Cantillon: Musgrave knuckles down for grocery war

How do you grow your business in a rather flat market with a legion of hungry, equal-sized competitors all fighting for the same customers? This is the conundrum facing Chris Martin, the chief executive of Musgrave, the wholesaling group that owns SuperValu and Centra.

The Cork company has almost exited its damaging foray into Britain, while its tiny Spanish business is unlikely to make a major impact on the group's finances. After agreeing the sale of its UK brands Budgens and Londis to Booker, Musgrave is now almost totally focused on the island of Ireland. In shopping parlance, its eggs are all in one basket.

Competition in the grocery market here is every bit as intense as the UK, where investors are beginning to worry that a competitive price war will result in casualties. Grocery sales are rising at less than 1 per cent annually, so any Irish grocer seeking growth will have to do it by taking share off its competitors.

From whom will Musgrave take share?

Aldi and Lidl, growing at 5 per cent and 8 per cent annually, are smaller than Musgrave but have all the momentum. Musgrave can use price promotions to shield its base from the rampaging German discounters, but it cannot pinch large numbers of their customers if the battleground is price.

Dunnes Stores, which is growing at more than 6.5 per cent, has done so by flooding the market with money-off vouchers.

Then there is Tesco, with which SuperValu vies for the crown as Ireland's biggest supermarket chain. Tesco is slowly beginning to right its listing ship, following a major turnaround strategy. It won't give up share too easily to Musgrave.

Unless grocery spending takes off, Musgrave’s only other option for growth is to enter new product markets. Hence the focus on launching a mobile phone service and more financial services.

Martin is sensibly looking for ways to cut costs to protect its bottom line. Its impending buying partnership with Booker, which has sales approaching £5 billion, offers the prospect of lower unit costs on its own brand products.

Every little helps, as its neighbours might say.