JOINT COMMITTEE ON ENTERPRISE, TRADE AND EMPLOYMENT debate -
Wednesday, 4 Feb 2009

Musgrave Group.

Chairman

The Musgrave Group is next and I welcome Mr. Chris Martin, the chief executive, and Mr. Donal Horgan, the managing director of Musgrave Retail Partners Ireland, who appeared before the committee yesterday. I also welcome Ms Sharon Buckley, the group commercial director who represents a change in the list of witnesses from Ms Edel Clancy, who was a witness at yesterday's meeting and is not here today.

The witnesses are welcome and I thank them for their attendance. I must make the same announcements as I did yesterday. We have a busy schedule and I ask the witnesses to be brief, as they were yesterday. A presentation of five minutes will be made followed by a discussion with the members of the committee.

I draw the attention of the witnesses to the fact that members of the committee have absolute privilege but the same privilege does not apply to the witnesses who appear before the committee. Members are reminded 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 or in such a way as to make him or her identifiable.

Mr. Chris Martin

Picking up from our meeting yesterday, we have followed up on the committee's points of clarification and have left them with the secretary to the committee.

Chairman

We acknowledge the swiftness of reply.

Mr. Chris Martin

Returning to today's agenda, we recognise that pricing is a very complex issue and that Irish consumers are profoundly concerned, particularly in light of the current economic situation. We would like to explain our view of the challenge. Although the committee members may not agree with everything we say, we want to present the issues as we see them. In particular I want to talk through what Musgrave is doing to bring value to the Irish consumer in these very challenging times, what we are doing to reduce the price gap between North and South and the support needed from the Government to help local entrepreneurs survive, be they retailers or suppliers.

As we stated yesterday, Musgrave itself is not a food retailer. We partner retailers who own their own stores and support them in bringing value and choice to the consumer. Our partnership with our retailers, together with the support we give to Irish food suppliers, means that we are a key contributor to the success of the Irish economy.

In a country with approximately 6,500 shops, our retail partners are competing head to head with major international operators. They are part of the communities they serve and have a unique knowledge of local needs. Through their daily conversations with shoppers, they see at first hand the impact that the changing economy is having on their customers. They understand and are responding to their shoppers — Members' constituents — who are struggling with their weekly food budgets and through necessity are demanding lower prices. Profound changes have taken place over the last nine months and we are now experiencing a contracting food market. In my 20 years of working in retail, I have never experienced such unprecedented adverse change.

SuperValu and Centra are responding. The evidence of this can be seen through our advertising in the pages of the national newspapers on any given day. We have driven price reductions and are continuing to do so. Over the past six months we have reduced the average weekly household basket, which is about €150, by 7% at a time when food inflation has been growing in excess of 5%. These reductions have been made across the entire range from fresh meat to frozen products, fruit and vegetables to household and health care to baby products, and they equate overall to price reductions of over €100 million. In each of the NCA surveys covering the largest weekly basket, SuperValu has consistently emerged as the cheapest player in the marketplace. Our approach was recognised in an NCA press release which stated that SuperValu was providing real competition to the multiples. Centra was also recognised as the most competitive convenience brand.

The Irish grocery market is also contracting because of the exodus of shoppers to the North. This extremely worrying trend is having a devastating impact on our retail partners operating around the border and is impacting the viability of food retailing and manufacture in Ireland. Through our business in Northern Ireland, we are able to see first hand what is going on between the two markets. The price gap is clear but we are working to reduce it. We were making progress in the autumn but the further collapse of sterling by 16% in the last eight weeks, together with the simultaneous increase in our VAT rate and the reduction in the UK rate has had a significant impact.

Ours is a low margin business. Our accounts, which are published, show that after tax we made a margin of some 1.4% across the group. We are working on two areas. We are co-operating with our retail partners to reduce the cost of running a store and working with our suppliers to reduce the cost of products. These measures are about bringing price reductions to the consumer. Running a store can be up to 25% more expensive for a retailer in the South, thereby driving a 10% difference in retail prices to cover these costs. The reasons for the higher costs have been widely reported and together with our retailers we are scrutinising every cent. However, we need the Government to urgently commit to reducing costs set by the State, such as waste disposal, commercial rates, local authority charges and electricity. Given that our retail partners own and run their own businesses it is critical, as this committee is aware, that the efforts by the Government to stimulate the banking system flow quickly to, first, reduce the cost of borrowing and, second, make funds available to support much needed investment in the sector.

I will now turn to the cost of products. In Ireland, over 70% of the products sold by our retail partners are branded. We are committed to Irish supply and 75% of all the products in SuperValu and Centra are sourced through a network of relationships with indigenous food suppliers and the Irish based offices, distributors and agents of international branded suppliers. With the unprecedented changes of the last six months, businesses in the South are now in direct competition with those in the North. Although uniquely sharing a land border, the two markets are fundamentally different. Northern Ireland benefits from being part of a supply network that supports a population of over 60 million. The structure of the branded supply base is such that we have to deal with the two countries separately.

At this point I should explain an important point in regard to our UK business. We have two businesses in Northern Ireland and Great Britain and together they account for just over 1% of the UK grocery market. Our scale is such that we are unable to work directly into the UK buying structure of the branded suppliers. However, when opportunities do present themselves we grab them. The Musgrave Group is negotiating with our suppliers so that cost savings can be passed onto the consumer. It is a complex issue because some suppliers have their manufacturing bases in Ireland, while others source through the UK but manufacture elsewhere or are based and manufacture in Britain. We are working to improve processes to find cheaper ways to import products from Britain and continental Europe. We are equally working to improve our own efficiencies and to cut costs in our own business, all of which has the aim of the passing savings to the Irish consumer by way of price reductions.

In summary, we are an Irish business working with our retail partners to bring value to the Irish consumer during these extremely challenging times. We are committed to price cuts and to pressing suppliers to pass on sterling savings to consumers. A contracting food market in Ireland will have major consequences not only in regard to employment in the retail sector but also the knock-on impact on Irish suppliers. The food sector is a major contributor to the economy and the industry, the Government and this committee through its recommendations need to work together if we are to come out of this recession stronger. I thank the members of the committee for the opportunity to make my presentation on this important issue.

Deputy Damien English

I thank Mr. Martin for his clear presentation. We discussed earlier the discrepancy in prices between the two sides of the Border. Mr. Martin stated that his cost base is 25% higher, which leads to a 10% price differential. That contradicts the Forfas report which suggests a difference of 5%. As we have doubts about the latter figure, I ask for clarification on how the 10% figure is derived.

A widespread view exists that many of the large multiples, including the Musgrave Group, are matching each other on prices. Is that the case or does competition exist?

Concerns were expressed this morning that suppliers may be squeezed too much. Mr. Martin alluded to the possibility of job losses in manufacturing. We have a duty when we push for better prices to also protect suppliers. The issue of unfair practices was raised, whereby suppliers are asked to bear too much of the burden of advertising and marketing. Hello money was even mentioned.

In regard to the figure of 70% of Musgrave Group's products being Irish sourced, there is a difference between sourced and produced. What percentage is produced in Ireland?

The majority of the retailers appearing before the committee reported that their profits in Ireland are similar to those of the other countries in which they operate. Is that the case in respect of the Musgrave Group? I appreciate that its profit margins are published but concerns have arisen among the public that the profits made by certain multiples are too high. Are all price reductions passed on from suppliers and distributors? Mr. Martin stated that €100 million has been saved in prices. Who took the brunt of these savings?

A concern was expressed this morning that distributors and agents are not passing on sterling and other cost differences. How much does this factor contribute to costs and what can we do about it? It appears that some suppliers exert total control but the Musgrave Group must have a degree of purchasing power given the number of companies that it represents.

Chairman

Deputy English asked a number of questions, but we tend to get to the heart of matters.

Mr. Chris Martin

I will attempt to answer the questions but I will defer to my colleagues if they wish to contribute. In regard to the cost of running a store, the 10% differential comes from our own figures. We work with our retailers and have knowledge of their economics. Our figure differs from the Forfas report because we include rents and have adjusted it for the most recent exchange rate. The cost of running a store is a proportion of the price difference between North and South. I will return to the issue of managing product costs because, with the collapse in sterling that has occurred over the past eight weeks, events have been developing at a considerable pace.

In regard to price matching, it is important to recognise this is a transparent market. We match our key lines alongside those of our competitors. It is a sign of a competitive market because any retailer who is out of line on these key lines will not be able to compete. This happens in other highly effective retail sectors. The one I would pull out is in the United Kingdom. Every week The Grocer magazine publishes a report with a moving list of 33 items. Asda, Morrison, Tesco and Sainsbury account for approximately 80% of the UK grocery market and if one examines the list for those four retailers, the prices are virtually the same. Price matching is a function of a competitive market because we need to bring value to consumers.

Regarding how we work with our suppliers, it is important to recognise that we see ourselves as a business for the long term. It is not in our interests to look for short-term gain at the expense of long-term relationships with suppliers. We have fair practices. We do not demand "hello money", listing fees or anything similar. I will ask Ms Buckley to comment on this because she handles the buying relationships. Branded goods comprise some 70% of the Irish sales of our retail partners, of which we need to give a breakdown.

Chairman

It is important. We want to know from where it emanates.

Mr. Chris Martin

A significant proportion comes from international branded suppliers. Rather than pick a figure out of the air, I need to give more detail.

Chairman

We would rather have accurate figures.

Mr. Chris Martin

We commit to bringing them back. On the profitability of Musgrave, we sit in a supply chain from the supplier to supporting retailers, retailers and consumers. We publish our accounts and had a margin in the order of 1.4%. Our accounts cover our businesses in Great Britain, Northern Ireland and Ireland. We do not break them out for commercial reasons, because none of our competitors does, but the margins we make in supporting our retailers are very consistent across the three businesses. Having a margin of just over 1% does not give us much room for manoeuvre in dropping prices. We must work with our retailers and suppliers to bring the savings to the Irish consumer. Our emphasis is very much on bringing price reductions to the consumer. I mentioned this regarding the price of the average basket having come down in the last six months. That is being driven by working with our suppliers predominantly to bring savings through. I will hand over to Ms Buckley to talk about the work we do with our suppliers and where the €100 million of price reductions comes from. Mr. Horgan may also wish to comment.

Ms Sharon Buckley

We aim to have long-term, stable, positive relationships with our suppliers. "Hello money" and listing fees are not the way we do business and we have never operated that way. We have 600 suppliers and aim to develop long-term partnerships with them, particularly with key Irish suppliers in categories that are particularly important to our business. We have such relationships in suppling meat, dairy products, etc. A good example is Kepak in the case of beef and lamb and Carton Brothers in the case of chicken. It is in our interests to have suppliers which have long-term, sustainable futures and not to squeeze them too hard.

Mr. Donal Horgan

The €100 million is, in part, contributed to by our performance alongside the work we do with suppliers. We have handbills that go to approximately 800,000 consumer households every three weeks in a promotional cycle and they identify very precisely a combination of our everyday low pricing and strong promotions to bring value to the consumer. Across the SuperValu brand there is evidence of this and we do something similar with the Centra brand in the case of approximately 300,000 households. The savings that come to us through suppliers are directly passed on in price reductions and evidenced to the consumer through information such as this and what they see in our stores day in day out.

Deputy Damien English

Since Musgrave found €100 million in savings in the last year, the question will be asked whether costs were too high before then. How were the savings suddenly found?

Mr. Chris Martin

We are continually working on getting value for our consumers. A major element of the €100 million saving has been driven by the exchange rate having to be fed through. When one examines the Musgrave accounts in the last three or four years, one will see our margins have been consistently at approximately 1% to 1.5%. It is a question of having to work very hard directly with our suppliers to get hold of those exchange rates and directly pass them on.

Deputy Dara Calleary

I thank Musgrave for the information. This is the first occasion on which a multiple has told us its margin, which is a good change. Representatives of Food and Drink Industry Ireland, FDII, were with us this morning and very clear on their concerns about suppliers being pressurised. Mr. Hogan mentioned the leaflet offers. The FDII submission indicated these short-term offers such as buy one, get one free and 50% off to attract consumers are increasingly being requested by retailers and demands for 100% funding for the offer by the supplier are being sought. Do Musgrave or SuperValu engage in this?

Mr. Donal Horgan

Obviously, the extent of the offer has improved and been enhanced, given the difficult situations our consumers are struggling with in seeking value for money. As Mr. Martin mentioned, we are working hard in our business to seek efficiencies to part-support the €100 million; therefore, consumer offers are not fully funded by suppliers but by us, our suppliers and retailers.

Deputy Dara Calleary

FDII was also very concerned about the concentration of the grocery market in Ireland among the three major players. It did not identify them but we assume they are Musgrave, Tesco and Dunnes. Does that concentration affect, or have the potential to affect, consumer price in a negative manner?

Mr. Chris Martin

This market is less concentrated than that in the United Kingdom. It is worth €14 billion and, as identified in previous Competition Authority reports, there are more than eight to ten key competitors in the market which is highly competitive. The issue of concentration is not a negative in the market's operation.

Deputy Dara Calleary

If a supplier was supplying Musgrave while supplying some of the discounters such as Aldi or Lidl and they were underpricing the local SuperValu, would Musgrave challenge that supplier on the cost at which it was supplying the discounter?

Ms Sharon Buckley

A number of our suppliers supply the whole market and some main brands in the market are sold through discounters. We look to buy at the best price and are not concerned with what price everybody else is paying.

Senator Brendan Ryan

The delegates have said Musgrave is not a retailer but partners retailers. What influence does it have on pricing policy in stores? What is the split between the influence of the retailer and Musgrave? Is there much variation in pricing across the country? Can the delegates indicate the percentage differentiation between Dublin and elsewhere? Mr. Martin has said 70% of goods are branded, leaving 30% own-brand. How much of this is sourced in Ireland? Does Musgrave use local manufacturers? To what degree does it source packaging for them in the Republic of Ireland? Presumably, Musgrave engages in central purchasing. I would have thought that given the number of stores across the two brands, the company would not be able to have a real influence in the UK. To what degree would a store, apart from the central element, be able to source local produce such as vegetables? If a store is located in a seaside town or fishing village, could it source fish locally?

Mr. Chris Martin

Mr. Horgan will pick up on the questions relating to our policy of setting prices with our retail partners, the pricing across the country and local sourcing. I will come back to the others.

Mr. Donal Horgan

Both our brands operate in a very competitive market. We establish our recommended retail prices for retailers and they establish a maximum price at which product would be sold. We are trying to market as a full brand across the country in all locations, although the stores are individually owned. Retailers are free to sell below that price and that will happen on certain occasions with local promotions etc. that are often seen in local press. There is a maximum price set across the country so there is no price difference with regard to Dublin and the west of Ireland, for example. There is no difference in pricing policy with regard to locations.

SuperValu is a brand in its own right with consistent pricing that can be advertised nationally. One can see this in a press cutting from almost any day of the week. That setting of a recommended retail price allows us to be in a position to advertise nationally.

Senator Brendan Ryan

Did Mr. Horgan say "maximum"?

Mr. Donal Horgan

Yes.

Senator Brendan Ryan

Retailers are free to go below that.

Mr. Donal Horgan

Yes and it will happen. One can see clusters in, for example, west Cork, where some stores have local advertisements as a group of eight or ten stores in the region. One might see it in the west as well. They will react to any local competitive influences that might exist from time to time. Christmas would be a good example as many of our stores did a free turkey for Christmas trade. That was done on a local basis and given to consumers in that locality. In terms of general pricing, it is the same across the country for SuperValu and Centra stores.

On the sourcing of local produce, within our structure and working with our retail partners, our retailers are free to buy 5% of their product locally. When it comes to fruit and vegetables, recently that has been extended to 10%. The representation of that product in the store is a good example of how the store is interacting with the community and small producers therein, bringing that to life in the store itself. The rest is brought to bear by central purchasing to help our retail partners and brands compete in a competitive market.

Mr. Chris Martin

The 30% breaks down as a third own-brand, a third meat and a third fruit and vegetables. With regard to sourcing own brands, I will ask Ms Buckley to speak about where they are sourced across Ireland.

Ms Sharon Buckley

For own-brand areas such as dairy and bakery products that are manufactured in Ireland, much of that is sourced locally. With non-food areas such as laundry that are not produced in Ireland, we tend to buy abroad. The majority of our own-brand products are concentrated in the fresh areas, such as dairy and cooked meats. They are all bought in Ireland at this point.

Senator Brendan Ryan

With regard to packaged goods, such as pasta, does the company provide an own-brand?

Ms Sharon Buckley

We buy packaged ambient grocery and food products from a variety of sources. Some of these would be in Ireland and some would be imported.

Senator Brendan Ryan

Is there a policy on which way it should go? Is the company committed to sourcing in Ireland?

Ms Sharon Buckley

We are committed to Irish sourcing where possible. In the chilled and fresh areas, we buy the packaged products in Ireland if available. With other categories we would prefer to buy in Ireland where they are available but if they are not, we import. Our preference is Irish.

Deputy Michael Fitzpatrick

With regard to purchasing, are Irish producers competing with other countries on the shelves? Is the company importing agriculture-related products if Irish products are dearer than a similar product from England, for example? How many Irish producers are selling into the central distribution? I am not referring to local shops but the central location. I am trying to figure out how many Irish producers sell into that on a competitive basis.

Will the delegation tell us a little about labelling on Irish products? Is the labelling accurate? With regard to the interaction between the producer and the person in charge of the purchasing of goods, I have a question on farming and the creation of jobs in Ireland. If the company is competing with other people north and south of the Border, how is it protecting the jobs in Ireland through its purchasing policy?

Chairman

I have questions along those lines. Does the Musgrave Group place any conditions on its Irish suppliers with regard to supply of raw materials, packaging, payment methods or credit periods? Are such conditions imposed on suppliers in other jurisdictions? What conditions are imposed on suppliers here? Does the organisation have a specific employee whose responsibility is focused on sourcing Irish-made products in general and local produce in particular?

There are some people who are able to identify a particular potato supplier, for example, and when such retailers are in the market it gives tremendous support to Irish producers. The delegation has given a 70% figure but the sourcing of Irish products is important. We stated this morning that there could be foreign chicken with some pepper or seasoning put on it in this country. It would then be sold as Irish. It is not Irish as it would be from Brazil or Taiwan originally. It is a critical time and the clarion call, which may be anticipated for the report, is that Irish retailers and multiples would, where possible, source Irish products and make a very focused effort to ensure such products are Irish. I could bring in a product and stamp a shamrock or leprechaun on it and everybody would think it is Irish. It may be no more Irish than Neil Armstrong landing on the moon.

Mr. Chris Martin

There were many questions and I will begin by answering the last ones. Our commitment to Irish sourcing is key and I hope the experience we had with the pigmeat crisis before Christmas was evidence of that in terms of how we responded and were the first to get pigmeat products back on the shelves.

As we discussed yesterday, we make our supply chain as available as possible to Irish suppliers. Even if an Irish supplier just wants to work with a number of stores, we try to facilitate this so it supports the supplier going forward. We believe we operate fair terms and conditions, and although they differ by country, they do not penalise any aspect of being Irish. I will hand over to Mr. Horgan to speak about how producers compete and how we deal with shelf space.

Mr. Donal Horgan

Generally, with products such as beef, lamb, pork, bacon and chicken, we are 100% Irish. Nobody else in the market sources as much Irish product as we do. We will come back to the committee on the exact portion that is manufactured in Ireland.

Since we introduced central distribution in 1998, we have made a virtue of finding small Irish suppliers with a view to growing that supply base and giving people a real opportunity to put very good quality Irish-branded products and own-label product in our stores. Ms Buckley mentioned Kepak earlier and I could mention equally people like Ted Carthy and Carthy Meats. I could talk about some of the people we touched on even yesterday, when we considered our very good initiative with Enterprise Ireland called First Sale. Over the last number of years we sponsored and promoted eight or ten fledgling Irish companies per year in growing and getting shelf space. Companies such as Sunshine Juices, Dunhill Cuisine and Kohinoor all came to market as a result of that initiative. We must encourage more of that from a Government perspective in order to promote Irish brands. We do a lot of work with the Fuchsia brand in west Cork, with which Deputy Clune is probably familiar. That is a good example of a regional brand that has been developed. There is opportunity here for the Government to work with local producer groups that link up with multiples such as the Musgrave Group. Our central distribution can give those brands access to markets they would never have had otherwise. Clonakilty black pudding would not be in County Donegal were it not for central distribution because such a small supplier would not be able to bring its product to such breadth of market.

This year, in addition, we are supporting an RTE initiative, "Recipe for Success" which will air in a couple of months. This will take craft industry production into the kitchen. Very passionate people who are committed to food production are being given the opportunity to get shelf space in our stores. They will be given support in marketing and packaging to ensure they, too, can create potential job opportunities in this climate. They will bring their flair for food production to market in an artisanal and very Irish way.

Chairman

Does this refer to artisan food?

Mr. Donal Horgan

Yes, it is artisan food. There will be one final winner from a selection of 15. They are going through a process to get down to that one winner who will get shelf space in our stores for a period of months. We will see how that product goes. There can only be one winner, unfortunately, but beyond the winners and the programme we believe we may go back to some of these producers and tell them they will have a real opportunity to get their produce into our stores. This initiative helps us to support communities and give back to them. That is a vital part of what makes our offer in SuperValu and Centra unique in the marketplace.

In the earlier context of RGDATA, the Deputy mentioned sourcing suppliers, such as potato suppliers and so on. Yesterday I mentioned Bandon Co-op in terms of our Irish onion base supply. We work very closely with producer groups and groups of growers in Ireland, and with Bord Bia and the Irish Farmers Association, to help bring those products into our central distribution and make them available across the country, in over 700 stores. Our commitment to Irish produce is absolute. Mr. Martin mentioned the pigmeat crisis. That is an interesting example of how, through the good relationships we fostered with those secondary processors, we were back on shelf with Irish product on the Thursday after all product was recalled from market. To answer the Deputy's point, because it was a very short timeframe in which to get product back, we had a small amount of foreign product available. This was entirely, and in an utterly transparent manner, labelled as being foreign. There is confusion around labelling. The point was raised about chicken fillets and the small level of transformation that allows a foreign product to become "Irish manufactured". This is not right and it must be addressed properly.

Chairman

We intend to go to Brussels to meet the Commissioner on this issue. That is one of our tasks and when the delegates read about it they will know it is not a junket but a very important mission.

Mr. Chris Martin

Can we just pick up the point about labelling?

Chairman

Labelling is an important issue from our perspective.

Ms Sharon Buckley

To pick on Mr. Horgan's point, we have a very strong policy with regard to sourcing Irish produce overall. It is fair to assume that when consumers buy a product which is labelled as Irish they believe it is grown, produced and processed in Ireland. We very much welcome a tighter approach to labelling that does not, as Mr. Horgan mentioned, allow imported chicken to have added breadcrumbs or some other very superficial processing done in Ireland and then be labelled as Irish. I welcome a tighter approach.

Deputy Mary Alexandra White

I welcome the Musgrave Group representatives. In the report to the committee the group mentioned working with entrepreneurial food retailers and stated it has invested €200 million in existing and new retail developments. SuperValu is expanding in my constituency, Carlow-Kilkenny. I have a question concerning the amount of non-food items which I believe is increasing in some of the group's stores. For example, some of the shops sell the top ten book titles at a punitive cost to the local bookseller who may be just down the high street. I put a plea in here for the small retailer. I note that some stores increase their space at seasonal times. On St. Valentine's Day, 14 February, for example, an entire section of a shop will be crammed with roses that will probably come from Colombia or some other place, from which they are flown in cheaply. The poor florist down the road looks forward to the high point of the floristry year when he or she might be able to sell a great deal of roses. I stand to be corrected but the stores probably offer a heavy discount on those roses and increase the retail floor space for them at that particular time. I see this drifting towards a catch-all business for the big high points of the year, with St. Patrick's Day cards, St. Valentine's Day with the roses and flowers and Christmas decorations in the period before Christmas. For the launch of a Harry Potter book the poor bookseller might give two for one where the retailers in the bigger multiples will give three for one. We are completely squashed. At a time when we might hope to generate extra sales the multiple retailers increase parts of their shops as a catch-all to cover these big points in the retail calendar. Will the stores increase their business in non-food items? What is the fraction of non-food items sold in their outlets?

Mr. Chris Martin

We must come back to the Deputy concerning confirmation of that fraction. Clearly, our range of stores goes from the very small up to approximately 24,000 square feet, as we stated yesterday. The focus of our business with our retail partners is very much on food but we must also recognise that our food retailers compete in a very difficult market. They will look to events such as Valentine's Day that clearly involves food elements in order to bring a complete package together for the consumer. It is absolutely fair to say that, compared to most of our large competitors, we see the emphasis of our business being very much on food retail. We do not see ourselves moving into general merchandise retailing such as we see with some of our competitors.

Deputy Mary Alexandra White

Does Mr. Martin take my point that retail space is geared to the seasonality of top retail buying periods such as Christmas, St. Valentine's Day and St. Patrick's Day? The small independent retailer does not have the umbrella of a Musgrave Group to supply it with purchasing power and some of these smaller people will be wiped out over time. They cannot afford the rates or their premises and they see the multiples creaming off profits at an optimum time when they might hope to earn a little extra.

Mr. Chris Martin

I very much respect that point. It is important to recognise that our food retailers see they must co-exist alongside other people in their communities. They are not there for the short haul but very much for the long term. It is a matter of making sure that town centres thrive by having the right retail combination. The Deputy's point is taken but I return to the fact that in the main we see ourselves predominantly as food retailers.

Deputy Mary Alexandra White

I should like to see the fraction for non-food items.

Deputy Damien English

In the main, this committee is trying to tease out the differences between costs in this country and those in the UK or across the Border. It has been established that the difference to the consumer is over 30%. We have identified 10% which, it is claimed, comes down to the costs for the retailers. I presume costs of the suppliers come on top of that. Where is the other 20%? What causes that problem? In our report we wish to focus on what we can do. Perhaps the delegates might home in on the missing 20%. Why is there this difference in prices? Consumers are leaving the country which creates a detrimental effect.

We heard earlier about the different cost bases in wages and that electricity and waste costs were doubled here. In that list of costs, which are the main ones we must address in order to make it easier to find reductions? Most of them can be changed from within this House and, as a cross-party committee, we wish to put pressure on the right people in order to get that done.

Aldi explained to the committee earlier that suppliers who try to produce product for an Irish taste market of 4.5 million people are at a disadvantage compared to an English supplier who supplies a population of 60 million. We accept there are economies of scale. What can we do to help our suppliers compete with suppliers from abroad who benefit from economies of scale? I speak of the suppliers with whom the delegates deal on a regular basis.

Chairman

The delegates source Irish produce. Where is it packaged? Where is the printing done for the packaging? Is it done here or is it oursourced?

Mr. Chris Martin

I shall go through the questions and return to that last one, if I may. As discussed in our presentation, because we have a business in the North as well as in the South we can see the price gap. We discussed the price gap when we submitted our report to the Consumer Strategy Group about four years ago. At that point, we highlighted a gap of approximately 9% to 10%. Over the past two or three months, we have seen the price gap open up quite considerably because of the collapse of sterling during that period. When we looked at what was happening before the end of November, the price gap was beginning to close. Let us stand back and consider the matter. We were facing a price gap across approximately 700 products in the order of a percentage in the high teens in late November. As we sit here today, in our product file we face a price gap in the order of a percentage in the high 20s. The reality is 10% of that amount arises from the cost of running the stores. We break down the cost of running the stores approximately into three areas: the cost of product, the cost of manning the stores and the cost of running the property. These are the three Ps: people, products and property. In tackling those costs, the key issue we face is in terms of working out efficiencies and reducing that 10%. We are working with our retail partners in this area. The remaining cost difference is fluctuating and dependent on the exchange rate difference. That is why over the past eight weeks we have seen the difference push up again, and that is why we will continue to work hand in glove with our suppliers and to start to deliver the exchange differences built up in recent weeks.

I reiterate that there has always been a cost difference. The extraordinary circumstances in recent months have pushed that cost difference up and down. It is now at a wide point because of what has occurred with the exchange rate difference. Our task is to work to close that difference. With regard to Irish packaging, I invite my colleague Ms Sharon Buckley to comment.

Ms Sharon Buckley

I do not know what proportion of our packaging is made in Ireland. Most of the products are packed in Ireland and much of the packaging is sourced here. I cannot provide an exact figure, but we can try to find out.

Chairman

It is like a bad dream to me that I read somewhere that the Musgrave Group possibly had some instruction insisting on the packaging being printed elsewhere. I may be incorrect.

Mr. Chris Martin

I have not read that.

Chairman

The package and print forum appeared before the committee too. They are struggling to save jobs. It may not have been the Musgrave Group, and the delegation will forgive me if I am incorrect. The Musgrave Group will not be the only company to which the question is put. If printing and packaging can take place in Ireland, then that should be the case. The Minister for Finance called for patriotism and there are many printers eager to get involved.

It may be anecdotal, but we received a letter before Christmas from a young girl due to marry a printer who is fighting to hold on to his job. Such stories make an impact on the committee. Perhaps the Musgrave Group can revert to the committee on this matter. This is something that crossed the threshold at some stage in the committee's deliberations.

Deputy Damien English

The Musgrave Group estimates there is only a 10% difference in the cost. We heard evidence this morning that in recent years the figure was a good deal higher than 10%. Concerns remain in this regard. During the week, we received e-mails with price comparisons from people throughout the country. There seems to be quite a high difference, even if one omits the sterling difference. Can the Musgrave Group furnish the committee with the research at a later stage, which shows the difference in the prices between the shops with which the group operates on each side of the Border? I do not wish to read these e-mails aloud, because some reveal a 50% difference and I do not wish to go down that road. Can the Musgrave Group provide a breakdown to the committee to establish that the difference is only 10%?

Deputy Dara Calleary

It could be based on the average weekly household basket which might cost €150. How much would the same basket cost in Northern Ireland compared to here?

Deputy Damien English

What would it cost, allowing for the sterling and VAT difference? If these are removed from the calculation, then a comparison can be made. We wish to get to the bottom of this matter and in some cases the figure appears to be a good deal higher than 10%.

Mr. Chris Martin

We very much want to work with the committee on this matter. The basket of goods does reflect prices that are higher and lower in that regard. We will bring that detail back to the committee.

Chairman

I thank the delegation. We appreciate that it wishes to work with the committee on this matter, which proves the point. We have made a request and if the delegation can provide material, it would be of great assistance to the committee. I realise it is something of a burden, but it is important that we receive the full information, because we will make recommendations and present the delegation with our report. We are trying to gather all strands and to take all views into account to make the most comprehensive report possible in this regard. I apologise for exceeding the allocated time. I thank the delegation again for its patience and forbearance.