Tesco Ireland’s conversion to the ‘Change for Good’ stocking model last year may have caused the retailer more controversy than expected, but after a difficult 2008 and 2009, Tesco’s Irish operations are now firmly back on track.
After re-entering the Irish market in 1997, Tesco’s first ten years in Ireland must have made senior management in Cheshunt wish every market entry (or re-entry) could run so smoothly.
Despite competition from domestic players like Dunnes and Musgrave’s SuperValu franchise, by 2007, Tesco was comfortably on top of the market, with the biggest market share and an aggressive store-opening plan.
Around mid-2008, however, the wheels began to come off. A dramatic shift in the Euro/STG exchange rate had begun to expose considerable price differentials between supermarkets in Northern Ireland and the Republic, while the discounters had gained sufficient penetration to capitalise on recession-hit shoppers looking to move away from traditional retail formats. On top of this, Tesco’s biggest multiple rival, the family-held Dunnes Stores, launched a money-back campaign based around its Value Club loyalty card; a promotion which saw it grab back thousands of customers from Tesco in late 2008 and early 2009.
In this context, given that Tesco’s UK sourcing opportunity had been the elephant in the room since the retailer re-entered the market in 1997, there could have been little surprise when it finally happened.
However, the reaction to the introduction of Change for Good, particularly around the overly UK-centric category management, along with accusations that the 12,500 price cuts referenced were not kosher, meant that a triumphant campaign of lower prices turned into a rearguard action.
Fast forward 12 months, however, and any PR headaches are now a thing of the past. In July, Tesco Ireland boss Tony Keohane made his most high-profile appearance since the roll-out of Change for Good, however unlike last year, his announcement this time (seven new stores and 750 new jobs) could not have received a better reaction.
That Tesco is prepared to invest heavily in Ireland again (circa STG £100 million) demonstrates two key points. Firstly, the retailer clearly feels that, recession or not, there is still plenty of scope to grow its estate and take market share from its competitors, while the investment also acknowledges Tesco’s recognition that the Irish consumer is now firmly back in the pro-Tesco camp.
This is backed up by the latest Kantar Worldpanel data, which shows that, for the 52-weeks to mid-June, Tesco’s market share was 26.7%, a gain of almost one full percentage point on the equivalent period in 08/09. Admittedly, this only really brings it back to where it was in 2008, however the rolling 12-week figures show that, from a low of 25.6% in early 2009, Tesco’s share for the most recent quarterly period has grown almost two full points to 27.4%.
There are a number of reasons for this success, with the most obvious being that Tesco’s price cuts are resonating well with consumers. Not only is it succeeding in holding on to its existing customers, it is keeping spend relatively high, a lucrative combination which means that it is now showing rapidly increasing value growth.
Price perception is also critical here. According to Nielsen research, Tesco’s media strategy (which is spread evenly across the main media formats) is keeping it top of mind with Irish consumers, while Dunnes’ move away from TV has impacted on the level of cut-through achieved by its price and value messages.
Of course, Tesco’s pockets are bigger than those of Dunnes, but in a market where there is little real difference in pricing between the big supermarket players (particularly on KVIs), the power of persuasion is arguably more important than low prices themselves.
Tesco’s fortunes have also been boosted by a decline in the level of cross-border spend. With sterling strengthening against the Euro and consumer prices falling significantly in the Republic, Northern Ireland supermarkets are no longer as influential on the ROI market as they were in 2008 and 2009.
For example, Asda and Sainsbury’s now have less than 2% of the ROI grocery market, a shift of one full percentage point from their highest pre-Christmas figures, and with the UK VAT rate rising and Irish excise rates dropping, ROI-based shoppers have fewer reasons to head North for their alcohol (which was traditionally the biggest cross-border factor).
On this front, while all the retailers in the Republic have benefited from the decline in border crossing, Tesco is probably the biggest winner, having lost out the most when shoppers thronged North in the last two years.
Tesco’s success, however, has not been without its casualties. As a result of Tesco buying international brands through its UK parent, many of the biggest suppliers and distributors in Ireland have seen a huge chunk of their business disappear in the last 12-18 months.
In some cases, this is simply a case of a multinational seeing income move from one P&L to another, however both for Irish subsidiaries and third party agents and ‘box-movers’, this has meant a massive change to how they operate.
Now, a number of the bigger multinationals are viewing the Republic as a subset of a larger UK & Ireland, something which may make economic sense, but has led to a significant reorganisation of the how the entire Irish supply chain is structured.
What this means for the long-term of the Irish grocery sector is still unclear, however what the last 12 months have shown is that the customer cares little about whether a box of detergent was bought from an Irish supplier, through a UK-based multinational, or from a grey agent in Bucharest or Moscow.
As such, with price the only game in town, it’s hard to see Tesco being pushed out of the driver’s seat any time soon.
