Address by Minister Martin to the Joint Committee on Enterprise & Small Business on Wednesday 23 ^rd February, 2005

Re: The impact of grocery multiples on the grocery and retail markets and its effects on consumers, small grocery retailers and small grocery suppliers.

I am very pleased to have been asked to appear before this Committee to discuss this important issue which affects every citizen in the State.

The retail grocery sector forms a key part of the Irish economy both in terms of the people it employs directly and the jobs it provides in the associated manufacturing, supply and distribution sectors. The retail grocery sector is very important to the Irish consumer and, indeed, the consumer is vital to the sector.

I am encouraged by what the Committee has been told so far by supermarket operators about the level of goods they purchase from Irish suppliers. I note that Tesco buys €1.5b worth of goods from Irish suppliers each year, and 50% of its food products are Irish sourced. I also understand that Tesco operates an Irish Supplier Development Programme, and the substantial growth in purchasing Irish products was a direct result of the Programme.

I also recognise the benefits of Enterprise Ireland’s Supplier Development Programme which is intended for companies currently supplying, or wishing to supply products to the retail multiples, has already assisted some 120 clients companies.

Musgrave’s have indicated that 75% of the products sold in their stores - worth €1.88b - are sourced in Ireland, while 57% of their sales - worth €1.43b - relates to goods either produced or manufactured in Ireland. I welcome the level of support given to Irish suppliers and I hope that this will continue to increase over time.

As regards competition, the retail grocery market has seen significant changes in recent years, most notably the entry of the German discounters Aldi and Lidl, who continue to grow their businesses here. There have been other developments, such as the opening of more 24-hour outlets by Tesco and the stocking of more non-food items, to facilitate the way Irish people live today.

While some operators in the sector might feel uneasy about the additional competition generated by the expansion by the multiples, I am pleased to see that players such as Spar and Supervalu have faced up to this competition by investing further in their operations and by opening more new stores. Such investment is important for improving the services and choices available to consumers.

While competition is vital to all sectors of the economy, I recognise that it is only effective if it provides real choice for consumers who must, in turn, be able to exercise that choice in an informed manner to seek out the best value for the products or services they require. The mix of retail grocery outlets in the State has created a situation where the retail grocery sector is competitive and where both local and international players coexist in a dynamic marketplace.

Today Irish consumers can have the choice to shop in their local grocery shop or convenience store, or if they so wish, they can opt for the services of the larger supermarkets which are becoming more and more accessible around the country. The Irish grocery market, therefore, provides a level of choice to consumers which compares very well internationally.

It was clear to me from the input provided by the retail representatives that they are operating in a dynamic sector and have been working very hard to meet changing consumer needs in the past number of years. It is invaluable to have heard from the coalface, so to speak, the sector’s views on whether the Irish consumer is getting a good deal in comparison with their counterparts in other countries.

The contributions to date have confirmed my own view that the issue of examining Irish retail prices as compared to those abroad is not an easy one. I am regularly asked whether I am conducting studies into the price levels of different commodities, the commodities in question depending on price levels prevailing in different sectors at the time of the request. Contributors have quoted EUROSTAT’s health warning that cross-border comparisons are only possible to a certain extent with difficulties arising in compiling a representative basket of products. Dr. Fingleton, Chairman of the Competition Authority has also cast a question mark over the usefulness of examining margins in great detail. While it might temping to instigate visible steps to address inflationary tendencies, before assigning state resources to examining in detail price levels of different products in different sectors, I must be satisfied that it is actually possible to conduct such examinations and that the results would actually be of use to consumers and others.

The contributions to date have clearly signalled that there are many factors feeding into price levels in the grocery sector. The data contained in the National Competitiveness Council’s Statement on Prices and Costs 2004 followed on from previous work on comparative consumer prices undertaken by Forfás, at the Government’s request, and confirmed that Ireland is now the most expensive country in the eurozone for food and non-alcoholic beverages (retail). However I think it important to note that the Government has been taking rising inflation rates seriously and we should welcome the fact that the average annual rate of inflation in 2004 fell to 2.2% in comparison with the rate of 3.3% in 2003.

The NCC made recommendations across a range of policy areas – fiscal; competition and regulation; trade; incomes; and labour market. From the perspective of consumer policy my officials have worked closely with the Central Statistics Office (CSO), the Office of the Director of Consumer Affairs, the Consumers’ Association of Ireland and Forfás on the issue of price transparency. This led to the publication last July, for the first time, of the CSO Consumer Prices Average Price Analysis for Dublin and Outside Dublin, for May 2004. This initiative continued with the publication of figures for November being brought forward to December last. My Department proposes to continue to work with these interested parties to consider if there is further potential to build on this CSO work in the area of prices to enhance price transparency for consumers and empower them to seek out the best value possible.

With regard to other sources of price transparency I would mention the ongoing work of the Director of Consumer Affairs, who has also appeared before this Committee, and has published and highlighted the results of price surveys on products such as petrol, potatoes, over-the-counter medicines, beans and drink price increases coinciding with major sporting and social events.

The Consumer Strategy Group was established last March to advise on the development of a national consumer policy strategy. In the performance of this role the Group is carrying out a range of activities, including studies that investigate issues of special concern. The studies are intended to identify areas where policy intervention could lead to improved consumer access, choice, and redress. Some of these studies are particularly relevant in the light of today’s discussions: one deals with ‘Promoting Consumer Interests in the Retail Industry’ and ‘Planning and Land Use and how it affects the Consumer’. Price trends in comparison with other European countries are also being examined, and some prices are the subject of additional investigation, including those of Fruit and Vegetables, Alcoholic Beverages, and Pharmacueticals. The Group is due to produce a final report to me shortly and I expect its recommendations to form the basis of national consumer policy over the coming years. I am determined that this new nataional consumer policy will bring about the increased empowerment of Irish consumers so that they can play a key part in a competitive marketplace.

Mr. Chairman, your invitation to me to appear before this Committee specifically asked for a view as to whether or not Irish consumers are getting as good a deal as their counterparts in the UK and other European Countries. I think it is clear that it is not easy to make direct comparisons although there is little doubt that the introduction of the Euro has helped transparency in this regard. On the basis of evidence to date, I am bound to say that there is cause for concern at higher prices in Ireland relative to the rest of Europe. I would say, however, that the CSG was specifically asked in its terms of refernce to determine objectively wheter or not the Irish consumer was getting a fair deal. I for one will be particularly interested in the result of the Group’s deliberations on this topic. I think the sort of research they have conducted will allow us all to from an objective view on whether or not these higher prices are justified.

On the issue of the level of commitment on the part of grocery multiples to the purchase of Irish made products, I have to say that the evidence points to a very high level of commitment and that has to be very encouraging. I think, however, it would be wrong for Irish producers to become complacent and they must always strive to improve their position relative to overseas suppliers. The demand for lower prices from the retail multiples will necessitate innovation in operations and processes as well as more effective supply chain management in order to both take costs out of the manufacturing process to preserve operating margins, as well as satisfying the stringent supply and distribution demands of the multiples. This is the type of incentive provided by open and fair competition in the marketplace and which ultimately will ensure better deal for consumers.

In conclusion, my key message to the Committee is that ultimately the most effective way to positively impact on price levels in the interests of ordinary consumers in the grocery sector, as in others, is to facilitate effective competition in a maketplace where empowered consumers are making informed choices between retailers.