Analysis: The chain's position in a 'fiercely competitive' market has remained static for the last 18 months, writes Barry O'Halloran, after limited growth in recent years

Superquinn does not seem to have any problem holding on to customers. Its real difficulty in a business where scale is all important has been getting new ones.

Figures from 1998 show that it had just under 8 per cent of the Republic's retail market. Five years ago, its share had crept slightly above that mark.

According to information released yesterday with the formal announcement of the Quinn family's sale of the business, it had 8.6 per cent at the end of November.

Its position in a market that its own press release described as "fiercely competitive" has remained static for the last 18 months or so, after achieving limited growth in the previous three to five years.

Industry sources say that as Tesco's and Dunnes upped their game, Superquinn found it increasing difficult to grow and to compete on price.

The fact that the cost of groceries is the subject of an Oireachtas inquiry indicates how important this is to many people, and at the same time, it has been a weak point for Superquinn.

The company sells itself on service and high quality. Historically, it was able to charge a bit more than normal for these, in some cases up to 10 per cent more. However, its competitors have been able to offer similar levels of quality, if not quite the same service, for less.

Inevitably, they began to mop up market share, while Superquinn had to fight to hold what it had. Its prices were squeezed, and the difference between it and its competitors is up to 5 per cent rather than 10 per cent.

While the company's figures are more closely guarded than the proverbial third secret of Fatima, presumably the cut in prices had an impact on margins. This would have been painful as its cost base is reckoned to be high by industry standards, largely because it pays better wages than some of its competitors, and at 4,200 it has a proportionately higher number of staff.

At the same time, in order to grow, it had to open more stores. It was finding this difficult to do in its Dublin/Leinster base because it did not have pockets deep enough to outbid its bigger competitors for sites. Sources say that it lost out to the bigger players on four or five locations.

It opened in Limerick and Waterford, and considered Cork but could not get a location there. However, moving from its traditional base stretched resources, and it subsequently sold a site it had purchased in Galway.

Growth, was, and is, key to Superquinn competing with Dunnes, Tesco and Musgrave. Sources say that 8 per cent is an "awkward" market share to have, because it is substantial without giving it the kind of purchasing clout that the other three have.

Such purchasing clout allows Superquinn's competitors to effectively set prices at the factory and farm gate, which in turn means they can maximise margins and remain competitive. Superquinn tried to alleviate this by joining a number of alliances with other retailers. But this may only have had limited effect.

There were other problems. Superquinn spent €35 million on a central distribution base in Blanchardstown, Dublin. This was a "disaster", according to one source.

Mr Simon Burke, its new executive chairman, acknowledged this yesterday.

In 2000 it entered a joint financial services venture with Irish Permanent, Tusa, in a bid to generate extra revenue. This ended soon after Irish Permanent merged with Irish Life. A petrol voucher promotion also failed to make any real impact.

Despite the problems, it still has a strong brand.

The question for its new owners is how best to find the elbow room it needs to expand.