Consumer groups believe retailers are refusing to pass on savings to consumers
ALL OF A sudden, food prices really matter. In the past, we could hold academic debates about high prices safe in the knowledge that most consumers were not over-burdened with grocery bills.
Today, with world prices climbing steeply, we no longer have this luxury and the poor are likely to be worst affected.
As James Doorley, chairman of the Consumers Association, points out, the price of ordinary but necessary items such as milk, bread, butter and eggs have risen by up to 30 per cent in the past year. Food inflation has become an issue for all and it is hitting people on low incomes hardest.
Doorley accepts that global trends such as the increase in wheat prices have been a factor in recent price rises, but he goes on to accuse the food companies and supermarkets of hyping the issue as an opportunity to increase their margins. The secrecy surrounding the retail sector makes it virtually impossible to test this allegation.
According to Ann Fitzgerald, chief executive of the National Consumer Agency (NCA), Ireland differs from other countries because each of the big retailers is in a "comfortable place," sure of its own position in the market, "Lack of competition is a huge factor underlying the prices we pay. We have price-matching, not price-competition."
The NCA's last price survey showed the truth of this; it revealed no more than a 35 cent difference in the price of 61 branded goods in Dunnes Stores and Tesco. Urging people to shop around has little meaning if the choice boils down to Tweedledum and Tweedledee.
Between them, the two chains account for €1 out of every €3 spent on groceries in the Republic. Throw in Superquinn and Supervalu, whose prices vary little from the two market leaders, and you're talking about almost half the market controlled by operators more intent on marking each other than meeting the needs of consumers.
The NCA surveys have shown that groceries in the Republic are more than 30 per cent dearer than in the same store in the North. They have also shown how shoppers can cut their food bills by over 50 per cent by switching to own-label products sold by discounters such as Lidl and Aldi.
A survey by The Irish Times bears out the trend, showing not only that prices are higher on average in the Republic but that significant price differentials continue to exist between Lidl and the
State's biggest retailer Tesco - even after the latter's much- trumpeted price reductions at the weekend.
The multiples explain the higher prices in the Republic by talking about the higher cost of doing business in Ireland, as a result of the higher cost of waste disposal, power supplies, land and labour. They do not talk about the lower rate of corporation tax or the cost of petrol, modest enough by EU standards, and, by and large, they certainly do not allow onlookers to calculate their margins by publishing profit figures for the Republic.
Fitzgerald believes a new player - Asda, for example - is needed to inject real competition in the retail market, but so far none has arrived since Lidl and Aldi came almost a decade ago.
There are signs that consumers are shopping around in search of value, with Lidl and Aldi being the main beneficiaries. Convenience is still cited by shoppers as the main reason they choose to use a particular store but price has passed quality as the second most popular reason.
"Not everyone can shop around but if those of us who can do so we'll put downward pressure on prices to the benefit of everyone," says Fitzgerald, adding that some consumers are reporting savings of up to €60 a week by splitting their shopping between different stores.
Doorley welcomes the fact that people are shopping around but says it is "trite" to put the onus solely on consumers and to let retailers and Government off the hook. He says retailers should have to explain why prices here have been so high, even before the latest round of increases.
At first glance, it seems that the Republic is well stocked with grocery stores of all sizes. However, this appearance of diversity is illusory, with the market dominated by a small number of big operators and even the seemingly independent outlets linked in ownership or supply chains that are not apparent to the consumer.
Studies by the Competition Authority show that the retail market is becoming more concentrated, with more and more power in the hands of a few multiples and wholesalers.
In all, there are more than 6,400 grocery outlets in the State and 55 per cent of these are operated by independent retailers, yet these 3,500 stores control less than 14 per cent of the market. Just one store in 20 belongs to a supermarket chain yet this sector accounts for half of the €12 billion annual turnover in retail grocery.
Another 2,500 stores belong to affiliated retailers, many of them convenience stores located in urban areas or service station forecourts. Yet even though there are 18 different store-names operating, these are backed by just six wholesalers. Thus, for example, BWG operates the Mace, Spar and XL Stop and Shop brands, while Musgrave runs Centra, Daybreak, DayToday and Supervalu. Furthermore, the big operators are growing fastest, while the independent retailers are in inexorable decline.
The NCA surveys have performed an invaluable role in alerting consumers to good value and the potential for shopping around. However, the agency lacks the powers to compel retailers to drop their prices, while the Competition Authority seems uninterested in the fact that prices are virtually identical in all the main supermarkets.
In May, Minister for Enterprise and Employment Mary Coughlan called in food companies and retailers to express her concern over their failure to pass on to consumers the benefits of the euro's rise against sterling.
Her intervention ameliorated the situation and helped to encourage retailers like Tesco to pass on currency exchange benefits. Beyond this, however, and telling consumers to shop around, the State and its various agencies seem powerless to force Irish prices into line with those elsewhere in Europe.