local retailers operating in local communities have a direct and real incentive to support local producers.
The grocery sector in Ireland is fast moving, competitive and dynamic. The past few years have seen many rapid changes to the market place. These include the rapid growth of the German discount chains, a major store development campaign by Tesco, significant increases in the number of convenience stores operated by the multiples and new format stores operated by Marks and Spencer. We have also seen the emergence of petrol stations operated by Tesco. It is also a fact that grocery retailing is more competitive today than at any stage previously. The groceries order and the retail planning guidelines have played a key role in encouraging competition and store developments. The groceries order provides a level playing field for small grocers because it bans predatory pricing which would put them out of business. The retail planning guidelines set down key principles for achieving sustainable development and maintaining vibrant town centres. They provide for a retail landscape that operates in the best interests of communities and consumers, not developers and retailers.
It is important for every town, suburb and village, for community spirit and our environment that we bring the shops to the people and not the people to the shops. Ghost Town Britain, a report produced by the New Economic Forum, shows how out of town superstore development programmes adopted by Tesco and other multiples in the UK decimated hundreds of towns in Britain. Over one fifth of local shops have closed since 1995. Many people in towns and villages all over the UK cannot now access a local shop. That is not the case in Ireland.
The last five years has seen food inflation consistently remain well below the general rate of inflation. This is indicative of intense competition in the retail grocery market. RGDATA members play a significant part in this competitive dynamic, providing a buffer to market domination by the multiples, not just in rural areas, but also in urban centres. Recent CSO figures suggest that food prices in Dublin were dearer than elsewhere in the country. Members of this committee should note that Dublin is where the multiples, such as Tesco, Dunnes and Superquinn have a dominant market share. While the independent trade holds a 45% share of the national grocery market, in Dublin the multiples have in excess of 75% of the retail grocery market. We believe that the independent sector has provided very good competition and good prices.
Recent EU figures show Ireland as one of the most expensive countries in the euro zone for goods and services. As far our members are concerned there is no great mystery as to why food prices are dearer here than other countries. The plain and simple reality is that doing business in Ireland costs more than elsewhere throughout the euro zone. The fact that over 50% of food imports into the State come from the sterling zone is another significant factor impacting on the cost of food. We have not developed alternative sources of supply for food products from euro zone countries. This would insulate us more against the currency fluctuations that have bedevilled food prices for many years. The key point we would like to make today is about the high operating costs for Irish businesses and retailers.
RGDATA and IBEC commissioned a study on food production and food prices in Ireland to establish the reasons for the gap between farm gate prices, food manufacturers' prices and retail prices in the independent food retailing sector and to determine the levels of profitability among independent retailers. The report, which is the only significant and forensic analysis of food prices and the food supply chain carried out in recent years, was prepared by economists Tansey Webster Stewart. It shows food costs more in Ireland, not because of high or rising levels of profitability among independent food retailers and wholesalers, but because Ireland is a high-cost environment in which to run a business.
Since 1999, the inflation rate in the non-traded sector in the economy has been more than twice the inflation rate in the traded sector. Similarly, Government-influenced prices contributed to 35% of national inflation up to the end of January 2003. The recent National Competitiveness Council report indicates both these sectors remain problematical.
Tansey Webster Stewart confirms the independent retail grocery sector is not making hidden or windfall profits at the expense of consumers. Most of our members operate from private limited companies, and their accounts are fully accessible in the Companies Office. Tansey Webster Stewart was given access to a representative sample of the financial records of 50 key operators in the independent grocery trade. Combined financial results show that net margins actually declined from 2.93% to 2.65% between 2000 and 2002. The principal reason for this decline was the massive increase in business operating costs. The report found the biggest cost increases over the two year period in question were insurance, up 70%; professional fees, up 46.3%; light, heat, power and telephones, up 36.6%; and, wages and salaries, increased by 31.9%.
Tansey Webster Stewart concluded the costs that put most pressures on prices in recent years stemmed from rapidly rising direct and indirect labour costs. These include wages, professional fees and contract cleaning. There were no hidden profits. There were no windfall gains for independent retailers. The net margin earned by our members averages at 2.65%. This is a very hard earned profit in a competitive environment.
I am happy to outline the gross and net operating margins of the independent retail grocery sector and give some detail on the operating costs we face. Regrettably, not all players are as forthcoming with their figures on turnover and profitability. Each of the main multiple retailers and discounters invited to appear before this committee goes to inordinate lengths to conceal its turnover in Ireland and its profitability. It is wrong that large companies, with a significant influence on people's spending power, are permitted to be so secretive about their operations in this marketplace. This committee should compel these large companies to lodge the same type of returns to the Companies Office that our members are obliged to. Consumers are entitled to no less.
RGDATA is delighted to participate in this review and looks forward to the committee's final report. The solution to achieving cheaper prices for Irish consumers is to radically and vigorously attack the cost of doing business in Ireland.
Those who seek to blame the groceries order and the retail planning guidelines for the high price of food have failed to produce any statistical data to back these claims. Careful analysis of CPI figures over the past ten years highlights that the products covered by the groceries order have increased at less than the rate of inflation which applies to products outside the scope of the order. It is also telling that Finland, which has the same level of food prices as Ireland, does not have a groceries order or a ban on below-cost selling. France, which has the highest penetration of hypermarkets in Europe, also has high food prices.
If food prices are to fall in Ireland, we need to have rigorous, targeted and focused restraint on costs from the Government influenced sector and more competition from the non-traded sector. Bring costs down and prices will fall.
Other members of the delegation will speak briefly about their own businesses, and give a taste of what it is like to be an independent grocer operating in Ireland today.
Mr. Jim Marshall
I run an independent store in Mullingar, which was started by my father as a small 500 sq. ft. shop in 1949. I joined the business after leaving school, and since then have extended the shop to a 7,000 sq. ft. modern supermarket and off licence, employing 60 people. I am currently adding another 3,000 sq. ft. My opening hours are 7.30 a.m. to 10 p.m.
My weekly wages bill is approximately €15,500, employing locals and students at weekends. I support local producers, such as home bakers and farmers. I have full traceability back to producers. Whatever I cannot source locally, I buy in the Dublin market. Many local producers have no access to markets because of the central distribution which multiples have. I also support local fundraising events with sponsorships.
Many of my friends in the trade have invested heavily to develop and modernise their businesses. Every town and village has a high quality store. Mullingar has a vibrant town centre, even though Tesco tried to develop an out of town store. I have significantly higher costs than those in other EU countries, such as wages, insurance, waste management, light and heating.
I ask the committee to recommend the retention of the groceries order so that the Irish consumer will continue to be served by a vibrant, independent sector. This means local stores owned by local people operating in the community in which they are based, employing, sourcing and investing locally, and providing benefits for everyone in the community.
Mr. John Pettitt
I am the marketing manager for Pettitt's supermarkets, a family-owned operation with five stores in the south east. My grandfather opened the first store in 1946 on the main street in Wexford. In the early 1960s, he expanded and converted it to a self-service operation. Since then, there has been a strong culture of innovation in our business. By 1989, we had expanded to a five store operation. We specialised in fresh foods and a personal service. That is how we competed with the multiples then.
We continue to compete through innovation, by being better and different in certain areas. We cannot fool ourselves; we must compete on price across our range of products. The value of what we offer must be as good or better than our competitors. We are directly competing with all of the multiples and both of the discounters in Wexford.
We have shown innovation and collaborated with suppliers to improve service to our customers. In 1986, we decided to produce our own beef. We bought a farm in Wexford and launched a quality assurance scheme over which we had direct control. That has developed to the extent that there are now approximately 120 local farmers supplying beef to the scheme. We spent much time educating the farming community on how to achieve the results our customers look for. We did not sit on our laurels and wait for the product to come to us. We went out and fought the battle to remain competitive in our environment, and we continue to do so. We reinvest in the five stores, and currently we are reinvesting in Arklow. We have plans to reinvest in Athy, on a town centre site. This development is promising as it keeps employment in the key town area.
We employ 450 people, a mix of full-time and part-time employees. Every day, we challenge our business costs and what we offer our customers to see how we can be innovative in cutting costs and offering a better product to the customer.
Mr. Ray Ryan
I am an independent retailer which means we are not affiliated to any of the group symbols. Therefore, any promotions we conduct are at our own expense and any material we produce is printed by ourselves. Any prices we negotiate for special offers are argued on a daily basis by us on a one-to-one basis with our suppliers. That is what being an independent retailer means. Special promotions and literature are all done in-house at our own expense as we have no support for that whatsoever.
I come from a family of retailers. My parents were retailers, having started in the UK in the 1950s and later moved back to Ireland. I have been involved in the family business since I was able to see over the counter top and have operated my own store since 1987. It is sandwiched between the Limerick Regional Hospital and the Crescent shopping centre which are two well-known landmarks. The Crescent shopping centre is one mile from my front door. From a competition point of view we have plenty. There are two Spar supermarkets, a Centra supermarket, a Mace, a Statoil and Tesco in the Crescent shopping centre all of which are within a two mile radius from where I operate and a Lidl store is located three miles from my store. Our shop is a typical store, having the expected high standard of finish and layout. We have a hot and cold deli, lotto, postal services, fresh fruit and vegetables, wines, magazines, some household goods and the normal range of day-to-day grocery needs that our customers expect us to have. The layout of our shop is primarily dictated by our customers, not by ourselves. They have formed the layout by their buying patterns. We do not dictate what lines we want to carry by way of profitability, rather we carry the lines that customers require. That means one can come to our shop at 9 p.m. for a needle and thread to sew a child's uniform or a paint brush if one is doing DIY or a list of ingredients for a child's home economics class the following morning. Given that lines are bought and paid for and are sitting on the shelves for some time they are not very profitable. We carry them because our customers know they can rely on us for them and that is the reason they come back to us.
We open from 6.30 a.m. to 10 p.m., seven days a week. We employ 24 people, ten of whom are full-time and 14 are part-time. There are four units attached to our shop — a hair salon, a launderette, a chemist and a take-away restaurant. Approximately six families and 42 people contribute to household incomes from that small shopping precinct in the middle of a housing estate.
We source locally as and when possible. We source outside the local area only if availability is not an option. It makes sense for us to source locally because we are trading locally. This has obvious benefits for us but it also has obvious benefits for those with whom we trade. The other side of the coin is that we are a 2,000 sq. ft. convenience store which is not large. When we do our accounts every year we calculate the amount of money we spend in the local community, excluding our wages bill, on services, local tradesmen, sponsorship and so and it is phenomenal. If our store did not exist beside the other shops it would be noticeably missed as it makes a considerable contribution. We do not just sit there seven days a week taking in money, we are putting a good deal of it back into the community.
At present we compete on all levels — price, variety of products, service and convenience which would always be our strong point and we are happy to do that. We have absolutely no difficulty in competing on a price basis. We will do our best at all times to compete on price. We never get lazy about it, it is a fact of life. That is where the groceries order comes in to play. I am not being dramatic or overstating the fact. If the groceries order was either interfered with or abolished I would sell my business and leave the retail trade because there would be no future in it for me, that would be if I had a business to sell. I know that for a fact. Without the groceries order, given what happened in the UK and what happened here with predatory prices, I would be lucky to have a business to sell. All I would have would be four walls. That is not being over-dramatic, that is the future as I see it.
With regard to the groceries order, we invest on an ongoing monthly or two-monthly basis, be it in small equipment or maintenance. Every four to five years we do a major revamp costing tens and sometimes hundreds of thousands of euro. When I go to my bank to sign for that money the groceries order gives me the confidence to know this is not money down the drain and I know I have a good chance of competing with all those people I have listed, including Tesco. Also my bank is very much aware of the groceries order and it knows what it is and how it works. Without the groceries order, if I was to go to the bank and ask for another €70,000 or €80,000, I would not have the same success as I have had every four or five years during the past 17 years when I have borrowed. The banks are very much aware of the groceries order. That is not protectionist, that is the reality.
The cap on superstores is a personal issue. Obviously there is a business element but having seen and knowing what the out-of-town superstores have done in the UK — I am not over-reacting or trying to be dramatic — if we were to go down that road I would have to give serious consideration to relocating myself and my family in another country because I have four children. I have seen in what used to be a typical town in the UK, its butchers and specialist shops being replaced by literally lines of wine bars. If one watches television any evening, one will be aware the UK police commissioners speak constantly about the trouble they have and always refer to the fact that the town centres have gone and have been replaced with lines of super pubs, wine bars and drink outlets. If those superstores were to come here I would have to give serious consideration to my own quality of life and that of my four children.
I have a few questions. We are also conducting inquiries into the insurance industry. Ms Buckley stated that her insurance costs increased by 70% from 2000 to 2002. What has happened from 2002 up to now? You can substantiate the statement you made that one fifth of businesses closed when out-of-town trading was established in "ghost-town Britain". Do you accept that prices in Ireland are dearer than in the UK and, if so, are there any barriers you would wish the committee to assist with in lowering prices in Ireland? For example, what action could the Government take to reduce your members' purchase costs and others costs to reduce prices to the consumer?
My final question is to Mr. Marshall because I know his store and I have known him for my entire life and he is probably one of the hardest working men in the midlands. He has survived in Mullingar with all the multiples around him. We heard here yesterday and it has been widely reported on television, radio and in the print media today, that Tesco said that prices were 20% higher in Ireland than in other European destinations. Does Mr. Marshall agree with that statement? Can he give any examples of his prices and those charged by Tesco in Mullingar? Let us take it at street level. Will you answer that question first, Mr. Marshall?
Mr. Marshall
Yes, Chairman. I will give you an example of current pricing. Currently, I am selling 10 kilo bags of record and rooster potatoes for €3.99. I checked the Tesco price on the Internet yesterday and it is €6.99. A two and a half kilo pack——
Tesco stores are selling for €6.99 the same product you are selling at €3.99 in Mullingar.
Mr. Marshall
The same product. A packet of Pampers, which is important to the young married mum, is €24.99 in Tesco. I sell them for €19.99.
That is €24.99 as against €19.99.
Mr. Marshall
I have maintained that price since the beginning of the year.
Can you give the committee any other examples?
Mr. Marshall
On fruit and vegetables, Tesco does special offers of 33% or 50% off, but off what? They are ridiculous prices. Turnips were marked up to €1.29 and there was 33 1/3% off, bringing them down to 59 cent. I sell turnips and cabbage at 79 cent all the time. I go to the Dublin market in the truck twice a week. We buy direct from the producers there and I am able to compete well with Tesco, which is beside me. I provide a personal service. I am on the shop floor and I talk to the customers. I can give the young people a hand with their trolleys or help the young married mother trying to control her child.
What you are saying, Mr. Marshall, is that you are not adding on the 20% that Tesco maintained here yesterday it charges. Pampers are down €5 on €24.99 and potatoes are down 45%.
Mr. Marshall
That is correct.
Can you substantiate that and provide the committee with a copy of that submission, which we can use in our deliberation?
Mr. Marshall
I can.
I said yesterday that we may have to ask the Tesco representatives to come before the committee again to clarify various points that will be made. I say the same to your organisation. We may have to ask your representatives and others coming before this committee for further clarification because of the major difference in pricing. We are coming to this issue with an open mind. As I stated yesterday, we are the watchdog committee on behalf of the consumer, as we were on the insurance inquiry, but we are also the conduit between the industry and Government to determine how we and the Government can assist the industry. Thank you, Mr. Marshall.
Will Ms Buckley comment on the points I raised before I call Deputy Howlin to ask questions?
Ms Buckley
On insurance costs, there has been some change. The increases have not been as high as they were in the past and that is probably due to the good work the committee did on insurance.
Will Ms Buckley give specific figures?
Ms Buckley
I do not have specific figures but I can get those for the Deputy. I do not know if some of our members here have——
If your members have done research, and we do not want it from one or two but from 50, 60 or 70 from throughout the country, perhaps you might assist the committee by letting us have the 2003 figures or those for the early part of 2004. We are prepared to wait a month or two months for the 2004 figures, if it is possible to get those on your industry.
Ms Buckley
We undertook research with Tansey Webster and the result was reported in 2003. We plan to update that research. We may not have the figures in the short term but we will have figures and we will give them to the committee.
Thank you.
Ms Buckley
On the question about ghost-town Britain and whether we can substantiate that, we have a full report on that from the United Kingdom, and various academics in the UK have carried out studies. There are good figures, therefore, to substantiate any comments we have made and we can make those reports available to the committee.
On the question of prices here being dearer than those in the UK or the euro zone, RGDATA accepts there are many statistics available on price comparisons, although we may not accept the figures involved. There are many of these surveys and the results depend on the brand of product that is put in the basket. Some of the eurozone surveys examine certain brands that are very popular in Europe but may not be as popular in Ireland. Mineral water, for example, refers to Evian mineral water which would not be a popular purchase here because it is expensive while one of our local, more popular brands would be much cheaper. We have issues around trying to put together a basket of goods that is a fair comparison, and we believe there is good value to be got by somebody doing their shopping in any of our members' stores. It can depend on the offers on the seasonal produce available on the day. They all have an impact on the price of a basket of goods.
Is your organisation in favour, under any circumstances or proposal, of out-of-town centres being built because of the experience particularly in the UK?
Ms Buckley
We believe out-of-town superstores suck business out of the town. They take business not just from the grocery retailer in the town but also the florist, the delicatessen——
The whole life of the town.
Ms Buckley
The whole life of the town. There are examples, particularly in the UK, which show the devastating impact these stores have had on society, communities and people, particularly those who do not have access to cars or who do not want to travel to large shops. They may be single people, couples or small families who want to walk to their local shop.
I welcome the submission of an important group of people involved in a very important sector. Most of the presentation was fairly bleak, whereas the reality, as I deduce it, is positive. Mr. Marshall is increasing his store to 10,000 sq. ft. Mr. Pettitt is developing yet another wonderful store — I am a good customer of Pettitt's and I declare that vested interest. My experience in Wexford is that Pettitt's stores are thriving, as is Hanrahan's, an independent operator, and Des Murphy, another big new store which opened in the past 12 months. They are independent operators and that appears to be the growing trend rather than the reverse. It strikes me that the gloom is unnecessary because customer choice will drive this area. Will the representatives not accept that they have a product that modern Ireland wants?
I want to ask Mr. Pettitt a question about the niche market, which is extremely important. He instanced the product he developed, Sleeda Farms, as I would know it, the Sleeda meat product. Will he explain to the committee whether that is something that can be replicated elsewhere?
My second question relates to price comparisons. We have Mr. Marshall's indicative list. We had a strong submission from Tesco yesterday, and it does regular weekly price comparisons across all supermarkets. Do the representatives do anything comparable? Will they tell us where their members sit in terms of price comparisons because the objective of this committee is to answer a number of questions, one of the most fundamental of which is the reason our grocery prices are among the highest in Europe. That is the net question on which we have to get an answer, and whether there is anything we, as legislators, can do to address that issue.
In her presentation, Ms Buckley said we are not developing food imports from eurozone countries and that we are too dependent on the sterling countries, which is causing price inflation. Why are her members not sourcing product in eurozone countries if that is a real issue?
My fourth question relates to Ms Buckley's fair point that 35% of inflation is Government driven. What specifically are the issues that have been caused by local or national Government that impact unfairly on her members as traders?
I hope my final question will not be regarded as a cynical one. From the submissions it appears her members are in favour of competition among everybody but they are not in favour of total competition in their own sector. They refer to more competition from the non-traded sector, therefore, insurance costs and so on must be open to absolute competition, but there must be some restrictions in respect of their own industry because of ancillary issues rather than price alone.
I would like to make one observation. In the submissions we have received to date — we have not received submissions from all the large traders — nobody has asked us to recommend an alteration either in the groceries order or the planning guidelines, which is interesting. There is no great push for change that I can discern.
Do you want to answer those questions, Ms Buckley?
Ms Buckley
I regret if I have given an impression of doom and gloom. I assure the committee that this is a thriving sector. We believe the uniqueness of the independent sector in Ireland is what makes it thrive. It feeds well into the community spirit and local pride. Supporting a good local shop, where the owner greets the customer by name, is well appreciated here.
We appreciate that consumer habits are changing. This is a time-poor society and often the shop on the main street that one can pop into and out of at any time of the day is seen as a good local facility and is well used. Our members adapt and try to make sure they are producing the goods by providing prices that keep customers coming in. I would not like to give the impression that it is gloomy because it is not. It is thriving because of the hard work and effort that has been put in by local entrepreneurs and retailers.
We do not carry out specific research on price comparisons but RGDATA members are conscious of prices in the shops operating in their vicinity. Their customers are conscious of prices also and they will often point out on the shop floor if prices are out of synch. Customers make sure that retailers charge fair prices and do not become uncompetitive. It is in our members' interest that customers come in and they certainly want to ensure that those customers come back so they want to keep them happy. Although we do not have our own data, we obviously look at price comparisons that are made by others. We would have health warnings on those price comparisons because of what can be in the basket, the time of year and what one is comparing.
As regards Government-induced pricing, the Tansey Webster report went into all the various cost impacts. The National Competitiveness Council has examined this area and there are many areas where Ireland is much higher placed to do business in terms of cost. We accept that is an issue for our members. It is something that could possibly be addressed by this committee.
Can Ms Buckley tell us about specifics?
Ms Buckley
I do not have them here but we certainly have specifics from that report. I can get the committee some more details.
You might let us have them.
Ms Buckley
Yes.We are absolutely in favour of competition. RGDATA's 4,500 members compete with each other and with everyone else. We argue for maintaining the level of competition we have. Maybe that is the reason we sound so enthusiastic about the statutory system we have, which has enabled the independent sector to thrive. We have a much more thriving independent sector than in Northern Ireland or Britain. We put that down to not only the hard work and local community spirit of our members but also the groceries order and retail planning guidelines. While we do not want to be defensive about them we believe they have a huge impact on society and are good for consumers. People who have not yet attended the committee have made their points, but people who will come to the committee in future have certain views that we dispute. We want to make that point strongly to the committee.
I must declare an interest, Chairman, because Pettitt sponsors the Wexford senior hurling championship.
That is a great start.
That is very important.
I fully agree with that.
Perhaps that makes the point that, apart from purchasing local products, local people identify with the locality, while big multiples may not. Like Deputy Howlin, I am very familiar with Pettitt's and the service it provides to Wexford. To get down to the questions, 50% of the produce sold is Irish. Does Mr. Pettitt have any recommendations that might increase that percentage?
According to RGDATA's submission, foreign multiples are coming here in increasing numbers. Would that have anything to do with profit margins being better in Ireland than elsewhere for the multiples? Perhaps profit margins are better for RGDATA members here than abroad. If the answer is yes, I am a bit confused as to production costs and the cost of bringing produce to market.
Why are costs so high here? I know the Tansey Webster report refers to labour and insurance costs. I hope, however, that insurance costs have come down because this committee worked hard to bring them down. As we were told by other deputations that the cost of insuring a hotel had fallen by 25% in the past 12 months, I would be interested to hear Mr. Pettitt's response to that. Is Government policy making this a difficult country in which to operate RGDATA's business in any way?
RGDATA plays an important representative role. Does it help in centralised purchasing or have a service of that nature? I am also interested in the number of RGDATA members' employees because the group is very successful. Mr. Pettitt mentioned 450 employees and Mr. Ryan said 16, but is the number of people employed nationally by RGDATA's members available?
I now ask Mr. Pettitt to respond to the points raised by Deputy Howlin and Deputy Tony Dempsey. I will come back to Ms Buckley then to conclude on Deputy Tony Dempsey's remaining questions.
Mr. Pettitt
To respond to Deputy Howlin, it is a thriving business at the moment. I do not want to paint a picture of doom and gloom but business is about reinvesting. I will cite a couple of examples of where we are reinvesting or plan to do so. We are in the middle of a development in Arklow that has been overdue for some time. From time to time, we must reinvest in the business to bring it up to modern standards. In addition, Arklow has had quite an increase in population in recent years so it is catching up with that.
We are currently planning a development in Athy where we are facing tough competition from Carlow and Newbridge. Access to Athy is a major problem for us. We are planning to reinvest in the store once access to our site has been improved.
It is good for business to reinvest. The choice is to stand still and go nowhere or to move with the times and reinvest. If we do not reinvest in the business we will not have a business to pass on to future generations.
You are really putting everything you make back into the business?
Mr. Pettitt
Yes.
What about the Sleeva Meats product?
Mr. Pettitt
That is an interesting point. In 1986, we started to supply our own beef. It was so successful that we had to go outside what we could produce ourselves, bringing in local producers in whom we had confidence to produce the product at the high standards we were setting.
Do you have full traceability?
Mr. Pettitt
We have full traceability in the scheme. We have approximately 120 beef suppliers within that scheme. We give guidance on how farmers can come up with the product we are looking for. That encapsulates guidance on the breed of cattle, feed and the amount of time from start to finish.
You have full traceability anyhow, that is basically it.
Mr. Pettitt
We have full traceability. The basis of the scheme is that it focuses on efficient weight gain. The more efficient the weight gain is, it cuts down on farmers' costs and the younger the finish. We have full traceability on it and those are the basics of the scheme without going into any more detail.
To answer the question about whether or not there is a possibility of expanding that scheme within the country, some agricultural commentators have recommended that the scheme would work if it was rolled out nationally. We are looking after our own business. It is not our job to examine the rest of the country.
Will Ms Buckley reply to Deputy Dempsey's questions? Are 40,000 employed in the sector?
Ms Buckley
Approximately 40,000 people are employed in the independent retail sector. Deputy Demspey asked about profit margins. Independent retailers make 2.65%, which is a hard won and well deserved margin for the business they provide. With regard to the multiples, we do not know how much they are making because they do not give us figures. We do not know whether they are generating excessive profits.
Will Ms Buckley make an educated guess? I am more interested in the comparative profit margins.
Ms Buckley
It is difficult to make even educated guesses but they outlined figures yesterday. It would be great if the committee could make them supply it with the figures. It would be interesting for the entire sector. RGDATA does not have a role in centralised purchasing. Under competition law, it would not be proper for us to have such a role.
I welcome Ms Buckley. This is her first appearance before the committee. I had an encounter with her soon after appointment regarding the issue of receipts. A number of her members were not issuing counter receipts and I was dealt with severely and quickly in the usual feisty way. They are issuing receipts now, as she did something about it.
Why is the consumer paying more for products in Ireland than he or she should compared with other jurisdictions, for example, Northern Ireland? We have reason to believe domestic products are being sold at a much higher profit margin here than in our neighbouring jurisdiction and we want to get to the root of that issue.
Has RGDATA been in contact with the Competition Authority with a view to once and for all reaching a conclusion on the groceries order? The authority chairman's presentations to the committee regularly state the abolition of the groceries order would lead to lower prices. Has RGDATA ever asked the chairman to carry out a study? Has a study been conducted elsewhere to vindicate that assertion? Given that 75% of all grocery activity in the Dublin area takes place in multiples, is there a case for applying the order and the retail planning guidelines differently in Dublin vis-à-vis the rest of the country? These are topical instruments of Government policy.
Should the Companies Acts be amended to force companies in the grocery trade to reveal their profitability, given that yesterday Superquinn stated it would have no difficulty doing so as long as every other company did so? Tesco hinted yesterday that its profit margin is between 4% and 6% while RGDATA states its profit margin is 2.6%. If the independent retail sector is thriving, I am glad Tesco is thriving even better.
As Deputy Howlin stated, we are seeking people's views to assist us in the interest of consumers. Apart from the issue of costs, will Ms Buckley outline policy changes that could be introduced that would help to reduce prices?
Ms Buckley
Irish retailers have higher profit margins. Tansey Webster Stewart is a company of independent economists and they examined the sector. They did not discover profiteering by retailers. The cost of doing business in Ireland is higher than in other EU member states. The difference in pricing results from the impact of wages and other costs such as consultancy, contract cleaning, insurance, electricity, heat, telephones, waste management and other support services. That is the key difference between doing business here as a retailer and in another country. There was no evidence of profiteering or excessive profits generated by retailers. A profit of 2.65% is fair in the context of the types of shops involved and the hours they operate.
We have challenged the Competition Authority to come up with facts to back up the comments it made about the groceries order. We are not aware of them. The committee should examine what happens in other EU countries in regard to below cost sales and predatory pricing. It is an extremely important order, particularly in regard to predatory pricing. The reason RGDATA members can operate is that a multiple cannot use its muscles and power to price them out of business by selling below cost for a long period. Once the competition is gone, they can set the prices as they wish and, therefore, in the long run, the consumer loses out. The most important function of the groceries order relates to predatory pricing.
We would be loathe to tamper with the law in terms of applying the order differently in Dublin and elsewhere. There should not be different laws for Dublin and the rest of the country. Our members operate primarily outside Dublin but, at the same time, many of them operate in Dublin in a competitive environment, in which the multiples have a 75% market share. It is a tough environment for them but they offer a good service to people and they should be operating on a level playing field.
We would welcome amendments to the Companies Acts because every business should be transparent and people would not worry about profiteering. We would know exactly what is happening.
I am delighted the delegation is present. It is great that these three business people can compete with the multiples. One of the great advantages of RGDATA's members is the personal touch. They meet their customers, buy locally and so on. RGDATA does not want the groceries order amended and I am inclined to go along with that. I am a farmer and a change would also affect producers. Below cost selling would close farms as well as businesses. Its effects would be felt throughout the food chain.
Ms Buckley referred to RGDATA's quality assurance scheme. Did it receive research and development funding for the scheme? If not, should funding be provided? If an initiative such as this is undertaken, a scheme should be introduced to assist the participants.
I welcome the delegation and I wish Ms Buckley the best in her new position. The groceries order and the retail planning guidelines are important issues. I refer to below cost selling and the groceries order. Is it true that if the bar on such selling was removed, prices would be lower but it would impact negatively on RGDATA's members? If it was removed, would the multiples' share of the market increase? How would suppliers be affected?
You state in your submission that a recent CSO survey indicates that food prices in Dublin are more expensive than outside Dublin. You say Dublin is dominated by the multiples, with shares of approximately 75%, which is a relatively bald statement. Will you expand on that? Are you insinuating that prices are higher in Dublin because of the grasp of the multiples and the lack of local shops? If that is what you are saying, do you see that spreading throughout the country if the multiples are allowed to expand at a faster rate?
Mr. Marshall stated that goods in his shop are cheaper than in Tesco's, but Tesco creates the impression publicly that it is cheaper than others?
Are you saying it is cheaper to shop in Mullingar?
Surely that is a marketing strategy on behalf of Tesco. As a national group, should you have a marketing strategy to compete with that strategy? The most one can say is that it is sharp practice on behalf of Tesco. It is creating the impression that its produce is one third less, but less than what? No one ever asked that. I have not heard your organisation taking on Tesco and asking it to explain what one third less means. I have not heard your organisation say that in your shop in Mullingar——
The Deputy must put his questions through the Chair. I will ask Ms Buckley to respond and I will allow the Deputy to come back with supplementaries.
When Deputy Dempsey and Deputy Howlin were speaking they were allowed to address Mr. Pettitt directly. They were invited to address Mr. Pettitt. Now we have a new ruling that questions must be addressed through the Chair.
If that impression was given, I remind members, including members of the deputation, that all contributions must be made through the Chair.
The high cost of goods has been outlined clearly. Can the Government take action to ensure the price of goods will decrease?
Ms Buckley
I was asked about below cost selling and whether, if the bar was removed, prices would be lower. Many products do not come under the groceries order and our experience shows that the multiples, which would be in a position to do this, have not shown any great propensity to sell products below cost. We need to be realistic about below cost selling. In general, if it is used by someone, it is probably used as a predatory-type application to put someone else out of business and remove competition from the landscape. It is in no one's interest to sell below cost for any length of time because they will not make money. It would be devastating for suppliers if retailers could sell below cost willy nilly because suppliers would also be put out of business. It is not a sustainable policy.
If below cost selling was permitted, multiples with big muscle would use it on a short-term basis. Prices would be lower in the short term but once they removed the competition and put someone out of business, they would increase prices to whatever level they wished and there would be no competition. It would be a bad move for the retail sector and consumers. A change in this regard would impact on our members.
The Deputy asked how the move would affect suppliers. We have spoken in the past to farm groups and small business associations. They believe that it would impact on their members. Consistent below cost selling would affect the business of small suppliers, producers and farmers in Ireland. If the independent sector was not around there is no doubt that multiples like Tesco and Dunnes would increase their market share. I hope we will not have to imagine how they would operate in a market which would not include an independent sector.
A question was raised about the CSO and prices in Dublin. We were trying to make the point to the committee that the independent sector is very competitive. Let us be honest, there are many reasons prices in a capital city may be higher than prices in other parts of the country. There are aspects which impact on the CSO basket of goods in the city versus the country. The independent sector is not sitting back and thinking everything is grand. It is competing each day and operating competitively. It is trying on a daily basis to match what much bigger players in the market can do in the interests of trying to keep their businesses going.
We need to be careful about what RGDATA can and cannot do. Under competition law, it cannot make all its members do the same thing. We work with our members, but they make their own decisions about pricing on an individual basis in their own businesses.
Deputy Callanan asked about Government funding for research and development.
Mr. Pettitt
I am not aware that funding was provided for the innovations we made. It goes back to 1986.
What about 1987.
Mr. Pettitt
I would prefer not to speculate on the effect of incentives. There is room for much more innovation in collaborating with local suppliers to make them aware of what customers require.
I am in favour of competition and there is a role for a referee. There are some unique factors in Ireland which make the case for RGDATA. I would like these to be expanded upon. First, the settlement pattern in Ireland is different from most of western Europe. Many people live in rural areas and have severe difficulties getting to population centres, which is unique to Ireland. The percentage of urbanisation in the UK is much higher. Second, RGDATA provides a conduit for emerging businesses that would not exist in other countries. This is absolutely necessary in Ireland because we are a major food exporting country. Many snacks, drinks, cream liquours, local cheeses, organic beef, minerals and so on would not have got off the ground if they had to tender for a major contract, provide the type of service the distribution centre requires in terms of pallet size, truck size, the type of truck necessary and the volume. RGDATA is necessary because it provides not just protection but fair play. Is that a fair assessment and can it be expanded upon?
I welcome the delegation. We want to find out why groceries, in particular, are more expensive in the Republic of Ireland than they are in the North of Ireland or the UK, or in the euro zone. Members of RGDATA in Cork are doing an excellent job. Wage costs are given as one of the reasons groceries cost more in the Republic than in the rest of Europe. Is Mr. Buckley saying people are paid more in his shops than in a similar industry in another EU country? Is he paying people more? What is the industry norm? Is there an industry norm apart from the minimum wage? Is the industry norm discussed within the organisation or are people simply employed as they are needed? What is the norm for a 40 hour week?
I accept that there are different sizes of supermarket operation. I take it that Mr. Pettitt's and Mr. Marshall's companies are roughly the same size and that Mr. Ryan's is a good deal smaller. Nevertheless, why have two recent surveys shown that meat on a supermarket shelf is dearer than in a butcher's shop? In some instances it was found to be between 25% and 100% dearer.
Deputy Lynch, I will allow you to ask supplementary questions on those two very valuable points.
Ms Buckley
The National Competitiveness Council looked at the issue of wage costs and found that wages have risen in Ireland significantly more than in other eurozone countries. The minimum wage in Spain, for example, is €4 per hour, which is significantly less than the minimum wage in Ireland. The minimum wage would be the starting wage for many part-time workers in the retail sector. Mr. Jim Marshall gave details of his weekly wage bill.
It was €15,000 per year.
Ms Buckley
It was €15,000 per week.
Mr. Ryan
The minimum wage in Ireland is €7.35. It is £4.30 in the United Kingdom.
That is sterling.
Ms Buckley
Some of our members can give a broad outline of what people in the sector might earn.
Mr. Ryan
The minimum wage is €7.35. One would not recruit anyone at €7.35. We do not arrive at a consensus of what we pay. This is a buyer's market, especially in the delicatessen area. A good person in a delicatessen would earn significantly more than the minimum wage. One could not get someone to work a deli counter for anything near €7.35. There is fierce competition to get such people. A good deli person might be poached by another operator after six months or a year. Deli counter work is regarded as a profession like the work of chefs. Wage costs are significant. Nothing in my expenses comes anywhere near my wages bill.
What percentage of your turnover is your wages bill?
Mr. Ryan
It is heading towards 12%. It used to be 8%. The golden target used to be 8% and we sometimes hit 12%. We are a small convenience store and our wages bill last year was €125,000. That is a hugely significant percentage of our turnover.
I would regard four or five times more as significantly more. Would that be Mr. Ryan's calculation?
Mr. Ryan
Four to five times what?
The minimum wage.
Mr. Ryan
No, we would not pay four or five times €7.35.
Would significantly more be twice as much?
Mr. Ryan
I am not trying to evade the question, but I would not like to give specifics because wage levels depend on the job and the candidate. I consider what I pay to be significantly more than the minimum wage but it would not be in the region of four times that amount.
Would it be up to €10 per hour?
Mr. Ryan
Easily, and more than that.
Is Mr. Ryan saying people in his shop work for different rates?
Mr. Ryan
There is a structured pay rate. Depending on the length of service, employees are given incremental pay rises. We are guided by that. The minimum wage is a legal minimum and we must adhere to that. If Deputy Lynch is asking whether we pay above the minimum wage, the answer is we do.
Since yesterday, every witness to the committee has spoken about cleaning costs. I accept that an operation on the scale of Tesco or Dunnes Stores must employ a team of expert cleaners every night. I do not accept that this applies in smaller shops. It definitely does not apply in the small shop in my area. Cleaning is not an additional cost. I presume people who work in a small shop also have cleaning duties.
Mr. Ryan
Not necessarily. All shopkeepers apply the new health and safety systems. These are very important and we welcome the help we get from health boards in this regard. However, the extra work which they bring is enormous. We now have a completely different cleaning regime from before. We have dedicated cleaning staff. The amount of time spent every week by each member of staff is the equivalent of a full-time cleaner.
Does Mr. Ryan employ contract cleaners?
Mr. Ryan
Staff who are not rostered are brought in to work extra hours on specific cleaning jobs. Consumers have come to expect a high standard. Cleaning is a huge part of the work of our store. It is an extra cost. It is not done by existing staff during their existing hours. Part-time staff who may only work ten or 20 hours per week would be brought in for an extra four or five hours. To me, that constitutes contract cleaning.
How many people does Mr. Ryan employ?
Mr. Ryan
We employ 24. I employ ten people who work a 39 hour week and we have 14 part-time employees who do varied hours. This could be anything from ten to 30 or 35 hours.
Mr. Marshall said his wages bill was €15,000. Is that for one person.
Mr. Marshall
That is my weekly wages bill.
The Deputy is trying to establish whether €15,000 is the wage of one employee per year or of all your employees per week. It is your weekly wages bill.
Mr. Marshall
It is.
How many employees does Mr. Marshall have?
Mr. Marshall
I have 35 full-time and 25 part-time employees. The part-time employees include students who work on Saturdays and Sundays.
Can I have an answer to the question on the price of meat?
We will come back to that. We also await a response to Senator Hanafin's question. Will a witness respond to the question on the variation in the price of meat?
Mr. Pettitt
I am not sure what surveys the Deputy is referring to but I know that our company came out very favourably in a recent IFA survey. I do not have the details of that survey but I know our company came out favourably.
Can the clerk have those details before the inquiry is completed at the end of December?
Ms Buckley, would you like to respond to Senator Hanafin's comments?
Ms Buckley
Senator Hanafin spoke about opportunities for emerging businesses. RGDATA members have played a role in giving local producers and suppliers an opportunity to bring their products to market and to test them in the marketplace. The independent sector has played a role in that and has a role to play in the future. Senator Hanafin's assessment is a fair one.
The point made about the settlement pattern in Ireland is important. This is why it is important we have a variety of local shops and that it remains viable to run them. Let us be honest, multiple operations have a different model and do not want to serve small areas in the far ends of Kerry or north Donegal. They want big stores to which lots of people will travel. When we have a good, vibrant independent sector, we have smaller stores that are nearer to people, and people appreciate that.
I have one question. I welcome the delegation and thank it for its submission. Yesterday, we had delegations from Tesco and Superquinn. Senator Quinn of Superquinn said that he regarded the groceries order as being anti-Irish entrepreneurs. Ms Buckley obviously has a different view. How would Ms Buckley explain the difference?
We will complete the questions from Deputies before returning to Ms Buckley.
I welcome the delegation from RGDATA and thank it for its openness in the discussion. The groceries order and retail planning guidelines have become an issue for people coming into the country from outside who want to set up businesses. Why are they so interested in getting the retail planning guidelines and the groceries order changed? What advantage will a change have for them? If I was coming into the country I would keep my head down and do the best I could.
Does Mr. Pettitt participate in the Bord Bia national assurance scheme with regard to his meats? Bord Bia runs an important scheme that displays a national emblem which shows the board is the national agency for the food industry here and abroad. That emblem can be seen on many food products on supermarket shelves. Some shops are opposed to the emblem — I am not saying Mr. Pettitt is — because they want to sell cheap imported products at the Irish price. This happens a lot. For example, much of the cheap meat that comes here from South America comes from Brazil where factory wages are $100 per month. It is difficult to get an Irish steak in Dublin now. Most of what is served is, without exaggeration, like cardboard, and mainly imported.
Own-brands are fast becoming part of the market here and in the United Kingdom they have 50% of the market share. Own-brands have no legal status. Their status should be underpinned in legislation because country of origin is important. This issue need to be put to bed. If I buy a suit in a shop, regardless of whether it is a multiple, I know whether it is made in China or the United Kingdom. I know who the manufacturer is. However, if I buy an own-brand product in a retail grocery shop, I do not know the country of origin or the manufacturer. This is a serious issue. It should be a European issue and we should have a directive on the food industry to ensure that food packages are obliged by law to name the manufacturer and display the country of origin.
The reason I asked Mr. Pettitt about Bord Bia is that when I was in his filling station forecourt shop I looked at the convenience meat products on the shelf and saw that some of them did not have the country of origin on them. I asked myself what was the story. Pettitt is a major importer and many importers are totally opposed to Bord Bia's assurance schemes.
Much food is imported into Ireland. A vegetable grower came to me recently and told me he was subject to pesticide control regulations of the Department of Agriculture and Food. When the pesticide level he used was measured it was close to the limit and he was prosecuted. He investigated the situation further and made contact with a vegetable wholesaler who imported products from abroad who told him that he had a problem with imported grapes which were found to have high chemical levels and that the Department had threatened to ban his imports if he did not put his house in order. This whole area of the Irish food and grocery industry raises serious issues.
Why, in a small country of four million people, is there such a rush of multiple and discount stores to this country? One would not find as many discount stores in the United Kingdom as can be found in Ireland. I cannot understand this. I have travelled abroad and seen the major stores — for example, Carrefour in France and Tesco in the United Kingdom etc. I hear too that Walmart is coming here to compete. What is encouraging the discount stores to come to Ireland? I accept that they are huge importers compared to our Irish manufacturers. They probably have own-brand goods also. The issue needs full examination and the Chairman has a major role to play in assisting that. The nub of the problem is own-brand and country of origin. If we can put this situation right, we will solve many of our problems.
I thank the Deputy for coming to assist the committee with his vast knowledge of this area. I will now ask Ms Buckley to respond to the pertinent and soul-searching questions asked by Deputies Coghlan and Ned O'Keeffe.
Ms Buckley
Senator Coghlan referred to Senator Quinn's comments yesterday on the groceries order, suggesting it was anti-Irish entrepreneurs. The 4,500 Irish entrepreneurs who are members of RGDATA would certainly disagree with the Senator's comments. We are surprised the Senator would even mention matters such as hello money or other such things that happened in the past. I do not believe any supplier would be interested in going back to the bad old days. Suppliers will not assist any entrepreneur who wants to set up business or get their food or product to market by using such methods. We do not agree that suppliers would support Senator Quinn's feelings regarding the groceries order. One of the key strengths of the order is that it stops predatory practices and that is one of our arguments for its retention.
Deputy Ned O'Keeffe raised the issue of the guidelines and asked what advantage people coming in would see. The point is that major multiples and international companies want us to do their business their way rather than that they should come here and conduct business in the manner we want in our country, and therein lies the strength of the retail planning guidelines. The bottom line is that we want to bring shops to the people, not people to the shops. We want to have vibrant town centres and to have shops close to the many people living in the dispersed settled manner they do in Ireland. This is one of Ireland's strengths and should be upheld. The fact that we have a planning regime that suits the people, communities and the Irish environment is good. We should not change it just to suit developers or retailers. It is important we do not do that.
I will allow Mr. Pettitt answer the question on the Bord Bia assurance scheme.
What about the own-brands, who manufactures them?
Ms Buckley
We agree that the labelling required on other brands should apply to own-brands. This is important because there is definitely a move among the multiples to push own-brands. While that is their prerogative it is important to consumers to know where the product comes from and who manufactures it, and to have the same stringent labelling as other brands. We support that.
The Deputy also asked why there is such a rush of multiple and discount stores to this country. We do not know why they are coming here.
I presume it is as a result of our successful economy.
Ms Buckley
We believe it is the result of our successful economy, but it is also indicative of the fact that Ireland is a competitive place where they can come in, set up their store and do business. The discounters would have a style and size of shop that suits the regime in Ireland and that is obviously why they might be attracted here. Perhaps the multiples think they can take over and close the rest of us down. However, we are putting up a good fight. They are welcome here but we will provide good competition.
Mr. Pettitt
In reply to Deputy Ned O'Keeffe, my organisation is a member of Bord Bia. Two hotels in the group trade under the Féile Bia symbol. The labelling of our fresh meat products includes Ireland as the country of origin. All our fresh meat is Irish. We also print details of our supplier farmers on the labelling of products. We believe this is what our customers want. We are in favour of that system and we think it works very well. We are not in favour of cheaper imports.
I welcome Deputy Pat Breen from Clare, who is joining as a member of this committee in place of Deputy Murphy who has been appointed vice-chairman of a joint committee. I look forward to working with the Deputy over the next two and a half years.
I thank the Chairman. I am delighted to attend for the first time a meeting of this very powerful committee which has made a significant impression among consumers. I look forward to working with the other members.
I welcome the delegation from RGDATA. I am a big supporter of small businesses. Ms Buckley referred in her presentation to business costs in Ireland being much more expensive than in other euro regions and that 50% of imports are from the UK sterling zone. She stated that Ireland has not developed an alternative source of food products from the eurozone. In the view of the delegation, do barriers exist which prohibit trade with the cheaper eurozone?
I read in last week's The Clare Champion that multinational stores are planning to open 24 hours a day, six days a week, starting this month. RGDATA has sold the notion of small shops as being convenient for the consumer. Is it not the case that the multinationals are going down the convenience route? There will soon be 24-hour shopping in smaller towns. It was introduced a few years ago in major cities. Towns like Ennis have 24-hour shopping during the Christmas period. Multinationals have now started 24-hour shopping in November. What is the RGDATA opinion on this trend? I know of a mushroom producer in west Clare who is doing big business with small shops. He informed me that were it not for the fact that he does business with small shops, he would not be in business because of what he receives from the people in Monaghan with whom he does business. The small shops as represented by RGDATA keep him in business. Is he one of many producers who would say the same?
Ms Buckley
On the cost comparisons between Ireland and other eurozone countries, much comparative information was contained in the report by the National Competitiveness Council. Ireland is ranked poorly in terms of competitiveness, wage costs, cost of goods and services, retail rents, energy costs, telephony, insurance and waste management. RGDATA can provide those figures for the committee. The point was made by many other bodies besides RGDATA that there are significant differences in the costs faced by an Irish business compared to business in other parts of the eurozone. RGDATA would support any initiative by this committee or by Government to address some of those issues. RGDATA believes there is a role to be played in bringing down those costs or bringing them more in line with other eurozone countries, and our body would support any action that can be taken.
In terms of 24-hour shopping, our sector believes that we have been providing long opening hours for a long time. RGDATA does not feel threatened by anybody else offering longer hours. The difference in our service is we react to our customers, we know our customers very well and our shops are in convenient locations. We believe our business will continue to thrive by providing the service we do.
I assure the Deputy that the producer of mushrooms in west Clare is not alone, there are similar examples across the country, such as producers and suppliers, local bakers and cheesemakers supplying or getting their start in local shops. RGDATA cautions any supplier about dealing solely with a big multiple. If the multiple does not like the supplier, his business is gone. A supplier who services a number of independent shops will have a business for the future.
The point was made that 50% of our imports are from the sterling zone. Would it be cheaper to import goods from the eurozone instead? Are there alternatives in other European countries?
Ms Buckley
That is an area which is being explored by our members. Irish consumers have been very supportive of Irish brands and Irish goods, but more cosmopolitan tastes are more evident now. People travel more and are prepared to consider produce and products from other countries. Our members reflect that choice by trying to source goods which Irish consumers may have purchased in other countries. Irish shoppers were conservative in the past. They bought Irish goods and familiar brands and labels, and were habitual in what they bought. That is now changing and retailers are adapting to that change. Retailers are very open to sourcing other products that will sell, are of similar quality and are at good prices.
Mr. Ryan
I am not making a categorical statement but with regard to 24-hour opening, the large multiples realised a while ago that they were carrying much of their costs 24 hours a day in any case so their opening 24 hours a day is not a service. They realised they can operate on a skeleton staff. They do not carry the same range of products as in the middle of the day and that is evident in Sunday trading. Historically Sunday was the day when the convenience store had an opportunity to increase its takings. The 24-hour trading by multiples is not regarded from the point of view of a service. They provide a service because people go in when it is open but one would be hard pressed to find a range of products, such as bakery and fresh produce.
There are many suppliers such as the mushroom supplier referred to, who are supported by local shops. Those shops will stick with a product that might be initially slow because it is locally produced. If the product is successful, that is beneficial for all in the locality. My company is a small store. In 17 years we have helped other companies. They have come to us with samples of their range and asked us to stock it. They have asked us for the time to allow the product to find a place in the market. We stay with the product even though there are times when the product is simply sitting on the shelf, but thankfully, nine times out of ten, the risk pays off. Many suppliers have benefited from our interest in their business. Obviously if we can create a niche product or a unique product, it is of benefit to us. We do not do it out of charity.
On behalf of the committee I thank Ms Buckley, Mr. Ryan, Mr. Marshall and Mr. Pettitt for a very informative briefing. The clerk of the committee will contact the delegations if the committee requires further clarification on the points raised and if any future delegations wish to comment on the presentation. I think it is better by far to shop in Marshall's of Mullingar, following Mr. Marshall's comments here today. The committee has heard the other side. We look forward to receiving the submission by BMG Foods.
Sitting suspended at 2.40 p.m. and resumed at 3.15 p.m.
I welcome Mr. Leo Crawford, group chief executive, and Mr. John O'Donnell, group finance director, BWG Group, and Mr. Conor Whelan, managing director, and Mr. Simon Marriot, trading director, BWG Foods Limited. I propose to follow the same format as during previous presentations, with Mr. Crawford making a presentation after which we will have a question and answer session. I apologise for the short delay.
I agree with comments made by several members, particularly Deputy Howlin. The grocery sector, particularly BWG Foods, is characterised by pride and passion rather than doom and gloom. Although it is probably coincidental, BWG is hosting an international marketing conference for Spar today. Delegates from 18 countries have come to Ireland because they see that convenience retailing in Ireland is at the forefront of retailing in the world. I am proud they have come here to observe and learn from what we do.
We are pleased to participate in the joint committee's examination of the grocery sector. We intend to be open and transparent and hope to answer any questions members may have. RGDATA has taken a similar position. It is a pity other players in the sector are not as prepared to adopt this approach.
BWG Foods Limited is part of the BWG Group which has operations in Ireland and Britain. A long established wholesale company in the Irish grocery trade, it was originally formed by the amalgamation of four independent wholesale companies. Members may recall that BWG became part of Irish Distillers Group in the 1980s. It was subsequently acquired by Groupe Pernod Ricard which divested itself of the company recently. A management buy-out of the group received the support of Electra Partners.
BWG Foods has its headquarters in Walkinstown, Dublin. Its wholesale operations directly employ in excess of 680 people in the Republic of Ireland. The company works in partnership with its independent retailers. We own the Spar symbol brand for the Republic of Ireland and operate the Mace symbol brand for Leinster and Munster. We supply in excess of 550 Spar and Mace stores, all of which are members of RGDATA. We are proud that these independent stores are spread throughout the country, in towns, villages and local communities, and, most importantly, that they employ more than 8,500 people. They are, therefore, important to their communities.
BWGFL owns and operates a chain of 26 cash and carry outlets operating under the Value Centre trade name in notable rural towns such as Wexford, Midleton, Mullingar and Galway, and we are expanding in this area. We have just invested €2.5 million in a move to a new industrial estate, the Ardcavan industrial estate in Wexford.
The overriding principle upon which our business is based is the successful partnership between wholesaler and independent retailer. We see ourselves as a partner with independent retailers. As a wholesaler we provide a number of support services for independent retailers, which we believe gives them a strong competitive advantage. We support the wholesale and independent retail models while providing independent retailers with significant flexibility in owning, running and directing their businesses. An obvious benefit we bring to independent retailers is that we have strong buying power and are able to get competitive terms from suppliers to ensure our retailers thrive in the retail sector.
In recent years we have invested significant capital sums in developing the retail businesses, in conjunction with our retailers. This point also came up with RGDATA. We estimate that in excess of €50 million is invested in new stores and store refurbishments each year by our customers and BWGFL. We have nothing to hide in terms of finance. We are proud of our record. The company recorded wholesale turnover in excess of €790 million in Ireland for the year ending 2003. We also have operations in the UK and we gave a full press briefing on our results last May. The turnover was €1.8 billion and the net profit before tax margin on that turnover was 1.7%. We estimate that the combined retail turnover of both our Spar and Mace customers represents approximately 7.5% of the total Irish grocery retail market.
We deal with in excess of 400 suppliers, the vast majority of whom are based in Ireland. The volume of product directly imported by BWGFL is very small. We have developed very strong relationships with indigenous food companies which have worked with us to develop the exceptionally high standard of food on offer within Spar and Mace outlets. We also support a wide range of local suppliers who do not have Twenty-six County distribution capability but are quality suppliers who have a good reputation locally.
The significant increase in convenience retailing in the past decade has provided many opportunities for Irish companies to develop their operations and exploit the ever-changing consumer shopping habits. The Spar and Mace symbol brands have been to the fore in this regard. I was at the opening of a Eurospar store last night with my colleagues in the Inchicore area of Dublin that will provide 30 new jobs in the area. It was gratifying to see so many Irish suppliers there whom we support.
I have been asked to comment on significant developments in the grocery trade in the past five years — Ms Buckley has already touched upon that. All sectors of the grocery trade have experienced considerable change. One of the questions put by the committee relate to the entrance of the German discounters, Aldi and Lidl, to the Irish market. We were asked to explain why that is happening. There are many reasons for that. In part it is due to the strong and growing Irish economy. We should not be ashamed of that — we should be proud of it. It is also the strategy of these groups to expand throughout Europe. Again, we see that as positive. More competition is positive. Anybody who asserts there are barriers to entering the Irish grocery market should look at what Aldi and Lidl have achieved. In the space of a few years they have come into the market, operated in a competitive environment and grabbed 5% of the market, which does not suggest there are any barriers to market entry.
A further significant development in recent years has been the move by the multiple operators, Tesco, Dunnes and Superquinn, into the convenience arena, which up to recently was dominated by the independent retail sector. Tesco's stated ambition to operate from all retail formats, from the smaller petrol forecourt store to the convenience format and the very large out-of-town hypermarket, means that competition will continue to intensify. Competition among independent retailers has also intensified in recent years. As stated by RGDATA, all independent retailers compete with each other. The ambitions of quality independent retailers has not been diminished by the increase in competition and independent retailers know that by employing the highest retail standards, securing the support of their wholesale partner and operating under a well developed retail symbol brand, they will be able to continue to compete with all competitors and secure their financial future.
Looking to future developments in the grocery trade, the multiple operators and discounters have clearly set out ambitious targets to grow their businesses in Ireland and ultimately to increase their market share. We have also done that. We continue to expand our store numbers. That is nothing to be ashamed of and we are proud of it. We welcome competition. We believe intensive competition in the Irish grocery sector, in particular the convenience retail sector, has resulted in Ireland having one of the best developed convenience retail sectors in Europe with independently run stores demonstrating some of the highest retail standards in this sector. We are very proud to host other countries that are looking at what we have achieved in this marketplace.
We believe the retention of the groceries order and the retail planning guidelines will ensure a level playing field is maintained for all parties competing in the Irish grocery trade and will ensure that all development is sustainable. Predatory pricing which is prohibited under the groceries order is not in the long-term interests of the consumer and, based on the profits earned by multiple operators, it is not in their interest in the long-term either. Therefore, below cost selling and predatory pricing tactics have only one objective, that is to put competitors out of business. That is not in the long-term interest of Irish consumers who have significantly more choice in terms of retail outlets compared to their counterparts in the United Kingdom. The committee has heard reports about ghost-town Britain. We have much more consumer choice in Ireland.
BWGFL as the wholesaler does not set retail prices. It is the decision of each individual independent retailer to set retail prices throughout the store. As part of it's support service, BWGFL provides recommended retail prices to our independent retailers. These competitive recommended prices are set following detailed analysis of pricing in all sectors of the market. In addition to the provision of recommended retail prices, BWGFL also provides its independent retail customers with a very comprehensive product promotion package on a monthly basis, on which we negotiate with suppliers. Provision of value for money to all Spar and Mace customers is a key objective for BWGFL and our independent retailers. Our retail standards programmes which are run every year include competitive image as a key area for measurement and assessment.
It is accepted by all operating in the Irish grocery trade that prices for some grocery products in Ireland are high when compared to the eurozone average. We do not deny that. While price surveys are useful, the more valuable exercise is to determine the root causes as to why prices are higher in Ireland. In 2003, BWGFL participated in a study carried out by leading economists, Tansey Webster Stuart, to identify the reasons for the gap between farmgate prices, food manufacturer prices and retail prices in the independent grocery retail sector. This report highlighted the fact that the independent retail grocery sector was not enjoying excessive profits at the expense of its customers. While gross margins had improved between 2000 and 2002, as was stated, net margins for independent retailers had, on average, declined from 2.93% to 2.65% over the same period. The report also concluded that net margins for the leading wholesalers, which includes BWGFL, improved only marginally over the same period, from 1.6% to 1.7%. I am happy to put on record that BWGFL's net margins were coincidentally at 1.7%.
It is clear that higher food prices in recent years are not the result of excessive profiteering within the wholesale or independent retail sector and these two sectors operate on significantly lower margins than the multiple operators.
Ireland is a high-cost environment in which to operate a business. Since 1999, the highest levels of inflation in Ireland have emanated from the non-traded sector of the economy and from the Government-influenced sector. The committee has heard that there is deflation in the food sector, yet we still have inflation in other sectors. The wholesale and independent retail sectors have experienced significant cost increases over recent years, with insurance, fuel, professional fees, light, heat and power and, most importantly, wages and salaries being the key drivers in this regard. Any improvements in gross margins earned by the wholesale and independent retail sectors over recent years have been completely eroded by the rising cost base. This is certainly the experience of BWG and our independent retail customers.
Over 50% of BWG's operating costs relate to payroll costs. Despite successive partnership agreements, BWG has experienced wage rate increases significantly in excess of both inflation and the partnership agreement rate increases. BWG is committed to the partnership process, but wage restraint and compliance with the agreements are necessary to ensure our competitive position and to ultimately protect jobs in the future. This is also the case for our independent retail customers whose wage bill can exceed 75% of total operating costs.
Fuel costs and insurance costs represent two further significant elements of operating costs for BWG. Inflation in these categories, as has been noted, has been extraordinarily high over recent years and BWG is very supportive of all measures aimed at tackling costs in these areas. As a company, BWG has taken many and varied steps to reduce its cost base and, in partnership with its independent retailers, has attempted to identify group schemes that would allow its retail customers to benefit from group purchasing power in the areas of overhead costs. We have been successful in implementing cost reduction schemes in the areas of lease finance, energy, waste management and training costs. Within BWG, rationalisation and reorganisation projects have helped control overhead costs and additional investment in technology has improved administration efficiencies.
BWG is a strong supporter of the retention of both the groceries order and the retail planning guidelines. We believe that blaming high food prices on these two items of legislation is totally misguided. Statistical data do not back up unproven claims made by certain bodies. The fact that over the past ten years prices of those products covered by the groceries order have increased at a slower rate than those of products that are not within the scope of the order totally undermines the academic argument that the order means a lack of competition and higher food prices.
There are a number of areas in which we believe the Government could be proactive, thereby leading to a reduction in our operating costs and, over time, facilitating the reduction in our wholesale prices to our customers and ultimately our retail prices. Measures the Government could take include the reduction in the rate of employer PRSI, further deregulation of the insurance market, significant investment in road infrastructure to reduce the significant transport costs to which we are subject and significant investment in waste recycling infrastructure leading to reduced waste management charges.
The vast majority of products sold in our customers' outlets are sourced in Ireland. The only category of product we import directly is wine as BWG has developed its own agency wine portfolio. All other product categories are sourced from within Ireland from either indigenous Irish manufacturers, subsidiaries of international companies manufacturing in Ireland or subsidiaries of international companies importing and distributing their brands in Ireland. The volume of own-label products sold through our customers' outlets remains low at less than 5%. Some of these products are supplied though the international Spar organisation based in Amsterdam, whereas the balance is sourced from indigenous Irish manufacturers.
As a wholesaler, BWG does not source products directly from the farm and does not operate its own food processing or production facilities. However, all products supplied to us and our customers' stores are sourced from manufacturers and agents. As a company, we are very supportive of Irish suppliers and we work with our supplier partners to ensure that, where possible, produce is Irish-sourced. We do not believe there are any statutory restrictions that increase the purchase price of goods sold in our customers' stores.
I thank the committee for this opportunity to address it and look forward to its final report. We believe there is no simple solution to Ireland's higher food prices. We reiterate the point that higher food prices are not the result of profiteering in the manufacturing, wholesale or independent retail sectors. We remind the committee that, as a wholesale organisation, BWG does not own the retail operations it supplies and its business model relies on partnership with independent retailers who can move their businesses if they wish.
The key factors to be addressed when tackling higher food prices are the high cost of doing business in Ireland and the fact that the majority of food products imported into Ireland come from the UK, which is outside the euro zone. We believe firmly and passionately that the groceries order and the retail planning guidelines must not be used as scapegoats in explaining higher food prices. Our company's participation in the Tansey Webster Stuart report is testament to its commitment to working with all bodies in explaining higher average food prices and, most importantly, identifying ways of reducing input costs.
The Irish retail sector has never been as competitive as it is today. This is good for consumers in terms of choice, price and value. BWG and its many independent retail customers are committed to providing excellent service and value to thousands of consumers every day.
I thank Mr. Crawford very much. His submission was very enlightening, and I thank him for agreeing to wait so long before making it.
I thank Mr. Crawford and his colleagues for their patience and their presentation. Does BWG have any specific procedure to identify Irish products or develop an Irish product where there is none readily available? I ask this because Tesco explained in detail yesterday its mechanism for growing products in the Irish market.
Mr. Crawford alluded to the small supplier that would not have a distribution mechanism for the Twenty-six Counties. How are such suppliers identified? Would BWG help a good supplier to develop so it could reach more of its stores?
Mr. Crawford presented very clearly the root cause of higher prices in Ireland. He stated his members are paid well above the levels identified in the national wage agreements. I presume this was market-led. Is that not the way of things? Is there a way around it? Obviously, the better paid people are, the greater their power to spend in BWG's stores.
Higher professional fees were also identified as a root cause of increased costs. RGDATA referred to this and we did not elaborate on it. What group of fees is Mr. Crawford talking about? Is he referring to the accountancy profession or architects? Has he had discussions with the Competition Authority, which has examined professional fees as one of the first tasks under its remit?
Mr. Crawford mentioned the cost of insurance. We had hoped that he would have good news in this regard considering the efforts we have been making for the past two years to lower insurance costs. I hope it does not sound like I am being tongue in cheek when I ask whether the delegation welcomes Tesco's announcement to the committee yesterday that it is providing insurance. Is it a new source for insurance which might help reduce the company's costs?
That might be a step too far.
In the context of the company's assertion and as a former Minister with responsibility for the environment, I suggest that recycling is a cheap option in terms of waste disposal. Is Mr. Crawford's assertion a visceral belief or is there supportive data? My information is that recycling is environmentally necessary and positive but it is not cheap.
In regard to Deputy Howlin's question about product selection and development of Irish products, it is our natural preference to have an Irish product with which we can satisfy the customer. This is principally for reasons of convenience. If one has an Irish indigenous supplier, it is much easier for us to get the product to market.
Does the company go out of its way to find the product and, when the market does not provide one, does it have any mechanism to identify or grow the product?
There has been a traditionally adversarial relationship between wholesaler and retailer and the supplier but we now see ourselves working in partnership with suppliers. Last night demonstrated the great number of Irish suppliers who have worked with us to identify opportunities in stores, particularly in the food-to-go area. We have identified niche opportunities, particularly in respect of convenience foods which area is growing because of modern lifestyles. To that end, we are working with Kerry Foods, IAWS and Cuisine de France to bring those products to the market place. We see ourselves taking the initiative with Irish suppliers to satisfy consumer demand.
In regard to what we do to help and develop small suppliers in the Twenty-six Counties, BWG has a slight advantage in that we do not operate a traditional central distribution model. We only supply ambient product from our warehouses. Therefore, fresh produce, chilled and frozen produce goes directly from our suppliers to the retailers which affords us the opportunity, particularly in rural areas, for local small suppliers to deal directly with the retailers. Our distribution system gives us a competitive advantage as against our competitors, which facilitates our suppliers, of which there have been numerous instances in recent years.
Deputy Howlin asked what the root cause was in respect of our wage costs being higher than the partnership agreements. I agree with the Deputy's assertion that the labour market is a function of supply and demand and that as a consequence of our rapidly growing economy, inflationary pressure has been exerted on wages. It is not a gripe but rather a fact of life that, as a result of a thriving economy, wages will naturally be pushed upwards as the supply of labour becomes a limiting factor.
We have become victims of our own success.
That is the case to a certain degree.
It is good that people are paid more.
It is wonderful.
I do not see it as a cause for doom and gloom.
It is to be welcomed.
I will skip reference to the higher professional fees and recycling which Mr. Whelan will deal with.
It is gratifying to note that our insurance costs are on the way down. Two years ago, our insurance costs almost doubled, which was significant for the company. However, there have been significant improvements. I am expecting my finance director to budget for lower insurance costs next year. I will hand over to Mr. Whelan who will deal with the outstanding issues referred to by Deputy Howlin.
Mr. Conor Whelan
As an expanding business, we incur professional fees from lawyers, accountants, architects and others across the board rather than any one in particular.
Are they ripping off the company?
Mr. Whelan
We try to get value for money, as does anyone when he or she employs consultants, and it is a line in the profit and loss accounts which senior management examines in order to manage such fees as best we can. Mr. Crawford referred to our new cash and carry in Wexford in respect of which a whole host of professional fees are associated — as is the case with a growing business — but I would not highlight any one profession. As an accountant, I will not refer to the accounting profession.
It is not any more expensive in Wexford than anywhere else.
Mr. Whelan
No. I hope that was not implied. We have 26 cash and carries, which is almost one per county and the fees apply across the country and the professions.
I agree with Deputy Howlin's comments on recycling. As a director of Repak, representing the wholesale and distribution trade, I know something about the cost of recycling. The lack of recycling infrastructure in Ireland is an issue. It is not cheap and could be one of the most expensive. However, ultimately we cannot continue to export all our packaging waste. Repak has been extremely successful in reaching business targets as well as Ireland's overall packaging recycling targets, which I hope will continue. There is no quick answer and our submission did not suggest that was the case.
Reference was made to the fact that the Government could invest more in waste management. However, that will not reduce costs because, if the "polluter pays" principle is applied, whatever investment is made will have to be paid for by the polluters. If the company is part of the pollution problem, it will pay part of the bill. If there is greater investment, there will be a larger bill to be paid.
Page 5 of the submission is very upbeat about the future, indicating that the company is prepared to take on all-comers. Am I correct that this is the case given the current climate? For example, if there was a change in retail planning guidelines or the groceries order was repealed, would the company be as upbeat about the future or would such circumstances present threats to it?
The delegation did not provide any comparisons between the Republic and Northern Ireland or Britain even though the BWG group operates in Britain too. Will the delegation supply such information to the committee? Do the Spar shops which operate throughout the country and the Mace stores which operate in Leinster and Munster have to buy all their products from BWG or can they source products locally? For example, if there is demand for a local product in a particular area, are the stores free to purchase the product or do they have to work through the company?
In regard to Deputy McHugh's question about our being upbeat about the future, we are assuming a level playing field will remain in place. For that reason, there is fair competition in Ireland. We are able to provide a choice for the consumer. It has been well noted by representatives of RGDATA that should the groceries order in particular be repealed, many independent retailers might become unviable. If independent retailers, who represent our customer base, became unviable there is a great danger that BWG, as the wholesaler, would also become unviable.
Does BWG agree with the RGDATA submission that at least 25% of its members will go out of business if the groceries order is repealed?
Yes, the number of non-affiliated, independent retailers has declined in recent years. The abolition of the groceries order and the repeal of the retail planning guidelines would accelerate that trend and have a detrimental effect on the overall good of the economy, particularly with regard to consumer choice and employment.
RGDATA referred to "ghost town Britain". Is BWG basing its conclusions on that experience?
Yes, Britain is a good example of what can go wrong in retailing if there is unfair competition and predatory pricing.
On Deputy McHugh's point about comparisons between our operations in Ireland and Britain, I do not have the information on hand but I will supply the committee with it, particularly the area of retail pricing, the main point. I will gladly show comparisons between retail pricing in a Spar store in the south west of England and one in the Republic of Ireland.
Deputy McHugh also asked about sourcing products locally and the flexibility Spar and Mace retailers have in dealing with local suppliers. We prefer retailers to deal directly with BWG because we have improved buying power. In many instances, however, BWG has dealt directly with the local supplier and improved that business. I am not against retailers dealing locally, in many cases it happens and if we can bring extra business to those local suppliers, we are all for it. It is a two way process.
It was stated here yesterday that waste management costs are 250% higher in the Republic of Ireland than in Britain. What is BWG's experience of recycling and waste management costs in Ireland compared to those in Britain?
Mr. Whelan
I do not have cost comparisons to hand but we could furnish the committee with them.
We would be interested in seeing them.
Mr. Whelan
There is a different structure in Britain. Irish business pays an annual front door fee through its membership of Repak, which is based on material-specific volumes and all data for them must be provided. Business also pays a back door fee for the removal of its own waste in compliance with waste management regulations. With the restrictions on landfill, back door waste management fees have risen dramatically in the Republic of Ireland in recent years for all retail businesses, as have Repak fees in the last 12 months, although they only increased gradually for a number of years.
Is it a cartel?
Mr. Whelan
Is the Chairman referring to Repak or the Government?
It was set up on foot of an excellent Minister's decision in conjunction with the Waste Management Act. Has the notching up in prices for getting rid of waste impacted on the volumes of packaging waste? Are retailers willing to pay fees to Repak and to local landfill rather than reduce packaging waste from the start?
Mr. Whelan
I can only answer that as a director of Repak and a wholesaler and employee of BWG. It is a significant task because we do not manufacture the product, we are in the hands of our supplier.
Does BWG require suppliers to take the packaging back?
Mr. Whelan
Most of our suppliers are members of Repak as well, a Government appointed compliance scheme. Repak is the organisation that ensures Ireland reaches its targets for recycling packaging and it has achieved that every year it has been in existence.
When I joined BWG we did not have a membership fee for Repak as part of our overheads but now we do. These costs are not passed on, they are operating costs that did not exist before. We are members of Repak and, therefore, we understand that we must all come together and meet our targets. It is not sustainable for Ireland to continue exporting our packaging waste. We do not have anywhere to recycle and, ultimately, it costs more to collect it, put it on ships and export it. Where the funding comes from for multimillion euro recycling facilities is another day's work.
We will address that in our interim report.
I welcome the delegation. The delegation said the vast majority of products it sells are sourced in Ireland. What percentage of them are Irish and is that percentage growing? Are the products from here, such as beef or vegetables, dearer or cheaper than elsewhere? Are the own-label brands all produced abroad?
We estimate that in excess of 50% of produce is Irish and that is a steady figure. We would like to see it grow and taking the points I made to Deputy Howlin about new product opportunities, we seek Irish suppliers because of ease of entry to the marketplace.
Mr. Simon Marriott
In excess of 70% of own-label products are sourced from Irish companies.
Are they labelled as such?
Mr. Marriott
Yes. Most of those would fall into ambient grocery or fresh produce categories. We are currently increasing some of those categories and our key suppliers are the first people we engage with when developing our own-label or private label ranges. We are proud of our track record of working with indigenous suppliers to enhance our own brands and provide additional business for those suppliers.
What are the costs of Irish produce sold here compared to in other countries?
Mr. Marriott
We do not have information on that for today's meeting but we can come back to the committee on it.
Are there pictures of the produce on the labels of tinned own-label products?
I will ask Mr. Marriott to deal with that question.
Mr. Marriott
It depends on the individual product. In some cases, we do put photographs on the product. Yesterday, we launched a new range of products in our Inchicore store which have photographic representations on the labelling. In the main, however, we use purely descriptive text and rarely photographic representation.
I suggest that in future BWG Foods puts an image of the product on the label. I am not being flippant but people with literacy problems often go home with, say, dog food instead of beans. That is why many people do not buy own brand materials. From the viewpoint of BWG Foods, it would be sensible to do this.
We take that as a positive suggestion.
When BWG Foods took over Spar and Mace, why did it not join them to create one brand to compete with the other supermarket companies? One of BWG's largest suppliers in County Clare is Mangans, which started from humble beginnings in Kilmihil in west Clare and now has expanded throughout the west coast. What impact have Aldi and Lidl on BWG's business since they entered the Irish market? I agree with Deputy Lynch about the need for pictures on own brand labels. How many of BWG's own brands are Irish-made products? How many are imported from the sister companies in Britain?
The committee was informed it was 70%.
With regard to Mangans suppliers, it is a partner wholesaler of ours in that we have the Mace franchise for Leinster and Munster and Mangans operates it from Clare and the west coast. We share the franchise for Ireland and work in partnership with Mangans.
We see having the two symbols of Spar and Mace as an advantage. In some rural towns there may already be a Mace or Spar store. An independent retailer wishing to open a new store would probably wish to open the alternative symbol rather than having two of the same. Having the two symbols gives us more flexibility and allows us to grow at a faster pace in the market. Much of what is offered in a Spar store is similar to that in a Mace store.
Would Spar and Mace price structures compete?
They operate at recommended retail prices. We give the recommended retail price to the independent retailer who has the flexibility to decide on pricing. The size of the store and its location are variables on the price structure. We always put health warnings on price surveys, given that one is not always comparing apples with apples. One finds with price structures at retail level that there are no massive variations in the prices charged in a Spar or Mace store. If there were, it may be down to functions of size or location.
There is an interesting anecdotal example of the impact of Aldi and Lidl on our businesses. Some 50 yards from our EuroSpar store in Lucan, a new Lidl store opened a year ago. The EuroSpar store has managed to compete effectively against the Lidl store. One of the benefits is that additional footfall has arisen from having two stores in the area.
Overspill.
Yes, overspill. It goes back to our point to RGDATA that we are not afraid of competition and we want fair competition. There is no doubt that the discounters have had an impact on the market place. To go from a standing start from zero to 5% is quite impressive. It reiterates the point that there are no real barriers to entry into the Irish grocery market.
On behalf of the committee I thank Mr. Crawford, Mr. Whelan, Mr. Marriott and Mr. O'Donnell in assisting our inquiry into the industry. What we have heard is uplifting and on behalf of the committee I wish you all continued success. If we need further clarification on the three items raised, we would be grateful if the information could be passed to the clerk.
The joint committee adjourned at 3.55 p.m. until 9.30 a.m. on Wednesday, 10 November 2004.