Irish companies appear to be well informed on how to prepare for the euro from accountancy and information technology perspectives. But there is less information on the euro from a business and marketing perspective - how the euro will affect a product, its price and its performance in the marketplace.
To envisage the practical implications of the euro, one must first be aware of the process of concentration at work in the European grocery sector. In most national markets, the top five food retailers account for 75 per cent of volume sales and around 50 companies supply 60 per cent of their product.
This ongoing process of concentration will be boosted by the euro and has implications for an Irish industry heavily dependent on the British market.
In April, Bord Bia carried out an informal of survey of retailers in France, Germany and Holland. It requested information on their level of preparedness and their plans for the introduction of the euro. Common concerns emerged across the three markets.
The main issues are:
The cost implications related to dual pricing, increased customer services, cheque-out conversions. Retailers strongly favour a short conversion period or `Big Bang' approach. They are likely to look to their suppliers to share the costs involved.
No uniform approach to invoicing, pricing and euro signage has emerged. Retailers have different approaches to timing and schedules ranging from 1999 to 2002.
Retailers do not expect the euro to offer price increase opportunities. Their goal during this period is to maintain the confidence of their customers. If anything, they expect prices to be rounded off to lower amounts and for prices to fall.
Retailers recognise the advantages of instant price comparisons across competing suppliers. Many have structures in place to take advantage of this. Casino has established a European buying office in Switzerland. EMD, International Spar and AMS marketing associations are moving to increase their purchasing capabilities within their already established central offices.
Threshold price points are a real concern. Over 60 per cent of prices in France end with a nine. At the moment retailers claim they will simply round down to the nearest euro point as per guidelines. Suppliers need to watch for pressure on margin or change their product content to achieve the new euro price points.
One final concern for retailers with a high percentage of own label is that as the euro will be worth more than the existing currency unit (in all countries with the exception of Ireland), prices and price differences will be compressed. For example, a bar of brand name chocolate costing 10 French francs at the moment is clearly 25 per cent dearer than the store's own brand offer at Frs8. However, the euro price difference will be less clear cut at 1.51 euros for the branded product and 1.21 euros for the own label offer. It is still a 25 per cent difference but it is less obvious to the impulse shopper.
For Irish suppliers, there are issues to consider about long-term competitiveness of supply to this huge new concentrated market. Price points will be transparent, enabling instant price comparisons. Products may become obsolete because of how they convert into the euro. Competition may increase as local suppliers in Germany and France decide to venture into export markets in "euroland". New forms of competition may emerge from mail order and the Internet. American firms previously discouraged by the complexities of selling to a multi-currency Europe may now decide the time is ripe to invest in building business in Europe as their own economy peaks.
There will be opportunities and these outweigh the threats. The euro will make it easier, faster and cheaper to conduct business in Europe. The introduction of the euro must be seen in the context of a deregulating, more open European, marketplace. Irish companies have more experience of such an environment than continental firms of similar size. This can provide an early lead. Despite many localised barriers such as VAT rates and cost of distribution, today consumers in Ireland has more in common with their counterpart in France and Germany.
The global consumer, or at least global consumer values and behaviour patterns, is beginning to emerge. This suggests a developing and segmenting marketplace, which will accommodate a consumer with a more complex set of needs and wants. This should provide opportunities for Irish companies who have proven flexibility to service a more demanding customer and a wide range of route to market options.
The euro offers both threats and opportunities. From a marketing perspective how best can you prepare? I recommend beginning with an internal marketing audit to assess your preparedness for the new environment. Bord Bia can assist Irish companies in this research phase. Our Store Check service, with euro conversion, can give you an instant guide to your competition on store shelves across Europe.
The euro will become a reality on January 1st. Companies have adjusted already from an administrative perspective. However, it is important to take account of the more gradual changes during the transition period. These changes will be fundamental to how the market operates and the future competitiveness of your businesses. The euro is another signpost on the way to the reality of a single European marketplace. It will add impetus to the process of europeanisation, not only at the structural level, but also at consumer level. The indications are that continental European retailing and consumer behaviour will increasingly resemble the American and British models.
This process in Britain provided Irish companies with huge growth opportunities. I have no doubt that similar growth prospects now exist in continental Europe.
John McGrath is European Manager at Bord Bia.
