Every little helps – especially when it comes to Tesco’s profit margins. But as the University of Ulster’s retail analyst Donald C McFetridge argues, the chain’s price-cuts in 11 stores in the Republic could also mean a shot-in-the-arm for Northern Ireland traders
Tesco claims its price cuts could save southern households up to 22% on an average shopping basket The cross-border shopping phenomenon — reportedly worth in the region of €550m per annum — has been a major thorn in the flesh of the Irish exchequer during the past 18 months or so.
In fact Irish Finance Minister Brian Lenihan has publicly stated that: “Shoppers who shop outside the state ought to be penalised.”
His comments, however, have not halted the flow of southerners travelling north in search of lower prices and bargains.
This has also resulted in the Northern Ireland economy being artificially buoyed up by the huge influx of southern shoppers to border towns in the north.
But that may be about to change, and change quite significantly following recent pricing tactics which have been introduced by Tesco in the south.
Ostensibly, it would appear that Tesco are rising to the challenge and doing their bit to help the Irish economy. Or are they?
I purport that, when their tactics are more carefully examined, shoppers will become aware that Tesco are not attempting to aid the Irish exchequer at all, but simply helping themselves to a bigger share of the Irish grocery market — especially given that they are facing stiff competition from Sainsbury’s and Asda in border towns.
Last weekend they closed 11 of their border town stores for refurbishment and opened them again on Tuesday morning with a range of pricing options which, they state, could save southern shoppers as much as 22% on an average shopping trip — quite a significant saving if that turns out to be the case.
It reminds me, of course, of the promises of David (now Lord) Sainsbury when he made his announcement — in June 1995 — that he was going to offer Northern Ireland shoppers price savings of between 10% and 12%.
That never turned out to be the case.
Instead of offering a wider range of products Sainsbury’s simply plopped their standard ‘kit' on unsuspecting, though hopeful, Northern Ireland consumers.
This included a large percentage of highly lucrative own-label products, many of which local shoppers had never had the opportunity to purchase before.
When Tesco closed their stores, instead of sourcing their products in Ireland (as they should be) they simply bolted on additional orders to their UK suppliers, thus affording them the opportunity to squeeze said suppliers for tighter margins and — most importantly and disturbingly — they've also most probably delisted quite a significant number of Irish suppliers. Good for the Irish economy? I think not.
Tesco's motive in introducing this price-cutting campaign — only in the 11 border stores — is to try to ensure that they claim back their southern customers who are flocking to Sainsbury’s in Newry and Asda in Strabane and Enniskillen.
They have no doubt noticed that their takings in places like Letterkenny and Dundalk have been steadily decreasing and they need to ‘claw back' if they are to keep these stores open and trading.
Irish shoppers — hard-pressed with the 6.5% VAT charges in the Republic — will in my opinion still flock north.
Around 25% of groceries are still VAT-rated, and, in spite of the recent price-cut announcements, there will still be a significant number of shoppers crossing the border to shop.
But what about shoppers in Waterford, Galway and Cork? Are Tesco still going to charge them higher prices for the same products just because they are not close to the border with the north?
Surely this will result in displacement with shoppers from further away towns flocking to the closest stores to the border in order to stock up.
It appears that Tesco are simply moving the borders to suit themselves and to try to take on their counterparts in Northern Ireland. It strikes me that this is an ill-conceived and not terribly well thought out strategy which could very easily backfire on them.
No doubt, SuperValu and Centra (Musgrave-operated stores which form a large percentage of the southern grocery sector) and other leading players (such as Dunnes Stores) will fight back with similar price campaigns of their own.
This could easily result in a price war in the Republic., or, even better, it could perhaps even benefit shoppers in the north if Sainsbury’s and Asda decide to fight back too.
The principal operators in the sector will be most reluctant to lose the southern income if Tesco's price cutting campaign really kicks in. Most interesting times are on the horizon for Irish retailing, both north and south of the border.
Yes, it appears to be all good news for southern shoppers in border areas, but not at all fair if you happen to live in Youghal or Bantry.
Selective or regional pricing may work in some parts of the world but I would suggest, with respect and without prejudice, that it won't work here.
I could comfortably predict that there will still be many southern shoppers who will still break for the border.