Today the Competition Authority, Lidl and the Musgrave Group will make presentations. I welcome from the Competition Authority Dr. John Fingleton, chairman, and Ms Carol Boate, division manager of the advocacy division. I remind the visitors that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected. I also remind members of the longstanding 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. I understand that Dr. Fingleton will deliver the presentation on behalf of the Competition Authority.
Grocery Prices: Presentations.
The joint committee met in private until 9.45 a.m.
Dr. John Fingleton
I am accompanied by Ms Carol Boate, the manager of the competition advocacy division, who looks after banking, insurance and many other areas. Members may meet her again. Members will be relieved to hear that I will not read the presentation
Will Dr. Fingleton confine his presentation to between seven and ten minutes because members have gone through it and agree with the points he makes? We will spend at least half an hour questioning him.
Dr. Fingleton
I will highlight a few points made in the presentation. We believe, as do the members of this committee, that there is a problem with prices, for example, making price comparisons is difficult. However, when all the indicators, whether over time or across the country, point in one direction, it suggests that there is a problem. We know that because consumers in Ireland are feeling the pain of higher prices. Some of these higher prices may not necessarily mean a bad deal for consumers. If they are buying higher value added items than they were in the past, for example, processed meals as opposed to the raw chicken product, naturally they will pay more for the value added service. The statistics may not pick up on the added value to the raw product, only the higher price as a rise in inflation.
We have become wealthier and markets have expanded. It is quite clear that farm gate prices have risen very little but food prices have increased greatly. That leads us to examine manufacturing, wholesale and retailing, the three levels through which food comes from the farm gate to the consumer. Somewhere in that chain lies the source of the problem. Our view is that examining margins in great detail is a difficult and probably futile exercise. It gets bogged down in technical discussions. High margins may simply reflect innovation or value added and any policy measure aimed at targeting high margins could very well dampen innovation and value added creation. Conversely, low margins can simply be the result of inefficiency which often goes alongside a monopoly. Low margins should not be treated necessarily as a good thing. We consider the best guarantee that margins give a fair return is through competition and entry to the market. Where competitors can enter the market, that is most likely to occur.
We need to look at four distinct relevant markets: the supermarket or multiple market sector, the convenience shop sector like the symbol groups and so on, the distribution to the symbol groups and food processing itself. The convenience stores and the multiples are in different relevant markets. Convenience stores offer a different product. We have an illustration in our presentation which shows that convenience store prices will always be higher than supermarket prices because of the service that they offer. It may be lower queuing times, it may be that they are open at different hours and are closer to the person's home. We will increasingly see convenience stores offering a more enhanced service for consumers, whether it is home delivery, customised ordering and so on. That market will develop further. It has been the fastest growing part of the market. The supermarket still accounts for about 0.75% by value.
I have tried to put the structure of these markets in our presentation. In our diagram, we have the retail supermarket sector, the symbol groups and other convenience sellers as well as the distributors. The supermarkets do their own distribution. Musgrave distributes some amount into the supermarket sector and the rest into the convenience sector where it competes with BWG. The supermarket sector is a highly concentrated sector as the largest two firms supply 60% of the market. However, the market has been reasonably dynamic as there has been entry and market shares have changed. There is certainly no evidence of a cartel.
Having said that, we think that competition could be stronger. We think that both the groceries order and the retail planning guidelines dampen competition in this market. The groceries order prevents supermarkets from pricing their products across the entire range as they would like. A shopping centre will typically give free car parking. Car parking is costly, but the shopping centre gives free car parking as a way to attract customers to it and to compete with other shopping centres. Businesses decide which products to use in promotion and, in the case of supermarkets, the groceries order probably prevents that type of commercial strategy from being pursued. Criminalising and imposing fines on supermarkets for cutting the price of nappies and baby foods probably sends the wrong signal about cutting prices for consumers. Cutting prices for baby foods and nappies should be seen as a positive thing and not a negative thing. When the Competition Authority last gave a presentation on this issue, it said that this was an anomaly in competition law, but it also listed telecommunications and transport as other areas exempted from competition law. We have seen that in both of those areas, there has been substantial change.
We do not agree that when supermarkets cut prices on selected items, they necessarily raise prices on other items in the basket to make that up. All the evidence is that when a supermarket cuts prices, then the distributor goes to the food processor and demands a better deal or demands that it be co-funded. This is one of the reasons that the food processing sector is opposed to the removal of the groceries order because it would expose Ireland's food processors to greater competition via the distribution sector. Retail planning guidelines and county development plans may also inhibit competition. It is not that the market has not been able to expand, but it raises the question as to whether the market has been able to expand as much as it would have done in the light of growing demand.
There are many stores in the convenience retail sector. There appears to be fairly free entry. There has been a very dramatic change in the growth of symbol groups replacing more traditional stores that had no relationship to each other. The symbol groups have exclusive dealing arrangements with the distributors like Musgrave and BWG. The figures in the presentation on convenience distribution market should be read ADM Londis at 12%, Others at 12% and BWG and Musgrave at 38% each. The market share of BWG and Musgrave in this market is more than 75%, so it is an even more concentrated sector than the supermarket sector. This is the sector that is selling to convenience stores. Much of this debate is portrayed about a battle between small convenience stores, but much of the bargaining power in this market rests with these two firms. The Competition Authority approved the exclusive distribution that occurs in that market a number of years ago. This was done on the basis that the positives outweighed the negatives. If there is concern about that, then we might be prepared to look at it again and see whether, in the light of changing market facts, those exclusivity agreements have switched and that the way in which Musgrave and BWG require stores to purchase minimum percentages from them alone constitutes a restriction on competition in the market. However, we believe that exclusivity has contributed to the expansion of the symbol sector thus far.
The groceries order also restricts competition here as it allows a system of retail price maintenance through the use of off-invoice discounts. Musgrave or BWG can set both the wholesale price and the retail price for a convenience store. The convenience store is therefore not able to reduce its price below the level on the invoice, but through the off-invoice discounts, the actual wholesale price is also set by the distributor. In that sense, both Musgrave and BWG have a huge amount of power over both prices in the market — the wholesale price and the retail price. Resale price maintenance is illegal under Irish and European law and only allowed in this sector because the groceries order gives it a legal exemption from something that would otherwise be illegal. It is especially a concern when a highly concentrated sector exists with only two firms. The concern is that retail price maintenance would facilitate co-ordination of prices between Musgrave and BWG.
Are freebies illegal? If someone gives away a free book or CD with a newspaper, is that illegal?
Dr. Fingleton
No, not unless it can be linked.
Will Dr. Fingleton explain what he means by illegal?
Dr. Fingleton
I can give an example of the illegal aspect of the retail price maintenance. If the invoice price of orange juice is €2 but there is an off-invoice discount of 40 cent, then there is a wholesale price of €1.60. The wholesaler is controlling not only the price for the consumer but also the margin of the retailer. Members may be aware that last year the national newspapers agreed with the Competition Authority's demand that the resale price maintenance of newspapers be removed. Members might notice that retailers are free to price it differently. That does not affect consumers that much as they have continued to use the prices, but Departments and other organisations and retailers bidding for newspapers can now bid to provide newspapers at a lower price.
They are decimating the small family-run music and record business. No one is doing anything about it. I have a vested interest in this and I know quite a lot about it.
Dr. Fingleton
It is a related issue, but it is not illegal as far as I am aware.
At this moment in time.
Dr. Fingleton
We have dealt with the retail level and the distribution level and I want to deal now with food processing. This turns on the question of Irish food products. We have said that we do not believe that there should be any legal requirement on food retailers to stock Irish products for a number of reasons. There is much evidence that strong domestic competition is the best way for companies to succeed when they go abroad. If they learn how to please the consumer at home, then they will be better placed to please the consumer in Germany, France or somewhere else. For that reason, stronger competition at the retail and distribution level in the food sector will drive stronger competition at the processing level.
A logistical point is that goods coming into the country tends to mean goods going out. Companies operate their logistics — we know Tesco and BWG do this — so that full lorries coming in tend to be matched by full lorries going out. The challenge for Ireland is to make sure that the goods going out are higher value added products than the products coming in. It is better to import inputs and export value added outputs.
Competition in the food processing industry would contribute to this. The enterprise strategy group noted that the indigenous food sector failed to grow during the Celtic tiger years, despite enormous growth elsewhere, and failed to diversify its exports beyond the UK market. There is evidence of poor performance in our food processing sector and weak competition at the retail level may drive this.
The grocery sector has enjoyed a high level of growth in the past ten years. However, concentration has remained stubbornly high and there has been little new entry apart from Aldi and Lidl. Consumer choice has grown as a result of their entry, but not as much as it might have done. Ultimately, these markets have not performed as well for consumers, for the most part as a result of regulatory restrictions rather than private restrictions, although the Competition Authority is prepared to consider the private restrictions.
Weak competition impacts negatively on consumers, food prices and entrants to the market. Entrants are not well represented in political processes because we only know about them after they have entered markets. We do not know who they are before that and they tend not to have a voice. However, they bring significant benefits. Aldi and Lidl, although they have a tiny share of the supermarket sector, have had a disproportionate impact in that sector. At the same time, they would not be the strongest voice in the market. Entrants have a more positive effect for consumers and for efficiency and productivity in the economy than they are given credit for.
If competition in the market were to be increased by reforming or abolishing the groceries order or amending the retail planning guidelines, this would clearly be good for Irish consumers and for innovative entrants, as is generally agreed. This would have a positive effect, if any, on convenience stores. Convenience stores are in a gross market and we have witnessed big chains such as Dunne's Stores and Tesco entering the convenience market and developing smaller format shops. There is only so much food we can eat and the future is in value added food, probably locally rather than nationally sourced. Therefore, the convenience sector will experience growth.
This would generally be good for the competitiveness of the food processing sector and the case of Aer Lingus is a good example in this regard. Aer Lingus did not want competition in 2001 but competition had an enormously beneficial effect on the company's productivity as well as on the consumer. The arguments apply equally to the distribution sector. However, it is in this sector that the greatest shake-out will occur if the restrictions are lifted. There is much scaremongering and it is said that if the restrictions were removed shops would go out of business; I have read figures which suggest 25% of stores would go out of business. This is a totally unproven and unsubstantiated argument. It was said three years ago that if Aer Lingus did not get State aid it would go out of business. While almost everybody believed this scaremongering, it was disproven by subsequent events. One can find many other examples of industry groups fearing change more than is necessary and not seeing the opportunity in the change as much as they see the threat.
Where is the free car parking? It is not anywhere I know of in the midlands.
I thank Dr. Fingleton for his presentation. It struck me as an interesting academic analysis, almost as if it was a snapshot from a disinterested study group from an academic organisation. The role of the committee is to ask players what they can do to make the market more competitive and, ultimately, to reduce prices. I want to focus on the role and value of the Competition Authority in all of this.
I watched a television programme last night in which Dr. Fingleton participated. The evidence we have gathered to date suggests that overheads for players in the Irish market are significantly higher than comparable overheads in the UK. For example, every group which came before the committee stated that the cost of professional fees was a factor. What is the Competition Authority doing about this? What specifically is it doing to bring about real competition in regard to the accounting, audit, legal or architectural professions? While I know the authority has an initiative in this regard, the committee wants a specific report on where we are going, when we will have real competition and when the cost of overheads will be reduced. The committee has dealt with other issues such as insurance in some detail and Dr. Fingleton has already presented his views on waste management.
I want to deal with the two specific issues to which Dr. Fingleton referred. On the groceries order, his submission states that criminalising supermarkets for cutting prices sends an extremely anti-consumer message to those supermarkets which would like to compete on price, and directly harms price-sensitive parents. While there are assertions in the submission, is there analysis of the impact of changing the groceries order one way or another?
Similarly, in regard to the planning guidelines, the submission states it is wrong to believe that if the retail planning guidelines were lifted, every town and village would be invaded by a big supermarket, as some seem to suggest. What is Dr. Fingleton's evidence for this? Why does he state it would be wrong to assume this? What analysis has been undertaken to explain this? Is the fear not that every village or town would be invaded by a supermarket but that out of town shopping would be the norm, as it is in Britain, and the heart of our smaller towns, such as the one I live in, would be denuded and reduced to pound shops and professional offices, as happened in Britain? Is this not the real issue? While Dr. Fingleton's submission is heavy on assertion, where is the analysis in terms of the impact of changing something as fundamental as the planning guidelines?
With regard to the convenience distribution sector, there is a monopoly dependent on two big players for the preponderance of supply — the Musgrave Group, the representatives of which we will meet later, and BWG. Dr. Fingleton's response to this in the submission is to state that the exclusivity appears to have contributed positively to the development of the convenience sector but, that said, it is possible, given current market facts, that the cost of weaker competition could outweigh the benefits. Is this not a real issue on which the Competition Authority could have carried out an analysis in order to have a view to present to the committee? Is this level of dependence on two companies in the interests of the consumer? Should that status be maintained?
Dr. Fingleton
I shall deal first with the question of high costs and the fact that businesses complain that higher costs explain the higher prices here. Competition generally drives down costs. I attended the Check-Out conference earlier this year and heard two interesting presentations from expert advisers to the convenience store sector on how to cut costs. One of the speakers stated that many convenience stores could cut costs by up to 30%. He made the point that during the boom years stores got careless about cost management as they grew and, in this environment, it is always possible to cut costs. This is probably true at the distribution level also. All the evidence suggests that when competition increases in a sector, rather than going out of business, businesses learn to operate more efficiently.
Dr. Fingleton has re-focused my question. I was not talking about how supermarkets or players in the market could become more competitive because the committee can deal with such issues when it meets with the various companies. With regard to professional fees, which all the companies have said is a major issue, what is the Competition Authority's role in creating competition for the benefit of that sector?
Dr. Fingleton
The Competition Authority cannot wave a wand and create competition. Generally speaking, that is done by the Government and the Oireachtas, usually by way of lifting restrictions. With regard to the professions, there are many regulatory restrictions in terms of, for example, monopoly schools of education, restrictions on corporate form, and so on. Most of these are regulations imposed by the State, and which the State will need to remove. The authority is bringing forward recommendations in this regard and it will be up to the Government and the Oireachtas to consider those.
The authority's recommendations on the grocery sector have been outstanding for five years. No politician has been willing to take them on board, despite the evidence of spiralling prices. The authority can point out to its heart's content what it believes the source of the problem is. If people do not like the message, they can say it is academic. Ultimately, however, our analysis has been proven right. We said this five years ago, before the problems emerged in the market. All the evidence indicates that it is these restrictions in the market, rather than the private cartelisation of the market, that is the source of the problem.
With regard to nappies and baby food, if one fines companies for cutting the price of these products, that has a significantly negative impact. Families with young children are probably those most affected by price rises, when one considers the cost of crèches and all those other expenses with which parents of young children must contend. It is a positive, pro-consumer move for supermarkets to cut the price of nappies and baby food in order to stimulate business. What does the legal system do, however? It fines them for cutting prices to those people who can least afford high prices. This is wrong and sends a very negative signal.
The suggestion that this will lead to a retail environment akin to that in Britain is scaremongering. When Boots entered the Irish market, people predicted the death of the Irish pharmacy. The Boots model did not thrive in the Irish system, however. There are Boots stores but the company has not taken over the pharmacy sector, as was predicted. Irish consumers have different preferences and different shopping habits from their counterparts in the United Kingdom and that is going to determine the retail landscape here. Allowing the market to respond to the behaviour of Irish consumers is the best way forward, rather than imposing a particular market structure which may not be the one that responds best over time to consumers' needs.
In general, the possible anti-competitive concern with the exclusive distribution agreements in the market would be that another distributor coming into the market to compete with the Musgrave Group and BWG could not get access to enough stores to make that distribution business viable. The argument relates to a possible barrier to entry. If the Competition Authority received a complaint from such a distributor, it would certainly act on it. If it is the case that the groceries order and the retail planning guidelines will stay in place, then the authority may very well consider that the existence of those restrictions swings the balance in that regard. That would be a substantial investigation on the part of the authority and, as members know, our investigations incorporate a significant amount of legal process to protect involved parties. Breach of competition law is potentially a criminal offence and any finding in that regard takes time. This is something which we are minded to consider examining but it will depend very much on the outcome of decisions on the groceries order and the retail planning guidelines.
The net issue upon which I want to focus is the role of the Competition Authority, not further analysis or opinion with regard to the impact of other issues. I have not heard the authority's proposals for the problem at hand. Oireachtas Members and the Government have responsibilities in this regard. Where is the authority's analysis of the anti-competitive nature of professionals, and its checklist of actions for the Oireachtas to take in order to stimulate competition, rather than simply saying that there are restrictive practices in the colleges and so on?
Regarding the planning guidelines, the issue is not whether a multiple like Boots can build a store on the main street in Wexford, for example, which it is currently doing. Rather, the issue is whether the main street in Wexford ceases to be the main shopping precinct through the construction of an out-of-town shopping mall. Has there been any analysis of this by the Competition Authority?
Dr. Fingleton
I prefer to focus on the question at hand, which is the supermarket sector, about which the Competition Authority has done the analysis. I could come in with an analysis of every other sector, including the professions——
Representatives of the supermarket sector told the committee what the issue is. They claim that the most significant component is overheads, one of the most important aspects of which is professional fees. I am entitled to put this question to Dr. Fingleton and to receive an answer.
Dr. Fingleton
Yes. In every sector the authority examines in which there is a restriction on competition, the defence pleaded by the parties who are charging high prices is that they are dealing with high costs. If in every case in which we put forward a proposal to increase competition in the market in question, the answer is "no" and that it is somebody else's problem, then we will never get anywhere. What will happen is that the professionals will point to the insurance companies, the latter will point to somebody else, and so on. The buck has to stop somewhere.
In the supermarket sector, there are two restrictions. We have done the analysis which the Deputy requests and are presenting it to the committee. We have indicated the restrictions that exist. That is the job of the Competition Authority. It is set up in statute to advise Ministers, the Oireachtas and other bodies. The authority has given its expert opinion on this matter, although it may not be what people want to hear. We will give our opinion in other sectors also. We are examining insurance, banking, pharmacy, the professions and many other sectors of the economy. Every time we put forward an analysis, it upsets vested interests in the market. People do not want competition in their market, but they do want competition in everybody else's market, where they are buying their inputs. I agree that there should be more competition in all those markets and the authority has this objective in common with the committee members.
Deputy Howlin said that he has heard no recommendations from the authority as to the approach to take on this issue. In fact, he has. The groceries order should be reformed. This does not necessarily entail its abolition but it should be amended in a way which removes the anti-competitive aspects. The retail planning guidelines should also be reformed in a manner which accords with better planning practice.
Why should this be done?
Has the Competition Authority investigated the possibility that the EUROSTAT data which indicate that Ireland has the highest food prices in the euro zone may be incorrect?
Dr. Fingleton
The authority has no expertise to analyse the validity of EUROSTAT data.
The authority has no expertise whatsoever in this regard?
Dr. Fingleton
No, it is not our area of competence.
Is Dr. Fingleton satisfied that he has answered Deputy Howlin's question with regard to the professional fees being charged?
Dr. Fingleton
I will be happy to come before the committee for a discussion when the authority's report on the legal profession is issued.
The issue is not only with the legal profession but applies across the board, to architects, quantity surveyors, structural engineers, and so on. All these issues were brought to the attention of the committee last week and we hoped that Dr. Fingleton would be able to assist the committee this morning in providing the information quite rightly sought on its behalf by Deputy Howlin.
Dr. Fingleton
If the committee, in its letter, had asked me to focus on the costs faced by supermarkets, we would have prepared a very different presentation. In the context of members wanting to know about specific costs, it is the case that the Competition Authority has been active in almost every sector mentioned by the supermarkets.
Perhaps Dr. Fingleton will come before the committee again?
Dr. Fingleton
I will be happy to do so.
Does Dr. Fingleton believe that both the retail planning guidelines and the groceries order should be removed in order to increase competition? Dr. Fingleton is correct in separating the supermarket retail business from that of the convenience stores. Does the Competition Authority have any input into the latter?
There is wide variance in prices charged as between, for example, petrol filling stations and corner shops. Does the authority have a role in this regard or does it take the view that, because these outlets are providing a service which the public obviously wants and avails of, it is prepared to leave them to run their own show and charge what they like? My own view is that they are entitled to charge that little bit extra if they are providing that type of service.
Does the authority believe that rescinding the retail planning guidelines and the groceries order will encourage more competition in the supermarket sector? Has the authority made any comparisons between the bottom-line profit margins of supermarkets operating in the Republic and those operating in the North and the United Kingdom? If so, what are those comparisons?
Dr. Fingleton
We believe restrictions should be lifted. This view was also expressed by the Fair Trade Commission in 1991, and by the Competition and Mergers Review Group in 1999. In 2001, the OECD, in its economic survey of Ireland, made the same recommendation, as did the National Competitiveness Council. These are disinterested bodies examining competition from the point of view of the national economy and consumers, rather than people in the market.
In terms of premium charges, it is the view of the Oireachtas, as implemented in law, that companies are free to set their prices in the marketplace as they wish. The constraint is that other companies can try to steal customers from them. That is price competition, and it is good for consumers to have people run after their business.
In the convenience sector, people choose whether they want low-price service with no added extras or to pay a higher price for better service. There are different prices for petrol, and this correlates to the other services a petrol station offers. People are more likely to pay more for their petrol at a station with a good shop attached, such as the Statoil in Kildare town which sells coffee and a wide range of newspapers. Such stations offer a better service in terms of their range of products. That is perfectly acceptable in the marketplace, and any suggestion otherwise would be a return to a system of price control which has not worked here or elsewhere.
It has been suggested margins and prices of multiples in Ireland are 20% higher than those in the UK. The best way to deal with this is to expose those multiples to the same level of competition which exists in the UK market. We cannot have the same prices as the UK without having the same competition. Otherwise, it will not work. However, a law which states supermarkets in Ireland must sell items at the same prices as in the UK would probably breach EU law. It would have a more dramatic effect on convenience stores, because it might involve the multiples pricing below cost on everything.
Costs might be higher in Ireland, but we do not know that. Margins and price comparisons across countries may indicate there is a problem. However, in terms of a solution, they are not helpful. If margins and prices are lower in the UK because of greater competition, Ireland must choose whether it wants lower or higher prices and everything goes with each.
There is agreement in the groceries order and the retail planning guidelines to keep prices up. If that agreement did not exist, it would not be clear what they would do. To protect small convenience stores, one must allow them higher prices. Logically the two go together.
Has the Competition Authority made that comparison?
Dr. Fingleton
No, we have not made the comparison of margins because we do not believe we could reach a useful conclusion on that basis, nor do we believe it is a trivial comparison to make. Looking at margins across countries involves much accounting and statistical data which are open to manipulation by the companies examined. Figures can be manipulated up or down, depending on their particular purpose. It cannot be done with any great reliability.
How many cases have been taken to court for breaches of competition law since the implementation of the Act of 2002?
Dr. Fingleton
I was not prepared for an examination of all our work, so I do not have that figure to hand.
Would it be four or five cases, or 40 or 50 cases?
Dr. Fingleton
It would be closer to four or five.
How many studies are being carried out with regard to professions, and how long are they going on?
Dr. Fingleton
There are eight different studies and there is a study of banking and insurance. In addition, we are examining other markets such as grocery and pharmacy.
How long are those studies in gestation?
Dr. Fingleton
Approximately two years.
Dr. Fingleton made a number of assertions with regard to the retail planning guidelines and the groceries order, and he referred to the manipulation of data that might happen when comparing margins. Have studies been carried out to back up this assertion, and can these be made available to the committee?
Dr. Fingleton
Can the Deputy clarify the question?
In his presentation, Dr. Fingleton specifically said the groceries order and retail planning guidelines contribute to higher prices. He is on record for having said this over a considerable number of years. Has he evidence or have studies been carried out? Is this part of the study programme currently being undertaken by the Competition Authority? Can he give evidence to the committee? When we get such evidence, we will be able to make important policy decisions.
Dr. Fingleton
I believe the evidence is overwhelming.
He may believe it, but what studies have been done?
Dr. Fingleton
We have analysed structure and entry into the market, as well as pricing behaviour and restrictions on competition. This is about the burden of proof. The burden should rest on those seeking regulation which allows for restrictions which would give them profit. They should prove the benefits.
With respect, Dr. Fingleton is not answering my question. This is an important inquiry into the grocery trade. From his point of view, he has made valid assertions on a number of occasions. However, what studies have been done and what evidence has been gathered with regard to the assertion he wishes the Oireachtas to implement as policy on behalf of consumers? Obviously studies and analysis have been carried out, but I have not seen them. Can he make a detailed assessment available to the committee so we may come to conclusions at the end of the inquiry?
Dr. Fingleton
That analysis is in the presentation today and in the presentation we made four and a half years ago to the predecessor of this committee. There is a problem in the market and there are restrictions on competition which limit entry into the market and prevent it from growing to meet demand. That has pushed prices up.
Aldi and Lidl were not in the marketplace four and a half years ago.
Dr. Fingleton
They were not.
There is no analysis which takes account of their entry.
Dr. Fingleton
This is in our paper. I would be grateful if the committee would point to a part of the paper where it thinks we could improve our analysis.
I am coming to that. Obviously there is no analysis in terms of the studies and data to back up Dr. Fingleton's assertion. That is why I asked for it. He has continued to make the assertion that these policy changes would be important in terms of reducing prices. However, I must have the back-up data before I am convinced.
Dr. Fingleton
In 2001 I could not have proved beyond reasonable doubt that prices would fall if State aid was not given to Aer Lingus. I cannot predict the future. We have been open and honest. Deputy Howlin said we used tentative language in the document. This is because we do not make assertions over which we cannot stand. We cannot say something will certainly happen if a regulation is removed.
Dr. Fingleton is saying that. Unfortunately we are in the position of having to make decisions on policy with which we must live. The Competition Authority makes recommendations. It cannot predict the future any better than we can, but we depend on it, when it makes a statement, to give us the necessary information to back it up so that we can sell it to the policy makers and the Government of the day in the interests of consumers. That is why I ask these questions.
Dr. Fingleton obviously believes fundamentally in a free-for-all where the winner takes all, where the strong prevail and the weak go to the wall. That is a valid position for an economist to hold. Policy makers, however, must balance all probabilities for all players in the context of other issues of a political rather than an economic nature.
Why are the prices of products such as meat, vegetables and fruit, which are outside the ambit of the Groceries Order, continuing to rise significantly more than those of other products that are within the ambit of the Groceries Order?
Dr. Fingleton
On the "winner takes all" argument, let me use the analogy of racing which that brings to mind. The system we have is one in which we want people to run faster, and in order to encourage people to run faster the winner is rewarded. The person who is better able to please the consumer should be rewarded in the marketplace. If we do not do that, the system we have — and this is the case regarding nappies and baby food — is one where the person who wins the race gets an electric shock or a fine for coming in first and beating somebody else, rather than a reward for offering the consumer better value. Tesco and Dunnes, by cutting the price of baby food and nappies, were punished because they offered the consumer something better. That is my point on the effect of the Groceries Order.
It is not about the survival of the fittest, about big firms driving small ones out of the market. It has very little to do with that. Convenience stores are in a much better position to offer consumers value for money. It is for that reason that Dunnes and Tesco are entering the convenience sector as we speak. Outside Dublin in County Meath Tesco's first convenience format store opened. We will see many more of those. We have seen that development in the UK. The winners in this sector will ultimately be convenience stores. That is why Dunnes and Tesco are getting into that area. It is not a question of large firms taking over the market.
Is Dr. Fingleton fully in favour of the concept of predatory pricing? He gave the example of a wholesaler giving an invoiced discount to a retailer. If wholesalers or suppliers are manipulating prices in the way Dr. Fingleton suggests, why has the Competition Authority not acted?
Dr. Fingleton
Predatory pricing is illegal under competition law. If there is evidence of predatory pricing we will act on it. The correct judgment of predatory pricing in this sector would be price across the whole basket of products. Pricing below cost on an individual item should not be properly considered as predatory pricing. That would mean that if an out-of-town shopping centre offers free car parking to people who drive there, they are selling the car parking below cost and one could take a case against it on that basis. Companies use a variety of strategies to attract customers. Sometimes they advertise, sometimes they offer certain items free. The supermarket sector uses what are called known value items. These are items that people know the value of because they purchase and use them frequently. Those items can be the signal that the supermarket is a low cost supermarket that is trying to offer value. This is a fairly common practice across a whole range of sectors, but it is particularly prevalent in the supermarket sector. The Competition Commission in the UK examined below cost selling and considered whether to introduce a ban. It concluded that on balance it would have a negative rather than a positive effect because it would restrict the freedom to price of companies.
The law on predatory pricing is perfectly adequate. If it were felt that the law on predatory pricing were not adequate, a reformed Groceries Order specifically for the supermarket sector that defined below cost selling as below the basket of goods in the store would be an altogether more pleasing way of addressing the issue than defining it on individual product lines. It could be compared to people's belief that Ryanair should not be allowed to do deals with airports. Many people — a few in this country — believe there should be regulations stopping airports selling services below cost. However, rather than spending €2 million on an advertising campaign in Germany, Ryanair may find it much more efficient to put that €2 million into airports like Kerry Airport and send a very clear price signal to travellers in Germany that flying to Ireland is cheap. That might be a much more effective way of spending the €2 million. With supermarkets, a much more effective way of spending their advertising spend may very well be to simply put that money into lower prices for consumers instead of pumping the money into expensive television advertisements. That would be beneficial for consumers generally speaking, but the Groceries Order does not allow that flexible strategy.
What percentage of items sold in a supermarket are covered by the Groceries Order? How is it decided which are included and which are not? If below cost selling were outlawed — I am a farmer — how would that affect Irish producers? Would it drive them out of business? It was mentioned that the price at the farm gate was small but that the price to consumers was very high. Are food processors doing enough to produce the type of product that is required for modern fast-living and fast-food lifestyles?
Do own brand items, which are much cheaper than branded ones, breach the Groceries Order, or is it only items that are not covered by it that are sold under own brand labels? What type of traceability applies to own brand products?
The question is whether own brand products break the Groceries Order. There is a difference of approximately 40% in the price in some cases.
Dr. Fingleton
I must pass on two of the Deputy's questions. Traceability is not something on which I can give an opinion today. There is at least one other agency which is better qualified to do that.
Regarding the Groceries Order, the value of Groceries Order products and non-Groceries Order products changes over time. Items switch from one to the other, particularly as food becomes more processed with more value added. Generally speaking, the non-Groceries Order products are the fresh perishable foods and the Groceries Order products tend to be items that have a longer shelf life. I have a list here which I can supply to the committee. The Director of Consumer Affairs, who is responsible for enforcing the order, is probably the fount of knowledge on that question. She must rule on which items are included and which are not.
Regarding own brand, and not wishing to pre-empt anything the Director of Consumer Affairs may say on the matter, my understanding is that vertical integration, whereby Tesco distributes to itself, means that the invoice price is not clear because there is no sale in the marketplace. When Musgrave sells to a symbol group there is a sale in the marketplace and there is an invoice price. In that sense not only own brand products but all products sold in a vertically integrated manner, most only brand products, are exempt from the Groceries Order for that reason.
On farmers and the food processing industry, the evidence from the enterprise strategy group was that the performance of the indigenous food processing sector has been poor over the past ten years. There is rather strong evidence in the enterprise strategy group's report. The enterprise strategy group also made the point that while Ireland excels in manufacturing it is poor at innovation and customer focus.
Coincidentally, innovation and customer focus are two areas strongly driven by competition. There is a good deal of evidence that the Irish food processing sector may not have been exposed to strong competition and that that puts our food processing sector in a poor competitive position internationally. If Irish food processors are not adopting a more customer-focused policy in the domestic market, it will be difficult for them to diversify their exports out of the United Kingdom market into the wider 350 million European market, which we must target if we are to continue food processing here.
Ultimately, competition for farmers in this market would be welcome because if there is more innovation and value added in the food processing sector there will be more demand for our farmers' products. The worst scenario for Irish farmers is loss of competitiveness in the food processing sector here. We have been to the forefront in taking on issues in the food processing sector. Currently, we have litigation outstanding against the entire beef industry and we have done other work in that sector.
We share a concern with the enterprise strategy group and much of the farming community about the performance of the food processing sector but we also believe that greater competition at the retail level is an important ingredient in driving that competition and that it would be beneficial to farmers, and the food processing sector, in the longer term.
Did I understand Dr. Fingleton correctly that own brands are a way of getting around the Groceries Order?
Is it possible they are dumping on the Irish market and getting around the Groceries Order?
Dr. Fingleton
I cannot comment on their intent but I suggest that own brand products would be a very expensive way to bypass the Groceries Order. Consumers here appear to have strong brand preferences. Branded and own brand milk is displayed on shop shelves and we have seen many television programmes telling us that the milk in both is identical, yet people opt for the branded product. If a supermarket decides to switch from a branded to an own brand product, it is not guaranteed that the sales will rocket. There is a lot more to it than that. The Groceries Order cannot be bypassed easily by own brand products.
Is it Dr. Fingleton's view that we have a problem in regard to high prices here? Also, does the Competition Authority have any plans to carry out a detailed review of the grocery trade? If not, would the evidence coming forward not prompt it to carry out such a review? Dr. Fingleton was not specific but he appeared to rubbish the EUROSTAT survey, which indicated that Ireland had the highest prices in the European Union. He said the reason may be high added value or something else but we want hard evidence.
Dr. Fingleton said it is a mistake to make a presumption about who was funding price cuts on selected items, and that the evidence would suggest that discounts find their way back to the supplier. That is one of the fears being expressed by people who do not want the Groceries Order removed. It is not the top knobs who will suffer. If they give discounts they will pass them on down the line and they may end up at the farm gate but Dr. Fingleton stated that farm gate prices have risen very little in recent years. Those price reductions, therefore, will find their way back to the farm gate but Dr. Fingleton said the price increases have not occurred. He appears to be contradicting himself in that regard.
Is Dr. Fingleton aware that when Tesco representatives appeared before the committee they said they did not have a problem with the retail planning guidelines? If so, will he comment on that in view of the fact that he advocated their removal? Also, Dr. Fingleton made strong charges against the planning process here. On page 6 of his document he states:
Existing retailers may be able to abuse the planning process to prevent a rival from making a more attractive offer to their customers. As a result, new supermarkets have been either prevented or delayed.
That is a very strong charge which almost suggests underhand activities in the planning process to prevent retailers building more stores. Does Dr. Fingleton have evidence to back that up or is it an idea he is floating? It is too serious a charge to make without any proper evidence.
To come back to the EUROSTAT survey, is Dr. Fingleton insinuating that survey did not compare similar items from here with those of another European country? In other words, it compared an item here that had higher value added with an item in another country that did not have higher added value. If Dr. Fingleton is insinuating that, does he have evidence in that regard?
On the food processing aspect of Dr. Fingleton's presentation, No. 32 states that there should be no regulatory or other legal requirements on food retailers to sell particular quantities of Irish food. Yesterday, I had a telephone call from a mushroom grower in the west who has been told by his major mushroom wholesaler that he will have to reduce his prices because a major multinational company in England is asking the wholesaler to reduce its costs for mushrooms by 10% for the coming season. Dr. Fingleton said competition is good but the only time Irish mushroom growers get a good price for their mushrooms is when there is a scarcity of mushrooms, particularly in Europe. Last season, there was very bad weather in Poland and the result was a scarcity of mushrooms. Irish mushroom growers eventually got a good price because of that bad weather in Poland and the resulting scarcity of mushrooms on the market.
I have evidence that Polish people come here to work because they can earn €7 an hour whereas in their own country they would probably get €1 an hour. How does Dr. Fingleton believe competition is good in this trade? If the multinational gets a 10% reduction in price from the mushroom growers, the small mushroom growers will go out of business. Already, they are facing increased insurance, wage, electricity and other costs. They will not survive and that will have a detrimental effect on jobs here. Will Dr. Fingleton comment on that?
On the sales of petrol and diesel, Dr. Fingleton has said that competition is good but I drive a good deal throughout the county and yesterday, while passing through Limerick, I saw diesel prices on one side of Limerick at €1.01 per litre while on the other side the price was 96 or 97 cent. That is within the one city. There is evidence of a cosy arrangement among petrol stations, particularly those on opposite sides of a town. What are Dr. Fingleton's views on this?
I am sorry I missed part of the submission. I was attending another meeting.
A regular occurrence. We note it.
It has not affected the Deputy's place in the queue.
On a point of clarification, Deputy, we give the Government speakers as much opportunity to contribute as we do the Opposition speakers. We are fair to each side here.
I have to attend a meeting of the Sub-Committee on Human Rights at 12 noon.
The Deputy is a busy man.
I am not sure if this question comes within Dr. Fingleton's brief. It relates to Government or politicians trying to get a balance between a free-for-all and some measure of control that prevents cartels or monopolisation. Dr. Fingleton mentioned there was a lack of competition in the sector, even though some of the largest supermarkets in the world have branches here. That surprises me. I would have thought there was a fair level of competition in that sector, unless there is some sub-agreement, of which we are unaware, between a sub-cartel or something like that. Apart from the Groceries Order on which Dr. Fingleton has concentrated and I understand the reason for that, can he advise us on other policies that are hindering competition or policies that should be introduced that would encourage competition?
Is it the Chairman's policy to save the best until last?
The Deputy is last but by no means least.
Comparisons between the prices of groceries purchased in one's weekly shopping and between prices charged by airports and airlines is not a fair comparison. It will not affect my health if I do not fly with Ryanair, although it may affect it if I do. However, it will affect my health if I do not eat and if do not eat good quality food. It is that simple.
Did I correctly hear Dr. Fingleton say that between them Musgraves and BWG set the retail and the wholesale price for that sector? Is the authority investigating that? If they are such major players in that area that they virtually determine the price for a particular sector, surely we need to seriously examine that.
In regard to the last speaker's comments, this is not England and we have a population of 4 million not 60 million. The issue is the competition between the existing traders here as opposed to examining the barriers to entry to the market. There are not many barriers to entry to the market because if there were, new entrants such as Aldi and Lidl would not be entering it. They entered the market without opposition and were welcomed in. I would rather we focused on competition within the sector. What are we doing about that?
Dr. Fingleton
Some 17 questions have been asked.
I appreciate that a wide range of questions have been asked, but I ask Dr. Fingleton to be brief in his replies.
Dr. Fingleton
I will deal with them as quickly as I can. On the EUROSTAT statistics question posed by Deputy McHugh, the value added point is more a point about measuring prices over time because that change occurs over time. I have no doubt that EUROSTAT compares like with like.
(Interruptions).
Dr. Fingleton
Yes, and we have been pointing this out for some considerable time. We are not surprised by it.
If the authority was pointing out that and convinced of it, would it not be logical for it to carry out an examination to determine the reasons for it?
Dr. Fingleton
We have. The reasons are restrictions in the market.
If I can take Deputy Lynch's second last question as to whether we are investigating this sector, there is no point in us investigating it because such practice is allowed by law. It would be like asking us to investigate if all taxis in Dublin charge the same price. There is a regulation in place that allows for this position. It exempts this area from competition law. Unfortunately, there is no point in us investigating it. The setting of wholesale and retail prices by Musgraves and BWG is legally sanctioned. That is probably why we object to it in that sector.
Is the authority aware that BWG——
Allow Dr. Fingleton to answer all the questions posed and I will then allow the Deputy to ask a supplementary question.
I have a simple question.
We are a half hour over the time allocated for this presentation.
Is Dr. Fingleton aware that BWG informed this committee that it does not set retail prices but recommends retail prices, which it is up to retailers to accept or reject?
Dr. Fingleton
That is separate from the question on off-invoice discounts. On the question of what is passed through back to farmers, the Groceries Order does not appear in any way to have benefited farmers. Whatever the benefits in terms of the higher prices that have resulted, they have not gone to farmers as farm gate prices would indicate. Ultimately, the farming sector is one of the most ruthlessly internationally competitive sectors. It is the upstream sector. Farmers are small players and have no control over prices. We have taken action where they have tried to block imports. Other than that, I would have thought that sector is already squeezed to the bone for the most part. That is why our focus here is primarily on processing and distribution sectors.
In terms of the question about abuse of the planning process, the county development plan for Donegal town prevented a supermarket from being established outside the town in September last year on the basis that it would affect the businesses in the town. More recently in Tullamore, a group of existing retailers——
Is that not reasonable?
Dr. Fingleton
No, it is unreasonable.
Dr. Fingleton cannot call that abuse of the planning process.
Allow Dr. Fingleton to continue.
That is the planning process which allows various interested parties to make submissions; that is not an abuse.
Dr. Fingleton
If I may, I would like to explain why I think it is an abuse. If the proprietor of a petrol station in Tullamore believes that the best way to win business is to stop someone else from selling to his or her customers, generally speaking, that is not covered by our planning law. An Bord Pleanála does not take account of the effect of such a practice on existing business. When we see companies that fear that they will lose their customers to someone who is able to offer customers a better deal using the planning process to prevent those people from coming into the market, selling to their customers and undercutting their prices, that is an abuse of the planning process. That is quite separate from good planning. It is an approach to the effect that nobody else should be allowed to sell to one's customers. That is not why the planning law was established.
I appreciate the time constraints but I wish to make an intervention because a charge has been made against a local authority in Donegal in this instance.
A Deputy
And Offaly.
The only point I would make by way of addressing that charge is that this is not about defending a current player. I was a member of two local authorities for a number of years before I was debarred from them. This is about a local authority determining whether retail trade happens to ensure that the heart of a town is not destroyed by the establishment of an out of town shopping precinct, which kills the heart of a town. It is entirely misconstrued if one thinks that defends people who are currently traders in the heart of a town. It is a legitimate planning view of where retail trade should exist.
Dr. Fingleton
It could not agree more with the Deputy. However, what we have seen is a situation where RGDATA has been appealing decisions of local authorities.
RGDATA's interest is not about protecting town centres; its only interest is protecting the sales of its members.
It is quite entitled to do that.
Some traders have been in existence for generations. The interests of those who have been in existence over four generations need to be defended.
Dr. Fingleton
We have a legacy of some 50 years of anti-consumer legislation and culture here. Being able to use the planning process to stop people competing with one another and absent any effect on the viability of a town centre, which is not the issue that was under consideration in the cases I mentioned in the paper, appears to be an inappropriate use of the planning law by those involved.
A Deputy
That is incorrect.
Is the chairman of the Competition Authority telling us that the view of the Competition Authority is that there should be no legal possibility for third party interventions in the planning process? That is the law in some European states. Is that Dr. Fingleton's view?
Dr. Fingleton
No, it is not my view and that is not what I have said. However, if the only grounds that a third party has to appeal is that these people would offer better competition, then that should not be a ground, and it is not a ground in our planning law.
No, it is not.
Dr. Fingleton
Appeals are being launched by RGDATA on a number of fronts, which are mostly ruled out by the system but this is creating delay in the system. As we have seen, Tesco is being allowed to open a petrol station in Tullamore but it is encountering greater difficulty than it would have done otherwise.
I come from that area and the councillors there felt that the retail strategy for Tullamore, Mullingar and Athlone should be for development to take place in those areas inside the 30 mph speed limit, rather than in areas a mile outside that speed limit. That is the decision the councillors had to make in this regard.
Dr. Fingleton
I completely respect that. I do not believe we have any disagreement with regard to planning law and what it is designed to do.
Dr. Fingleton might now consider the remainder of the questions as this discussion must end shortly.
Dr. Fingleton
The Competition Authority looked at the mushroom market last year when it approved a merger involving Carbury Mushrooms. This is a highly competitive market and Irish mushroom growers are in competition with growers all over Europe. The authority allowed a merger which reduced the number of players in that sector from three to two, in recognition of the need for scale to allow the sector to compete internationally. The authority is often criticised for not taking this latter aspect into consideration.
The enterprise strategy group makes the point that Ireland has survived on a low-wage strategy of competitiveness but that, increasingly, a higher value-added strategy must be adopted. Those sectors — I do not know if the mushroom industry is one — in which a significant part of the input involves unskilled labour will be most under threat in the future from Ireland's participation in the EU. This also presents significant opportunities, however, in terms of adding value and introducing innovation in other sectors. The purpose of the enterprise strategy group is to identify these opportunities so that, when companies with significant unskilled labour input which have been trading historically on low incomes come under threat from international competition, there are other sectors with high productivity and high wages in the Irish economy that can grow. That transition constitutes a processed change and I can come back and talk about that on another occasion.
The difference in diesel prices suggest, if anything, that there is no cosy arrangement in place. The Competition Authority considered petrol pricing last year, focusing on Letterkenny. We found that Statoil had violated the law in the incentives which it was giving the petrol stations not to reduce prices locally. We broke up that arrangement in Letterkenny and all the petrol distributors must now comply with the effect of that decision. The allegations are always against local petrol station owners. However, when the authority examined the issue, it discovered that the source of the problem was the distributors. This also applies to the retail sector to a significant extent. When one follows the money back upstream, one finds that the problem is there rather than where the consumer interacts with the petrol station.
Does Dr. Fingleton agree that a price variation of 45 cents per gallon of diesel is too great? I can give examples of such unacceptable variations in the midlands.
Dr. Fingleton
The consumer is free to go to the station with the lower prices.
Why are there such price differences?
A motorist could run out of diesel during the course of a journey and be forced to refuel at a station with higher prices.
Yesterday, I noticed two outlets on either side of Limerick, both under the ownership of the same company, between which there was a price difference of six cents.
That is good.
Dr. Fingleton
I hope the Deputy made his purchase in the outlet which was cheaper by six cents.
How can the Competition Authority allow this to happen? Is there no regulation in this area?
Dr. Fingleton
Petrol stations are free to set prices as they wish and the Competition Authority has no mandate to regulate those prices. The complaint brought to the authority regarding the situation in Donegal was that all stations were charging the same price, one which was much higher than that charged elsewhere. When the authority examined the matter, it discovered that there was no cartel among the local petrol stations but that the distribution company had put terms akin to retail price maintenance into the agreements. The company told the local Statoil garage that if any competitors cut their prices, the company would co-fund the Statoil garage to match those prices. Everybody was aware of this situation and, therefore, there was no point in rivals cutting their prices because Statoil headquarters would fund its garage to match that. Petrol station owners knew they would face a fierce battle and would not succeed in winning much business. These types of vertical arrangements whereby the distributor imposes conditions on its sales to a small retailer are frequently a more significant, and hidden, problem than the pricing decisions of the individual retailers.
The distributor is the cause of the problem, therefore.
Dr. Fingleton
The distributor was the problem in that case.
How can Dr. Fingleton support that argument in a case where all the outlets on one side of a town are charging the same price, even though they are supplied by different distributors, while those outlets on the other side charge a different price?
Perhaps Dr. Fingleton might respond in order to conclude the discussion.
Dr. Fingleton
I would be glad to conclude.
Brevity does not seem to be part of Dr. Fingleton's agenda. It is the fault of the committee members, however, that the discussion has exceeded its allotted time.
Dr. Fingleton
I am happy to answer members' questions but I am aware that there is a time constraint. If customers are not willing to go to a different outlet because it is a long distance away, they will ultimately wait for new entrants into the market. We have seen the significant impact of Tesco's entrance into the retail sector in terms of lowering prices. From my travels in west Cork, for example, I have observed that prices are often lower when the petrol stations in an area are at a greater distance from each other. This seems odd and I cannot explain the pricing decisions of every petrol station.
Deputy Tony Dempsey asked about striking a balance. The Office of the Taoiseach has established a system to ensure better regulation of these issues. The Groceries Order and the retail planning guidelines were introduced without that regulatory impact analysis. Nobody ever calculated the cost of these restrictions to consumers and to the competitiveness of the food processing industry. The measures clearly have some benefits but the significant associated costs were never taken into account.
I agree with Deputy Lynch's observation that the airline sector is different and that people are dependent on the food sector in order to maintain their health and, indeed, to live. This point is particularly relevant with regard to the poor, who spend a much greater percentage of their income, more than 35%, on food. To the extent that the Groceries Order raises prices, it has a disproportionately negative effect on the poorest people in society.
Deputy Lynch also made a point regarding the small size of Ireland's economy. I noted the observation of a gentleman from Retail Ireland on last night's "Prime Time" that prices in Northern Ireland are lower because of a scale effect, in that consumers there are part of a market of 60 million people. However, while Northern Ireland is an island location in a market with 60 million consumers, the Republic is an island location in a market for 350 million consumers in the euro zone. If I were doing my job in the North, I am sure I would be presented with the reverse argument that that region is a tiny economy with far higher distribution costs, and so on.
That is not the evidence representatives of Tesco presented to the committee. The company in Ireland integrates into the totality of Tesco and costs are divided accordingly, rather than being based on locational specifics.
Dr. Fingleton
Yes. Perhaps if it were easier to enter the Irish market, there would be a Delhaize store or some other of the Belgian, French or German supermarkets that are integrating their distribution as part of a single European market. I do not accept the argument that Northern Ireland has the advantage of an enormous scale of a type Ireland does not have the potential to access.
In answer to another question, there is much higher concentration in the retail sector than that which exists in many other countries, particularly the United Kingdom. There is a smaller number of players who probably have much greater market power. The only way to change this situation over time is by having more entrants to the market. This always upsets the existing players, who never like to see new people coming in. Such an eventuality is in the interests of the consumers, however.
In anticipation of Dr. Fingleton coming before the committee again in the future, perhaps we might set some agenda items for that visit.
That is fine.
I would like my original set of questions regarding the impact on professionals to be an agenda item. Can I make another suggestion?
The Deputy may do so.
I apologise for taxing the Chairman. The committee is about to hear a presentation by a delegation from Lidl, an operator which has had a significant impact here with the establishment of almost 50 stores and also has great experience of the market throughout Europe. Dr. Fingleton has asserted clearly in his presentation that the planning guidelines affect grocery prices. As Deputy Hogan observed, there is a shortage of concrete evidence for that assertion. The Lidl delegation will tell us shortly that there is no evidence, based on that company's experience of other countries across Europe, that a restriction on the size of retail outlets has a direct impact on the price of groceries. Its evidence to us as a player across Europe directly contradicts the Competition Authority's evidence. Will the authority come back to us with the supporting evidence it has that would contradict their assertion to us?
Dr. Fingleton
Okay.
Does the Competition Authority have any plans to carry out a detailed review of the trade? Dr. Fingleton did not answer that question.
Dr. Fingleton, are there any plans to carry out an up-to-date review of the grocery trade?
Dr. Fingleton
We have analysed this market in considerable detail.
Was that pre-2001?
Dr. Fingleton
No. We have continued to——
Since Lidl and Aldi came in?
Dr. Fingleton
Yes.
Okay.
Dr. Fingleton
Our submission today takes account of all that. The one issue that we might look at, and I have signalled this, concerns the distribution agreements in the market but that would be a section 4 investigation. I have also signalled that if the Groceries Order and the retail planning guidelines stay exactly as they are and are not reformed, an investigation of that type is more likely. That would be a very large-scale investigation, however, and we would need to plan it. If there was a complainant it would probably trigger that faster but so far we have not had anybody complain about it.
As regards Deputy Howlin's point, we would like to have that in writing. I thank you, Dr. Fingleton, for coming here to assist the committee. I also wish to thank your assistant, Ms Carol Boate for attending the committee. I look forward to you assisting the work of the committee many times on the insurance industry and grocery industry during the lifetime of the Government. Thank you.
Dr. Fingleton
Thank you, Chairman.
Sitting suspended at 11.10 a.m. and resumed at 11.30 a.m.
We will now have the presentations by Lidl Ireland and the Musgrave Group. I welcome Patrick Kaudewitz, the managing director of Lidl Ireland, Seamus Scally, group managing director of the Musgrave Group, Chris Martin, group finance director, and Mr. Donal Horgan, managing director of Musgrave SuperValu Centre. I propose we follow the same format as earlier. I remind the representatives that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected.
We will commence with Patrick Kaudewitz's presentation and follow it with Seamus Scally's. It is hoped that neither presentation will exceed ten minutes. Members will then ask questions. We welcome both groups and we look forward to hearing their submissions to us in respect of the grocery inquiry we are carrying out.
Mr. Patrick Kaudewitz
I will quote the main parts of our submission. Lidl entered the Irish market in July 2000. We currently have 48 stores operating throughout the country. We stock a limited amount of high quality products — at present, approximately 900 lines — that are being retailed at consistently low prices. While we offer our customers an attractive product range, our concept is based on our intention not to offer a similar depth in range as that offered by mainstream supermarkets. We regard ourselves, therefore, as an integral part of a diversified and competitive retail landscape. This is in stark contrast to other retail formats whose one-stop-shop approach, by its very nature, restricts diversity. Further proof of our complementary role in the retail industry is the fact that many independent retailers are more than happy to trade in close proximity to Lidl stores.
Today's presentation mainly relates to the price of groceries in Ireland. I perused the tables that were presented in the National Competitiveness Council's statement on prices and costs. I also had an opportunity to consider the entire EUROSTAT survey, which makes for interesting reading. EUROSTAT points out that cross-border comparisons are only possible to a certain extent. One of the limitations is apparent when one looks at the statistics and discovers that the comparative price level index in the UK is 103 compared to a figure of 107 in Germany. This, more or less, indicates that food prices are lower in the UK than they are in Germany. Anyone who has shopped in UK supermarkets and also German supermarkets will tell a different story. This demonstrates the difficulty in compiling a representative basket of products that allows a real cross-border comparison.
Ireland has chosen to operate a fiscal system with low direct taxes and high indirect taxation. This leads, for example, to very high excise duty on alcoholic beverages and a high VAT rate on a wide range of grocery products. It is also important to understand the difference between countries in respect of legislation governing below cost selling. In countries with legislation that allows the use of so-called loss leaders, it is often the case that the products typically found in a survey's shopping basket are the ones sold below cost. Any such pricing policy often results in higher price levels for products usually not found in such statistical samples. Nevertheless, it is undisputed that the price of groceries in Ireland is higher than in a number of other EU countries.
Retail prices are determined by four factors: competition; supplier prices; operational costs; and wholesaling, distribution and importing structures. A number of these factors are outside the retailer's control. I do not believe we will ever achieve full price parity across different countries for a number of obvious reasons. Size and geographical location also puts Ireland at a disadvantage.
The most important observation regarding grocery prices in Ireland is that Lidl, as the country's number one discounter, has already had a dramatic impact on the level of those prices. Prices are coming down across the industry, thanks to Lidl's pricing policy which offers customers top quality, everyday products at the cheapest price. Unfortunately, this development is not entirely visible in the slightly outdated data from EUROSTAT.
As part of our submission we have attached two tables. The first of these shows the change in the CPI for food and non-alcoholic beverages over the years and relates this to the increased presence of discount food stores in the country. It is clear that since discounters have started to reach significant proportions of the population, there has been a decrease in the consumer price index. It has emerged that, for 2004, there are deflationary tendencies, that is, there will be an overall drop in prices.
Further proof of our contribution to the reduction of the prices of groceries is the dramatic drop in the retail prices for fruit and vegetables in mainstream supermarkets. To illustrate the products in respect of which we have made comparisons, we attached an appendix listing these to Table 2. We used common, mainstream products in this regard which would be relevant to the normal consumer. Three facts are important when one is considering Table 2. First, with fruit and vegetables, there is no mark-up for brands — our view is that a carrot is a carrot; second, all retailers, including Lidl, source these products predominantly in Ireland; and, third, the drop in our competitors' prices happened only when Lidl had achieved sufficiently strong market penetration.
One of our competitors claimed last week before this committee that his value products were 2% cheaper than Lidl products. While we do not know the products compared or the mathematical approach that lead to this assertion, we feel it is important to point out some facts. Lidl brand quality products are, in the majority of cases, of a far better quality than so-called value lines. The significant savings for the Irish consumer become immediately apparent when you compare Lidl's brand quality products with branded goods or the own-label range of other supermarkets. The chart provided for the committee last week will help underpin what I am suggesting. Such a proper like for like comparison underlines, in terms of quality and price, Lidl's overall contribution to savings for the Irish consumer.
With regard to the determining factors for the price of groceries, the most important statement was made in the National Competitiveness Council's annual competitiveness report 2004. It stated Ireland ranks only 13th out of 16 countries in terms of competition. This is based on the intensity of domestic competition, which is driven by the number of players in the market. The grocery retail market is dominated in this country by three companies, which, between them, hold approximately three quarters of the market. Intensification of strong competition by increasing the number of market participants with sufficient national coverage is important. Markets with strong representation of discount retailers show low price levels. For example, Germany with its low prices has a ratio of one discount foodstore to every 5,857 inhabitants. The equivalent ratio in Ireland is 1:61,538. Ireland will not be able to achieve the same ratio and it has a good bit to go.
Policies that encourage retailers other than the dominant three to expand and gain a stronger foothold in the market must be pursued. Local authority development plans relating to zoning and the application of the retail planning guidelines with respect to granting planning permission for discount foodstores are the most appropriate tools.
Our submission details various factors relating to supplier prices and I have listened with interest to some comments by Dr. Fingleton. I was slightly surprised that he tried to make a comparison between the Republic and Northern Ireland and stated Northern Ireland is not part of the UK retail market. One can have political views on that but if a retailer buys Heinz beans in the UK, the same terms and conditions will apply in Northern Ireland as in England, Scotland and Wales but they might not be the same as those that will apply in countries outside the UK. We can be naive in our approach but a spade must be called a spade.
Many Irish suppliers have traditionally served a small market without the benefits of economies of scale. They are also operating in the same high-cost environment as the retailers and this, therefore, leads to higher buying prices for the retail industry. Countries have different channels with different pricing structures and distribution strategies for branded products. Foreign suppliers have to service a relatively small market in terms of quantities and have to reflect the additional transport costs in the overall price they charge to the retailer. The current increases in the price of oil have had a significant impact.
Operational costs are similar to the other players in the market. The only disagreement I have with the competitiveness council document is the expectation that the PIAB will drive down the cost of insurance.
Why?
Mr. Kaudewitz
The cost of insurance will only be driven down when the cost of the awards is reduced. I cannot see this happening through the current set-up of the PIAB. The payout to the claimant will increase because the legal profession is being taken out.
I refer to the two major issues of discussion in this area — the retail planning guidelines and the groceries order. Similar planning guidelines apply in every other European country because there is a universal understanding that a framework must be in place to permit retail development. Our stores are under the current cap on floor size and we do not intend to reach the cap under our format. We are not happy with the interpretation of a number of the retail planning guidelines but they are not anti-competitive. The main problem is their application and implementation by local authorities. It must be understood how such guidelines operate in other countries. Available expenditure is considered and the requirements of healthy competition are taken into account. A formula is derived for the permissible floor area for retailers operating in a locality. If a retailer is allowed to swallow up all the permissible floor area, I fail to understand where the competitiveness needed in Ireland will be achieved.
It is the dominant shelf space available.
Mr. Kaudewitz
It is and I agree with the finding of the competitiveness council that the number of players must be increased rather than arriving at populist decisions.
Zoning is the other problem with the guidelines. That is tough on new entrants to the market. It has been stated that the entry of Lidl and Aldi proves Ireland has a healthy market. While I do not disagree with that, it is difficulty for somebody to start a retail business here because of the high price of land. This is down to supply and if sufficient land is not zoned, prices will remain high and this will have repercussions on the price the consumer pays in stores.
I had the pleasure of addressing the committee five years ago and I was asked about our view on the groceries order. Our position has not changed. We will comply with it but if it ceases to exist tomorrow we will also live with that. In either case, we are confident we will have no problems running a successful business.
Some important points need to be made. First, there is neither anecdotal nor scientific evidence that a ban on below cost selling, or the dropping of the ban, will have an immediate impact on overall price levels. Competition is driving prices. It has been proved that while a lot of competitive countries in Europe have a ban, it does not make a difference to the price of groceries. I provided the example of Wal-Mart, which operates in Germany with huge difficulty, while it is making healthy profits in the UK, which speaks for itself.
Only competition will have an immediate and lasting impact on price levels in Ireland. As demonstrated during the presentation, and also proved in numerous countries across Europe, discounts play a big role in reducing the price of food. We are confident that if we can continue to expand throughout Ireland, by being able to use the economies of scale such an expansion will provide, we will be able to decrease prices even further, and this will filter through to the entire grocery market.
I thank Mr. Kaudewitz for his enlightening presentation. I welcome Mr. Seamus Scally, group managing director, Musgrave, and look forward to his presentation.
Mr. Seamus Scally
Let me begin by thanking the Chairman and members of the committee for offering us this opportunity to address the committee this afternoon on a subject of great interest to us. I am group managing director of Musgrave. I am joined by our group finance director, Mr. Chris Martin, who will succeed me when I retire in April next year, and Mr. Donal Horgan, managing director of SuperValu-Centra in the Republic of Ireland.
We naturally have a distinct vested interest in this subject, but we believe the impact of multiples goes beyond simple commercial rivalry. It affects our economy, society and the environment. We shall begin by outlining who we are and some details of our operations in Ireland. We have no difficulty talking about our turnover or profitability. The turnover last year for the wider group was €3.3 billion, of which 73% was transacted in the island of Ireland. Our profits before tax were €59.3 million, or a return on sales of 1.8%.
Today there are 640 independently owned outlets — 215 SuperValu and 425 Centra stores. Some 530 of the stores are in the Republic of Ireland and 110 are in Northern Ireland. We are pleased to say that we are the only supermarket retailer operating in every county on the island. Members can see from the map where the stores are located. Our business model is unique and deserves explanation. All of our stores are independently owned and operated. We own the brand, and in our unique partnership model, retailers operate under open licence agreements with us. All our retailers are free to leave us with three months written notice.
We have 2,464 people employed directly in the Republic of Ireland. A further 21,525 are employed by the independent SuperValu and Centra retailers. A further 7,089 are employed in our operations in the UK and Spain. We are completing a new central ambient distribution centre at Kilcock, County Kildare, which will employ 150 people initially and when it reaches potential it will employ 200 people. The facility will come into operation in January 2005.
The latest published data on market share in the Republic of Ireland, Taylor Nielsen, gives SuperValu a market share of 19% and Centra 2.7%. By that definition, both brands have a combined market share of 21.7%. The retail sector in Ireland is healthy, growing and vibrant.
I now wish to theme my remarks under the headings choice, competition, convenience, community and country. Under choice, consumers have never had as much real choice in Ireland. Since we last made a presentation to the committee, Aldi and Lidl have entered the Irish market. They now have approximately 70 stores. Tesco, Dunnes Stores and SuperValu have increased their retail space significantly over the last six years. In recent research we carried out, convenience at 31% is the most important consideration for shoppers in determining where they shop. Price ranked second at 16%, range at 11% and quality at 9%.
The retail sector has changed a lot in recent years. There has been a distinct move towards convenience, as more and more couples are working. We are in many ways becoming a cash rich and time poor society. This has meant a new emphasis on meal solutions, prepared foods and delicatessen offerings. Irish consumers are well served by a range of retail options that offer excellent value and high standards of quality. There has never been as much competition in the Irish market as there is now, and this competition is not confined to a handful of big cities. Our model at Musgrave ensures that shoppers from Achill Island to Mount Merrion and from Dingle to Carndonagh, enjoy the same low prices as those in the big cities like Dublin or Cork. This position is in stark contrast to the market in the UK where 42% of towns and villages have no grocery store and where price differentials exist between metropolitan and rural stores.
Prices across all our stores compare well with our competitors such as Dunnes and Tesco. There is stiff price competition among a range of eight to ten retail groups in Ireland. This is in stark contrast to our nearest competitor. A handful of multinational chains dominate a market 15 times the size of Ireland and four companies dominate 75% of the market. The UK market share for Tesco is 28.3%, Sainsbury 16.5%, ASDA 16% and Morrissons-Safeway 15.5%. There is much more choice in Ireland with Tesco, Dunnes, SuperValu, Superquinn, Spar, Aldi, Lidl, Mace, Centra, Costcutter and Londis, all offering service.
The retail store is very much at the heart of the community. What would happen in Ireland if the multinational chains had their way is often overlooked. The typical out-of-town superstore in the UK is a very different proposition from what we have in Ireland. It can have 5,000 car parking spaces, 100 checkouts and in excess of 100,000 square feet. These stores are over three times bigger than anything in Ireland and are also very different in that they offer a wide range of non-grocery products from financial services to cars. They are usually based at a stand-alone out-of-town development. We estimate that, even with a population of just over four million, Ireland would only need between 12 to 16 superstores to cover the entire country. The greater Manchester region, which has a comparable population of 4.06 million, has 16 superstores of more than 50,000 square feet. The two largest stores are 95,000 and 99,000 square feet respectively. These massive developments would seriously undermine a number of other policies such as the national spatial strategy and the whole push towards balanced and proper regional development. It would also run counter to the various Government initiatives and incentive schemes that have successfully brought about urban renewal.
There is also the issue of universal access. Given that superstores are very often located several miles out of towns, if one does not own a car one simply cannot use them. If one is old, infirm or disabled, they will be difficult to access. Our population is getting older and it is estimated that approximately 10% of our population has a disability. Approximately 22% of households in Ireland do not own a car. This figure increases to 35% in the major cities of Dublin, Cork, Limerick, Galway and Waterford. What choices would these groups have in such a system? We bring shops to people, not the other way round.
The independent sector is actively involved in community life in Ireland. We ourselves play a part. At a corporate level, most members will be aware that SuperValu is the primary sponsor of the National Tidy Towns Competition. Our retailers actively participate, support and are involved in local communities. On average, a SuperValu retailer spends €10,000 a year on community sponsorships and the comparable figure for Centra is €3,500. Our retailers spend just over €3 million per annum on community sponsorships.
We have commissioned a number of reports by the economist, Mr. Paul Sweeney, on the factors behind inflation in Ireland. They make interesting reading. He clearly shows that food prices are not pushing up inflation. We have left a copy of those reports with you, Chairman. Mr. Sweeney's analysis clearly demonstrates that we are more than 80% price dependent on non-euro price countries for our imports. The relative weakness of the euro since its introduction has pushed up the price of imports and subsequently fuelled inflation. The cost of transport is also an important factor in the price of goods imported into Ireland. These have been increasing. Food prices fell in the first nine months of this year while energy prices rose by 12% and utility and waste charges by 4% over the same period. Since 2001, overall prices have risen by 9.3% and food prices have gone up by just under 3%. However, utility and local charges have gone up by 18.9% and energy prices by 25%. Mr. Sweeney showed in his initial report that items not covered by the groceries order had risen by less than those covered by the order. It is interesting to note that the main drivers of inflation, according to these reports, were labour rates and charges for administrative services, such as waste and utilities.
In November 2003, a report by the consultants, Tansey, Webster and Stewart, on the food production prices in Ireland concluded that the non-traded sector was responsible for three quarters of all consumer price inflation in Ireland over the years to 2003. This report also clearly showed that our business operated on very low and tight margins. In 2002, the net margin for the three largest wholesalers was 1.7% and for a sample of 50 independent retailers the margin was 2.65%. It also showed that net margins were under pressure from escalating operating costs. For example, the net margin declined from 2.93% to 2.69% in respect of the retailers surveyed and over the period 2000 to 2002, wages and salaries increased by 31.9%, light, heat, power and telephone charges by 36.6%, professional fees by 46% and insurance by 70%.
The committee has asked us to comment on the National Competitiveness Council report, specifically on a sheet comparing ten categories of foodstuffs. Common categories are fraught with danger. It is very difficult to compare like with like without knowing the basis for the comparison. We know comparisons can be skewed by personal taste, variety, and varying quality standards. How can one compare long-life milk with fresh milk, for example. Comparisons of fruit and vegetables need to be done on a like with like basis. Is the product prepared and washed or straight from the field? When comparing minced beef, for example, what is the grade and fat content? There appear to be anomalies. For example, it is very difficult to compare milk products when the market in Europe is almost entirely served by UHT and long life products while the market in Ireland is almost entirely for fresh and chilled pasteurised milk. We have conducted our own analysis in some categories, such as fruit and vegetables, and we have compared prices across the United Kingdom, Spain, the Netherlands, Sweden and Ireland. Ireland compares well in certain categories such as potatoes, cabbage, swedes, apples and bananas. Ireland was cheapest of the five countries for potatoes and second cheapest for cabbage and swedes. We are more expensive for seedless grapes, melons, broccoli and tomatoes. This probably bears out my point that taste and preference of the population of every country matters, as does the country of origin.
Comparisons of goods such as tobacco and alcohol must take excise differentials into account. Rates of excise in Northern Ireland are much less onerous than in the Republic of Ireland. Excise rates in the UK are 6%, 12% and 34% on beer, wines and spirits respectively. Viewers of last night's edition of "Prime Time" would have had their attention drawn to this fact. If excise rates were reduced there would be no difference between prices in Northern Ireland and the Republic in that product category. The top rate of VAT in Ireland of 21% applies to certain foodstuffs while the rate for comparable products in the United Kingdom in 17.5%. Our food prices in that category, therefore, are 3.5% more expensive. We must also bear in mind the higher costs of distribution in Ireland of approximately 4%. This represents the cost of getting goods across the Irish Sea. The total price differential, therefore, between Ireland and the United Kingdom, under the cost headings of transport, VAT and duty, explains some 7.5% of the difference in prices. The real issue in Ireland is our increasing cost base. Some of our costs are increasing at rates which are not sustainable.
Given that we operate in three countries, we thought it might be interesting to inform the committee of some of the main cost differentials between our operations in Ireland, Spain and the United Kingdom. Our biggest single cost is labour, which accounts for two thirds of costs at shop floor level. In the United Kingdom, for example, it is up to 30% less expensive than in Ireland to hire an operative in a distribution centre. Average labour costs in Spain are less than half what they are in Ireland.
Are we talking about wages or ancillary costs of employment, such as PRSI?
Mr. Scally
We are talking purely about wages.
I take it Mr. Scally's solution is not to reduce wages.
Mr. Scally
No. I am simply pointing out the very high cost of labour here. We must acknowledge that.
The minimum wage has much to do with it.
Mr. Scally
I am not saying there is anything wrong with that.
It is a good thing. People have more money to spend in stores.
Mr. Scally
Absolutely.
The cost per tonne of waste disposal in Ireland is more than seven times that of Spain and more than four times that of the United Kingdom. This clearly needs to be brought under control.
We would like the Government to reduce the level of road tax on commercial vehicles. The road tax on a large truck is 19 times more expensive than in Spain and 30% more expensive than in the UK. We also ask that excise duty on diesel be reduced to help reduce transport costs. The VAT rate on food should be reduced to 17.5%. This would immediately bring inflation down by as much as 1.5%.
The Government must continue to deliver on insurance reform. Motor insurance and employers' and public liability insurance represent very significant costs to us. I acknowledge the tremendous work of the committee in this regard. We have experienced excellent reductions in the last 12 months and we seek further reductions in the coming year. Nevertheless, we have a long way to go to catch up on where we were a couple of years ago.
What actions have we taken to reduce costs? We were the first company in Ireland to move to a system of central distribution for both chill and ambient product. This means fewer journeys, less distribution cost and a significant reduction in the number of deliveries to our stores. We recently moved to central purchasing of key inputs such as telecommunications, insurance and energy. We estimate that we have shaved approximately €5 million off the cost base of our independent retailers through these three initiatives. We are also working with our retailers to improve our waste management efficiency. Over 60% of our waste is recycled and does not go into expensive land fill.
Value added tax and excise rates have a direct impact on our prices and are probably the most significant issue for us. A further issue was the introduction of the minimum wage and the knock-on effect this has had on general pay scales in our stores. That issue has already been covered.
We are proud to say that 75% of what we sell in our stores is sourced in Ireland. This is the equivalent of €1.88 billion at retail selling prices. It is important to note that 57% of what we sell is either produced or manufactured in Ireland. That is equivalent to €1.43 billion. Of our own label range, 72% is manufactured and produced in Ireland. It is important to point out the difference between sourcing and producing in Ireland. A product which is sourced in Ireland need not necessarily be manufactured in Ireland. Some 57% of everything we sell and 72% of our own label product is manufactured in Ireland.
We have worked hard with Irish producers and farmers to ensure that we buy as much product as we can from Irish companies. We buy our beef from Kepak in Clonee and our poultry from Carton Brothers. We have developed some interesting partnerships with food producers. For example, we buy onions through an arrangement with Bandon Co-op and we are proud of the role we have played in developing brands such as Cully and Sully, Clonakilty black pudding and Bunalun organic brand. Approximately ten of our major suppliers in Ireland also supply our UK company, Budgens, including Cuisine de France and Kepak.
I have been in this business for 37 years and have witnessed many changes over that time. I believe we have got it right in Ireland. The consumer enjoys more choice than ever before and has the convenience of a wide range of retail offerings right across the country. There has never been more competition in a country of 4 million people where between eight and ten retail groups battle it out for consumer business. In the UK, just four retail groups dominate a market of almost 60 million, 15 times the size of Ireland's. There is no closed shop or cosy cartel operating in the grocery business in Ireland. Competition is stiff but it is fair.
We face many important choices in the sector, but I believe we have made the right policy choices over the past five years. The groceries order prevents monopolies or cartels from abusing their position and the retail planning guidelines provide good planning and balanced development. There are many things we can and should do to promote work and a competitive economy. We should all examine how we can reduce costs, because it is cost pressure that drives up inflation.
I thank the committee for listening to our views. My colleagues and I are willing to answer questions.
I thank Mr. Scally who has provided interesting data. On page seven of his presentation he stated that a further issue was the introduction of the minimum wage or, perhaps more importantly, the knock-on effect that this has had on the scale of pay in stores. I want to address that area and get Mr. Scally's and Mr. Kaudewitz's views on it. Did the minimum wage really have an effect on wage bills?
Mr. Scally
It had a significant impact. Often our attention is drawn to the high cost of products. Most people travel these days and compare, for example, the cost of eating out in Spain compared to in Ireland. When we look behind that example, wage costs alone are 60% higher here than in Spain. Just to think about the labour element in running a restaurant gives us one strong reason why the cost of eating out in Ireland must be significantly more expensive than in Spain. We have no difficulty with high labour costs so long as it is understood that as a result of those high labour rates and costs, we cannot expect to have inexpensive services and food or product costs.
Will Mr. Scally let us have some documentary evidence from 2000 to 2004 of how this has affected his group? Perhaps he could supply the details in a letter from his financial controller to the clerk.
Mr. Scally
We will be happy to supply that.
How did the minimum wage affect Mr. Kaudewitz's companies?
Mr. Kaudewitz
It did not have a direct effect, due to the fact that at all times we paid our staff a higher hourly rate than the minimum wage introduced at different times. Therefore, it did not have a direct knock-on effect, but I only speak for our company. What is important to understand is that a healthy economy and low unemployment rate make it difficult to hire and retain staff. While this is difficult to quantify, this rather than the minimum wage is more of a concern for us and puts additional strain on our operation.
Would Lidl's retail style mean its staffing levels would be lower than those of most of its competitors?
Mr. Kaudewitz
That is correct. Obviously, if one expects certain levels of productivity from one's staff, one has to pay them accordingly.
I welcome Mr. Kaudewitz. We are pleased to see Lidl's involvement in Ireland and wish him well. My experience is that Lidl's model or building design is quite rigid in terms of its approach to a local authority for planning purposes. Where Lidl has been flexible, it has found that it has got on a little better when its model was adjusted a little in terms of the environment or site. For example, it is my experience that where Lidl was more flexible towards the planning process, the local authority was also more flexible. Perhaps Lidl should bear that in mind for the future.
Where does Lidl source most of its products? Analysis from CSO statistics shows that most of Lidl's products are from outside the Republic of Ireland. What percentage of the products are from outside?
I also have some questions for Mr. Scally. The chairman of the Competition Authority was here earlier and he had much to say about the BWG and Musgrave Group share of the retail and wholesale distribution market. Effectively, the Musgrave Group operates such a large segment of that market that it could be termed a quasi-cartel, particularly with the level of its share of the independent market. Will Mr. Scally comment on that?
Mr. Scally has not produced any evidence that the removal of the groceries order would reduce prices. Has he the result of any studies that suggest this is the case? He mentioned some studies and I ask him to repeat what they are. Why is the Irish market so heavily dependent on non-euro zone countries for our imports? Is it possible to import from the company's suppliers in Spain to the Irish market? How many of the Musgrave Group suppliers are from the Republic of Ireland? I understand Mr. Scally indicated it was 75%. Is that correct?
Generally, on the issue of the groceries order, we have come under much criticism. The chairman of the Competition Authority suggested we should have a more open-ended free for all. In addition to what Mr. Scally has already told us, would he like to comment on the impact that would have in the context of price and planning?
Mr. Kaudewitz
I take on board the observation the Deputy made in terms of our design. However, one point I would make is that in order to operate, our business model is very much based on offering consumers quality products at low prices. Costs in all areas are important and one of the areas where we achieve economies of scale is through our structured approach, even to the construction of our retail outlets. While not compromising in terms of built quality, replicating a certain model helps us to derive cost savings, through what the Deputy called a "rigid" approach. However, I accept what the Deputy said.
In our submission, we have outlined the turnover we have made with Irish suppliers over the past 12 months, which stands at €132 million. If we were to use the 32-county approach — in this regard I refer to what Senator Quinn explained last week regarding the use of the shamrock symbol on his till receipts — and included Northern Ireland suppliers, the figure would be €165 million.
Is that a gross turnover? The company is selling €132 million in the South.
Mr. Kaudewitz
That is correct. That is confidential information.
That information has not been disclosed to the committee.
Mr. Kaudewitz
No.
The Musgrave Group disclosed to the committee. The delegation cannot tell the committee about percentage terms.
Mr. Kaudewitz
It would require a pocket calculator to work out the sums.
It shows Lidl's commitment to the market if the committee is informed of all the details. If all the details are not disclosed, it is very difficult for the committee to assess the information.
Mr. Kaudewitz
I accept that. I am following with interest the research done on our sourcing policy. Many suppliers in the market who supply our company will tell the committee that no third party carrying out a survey on most products will be able to ascertain the country of origin because it is not one of our features. It is very much down to the concept we have. When we sell, for instance, one certain product, we do not offer a large choice. If, for instance, that particular chocolate bar is from Ireland, that is the only one a customer can buy, the only choice. That is the case for most products.
Mr. Scally
On the question of market share, there was a reference to Musgrave and BWG being two very big players and there was even mention of a cartel. The independent sector in Ireland has approximately a 45% share of the market. In my presentation I described what that means to consumers in Ireland. It means that consumers have choice in every corner of the country, irrespective of where they are. Independent wholesalers and independent store owners build stores in communities and people are not forced to travel long distances as happens in the UK, for example. That kind of competition is very healthy in contrast to the situation in the UK where the independent sector is dead on its feet and four multiples, four buyers, control what happens to 80% of food in the UK. Here in Ireland, although the independent sector has 45% of the market, those stores are owned by a myriad of independent retailers with 4,000 affiliated to RGDATA and our retailers are also affiliated, in the main. Through that structure, multiples and the discount stores have competition in this country that they do not have in the UK. That is a healthy and good situation. Wholesalers are operating in every county in Ireland and supplying independent retailers, which is healthy and good. Whether one wholesaler has a bigger share than another, I do not know how that is a big issue, particularly as the retailers, especially those affiliated to Musgrave, can leave with three months written notice, if for any reason they feel constrained in any way.
If they get a better deal they can walk.
Mr. Scally
Yes, they can walk if they get a better deal elsewhere.
That is fair competition.
Mr. Scally
Mention of a cartel is amazing in the context of this country where there are eight or ten companies battling it out as against four in the UK. That is the contrast. According to Attwood, which is the only recognised measure, that share is owned by these independent retailers and that is the important fact to bear in mind. It is not owned by Musgrave because if all those retailers walked tomorrow morning, we would have no business. They are free to walk. Musgrave does not own it nor control it. The retailers are free and that is an important point. The bottom line is that through that methodology there is more competition in this market than there is in most other markets in Europe and certainly in the case of our nearest neighbour. Every part of the community is serviced.
The second question related to the groceries order. The Lidl representative has much wider experience across Europe and he does not seem to find the groceries order an issue in terms of competing. The range of products subject to the order has risen at a lower rate than goods not subject to the order, which says a lot. If the order was no longer in place why would one see a reduction in prices when the cost of the 45% to 50% of items not subject to it is rising faster? I do not believe the groceries order is doing any damage or is restricting competition in any way. I will ask my colleague, Mr. Martin, to speak about the UK because he has much experience in that market and what happens when there is not some form of regulation, no matter how light it might be.
We have no studies to suggest that the removal of the groceries order would enhance competition. One of the comments made in our report is that 42% of villages and towns in England do not have a grocery store. There are many other statistics I could add to that in terms of what has happened in England as a result of the growth of the large superstore retailers which have the benefit of space. It is also as a result of competition tactics undertaken by some of those multiples. There is clear evidence of a real shift within the UK from the countryside to these major centres. In 2000, the countryside agencies said seven out of ten English villages were left without a shop; in 2001, the rural shops alliance said there were in total 12,000 rural shops left in Britain. The national economic foundation said that on average, people were travelling 893 miles every year to complete their food shopping. The pertinent aspect of that was the dominance of larger stores. The other issue is that the large multiples can then move into markets and dominate them.
There is a well-reported case in The Grocer magazine this year of a retailer in Withensea in Yorkshire who was subject to a very competitive activity by a local Tesco which reduced prices by 40%. That individual complained to the Competition Authority and as a result, the activity at Tesco changed but the Competition Authority in Britain decided that it was actually too small a case to deal with. I wish to highlight two issues, namely the size of the store and that the groceries order protects predatory pricing which is clearly targeted at removing competition.
Mr. Scally
I will ask my colleague to reply on the question about importing and sourcing.
Mr. Donal Horgan
Deputy Hogan raised why we do not encourage supply from the eurozone and not necessarily import through the non-eurozone where costs are higher. Where we can we source through the eurozone. For example, exclusive wines, etc., and much of our fruit is sourced from continental Europe. We also work with some European buying alliances to assist in sourcing our product through Europe. However, those decisions are taken on the basis of satisfaction of consumer need. We are very conscious that tastes in Ireland are somewhat different and the Irish consumer is very loyal to brands, including large brands. We source as much as we can within the eurozone, but it is very much on the basis of what satisfies consumer need.
All of us heard the presentation by Tesco. It made available to the committee a comparison of prices. These showed that SuperValu and particularly Centra were dearest and of course Tesco's prices were cheapest for particular branded products. Would Mr. Horgan like to comment on that? Does he feel there is a significant difference in the prices?
SuperValu and Centra, as they are all more or less privately owned shops, have a distinct advantage because they have a personal touch. Irish shoppers seem to like this. Does Musgrave Group source much of its food from local suppliers, as I understand it does? The high cost of waste management was mentioned and it was stated that this has been somewhat reduced by recycling. I would have understood that recycling would have been dearer than landfill.
How much of Lidl's product is Irish or is any of it sourced locally? Lidl has stated that it works within the groceries order. If that order were eliminated, could Lidl offer products much more cheaply here?
Further to Deputy Hogan's question Mr. Scally might wish to look at the submissions made. We are now making public the Tesco submission for anybody who wants to see it. Mr. Scally can respond to us in writing if he wishes on the question Deputy Hogan has rightly asked.
Mr. Scally
I will give a response to the question. We are aware of the comparison as submitted to the committee. We, of course, also carry out regular price comparisons across all the competition on a regular basis. We do so to ensure consumers get a fair deal every day. In other words the products they buy every day certainly must be very competitive. All our own price surveys have shown that we are very price competitive, as I said in my presentation. We are certainly baffled by what Tesco produced here last week and it is at absolute variance with what we know the position to be. We would prefer not to comment on that beyond what I have said as it is a matter of very serious concern to us. Obviously given that we know it does not represent the true position, we must consider our position on that matter.
Perhaps Mr. Scally might let us know his views on that matter.
Mr. Scally
We are very happy to make available to the committee copies of the price surveys we carry out on a very regular basis. They will show a very different picture. It is balanced in terms of the survey work that is done.
If you could do so it would be very helpful to the committee.
Mr. Horgan
Deputy Callanan asked about local sourcing. The Deputy is absolutely right in that local involvement is a critical part of our model. That involvement is with the consumer going into a store and with local suppliers. Our decision in 1998 to introduce centralised fresh distribution gave us a great opportunity to enhance the businesses of local suppliers, which were able to get into that network and not alone service the shop local to them but all the shops in our network. It is important to give the committee examples of some of the success stories in terms of local small suppliers which have managed to grow their businesses significantly through us in the past six years. I will give eight or ten examples of key suppliers that have grown their businesses in that fashion.
The first is Good Herdsman, an organic meat producer based in Cahir, which has grown turnover with us by 20% since 2001. McGee's, which is a fruit and vegetable distributor, prior to our central chilled distribution supplied approximately 25 stores in the Leinster area and since centralisation has grown its turnover five-fold with us and now services all 530 of our stores in the Republic of Ireland. K& K, a potato packaging business, has increased its business ten-fold since 1998, which has allowed it to invest in plant and treble its staff numbers to 35. As mentioned in our submission, Bandon Co-Op is the sole supplier of onions to our 530 stores. That company got into that business about four years ago prior to which it had no access to our stores.
Kepak, which we also mentioned, is our sole beef supplier. It has grown its business by 12-fold since 2001 as a result of centralised distribution. In that time it has increased its staff on a dedicated basis from 80 to 300, looking after the MSVC account in the Republic of Ireland alone. In the past six months or so, it has access to the business in the UK, which will allow it to grow its business there.
We can look as some smaller businesses. Taravale is a salad supplier that has again increased tenfold since 1998. Brady Family Hams, which is local to here based in the Kildare area, has increased its business by six-fold in the past two years again through central distribution. Clonakilty Foods, which makes the famous Clonakilty black pudding, has grown its business by five-fold since 1998. Ted Carty, a bacon and rasher supplier from the midlands, has seen a six-fold increase. Swissco, a ready-meals manufacturing business, went from doing zero business with us to now being quite a substantial supplier to our stores. No later than last weekend a new product was brought to the market by Cully and Sully, also a ready-meal manufacturer. These are two people who went out on their own, sourced the product in Europe and are now setting up a distribution channel in Ireland and through our central distribution have ready access to 530 stores.
Our local involvement is critical to the success of our model both in dealing with the consumer and with suppliers. Central distribution gives us a unique advantage to afford many of those local suppliers the opportunity to service a very wide network, which they could not do on their own, as costs would be prohibitive.
Central distribution has been a godsend for them and their family businesses.
Mr. Kaudewitz
Lidl is a privately owned company and part of our policy is that we do not disclose any information on turnover, costs or any other financial details. This does not just apply to Ireland but is our policy in every country in which we operate across Europe. To respond to the invitation to demonstrate our contribution to sourcing in Ireland, we stated in our submission that we have sourced products to the value of €132 million with our suppliers. This figure is growing and we are actively inviting more suppliers from Ireland to supply to us and to grow their business not just in this country but also beyond. Market realities will sometimes make a supplier apprehensive of taking this opportunity at an early stage. Our central distribution centre in Newbridge has only been operational since spring 2001. We have built up the business gradually which demonstrates that we are well aware of our overall position in the market. We have a reputation of being firm but fair partners. If one were to speak to representatives of the farming community, I do not know what they would say but I assume they would confirm that Lidl does not ask for financial support from its suppliers when it runs promotions on fruit and vegetable products. They appreciate that Lidl always takes the hit because it gives them a reliable basis for doing their business with it.
In how many countries does Lidl operate?
Mr. Kaudewitz
It operates in 15 countries at present.
Are all of the countries in Europe?
Mr. Kaudewitz
Yes.
I welcome Mr. Kaudewitz and Lidl to the Irish market. The arrival of Lidl has increased the level of competition here. Is Mr. Kaudewitz aware that the assertion that many of Lidl's products are not sourced in Ireland is one of the prime weapons used against the company? Does he feel that to put as much information as possible about Lidl's sourcing of its products in Ireland would be a source of great advantage to the company? I ask Mr. Kaudewitz to consider making it company policy that such information be made available. The committee might well recommend that the Companies Acts be amended as they relate to margins etc. I suggest that it would be in the interests of Lidl to provide more information about its sourcing of products. Does the Irish division of Lidl have as a policy position the preferment of Irish goods? Will the Newbridge operation involve actively sourcing products in this country?
I am not clear about Mr. Kaudewitz's views on planning guidelines, which I discussed with Dr. Fingleton of the Competition Authority. Lidl makes clear on page 8 of its submission that there is no evidence, based on the experience of its operations in European countries, that restrictions on the size of retail units have a direct impact on the price of groceries. It is helpful that Lidl has made such a bold statement. On page 11 of the document, however, Lidl states that the Government should focus on the immediate revision of the retail planning guidelines if it wants to bring about a quick improvement. There is an apparent contradiction in that regard. What specific matters need to be considered as part of the review of the retail planning guidelines?
In his observations on the basket of comparators, Mr. Kaudewitz directly contradicts the evidence of Dr. Fingleton of the Competition Authority by saying that comparisons based on a fixed basket of goods are misleading. Mr. Kaudewitz contradicted the assertion made by Dr. Fingleton this morning by stating that he believes retail companies maintain the prices of items in fixed baskets by augmenting the prices of non-basket items. If Mr. Kaudewitz stands over his belief, how does he think we should undertake a proper comparison?
I welcome Mr. Scally, with whom I have had dealings in the past, and his officials from the Musgrave Group. I acknowledge the company's community work. Its sponsorship of the national tidy towns competition is one of the most important social actions undertaken by any company in this country.
Absolutely.
When we listen to presentations about prices, it sometimes seems that we live in a vacuum which does not have a society. Our consideration of such matters should not relate only to the bottom line. The Joint Committee on Enterprise and Small Business should take some space to acknowledge a corporate policy that is good for the community.
The Musgrave Group's submission argued that if companies wish to reduce costs, they need to tackle wages, although it could be argued that they cannot be tackled. The submission also called for reductions in VAT and excise duties. Given that Ireland has one of the lowest rates of tax on wages in Europe, how can the Government further reduce the wage burden while maintaining the level of tax revenue necessary to provide the infrastructure for society? The problem would be compounded if we were to try to reduce indirect taxes such as VAT and excise at the same time.
Mr. Scally referred to the Spanish experience when he said we cannot have both high wages and competitive prices. That is the nut we are trying to crack as a country. We need to sustain high value-added jobs while being competitive in areas like innovation and technology. Will Mr. Scally respond to my remarks? We need to look beyond the box so that reducing the wages we give to individuals is not the only way we have of becoming more competitive. We need to maintain a certain quality of society as well as having competitive prices. I invite Mr. Scally to respond to that.
I would like to ask about Irish suppliers. Does the Musgrave Group actively promote the sale of Irish goods outside Ireland? It has given examples such as Cuisine de France Limited. Can the group be said to be a good promoter of Irish produce abroad? Does it seek and develop markets in England, for example? Does it provide research and development to help developing companies to launch tailor-made products for markets which the group might know, but the companies might not know?
I wish to refer to an assertion made to the committee about the Musgrave Group and the other main supplier for the convenience sector. Do the suppliers give guidelines on retail prices or do they allow those they supply to determine such prices?
Mr. Kaudewitz
If it is the case that pages 8 and 11 of Lidl's submission speak different languages as regards planning guidelines, it was not intentional. I did not intend to confuse the committee. Lidl does not suggest that the Government should make a revision that completely abolishes the retail planning guidelines. It believes that a revision of the part of the guidelines dealing with the definition of "discount food stores" is necessary. The wording of certain elements of the guidelines is rather confusing at present.
I ask Mr. Kaudewitz to supply a detailed submission in that regard.
Mr. Kaudewitz
Yes.
Please do.
Mr. Kaudewitz
Lidl feels that the implementation of the spirit of the retail planning guidelines, which have been in place for a couple of years, differs among the various local authorities. It feels that a clear policy, based on the need for a competitive retail landscape, should be transmitted from the Government to the local authorities as part of the revision it has recommended. Lidl contends that competition will eventually lead to a healthy price level for groceries.
I was also asked about the fixed basket that is used in surveys. I understand that EUROSTAT has said that a direct country-to-country comparison is always difficult, but its surveys are valuable when clustering countries into certain groups and making comparisons between the groups. EUROSTAT has grouped Ireland in the so-called "northern group" for the purposes of its surveys. I think it is a fair comparison. I considered the basket used by Mercer to compare costs of living and found that a number of the products used could not be bought in a Lidl store. I wonder, therefore, how a proper comparison can be achieved. While we do not dispute the existence of a certain price level, one-to-one comparisons are very difficult to make.
I have taken on board the argument that we have put ourselves at a disadvantage by failing to be more specific on the percentage Irish suppliers provide to the business. I will reflect on this with my colleagues.
It will be to your great advantage.
Mr. Scally
I thank Deputy Howlin for his kind comments. I am glad our contribution as wholesalers and the contribution of our retailers is acknowledged. As the Deputy rightly says, it is more than just the bottom line that is important. We believe we must give something back to society and local communities as it is from them we earn our living. While we do what we can, I am sure we can always do more. We continue to strive to do that.
In case I have given the committee a mistaken impression of our position on pay, I will recap. Where the Government can help is in linking pay agreements to productivity. We do not have a problem with the agreement by the social partners of a rate increase for 12 months or three years, but we take issue with the failure to link the rate to productivity. While we have very good relations with unions as a highly unionised company, we find it difficult to be subjected to calls for supplementary increases under all kinds of headings. While we support national wage agreements, we would like to see them linked to productivity in some shape or form. Our problem is when costs, including wage costs, rise faster than inflation as it puts real pressure on us. We acknowledge that Ireland has relatively low personal taxation rates.
The gap in terms of VAT and excise is very transparent. On "Prime Time" last night half of Ireland seemed to be in Newry to shop. It was interesting to note that the people were all buying booze. Our research indicates that the key difference in alcohol prices in the North versus the South is tax and duty related.
That reflects health policy also.
Mr. Scally
Indeed. I ask Mr. Horgan to discuss retail pricing and the ways to attract Irish suppliers into our UK business band in terms of research and development support.
Mr. Horgan
We mentioned Kepak and Cuisine de France in our submission. Kerrygold and Kerry Foods are also good examples of suppliers which have been assisted to support our UK business. Opportunities are opening up for our Irish supply base to engage in our UK business as it evolves. An example of a small supplier we have helped to grow its businesses by designing a product which suits consumer needs is Cully and Sully. Cully and Sully is a small ready-meals business which was formed by a guy who left our operation to establish his own business with a colleague. We have helped the company on packaging and the creation of a product to suit the Irish market.
Another business we have helped is Kepak which is a larger organisation. In an area which is a core concern of Irish consumers we have worked closely with the company to develop a system of traceability for beef. This system, which works right back to farms, gives our consumers a guarantee that our beef is 100% Irish sourced. We took this action on the basis of consumer demands on health issues. We built the system with Kepak to provide comfort to customers who can use our in-store software at the beef counter to discover the supply source for each day's cuts. A bar-code to confirm the origin of the meat will be supplied with every cut. We were conscious of a growing consumer demand for assurances of this type and designed the system in compliance with Bord Bia's guidelines. It is a small example of the ways we help suppliers to bring a product to market which satisfies consumer needs and becomes available across our store network through our central distribution system.
Deputy Howlin also raised the matter of retail pricing. We recommend maximum retail prices for the formats to each of our individually owned stores. Retailers are free to set their prices below the recommended level which they do on occasion when running a promotion in competition with another operator in a given town.
Mr. Kaudewitz was very clear in his presentation that there was no evidence to suggest the lifting of the groceries order and ban on below-cost selling would lead to a reduction in prices. How does he respond to the chairman of the Competition Authority who stated the groceries order was anti-competitive?
In reference to supplier prices, Mr. Kaudewitz stated that all parties involved had to assess whether maintaining the status quo in the retail sector would reduce overall competitiveness. What does he mean by “status quo”?
I am sure Mr. Scally has heard it questioned this morning whether we are comparing like with like. His company is in a very good position to provide the committee with price comparisons in terms of the price of goods in the Twenty-six Counties, the Six Counties, the UK and Spain. Can Mr. Scally present the committee with price comparisons from those regions to allow us to compare like with like?
Why is the Irish grocery market so heavily dependent on non-euro zone countries? Is it not possible to import from European rather than non-European countries?
Mr. Kaudewitz
To respond to the question on Dr. Fingleton's presentation, I do not deal in ideologies but in groceries. We are here to discuss how to reduce the price of groceries in Ireland. My simple answer is as it was in my submission. We need competition and diversification and discounters are one part of a competitive market. We have proven this since we started our operation in Ireland. If we are given the opportunity to increase our store network, this contribution to the overall competitiveness of the grocery industry will automatically lead to a reduction in price levels. This assessment is based on facts and anybody who examines what has happened in other economies will be able to confirm it.
The discussion about the groceries order is highly political and does not contribute significantly to a reduction in grocery prices. Dr. Fingleton has reached his conclusions on the basis of information available to him. We have made our submission based on our experience across Europe. I admit that I do not worry about the grocery order and, as such, I am not a specialist on it. I can only give a view based on our experience.
With regard to the second question concerning the status quo in certain industries, this is a highly sensitive area which entails change in industries. Competitive pressure will always create change, which is not always painless. We should not always react to such change by holding on to the status quo in some industries. To do so will eventually lead to circumstances similar to those that arose in the coal industry in Germany, which was subsidised to the point of no return and no alternative industry or employment was available.
Mr. Scally
Deputy McHugh asked two questions, the first of which related to the provision of price comparisons between the United Kingdom, Ireland and Spain. I ask my colleague, Mr. Martin, to respond.
As pointed out by the Deputy, we have businesses in different jurisdictions. We do not compare between these jurisdictions because we focus our attention on examining prices in the markets in which we operate. Even this is a difficult science — mixed with art — because consumer tastes are different depending on location. In addition, a question arises as to the shops one should compare. In Britain, for instance, a store in Piccadilly is different from a store in York. For this reason, we focus our attention within our markets and do not compare across them when asked to do so. Given the caveats I have pointed out, we could endeavour to give the joint committee some information but many issues will arise with regard to its interpretation.
While a comparison of similar regions would not answer many of our questions, it would give us an indicative guide as to how prices compare between the different jurisdictions.
That is a fair assessment, provided it is understood that such a comparison is not science and would give a broad indication, which would have to be qualified.
Mr. Scally
The second question related to the issue of imports from outside euroland and whether we can expand our sourcing in euroland. I ask Mr. Horgan to respond.
Mr. Horgan
As mentioned in our submission, 75% of all product sold in our stores is sourced in Ireland and 57% of it is produced and manufactured here. In effect, therefore, the issue arises with regard to the balance of 43%. As I stated in response to another question, we source product in Europe, where possible. We do so when it will meet consumer needs so that tests and preferences for brand can be satisfied. We work with some European buying alliances with a view to sourcing through Europe. To do this economically requires the pooling of volume. Spain and similar regions where we purchase fruit and wine are an example of this practice.
Although we make efforts in this area, our principle focus is on increasing Irish sourced goods, where possible, because it best fits our model. Nevertheless, we also actively encourage sourcing through Europe where we can. Our biggest source of product outside Ireland tends to be the United Kingdom and therein lies part of the complication as regards the eurozone. Perhaps solutions will arise in future but at this point we actively encourage sourcing through Europe where possible.
On behalf of members of the joint committee, I thank Mr. Kaudewitz, Mr. Scally, Mr. Martin and Mr. Hogan for providing an informative briefing on the issue before us. We will work with and assist the industry over the lifetime of the Government. The Clerk, on behalf of the joint committee, will be in touch should further clarification be required. If the witnesses wish to clarify any matter or expand on their submission, they should feel free to do so. Our final meeting will be the Minister and we hope to conclude our deliberations by mid-February. If witnesses wish to make further submissions, the joint committee should receive them by mid-January.
Sitting suspended at 1.10 p.m. and resumed at 2.30 p.m.