I am joined by our chairman, Mr. Seán Dorgan, and my colleague, Mr. Dermot Breen, director of corporate affairs. The public hearing is timely given the challenges, discussed at the meeting yesterday, in the retail sector and more broadly in the country. As a group we continue to employ 14,000 people throughout the country in 117 stores. We serve more than 2 million customers each week. This employment has been achieved mainly because of the choices we offer at the lowest possible prices.
Our cash saver range introduced last year offered 1,500 everyday products at the lowest price. It has been a major success with shoppers and places Tesco as the county's largest discounter. The advantage shoppers find at Tesco is that in addition to offering great prices, we also carry the branded products which people wish to have in their shopping baskets. We fully understand consumers and we understand the committee's concerns and annoyance about the significant difference in price for many products in Northern Ireland compared with Ireland. We share the committee's frustration in this regard. We take no pleasure in seeing our customers travel across the Border to shop for lower prices.
Since we seek to buy Irish products wherever possible, there may be some price gaps because of prevailing costs in this country. The most striking price differences and those which cause the most concern are the comparative prices of similar international grocery brands for products such as bread, sweets, biscuits, toiletries, drinks, pasta and so on. This frustrating phenomenon requires some explanation.
Three key factors determine prices on either side of the Border. One is supplier product costs, which account for up to 80% of retailers' total costs. A second is business operating costs including pay, rents, land, energy, utility costs, taxes and so on. A third factor is the impact of currencies which have been at their most volatile and damaging in the past year.
The recent Forfás report, The Cost of Running Retail Operations in Ireland, confirmed the significant gap in operating costs and taxes and also confirms that we have a significant competitiveness problem in this jurisdiction. However, its study only examined around 20% to 25% of the total cost base. If it also looked at wholesale costs by suppliers to the retail industry a more comprehensive picture would emerge. These costs represent 75% to 80% of retail costs and will thus have a direct impact of up to 80% of the retail price.
The simple fact is that prices charged by suppliers of international products here in Ireland are higher than elsewhere in Europe. It is seen across confectionery, baby products, soups, sauces, cereals, cleaning products and so on. These wholesale prices are significantly higher than in Britain or Northern Ireland, putting retailers here at a significant cost disadvantage. These higher costs are invariably reflected in higher retail prices, along with the higher operating costs, and are the core contributing problem to higher prices south of the Border.
The European Internal Market is segmented by big international brand owners into national markets with different prices and it is clear that they place Ireland at the high price end of that market. Critically it is within the current structure of buying international products that the imbalances in the currency equation have come to light over the past year or so.
A result of the wholesale market structure that has evolved is that most retailers here, like us, buy locally from the local sales offices of these international suppliers. However, we buy mostly in euro, not sterling, and hence do not gain any upside or downside from exchange rate fluctuations. The gains in the past year, as sterling has depreciated, have been guarded by almost all of the international supply companies and have not been made available through for the benefit of the consumer. A very few have come clean in a limited way but most have continued to enjoy the fruits of the currency changes.
We are now doing something to address the unacceptably high wholesale cost issue and getting out of the exchange rate noose that affects us as well as our customers. As a result of what we have uncovered, we are pioneering a transformation of the European grocery supply market in Ireland which will result in us buying products centrally and avoiding the inflated wholesale prices consistently charged in Ireland by the international supply operators here.
This involves a radical change in the structure of the supply chain for international products in Ireland and is an important step in lowering costs and hence prices for consumers here. These changes only affect international products handled by the major international suppliers and have no impact whatsoever on Irish produced products or how they are delivered by Irish suppliers.
If further evidence was required, it was reported recently that another significant Irish-owned player in the retail sector here has started sourcing many of these products directly from a European wholesaler operating in Northern Ireland, is circumventing the high costs we have all faced here and is reportedly saving substantial amounts in product costs. It would not surprise us to discover that many other retailers operating here are also exploring similar means of buying. All of this confirms that the high cost of products for retailers is a significant issue in the consumer price equation.
The changes we are making are not meeting with universal acceptance by the international suppliers but I am glad to say that a number are moving in the right direction. We are, however, committed to the changes as the only way to deliver lower prices for Irish consumers. It would, perhaps, help Ireland's consumers if this committee were to ask the main international grocery suppliers to come here on a company by company basis to explain why they charge higher wholesale prices in Ireland than elsewhere. It would help to round off the work started by Forfás on the cost competitiveness challenge we face in this country.
The committee can be assured that we are fully committed to offering our customers the best possible prices for food and non-food products in the Irish market, but we must take account of the prevailing market costs and circumstances. We are determined to bring costs and prices down further through greater efficiencies in our own operations, introducing innovations and improvements in how we do things.
Just over four years ago, two of my colleagues were asked by this committee what they would like it to do to improve the lot of the consumer in Ireland. Our response then was it could help to bring the costs down and our response today is the same. We are taking steps in that direction and hope the committee can add to those efforts by addressing the higher operating costs and exploring the higher wholesale price regime that operates here. The consumer will be well served on both counts.
The last piece of the committee's invitation for comment is also important to competition and success in the Irish market, namely Irish products. Irish shoppers want us to buy local for economic and environmental reasons. We are a major supporter of the Irish food industry and since 1997 have played a significant role in the growth and expansion of many food producing businesses. We provide advice and technical support for small and medium-sized producers looking to expand and export. We purchase and sell Irish food products in the Irish and export markets.
Indecon Economic Consultants quantified our support for the Irish economy at €2.5 billion in 2007. This was made up of purchases valued at €1.98 billion from Irish suppliers. As I said yesterday, some €655 million of this is accounted for by exports of Irish food products to Tesco businesses worldwide, mainly the UK. In addition, Irish meat is now sold in Tesco stores in Czech Republic and Hungary. The €655 million exported to the Tesco group worldwide makes it the second largest market for Irish food exports worldwide, exceeding the exports to France, Germany or the USA.
We actively promote local producers and local products across our stores to encourage people to shop locally and to give them a reason not to travel to the North. As well as the 14,000 people we employ directly, we account for another 14,000 jobs among Irish suppliers. Like the Tánaiste, we think this is an important reason to shop in the Republic.
We actively promote Irish products through a number of initiatives. These include high profile branding and advertising of Irish fresh produce through hanging boards and other points of sale in stores; having "produced in Ireland" identified on Tesco products made in Ireland and in weekly advertising; by the use of Bord Bia quality assured logos; and showing pictures of local farmers who produced particular products like lamb, beef, pork, carrots and onions. A novel innovation has been to use county colours to showcase the products from the shoppers own county in local stores.
We have approximately 800 Irish suppliers including household names like Barry's Tea, Batchelors, Bewley's, Lir Chocolates, Hilton Meats, Largo Foods, Country Crest, Wilson's Country, Shannon Minerals and so on. Our commitment to and support for Irish products both here and internationally is well established and it is intended to continue that support well in to the future. I hope the committee has found our presentation useful and we will be happy to answer any questions members may have.
