I welcome the delegation from the National Consumer Agency. We will not detain it long, as representatives of the agency have attended before. I invite the delegation to give a brief outline to the committee, as perhaps the question and answer session is more important than the submission. I note the delegation has another commitment to meet and apologise for the delay.
National Consumer Agency.
Ms Ann Fitzgerald
That is no problem. I will skip through the submission if that suits the committee.
I suggest Ms Fitzgerald concentrate on the key points, as we know she is capable of providing an outline of the issues involved.
Ms Ann Fitzgerald
We are really pleased that the committee is holding two days of meetings on this subject because we have spent more than the past year trying to get answers and have failed.
Did the delegation think the committee was doing its best earlier?
Ms Ann Fitzgerald
The committee should bring in the suppliers.
Is Ms Fitzgerald suggesting we should sit for another two days? We will listen carefully to her advice and will not discount it.
Ms Ann Fitzgerald
I will read the last page of our submission. These were questions we raised at the Checkout conference which I addressed last week. They sum up what the committee has been investigating in the past few days. I first asked whether elements of the supply chain were looking for an unrealistic rate of return, be they retailers, distributors or manufacturers. Second, as some of these outfits have shareholders, I asked if there was a tendency to try to protect their profits, regardless of the downturn in the economy. My third question applies to more than groceries, as it also applies to all UK subsidiaries in Ireland involved in the clothing and furniture sectors, etc. I asked who set and what drove prices in subsidiaries of UK outlets based in Ireland. These are our three fundamental questions.
We have spent the past year conducting price surveys, particularly of groceries. We focus on groceries because we all have to buy them every week. We conducted our first price survey in June or July 2007 of branded goods. We conducted a major survey which we published in February 2008 of both branded and own brand goods. We conducted a third survey which was published last summer and are doing a fourth one which is almost complete and will be published next week.
Between the big guys, the Dunnes, Tescos and Superquinns of this world, there was a 35 cent difference on branded items. We found that there was no competition between the big guys on branded items.
Are the big guys Dunnes, Tesco and Superquinn?
Ms Ann Fitzgerald
Yes. We also looked at Supervalu which is very close to the others. There was no difference between them on a basket of goods. Between Dunnes and Tesco, there was a difference of 35 cent.
Is this the July 2007 report?
Ms Ann Fitzgerald
February 2008. Between the three, the difference on a basket of 61 items was €1.91, with the price of 35 products being exactly the same. Our last survey published last summer showed there was more competition in the market at the own brand end of the market. At that stage consumers were beginning very slowly to switch their shopping habits by moving to Aldi and Lidl. This was putting pressure on the big guys and their own brand offerings.
Last June we published a North-South survey. We looked at what Dunnes was charging in the North and the South. We also looked at Tesco and Lidl. Aldi does not have an operation in the North with which we could make a comparison. On branded goods, Dunnes was 31% more expensive in the South and Tesco, 28%. On own brands, there was more competition with Dunnes being 11% more expensive in the South; Lidl, 16%, and Tesco, 17%.
With regard to the retail planning guidelines and the conversation the committee had yesterday, we looked at the level of competition between the big retailers in the North. There was far more competition between them because there were more big guys in the North. We feel we have a problem at the big end of the market in that we do not have enough competition. We listened very carefully to what was said yesterday about retail planning guidelines. One of our staff members attended yesterday. We have read the Competition Authority report. We believe that as a nation we need to find a middle way. There is genuinely a lack of competition at the big end of the market.
None of us wants our towns hollowed out. If the Tescos of this world start building superstores on the other side of the Border others will follow. Their catchment area is down here. Their trolleys will be aimed on the Republic. That may take decisions away from us that we do not want taken away. If we stay passive on the retail planning guidelines there is a danger that the world will move away from us and our economy will move north. Even when the currency differentials fade away those superstores will still be able to sell cheaper.
Why are people going up North? None of us wants to go up North. Who, in the name of God, would want to go up North to buy their groceries? Last night I read through a previous Oireachtas Joint Committee on the Environment and Local Government report dealing with IKEA. One Deputy, whom I shall not name, said that nobody would go up North for groceries, but people might go up now and then to visit IKEA. Unfortunately, they are going up North for groceries. They are going up North because they are not getting value down here. All we are saying is that there needs to be something for everybody in this. There needs to be something for the suppliers, the retailers and the consumers where we pay reasonable prices.
We have been meeting the retailers for a year. The currency differential started to appear in July 2007. We felt it would settle down after a few months. However, it was not settling down and the price differences were not coming through so we started to call them in. The first argument we got was hedging. They claimed to be hedged for three, six, nine or 12 months. The hedging argument disappeared and was replaced by an argument we heard here a while ago, which was that the suppliers would not reduce their costs. We find it very hard to believe that the big guys cannot control their suppliers. What was running through this all the time was the magic figure of 15% for the higher cost of doing business in Ireland. Nobody ever mentions corporation tax, by the way. Even the Forfás report did not mention corporation tax, which is much lower here than in the UK. They kept mentioning 15% to us and Forfás came out with 5% to 6%. Just before Christmas, IBEC mentioned a figure in the region of 30%. Even if we settle on 10%, that is a long way from the differentials we are seeing. Somebody somewhere is making that money, which is what the committee is investigating.
We keep publishing these surveys and want to give consumers information. Consumer behaviour is really interesting at the moment. In the past six months they have been changing their mindsets in the way they run their homes and their weekly budgets. For the first time ever our research is showing that consumers now shop on the basis of price. Obviously value needs to come into it, but they are very driven by price. We can supply the committee with all the statistics. They are going to places where they get price and value. When I chaired the consumer group a year ago all the retailers informed us that consumers' first priority was convenience, which was true at the time. That allowed them to price on the basis of convenience. We believe that for years all of us lashed out the money. We did not care too much and we paid. The retailers and the business charged what they felt the market could bear and we went along, but those days are now gone. People are losing their jobs, which is very serious. It is really serious for people living close to the Border. It is really serious for the economy. Somehow or other we need to get people to shop here where it makes sense for them to do so provided the price is right and they get the value to keep the jobs here.
I wish to draw attention to the fact that while members of the committee have absolute privilege the same privilege does not apply to witnesses appearing before it. Members are reminded of a long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House, or any official by name in such a way as to make him or her identifiable.
Ms Ann Fitzgerald
That is a summary of our presentation.
I do not believe Ms Fitzgerald transgressed in that regard. The NCA carried out an analysis of the basket of goods. Earlier this morning we heard what goods they were. Whether in the North or the South there is no VAT on food. Between Dundalk and Newry there is a 6.5% differential in VAT rates, but it does not apply on food. Why is there such a price difference?
Ms Ann Fitzgerald
That is the core of the question we have been asking for the past year and the core of the question the committee has been asking.
The NCA claims that lack of competition is preventing retailers from reducing their prices. It does not believe what they are telling us and it has researched the matter extensively.
Ms Ann Fitzgerald
For years the big guys were in a comfortable place. They would claim it is a very competitive industry. They price match. They spend a considerable amount of money every week verifying what each other is charging. We could see the newspaper advertisements at weekends. Inside their grocery shops they claim to have the same prices as other stores. We want them to reduce prices, not to price match.
We need real competition.
Ms Ann Fitzgerald
Yes, real competition. However, up North — I am not saying it is a brilliant place — there are far more big players. We found a much bigger price differential among them than there is down here.
How much of a differential did the NCA find?
Ms Ann Fitzgerald
I believe it was approximately €2 on a basket of 22 items, which is big in grocery terms.
It was claimed that €1 was not, but Ms Fitzgerald believes €2 is big.
Ms Ann Fitzgerald
It is, yes. Small money is big in grocery terms because of volumes.
I welcome the presentation. Funnily enough, enormous frustration was expressed by the retailers over the role of the National Consumer Agency. The RGDATA submission stated:
There is a perception created by the NCA that Irish retailers do not give value to consumers and that only foreign non-Irish retailers can provide value and choice. The NCA has almost allowed itself to be cheerleader for the discounters through its various announcements in the area. However, on the other hand the NCA complained bitterly that retailers headquartered in the UK operating in Ireland and England are failing to give Irish consumers the benefit of prices on offer in the UK. The NCA cannot have it both ways and should take a more strategic and reflective view of retailing in Ireland.
How does the NCA respond?
Ms Ann Fitzgerald
My response is that we in the NCA gather information, which has never been done before, and we give it to consumers.
I will come back with some of what they are saying. They claim that in gathering that information the NCA does not allow for the sterling differential or the higher costs of waste and energy, which they claim are outside their control. They say that the NCA does not apply a weighting and it presents a simple comparison, which is unfair.
Ms Ann Fitzgerald
It would be very interesting to see what they would like us to put in, considering they say 15% one day and say 10% today. Before Christmas IBEC claims it was 30% and Forfás maintains it is 5% or 6%.
Is it like for like though?
The Forfás 5% was the price difference.
Ms Ann Fitzgerald
The cost of doing business.
No, they said 25% was the cost of doing business. Forfás referred to a 25% difference in the cost of doing business, leading to a 5% price differentiation.
Mr. Fergal O’Leary
Some 5% to 6% of the overall cost of the product is attributable to the different cost of doing business.
IBEC claimed that the cost of doing business was 30% higher.
Ms Ann Fitzgerald
Leaving aside the cost of doing business, we are paid more than people up North, which we know. Ordinary consumers down here would prefer to shop locally and keep the jobs here if the price of doing so was reasonable. They would accept that we have a higher cost of doing business and that we are paid more, and they would stay if the price of staying local was reasonable. They cannot understand, no more than we can, the large differentials because they are not explained by the higher cost of doing business in the South.
Mr. Fergal O’Leary
I shall respond to Deputy Calleary. On the notion that the National Consumer Agency is a cheerleader for discounters, we do not act as a cheerleader for anyone. We simply reflect what we see. It is noteworthy, for example, that in a North-South survey the price difference for a basket of branded goods is up to 30%, whereas the differential for own-brand goods is dramatically lower, standing at between 11% or 16%. This smaller differential is due in significant part to the presence of discounters and greater competition in the own brand area.
Mr. O'Leary's conclusion gives credence to the argument by retailers that the supplier network is much different in the South from elsewhere. Has the National Consumer Agency done work on this issue?
Ms Ann Fitzgerald
We met suppliers who told us one thing and multiples and others who told us something else. I would love to be able to examine these issues but the National Consumer Agency does not have the powers to do so. When the legislation to merge the agency and the Competition Authority is drafted, it should provide powers for the new entity to seek, require and obtain information which would enable all of us to answer these questions. At present, we can do no more than listen to anecdotal arguments. Suppliers argue they are being put under massive pressure from retailers who deny this is the case and place the blame elsewhere. This is a murky business.
While I have personal suspicions about where the problem lies, I ask Ms Fitzgerald to indicate which of the three categories she believes is the problem.
Ms Ann Fitzgerald
Shareholders need to wake up to the fact that the world economy has changed. They should stop expecting to receive the same returns as they have always because the returns feed through the system.
Is Ms Fitzgerald referring to the shareholders of supermarkets or suppliers?
Ms Ann Fitzgerald
I refer, in particular, to publicly quoted shareholders.
It is a question of profits. The companies are seeking excessive profits and their margins are too high.
Ms Ann Fitzgerald
They all run together.
The National Consumer Agency has met representatives of suppliers.
Ms Ann Fitzgerald
While we have not met the international suppliers — Tesco — we have met local suppliers.
The claims made did not refer to local suppliers. Tesco argues that 40% of its business is supplied by local suppliers — this element should not be a problem — and that the problem lies with the other 60%. I agree that this argument does not add up.
Retail Ireland was also concerned about its international suppliers who appear to account for 80% of the overall cost.
Ms Ann Fitzgerald
Perhaps one way to consider the issue is to work backwards from the assumption that we have all paid too much for a long time. We could then try to ascertain how to reduce prices and where the pressure points should be.
Ms Fitzgerald is suggesting the joint committee should invite two or three suppliers to appear before us.
Ms Ann Fitzgerald
Yes, perhaps it should invite a mix of local and international suppliers. The former may not be prepared to talk in public, however.
Which suppliers should we invite?
Ms Ann Fitzgerald
It might be worthwhile to invite Kelloggs which wrote to me last week stating it had reduced its prices.
In fairness to Kelloggs, it has reduced its prices.
I am sorry I missed the start of Ms Fitzgerald's presentation. She referred to the superstores north of the Border, specifically IKEA. I remember the arguments made about two years on the cap on the size of retail outlets. At one point IKEA threatened to build a superstore within a certain distance of the Border on the northern side. It subsequently started to downsize operations in other parts of the world and its outlet in Ballymun will comply with the cap imposed here. The National Consumer Agency argues that the cap on size results in Tesco and other major players moving north of the Border and that we must act to prevent them from doing so. What is the argument for saying it is not in our interests not to compete with the superstores north of the Border?
Ms Ann Fitzgerald
We discovered yesterday that Tesco is planning to open a massive store in Banbridge. I am not arguing that we must throw the baby out with the bath water. However, rather than stick rigidly to the current retail planning guidelines, we must ask how we can make this work for Ireland inc. and ensure superstores are built around the Border because if Tesco builds such a superstore, one of its competitors will have to build another one. If we achieve this, we will create long-term conditions in which it becomes very attractive for people in a large catchment area to come South to do their shopping.
That is based on the premise that the value of sterling and the euro will be closer to last year's level.
Ms Ann Fitzgerald
Superstores will state that, by definition, they can operate on a much tighter cost base and offer much lower prices. They would, therefore, be attractive.
They want to eliminate all other retail outlets. To take Ms Fitzgerald's argument to its logical conclusion, a superstore will hoover up everything, North and South, within a catchment area of 30 or 40 miles. It will then become the dominant player and eliminate competition, which is not in the consumer's interest.
Members who visited the North last week did not do so as part of a playground exercise but to work hard for two days. We noted that 85% of southerners who travelled to Newry and other towns visited the edge of the towns in question with the result that the centres did not gain. The 30,000 sq. m. Tesco store in Banbridge is set to increase to 60,000 sq. m. A further Tesco superstore of 130,000 sq. m. is planned for the edge of the town. The company will not allow these stores to compete. Every person in Banbridge could stand in the new store and have 4 sq. m. to himself or herself. Ultimately, there will be no competition because all competitors will be wiped out. Does Ms Fitzgerald not agree that the joint committee must take account of the concern that a single one-storey centre offering everything will emerge?
Ms Ann Fitzgerald
If consumers want that type of outlet, there is a strong danger they will travel North if is not provided in the South.
Does Ms Fitzgerald share the view that if consumers believe they are not being robbed and if the margin for everyone is fair and the price gap between North and South closes somewhat, they will continue to shop locally in the South? The current perception among consumers is that they are being taken advantage of.
Ms Ann Fitzgerald
Yes, the National Consumer Agency receives calls about this issue every day of the week.
While I accept the National Consumer Agency and Competition Authority must push for better prices, the role of the joint committee is to try to achieve a balanced outcome. For this reason, we have decided to spend considerable time on this issue. It is possible to retain planning guidelines while securing better prices. We do not have to go as far as Ms Fitzgerald suggests. The problem is that someone is making too much profit and we must find out who it is. We will deal with the cost issue separately. Neither the National Consumer Agency nor members of the joint committee know who is making excessive profits.
Ms Ann Fitzgerald
That is the reason we argue one must work backwards from the assumption that we pay too much.
It was too easy to charge us high prices.
The joint committee heard many arguments that the price differential on standard groceries North and South was minimal and the major differential was in alcohol and related products. The National Consumer Agency suggests this is not the case. Will it repeat the figures provided?
Ms Ann Fitzgerald
I shall ask my colleague to do so.
Mr. Fergal O’Leary
The figures available to us allow for the different VAT and excise rates, North and South, and are taken from a survey we published in June 2008. I can submit the full details later if the joint committee so wishes.
Yes.
Mr. Fergal O’Leary
In summary, the price differential is up to 30% for a basket of 42 branded goods purchased in Dunnes and Tesco branches north and south of the Border. This differential falls to between 11% and 16% when own brand products are compared. There is a very substantial difference in respect of branded products. According to anecdotal evidence, circumstances have become worse since June 2008.
Mr. O'Leary has said that when one compares the three suppliers in the South, one will note a difference of approximately €1 between them.
Ms Ann Fitzgerald
Thirty five cents between two of them.
In the North there is a difference of £2 between three companies.
Ms Ann Fitzgerald
We converted the currency and the figure is €2. We can forward the Deputy the precise details.
Thirty five cents is insignificant but €2 is very significant. Would the delegates be happy with a €2 price difference?
Ms Ann Fitzgerald
It shows more competition.
On the difference between branded and unbranded products, to what extent are the branded products affected by having international suppliers? Most suppliers would be international. Many of the own brand products would be sourced locally. Was this question asked?
Mr. Fergal O’Leary
It did not arise at the time. As Ms Fitzgerald said, we were engaging with retailers throughout 2008 and receiving a variety of explanations on hedging, euro invoicing and buying ahead. The issue of suppliers is relatively new in the mix. I am not saying it is not an issue but that it was not put to us forcefully last year.
It was raised by RGDATA——
Mr. Fergal O’Leary
Absolutely.
——independent retailers, Tesco and the Musgrave Group. It was raised across the board today.
Ms Ann Fitzgerald
It has only arisen as a reason in the past month or six weeks.
Mr. Fergal O’Leary
We are not saying it is not a reason but that it has not been forwarded as such.
It is a very fresh reason.
Mr. Fergal O’Leary
It is freshly presented.
I thank the delegates and I am sorry for holding them up. They can send the secretariat the more detailed figures. They may well have caused us to postpone our final analysis because we may well have to examine the issue of suppliers. I thank the media representatives for covering our two days of proceedings.
The joint committee went into private session at 4.55 p.m. and adjourned at 5 p.m. until 10 a.m. on Wednesday, 25 February 2009.