To say that Musgrave Group MD Donal Horgan is not amused would be an understatement.
The tough-talking, seasoned symbol group campaigner is not narked because he thinks independent retailers will perish without the protection offered by the Groceries Order. He is angry because he believes the decision to scrap it - which was effectively brought about by John Fingleton, as former Irish Competition Authority head, and competition minister Micheál Martin - was built on wonky economics.
Even so, Horgan is also a realist and therefore fully aware that there is little point in sitting around moaning. Instead, he is hellbent on proving that the wholesale group, along with its army of independent retailers operating under the SuperValu and Centra fascias, will continue to thrive without the protection of the order.
The group also services some 240 retailers operating under the Day Today banner and it launched a new Daybreak fascia for small independents before Christmas.
“The passing of the Groceries Order will bring about some alteration in the market,” says Horgan, “but the market has already seen price deflation. That will continue, but not as strongly as some commentators have indicated.”
The fact that operating costs in the Republic remain among the highest in Europe will constrain a full-scale tumble in prices, says Horgan. “A 20% reduction is just not there when you look at the profitability of the sector. We may see some price reduction, but increases elsewhere to compensate.”
Horgan points to the conclusion of one senior analyst - that the Irish market, grappling with rising costs such as the second highest national minimum wage (E7.65 an hour) in Europe, can probably only sustain a drop in prices of 3% to 4% over the next few years. Against this backdrop, there is still a bright future for Musgrave’s retailers, argues Horgan.
Group chief executive Chris Martin, who replaced outgoing Irish retailing guru Seamus Scally last April as head of the Musgrave empire, which also runs the Musgrave Budgens Londis business in Britain, agrees that the group’s retailers have little to fear as long as they remain focused. “We have already been competing in an environment where the multiples are present,” says Martin. “Many of our retailers, both in Ireland and Britain, are going head to head with major supermarket chains and succeeding.”
Hyperbole is easy, but there are figures to back this up. Both the larger SuperValu stores, of which there are now 174, and the smaller Centra outlets, of which there are now 375, are being touted as having enjoyed good years. The latter are set to have topped sales of E1bn by the end of 2005, against E250m from 150 stores eight years ago. That’s four times as many sales from two-and-a-half times the number of outlets, which appears to point to the efficiencies Musgrave has built into its business model.
Figures for SuperValu are more closely guarded, but Horgan is happy to point out that Musgrave’s three ambient and two chilled distribution centres in Ireland are now sending out a million cases a week.
Yet it’s not all been plain sailing. A row erupted at the start of 2005 when Tesco told an Irish parliamentary committee investigating grocery prices that SuperValu prices were on average 5% higher than Tesco’s over 3,000 products and that Centra was 29% dearer across 500 items. The claims were contested by Musgrave, which threatened legal action.
A threat last February by the Irish Competition Authority to investigate Musgrave and rival BWG’s perceived stranglehold on the wholesale market eventually evaporated, while reports of retailer moans over the opening of the new ambient distribution centre at Kilcock - which meant the loss of advantageous terms offered by direct delivery - were also shortlived.
Horgan says: “We are confident of our long-term relationship with our retailers. We are not seeing any drop in appetite for investment in stores. There were 42 revamps last year and a total of E70m was spent by retailers.”
Martin is also upbeat about the year ahead. He insists Musgrave’s stores will stick to providing quality fresh food at keen prices, rather than getting sucked into a war with the multiples on general merchandising.
He says: “Our retailers have a great offer for Irish consumers. We have to fight on price, but we have to fight on many other things as well. In the end, it always comes back to the strength of the local retailers.”