From RGDTA I welcome Ms Tara Buckley, director general, Mr. John Foy, president and a fellow Mullingar man, Mr. James Marshall, director and Mr. Gerry Claffey, director of Nolan's of Clontarf.
Ms Buckley was also in attendance yesterday with another group from RGDTA. I propose allowing five minutes for a presentation followed by a question and answer session which usually provides the real beef for our investigation. I invite Ms Buckley to begin the presentation.
The committee probably heard enough from me yesterday. Today I am accompanied by three independent retailers. We can certainly add to some of the interesting information the committee heard this morning. Independent grocers do not really do gloom and doom as they are fighters and they will fight back to keep their businesses. I have three very good examples here with me today of people who work very hard. The committee referred to its trip up North and meeting some very impressive independent retailers in Ballyclare but I have brought some in here today with me and there are others like them all over the country. They are fighting for their businesses and they are dealing with their customers. We want to be of as much assistance as possible to the committee.
Mr. John Foy is a retailer from Cavan and he is the president of RGDTA; Mr. Jim Marshall is a retailer from Mullingar; Mr. Gerry Claffey works with Richard Nolan in Nolan's of Clontarf. Richard is not in the country today, so he sent Gerry along to represent him. Each of the retailers will introduce themselves and each will talk about the issues of pricing and Irish goods.
I am 33 years in this business, so I have seen many ups and downs, many recessions and many good times. I am the second largest employer in Cootehill, with 70 people working with me and Cootehill has a population of approximately 1,500. I am happy to make a reasonable standard of living. I am quite happy to show my figures to anyone who wishes to look at them. My net margin in my business is between 1.2% and 2%, depending on the competition, depending on the time of the year. My turnover last year was approximately €6 million, net of VAT and my income for working seven days a week, is approximately between €70,000 and €100,000 a year. We are open 15 hours a day, 364 days of the year.
I have invested more than €4 million in my store over the past five or six years to grow my business into a world class business. My turnover over the past nine years has grown in Cootehill from €1 million to €6 million. I am proud of this. However, the most important people are my customers and I have worked very hard to build relationships with them. I am doing everything possible to hold on to my customers. I do not want to lose them because my family and I have made a huge investment in my people and in my business. If I could purchase my products 15% cheaper from suppliers I would give the commitment to pass on that 15% to my customers but I cannot do that at present.
I worked for Senator Feargal Quinn for 20 years. Our wage costs were 5% and today my wage costs are at 11%. There is a 6% differential in those years. Our running costs are higher than in the UK. The UK wage average in the supermarkets is approximately 6%. Our other costs are all exceptionally higher because of this. Our cost base is higher. I would question the Forfás report and how it came about the information on the cost base.
I have a question for the committee. All retail and service industries are suffering at this time in business and not just the supermarket business. This includes the shoe business, the jewellery business and the car business. Does the committee think they all want to charge more to their customers? If I can get better deals for my customers — and the same applies to the other businesses — both they and I will pass it on.
I listened to the previous speakers such as Cormac Tobin. Our cost base has become extremely high and I agree some of our suppliers have become greedier because their cost base has gone up. I am not here to name and shame anybody. I work as a consultant to various companies. Lily O'Brien's chocolate company is one example. When I started off giving advice to that company in 1992, to get a product into the supply chain the acceptable margin was approximately 45%, between distributor and retailer. I recently gave advice to a company looking to list a product with a multiple and the margin has gone up to 65% to 70%. We need to start looking at the supply chain.
It is very easy for politicians or people to criticise the retailer. I speak from my heart as to how it is for a retailer. I am quite happy to open my books. I do not drive a top of the range Mercedes. I have five children and I am proud I am able to provide a standard of living that is slightly better than when I started off in 1975 pushing trolleys around the shopping centre in Northside for Feargal Quinn. I am quite happy to make sure that my customers are given a standard of service in Cootehill that is equal to what Feargal Quinn gave and I am proud of that. I invite the committee members to ask questions of us as retailers.
I am an independent supermarket owner in Mullingar. The shop was started in 1949 by my father and I am 45 years in the business. It is no wonder the hair is driven white. I built it from a 500 sq. ft. shop up to a 9,000 sq. ft. supermarket. I have 60 staff and I am very passionate about my business. I want to keep those people in employment. Some of them have been with me for more than 20 years. They are married people with families and they depend on me. I support local producers and manufacturers. I have a Tesco right behind me, a Dunnes Stores down the street, Supervalu, Lidl and horror of horrors at Hallowe'en, Aldi arrived outside the door. I am not afraid of competition so I concentrated on giving a good personal service to the loyal customers. Business has increased since Aldi came in because they go down and get what they want down there. However, I give a very special personal business. Yesterday morning I was in the fruit market in Dublin at 4.30. We do it twice a week with a truck. I have top quality fruit and vegetables. The boys up the street have a sign offering sensational value in fruit and vegetables and we are able to beat them hands down. We get good quality potatoes from Joe Quirke in County Meath.
I deal with all the major companies, including Kelloggs and Cadbury. In recent years I have started sourcing goods in Scotland and England. Senator Quinn spoke about entrepreneurship in the North. I have a guy in the North. I get my own truck. I head up to the North to him and I fill that truck maybe once a month. I come down and I am able to give good Enniskillen or Newry value to my customers. The Chairman knows where the business is. He knows the business is ever increasing and he knows I am very passionate about it.
I will give the committee a few examples of pricing. A Mars bar costs me 52 cent ordered directly from Master Foods, which is the agent in Ireland. I can source that product for 39 cent in Scotland. Cadbury biscuits cost €1.18 in England and €1.47 from the agent here. Mach 3 blades would be of interest to many people here. I can get them for €6.87 inclusive of tax and it costs €9.88 directly from the agent in Ireland. That is €3 a packet or €30 a case. Chum dog food is the same. It costs 67 cent as against 98 cent. Baby food is an interesting one because no VAT is involved. This product is manufactured in Dublin. To buy a 900g tin of SMA Gold directly from FA Wyatt costs €11.24. No wholesaler is involved as it is bought directly from the company. I can buy the same product for €8.72 from England, which represents a saving of €2.52. I could go on to talk about Pampers and other things like that.
I feel I must source the goods abroad to the best of my ability. There are entrepreneurs who are willing to deal with me and I will deal with them to give my customers the best value. That is all I have to say. It is straight from the shop floor.
That was as I expected from Mr. Marshall.
I am from Nolan's supermarket in Clontarf. The family business on Vernon Avenue has been in existence since 1955. We employ approximately 120 people and are completely non-aligned. It is somewhat lonely as an independent with no support. In one sense it gives us flexibility. We do an individual range of goods and we need to buy in from everywhere. At the moment we buy a large amount of goods in from the UK. This has only been in the past three months and we are getting used to it. There is a major administrative part to this. We are in the lucky position that we can take in a container load at a time. As we are not looking for smaller quantities it becomes practical and they want to talk to us at the moment.
Our old relationship with our local distributor on the big brand goods, for example cornflakes and cans of beans, seems to be under threat. We did not want to go elsewhere, but we need to offer the right prices to our customers. We are approximately 20 minutes from Dublin Airport and it is one hour up the M1 from there to the Border. Many of our customers were doing that because it is practical. The customers dictate what the retailer must do and we need to try to match it. At the moment we are doing a range of special offers where the sterling prices are flashed and we are selling them for the euro equivalent. If it is £1.99 we will sell it for €1.99 and we can still make a margin on stuff like that. We are up to our eyes in administration to see if we can do this in a practical way to pass on the savings to our customers.
At the same time we need to provide all the goods from Irish suppliers. We have a large range of gourmet items from Kinvara, Ballymaloe, Cully and Sully, and other Irish producers. Our customers want those and we want to provide them. We do a large range of special dietary needs products. It is not often that people see coeliac and diabetic products, such as we carry, on supermarket shelves. Many of our customers come especially for that sort of stuff and we need to carry the full range of everything.
We are somewhat nervous about how the future will pan out, considering currencies and the world economic climate. However, we are in there fighting and we intend to keep fighting.
I am glad to see Mr. John Foy here today. For a short while I was involved in retailing in Cootehill. I was an employee and not an employer. I know the place and I know of Mr. Foy. I ask him to outline the profile of his employees. What are their skills and wages? Are they paid the minimum wage? What training and support does he give his employees? How loyal are his employees?
I can give one example. Trish Delaney, who works with me, worked in a Tesco store in Coleraine. When she started with me she asked what her hourly rate would be. As she was over 18, I started her on €8.75. She said that she was only getting £4.75 working in Tesco.
I try to pass on all the skills that were passed on to me by my previous employer. I try to involve them as part of my business. I sat down with each person individually last week to explain that our business had declined by 10% year-on-year. I want them to understand that and give them comfort that they are not threatened. They need to understand that they need to push a bit harder. We all need to play a big part together to get through this. Two people will shortly go on maternity leave. I have explained that we will not replace them. However, I have said we will not let anybody go.
The €400 or €500 that I give each employee every week is cashed and spent in the coffee shop, clothes shop and shoe shop. We are trying to be innovative as a town. We will launch a scheme on 15 February where if people spend €50 in my store I will give a €10 voucher to be spent in the restaurant across the road. Vice versa, the following week the restaurant will give perhaps a €5 voucher to all its customers to spend in my store. It is a local and national problem. I have explained to all the staff in the store that this is a worldwide problem not just a local one. I want to involve them and make them feel they are part of the solution rather than me being seen just as the boss in my store.
The passion exhibited by the three witnesses this morning shows what is going on. I have a question for Mr. Foy. How has the margin in the supply chain gone from 45% to 60%? How is that impacting on his daily business?
I would be lucky to make any profit this year because of what we are trying to achieve on our margins. For the past nine years I have been comfortable enough to be able to make a profit. We are forecasting no profit this year. That is the impact it is having on our business. My bank manager will not be too happy with my forecast for next year. However, in the current climate that is what I must accept. Not replacing the two people going on maternity leave will have an effect whereby every day people will need to put in more effort. There will be stress and problems.
We are part of the SuperValu group and through my involvement in RGDATA I am putting extreme pressure on the wholesale group to reduce prices. The wholesalers' argument is that overheads are so high that the cost of distribution here is considerably greater than in the UK. Our wage costs are much higher. They all play a part in increasing the cost to the retailer.
I would like to take up that point. Perhaps Mr. Marshall would like to comment on this. A price has been quoted for baby food which, although it is produced in Dublin, is €3 cheaper in Scotland. Wage costs, etc, are built into this. I presume it costs more money to transport it from Dublin to Scotland than it costs to transport it from Dublin to Mullingar. It is cheaper in Scotland, where higher costs are built in, even though it is produced in Dublin. I do not expect Mr. Marshall to comment. Perhaps Ms Buckley is in a position to do so.
If the committee is looking at what it can do about this issue, it is possible that it needs to go outside the Irish system to look at the EU system. We need to examine prices in various countries. Why do Irish consumers have to pay such high prices for products? Why can products manufactured here be bought more cheaply from a wholesaler in Scotland than from the manufacturer here? Is an EU initiative required to examine this issue?
It is terrific to see a gutsy entrepreneurial spirit in this committee room this morning. I like that spirit which it is necessary to have if companies are to survive. It is always nice to see Mr. Foy. We worked in the same complex at one time. He mentioned that some time ago the percentage of the cost of a product that could be attributed to the cost of getting it into the supply chain was roughly 40%, but it has now increased to between 65% and 70%. Can he explain how these costs have increased exponentially?
The relevant figure was 45% in 1991-92, when I was involved with Lily O'Brien's chocolate company. The cost base gone up since. I am being honest when I say people have got greedier. The margins expected by people in the supply chain are higher because the cost base has gone up.
Who has a margin of 45%?
The cost of distributing a product——
Yes. The distribution cost was 45%.
Distributors used to charge 20% for delivering a product. Retailers used to be happy to accept 25%.
The costs in question arise after the product has left the factory floor.
Yes.
That is what I wanted to know.
That has gone up since.
What is the proportion now? Distributors and retailers used to charge 20% and 25%, respectively, but what are they charging now?
They both charge approximately 30%.
That is 30% for the distributor and 30% for the retailer.
Does Mr. Foy believe such 30% charges are necessary, or can be justified by reference to the costs of distributors and retailers? Are those involved in the sectors making additional profits on foot of these charges? That is what we need to know.
I have been asked whether it is justified. I do not think it is justified in the supply chain in certain circumstances, for example, in the case of the price of SMA Gold. That is the answer. It is easy to point the finger at retailers. I am happy to give the committee details of the margins on which I am operating. I have listened to the Tánaiste say draconian measures such as price fixing should be targeted at retailers. I am not screwing my customers. I am trying to look after them by giving them the best price I can, at margins I am happy to accept. I have written to the Tánaiste to explain that I take offence at her suggestion. I am happy to open my books. We need to investigate what is happening earlier in the supply chain.
That was the question I wanted to ask. I can picture Mr. Marshall in the lorry to which he referred. It must be on the road the whole time. That is what it takes. I see a lot of guys——
It is on the road at 5 a.m.
Yes. That is what it takes. I see a lots of guys in my home town doing the same. Mr. Marshall does his own distribution. He collects produce in Dublin and brings it back.
Yes.
It is worth his while to do so.
It is.
What are the people who should be landing at Mr. Marshall's door with the produce in question saying to him? Are they concerned that they have lost his business?
They are not interested.
They are dealing with the multiples.
Exactly. I am talking about buying C&C products, Coca-Cola and 7-Up. As Senator Quinn said, it is ridiculous that I can go to an entrepreneur in Lisnaskea to bring the stuff back to my business for €1.29, including VAT. I accept that I incur certain costs when I go to Lisnaskea, but it would cost me €1.74 from the supplier or agent in my local area. Coca-Cola had the gall to impose a price increase on 1 February. The Coca-Cola products I buy are manufactured in Northern Ireland.
Does Mr. Marshall have any products coming in from the United Kingdom?
The products I get from the United Kingdom are mainly cosmetic or household products. I have an opportunity to link up with a wholesaler, but I have not yet done so. I have discussed the matter with a representative of the wholesaler. I could get frozen and chilled food products from the wholesaler who is already dealing with a colleague of mine in Galway. He is very happy with the wholesaler in question.
The problem is that smaller retailers would be paying much higher premiums to get products if they were not travelling around Ireland.
Yes.
Multiples are achieving higher margins and thereby driving prices down.
Yes.
Multiples are not only exercising financial muscle but also getting better credit terms, etc.
I would like to comment on that issue. RGDATA has pointed out to numerous bodies in this country which have examined the grocery trade that it believes it would be better if the profit levels of the biggest companies operating here were known.
Exactly.
We are in the dark, unfortunately, even after the Competition Authority's three-year investigation. The authority which has many powers was unable to get that information. We will continue to be in the dark until that figure is known. Smaller retailers at today's meeting have outlined their willingness to open their books to the committee. RGDATA was involved in the Tansey Webster report which was compiled by the late economist, Mr. Paul Tansey. The costs he uncovered when he examined the books of 60 independent retailers continue to be at that level today. He found that the net profit of such retailers was between 1.5% and 2%. I do not think anybody in the room would suggest people are being ripped off in such circumstances, or that such margins are excessive or represent profiteering. If we knew what profits the biggest players in the market were making, it would make the grocery market more transparent.
I would like to ask about the costs incurred by retailers when getting their products in. This has become a bigger issue in the last 12 months. People are now willing to walk or drive somewhere else. They are voting with their feet by shopping somewhere else. When did these costs suddenly jump? It did not just happen in the last 12 months. How long has this rip-off being going on? The retailers have been shouting about it, but it has not been sufficiently highlighted.
The gap has been exacerbated in the last six to nine months. Sterling was worth approximately 70 cent in May last year, but one can now get 93 cent for it. That has highlighted the gap more significantly. My business is threatened by that development because I live nine miles from the Border. We are losing business in key categories such as beer, spirits and wine, on which VAT, duty or excise is charged. As regrads fresh or day-to-day products, my business is not suffering as significantly between Monday and Thursday as it is on Friday and Saturday. I have been involved in this business since 1976 and there has always been a gap between North and South. It has widened in the last six or nine months since the value of sterling started to decline. In addition, the cost base of businesses on this side of the Border is significantly higher.
Am I right in saying the gap was always approximately 10%?
Yes.
Senator Quinn might know a thing or two about these matters.
Yesterday I attended a meeting of people involved in commerce in Prague in the Czech Republic. It is interesting to note that the grocery trade there is being taken over almost entirely by a small number of large multiples. Some large multiples have failed in a number of places and have left the market but a small number are still there. The small multiples have lost out totally. Ireland is in a much healthier position in so far as a large number of independently owned retailers continue to survive as a result of their good relationship with their suppliers.
I have two queries. I get frightened when I hear the Tánaiste talk about price control. It is the wrong way to go — it has never worked. Mr. Foy has said he has written to her in that regard.
Ms Buckley suggested we should be doing something about this issue at EU level. I would like to know whether that is possible. It seems anathema to those of us who believe in subsidiarity which involves making sure decisions are made closer to citizens as much as possible. Is Ms Buckley suggesting it would be better if the sector was ruled from Brussels, or if there were more regulations from there? I do not quite understand her thinking. She also said she would like to have information on large retailers' results in Ireland. That is totally contrary to the European concept. Aldi, Lidl and Tesco will state they do not produce separate results for each country because they are not obliged to do so. While it is unlikely that RGDATA will win that one, I am interested to know whether legislation on this issue would help.
Mr. Marshall touched on a question I asked Mr. David Fitzsimons and Mr. Cormac Tobin who appeared before the joint committee earlier. Could an entrepreneur establish a wholesale business to buy goods sourced in Britain at the outrageously low prices available in Newry, Derry and so on and supply them to retailers here? Why is this practice not much more widespread as it would enable independent grocers to purchase goods at low prices without having to do so directly? This must offer an opportunity. Is there a reason entrepreneurs would not establish a wholesale or distribution firm to purchase goods across the Border and distribute them here?
I once queried Heineken about its prices because Superquinn was able to purchase Heineken beer in Spain at a much lower price than was available in the Netherlands, Ireland, France or Britain. The company had been accused of charging countries with national rugby teams higher prices because it was the main sponsor of a major rugby competition. As Spain does not play rugby, consumers there did not have to pay the higher price. I did not get anywhere when I raised the matter. Given the variation in prices from country to country, it should be open to an entrepreneur to purchase in countries where prices are lower and supply these cheaper goods to independent grocers.
I purchase from Mr. Pauric Rudden in Cavan who trades under the name, Kadona Limited. He sources goods in the North and delivers them to me. I also purchase from Mr. Jimmy McGoldrick who runs Fermanagh cash and carry, a nice little operation in Lisnaskea. He gives great value which I am able to pass on to the customer. Those are two such suppliers in my local area but there are many more elsewhere.
Is legislation in place to provide for the practice I describe?
I do not believe any such legislation is in place.
Mr. Pauric Rudden supplied me with 7UP produced in the South at 40 cent cheaper per bottle than it was available elsewhere. However, he came under pressure to cease supplying the product from the supplier and his supplies to us were cut off before Christmas. The multinational nature of this sector means any entrepreneur who establishes himself will be stamped out quickly because it would affect the distribution margin of multinationals in this State.
Is there evidence that corporate bullying is used against retailers who seek to secure cheaper prices for consumers? Mr. Foy stated suppliers have been cut off. Does Ms Buckley have further evidence of this practice?
To respond to Senator Quinn, RGDATA does not want more regulation. It is hard enough to run a business in this country. We must be the star pupils in Europe because we comply with every single regulation handed down. Retailers here will often look with despair at the position in other countries and ask why we are so well policed and must toe the line in respect of every single regulation. When we visit other countries we note that they do not appear to have to consider these regulations. RGDATA is not seeking further regulation.
We suspect that a proper investigation of this issue would not be confined to Ireland because it transcends borders and must be examined from that perspective. I can flesh out that response and provide more information on what we consider should be done.
I was asked about profits. Senator Quinn may believe I am banging on a brick wall but I refuse to stop doing so. Those working in the retail business believe the issue of profits could be addressed. The Senator stated that some players do not publish results for their Irish operations. Tesco, for example, provides figures on profits for the United Kingdom and bundles profits from its Irish operations in with those of the rest of Europe. We should be able to take action to make companies reveal what profits they make in Ireland. This could be done by making an amendment to the Companies Acts.
Will Ms Buckley send the joint committee further information on this issue and other issues on which she may wish to expand? I concur with Mr. Marshall's comments. His family-run business employs a large number of people. He has fought and survived despite having competitors all around him. We encountered gloom and doom on our visit to Dundalk but we also met a retailer who was so fed up he had a "three for two" over Christmas and had a great Christmas. While that may not be sustainable in the long-term, independent retailers are showing a willingness to fight.
As Mr. Marshall knows, we have a small corner shop in a small village which employs three people. The Revenue will not believe that the profit from the shop in 2008 was €5,089. My wife works in it for 13 hours each day and does not draw a penny. We pay for newspapers and bread ourselves because if we did not do so, the shop would be loss-making. That is the challenge.
Will the Chairman's competitors in Mullingar not close him down?
Mr. Marshall and others offer great value and fair play to them. The pressure is on small grocery shops ten or 12 miles away from Athlone, Mullingar and such towns. These shops are under threat and the local areas will have many dark clouds in the next four or five years. Mr. Marshall and others do not want these shops to close because they are providing a service in the area. In rural areas, people go to the nearest large town to do a weekly shop and buy in local shops during the week.
Shops build up a relationship with customers who always know the owner. If they are stuck for a pint of milk or loaf of bread because they do not have a euro or two in their pockets, they will not be allowed to go home hungry. This degree of intimacy is very valuable in this country and I hope it is not lost in the apparent rush by some sources to obliterate small shops. I have declared my interest in a small shop although I do not do any work in it.
I thank the delegation for appearing before us. We expected our guests to express firm and frank views and we have not been surprised or disappointed. I have no doubt Mr. Foy and Mr. Marshall would be willing to open up their books which proves they are not afraid to put their money where their mouths are. We also appreciate that they provide valuable employment. I thank the delegation for taking so many questions from inquisitive members.
I subscribe to Ms Buckley's view that we have a difficult task. The joint committee has about 500 tasks to complete this year and we are trying to do the best we can in our four-day investigation. We visited the North where we had discussions with retailers, some of whom are also feeling the heat. The picture in the North is not as rosy as it is painted.
If the delegation has specific recommendations it would like the joint committee to consider in its final report, it should submit them in the coming week. A number of additional issues were raised which the joint committee will consider. We will furnish RGDATA with a copy of our final report in recognition of the fact that it has appeared before us twice to assist our inquiry.
