One of the biggest supermarket chains in Ireland is launching a fightback against the relentless flow of trade from the Republic into Northern Ireland with a new cost-cutting drive which could spark an all-out price war.
Tesco is battling against the renewed phenomenon of cross-border shopping by opening what could amount to the biggest shake-up ever in the retail grocery sector in Ireland. It hopes to stem some of the flow of southern shoppers travelling across the border to spend €550m a year on groceries in the north.
The retail giant closed 11 of its stores in the border area of the Republic on Saturday and plans to re-open them at 10am tomorrow with the promise of slashing several thousand prices possibly by up to 20%.
The supermarket chain plans to eventually extend the initiative nationwide, increasing the likelihood of an all-out “price war” in the Republic, which will be welcomed by grocery shoppers who are struggling in recession.
On Saturday three of the Dublin to Belfast morning trains were sold out, many seats taken by shoppers who can pre-book online. There was also a 30-minute mid-morning delay into Newry with a large number of Dublin-registered cars in the traffic tailback.
Recent figures indicate that 4%, or €550m of grocery trade in the Republic, is being lost to stores in the Northern Ireland, mainly to Asda and Sainsbury.
Tesco has refused to give the scale of the planned cuts in prices in its border stores in advance but a spokesman promised it would be “significant”.
A source at Tesco said: “What is going to happen will be on a scale never before seen in Ireland. This will be the biggest thing ever done in Irish retailing.”
A Revenue Commissioners report in December concluded that price differentials on goods in Northern Ireland and the Republic were caused by operating costs, profit margin, taxes and the rapid 30% depreciation of sterling against the euro between January and December 2008.
The Irish government increased the standard VAT rate last October to 21.5%, a full 6.5% higher than the rate which applies north of the border. Data published by the Central Statistics Office last week revealed that a collapse in car sales and sharp declines in housing-related purchases had contributed to a massive 21% annual fall in Irish retail sales in the year to February.
Around 25% of grocery goods are subject to VAT. Excise duties, rather than the VAT differential, is thought to be a more significant contributor to cross-border grocery shoppers.
Retail Ireland, the group that represents employers in the retail sector, has said it expects that at least 25,000 employees would be laid off this year as a result of the collapse in spending. Torlach Denihan, director of Retail Ireland, has urged the Dublin government to introduce a reduction in VAT for a specific period.
The Revenue Commissioners report estimates that the potential loss in Irish Exchequer revenues due to cross-border shopping arising from reduced VAT and excise yields in 2008 at between €58m and €90m. In addition to the VAT and excise loss, there is a possible corporation tax revenue loss that is tentatively estimated to be in the range of €15m to €24m.
This year, if the exchange rate remains at close to current levels, the estimated VAT and excise revenue loss is put at between €72m and €112m, and a possible corporation tax revenue loss in the range of €20m to €31m.