The British Counter Invasion

This month the Irish mass market place is due to be invaded by two British super hucksters. Albert Gubay opens the first of his discount supermarkets at Firhouse, with the promise of 12 more, and British Home Stores breaches the very heart of Dublin's shopping area on October 12th when its first Irish store opens on a prime site in O'Connell Street. Here Pamela Readhead and Lindy Naughton assess the effect of these two new arrivals ori Irish shopping patterns, and in particular on our own mass marketeers. By Pamela Readhead and Lindie Naughton .

Gubay: more than a Big Mouth

HE SAYS: "I can just see what it will be like on opening day. I'll be carried shoulder high. Women will stop me and kiss me. "

Ever an outspoken optimist, Albert Gubay's aim is to open at least 13 discount supermarkets in the Dublin area, and to carve for himself a 25 per cent chunk of the £250m. grocery market within 12 months.

Having already proved a painful thorn in the side of the giant public companies which control the UK grocery market he is now preparing to . take on the close-mouthed Mafia of entrepreneurs whose (mainly private) companies dominate the Irish industry.

The reaction to Gubay's arrival in Dublin has been' well nigh hysterical. His natural ebullience and love of drama have already contributed to a number of television chat-show scenes, while in the trade he has provoked violent reaction from competitors. Two major multiples have blacklisted suppliers who have agreed to deal with Gubay 'and the chairman of another has referred in his report to the "greed of manufacturers who prefer foreigners. "

Gubay brushes criticisms and threats aside. When challenged as to why he did not put his money where his mouth was, his reply: "It's not big enough. Surely one look at my six acre wareehouses is reply enough?"

But Gubay is more than a big mouth, although he is not afraid of telling you he's about to make a good quote. The description of himself he prefers

appeared in an article in 1971 and he still remembers it, "Tough, uncommpromising and utterly profit-oriented - That's me," he says with a broad grin.

Albert Gubay shot to fame in the late Sixties by a daring and utterly original attack on the established grocery market in North Wales. With a mind uncluttered by prejudice and "traditional practice" he took over the lease of what had been an unsuccessful branch of a larger chain of superrmarkets.

Five years later his Kwik Save chain went public, with what was then the most profitable food chain in the UK. On a turnover of £15m. he was making a return of £lm, about 6.6 per cent,compared with a 2.5 per cent for the average in the sector, .and 5 p.er cent for the British supermarket giant, Tesco. In 1975 he hit the headlines again by selling out for £ll.4m. and dissappearing to New Zealand. . .

In an atmosphere at least as sceptical as he finds here in Ireland, Gubay again shot to the top. He fought off blackklisting, won over the trade and swiftly captured 28 per cent of the Auckland grocery market.

"When I'm asked what will happen next I just look through the cuttings for the early New Zealand days," he says. "So far the sequence of reactions has been spot on. "

In North Wales, his early shops broke all the existing rules. First, they were smaller than was then considered viable - about 5,000.square feet, and carried fewer lines, usually 1,000 at most. Second, they were free of merchandising frills. Goods were displayed in the cartons they arrived in, in wide aisles. There were no prices on individual items, no special offers. Third, store managers were recruited from outside the trade: lorry drivers, teachers,' but no grocers.

Behind the externals lies a design' of simple but stringent principles. This is based on cutting costs to the bone, profits being a function of volume rather than high margins. "You can't bank a percentage," Gubay grunts.

He saves money across the board: installation, labour, pilferage, o~erheads - and the concessionaires who run his fresh meat and vegetable sections pay a rent based on his turnover, not theirs. In other words, they have a vested interest in his success.

The philosophy of "pile it high and sell it cheap" is by no means new, but neither does it always work. The reason why it has worked for Gubay lies largely in his computerised control system. This he has refined over the years so that his shops can run almost without people. His re-order system is completely automatic. The computer decides what to replace and when. The store manager simply opens the door, smiles at the customers and takes the money to the bank.

From the sales information which is fed back, management can instantly compute profit on individual items. "Without this information pricing would be guesswork," says Gubay. "You need to know how much profit you're making before you sell, not three months later. That's the way to run out of liquidity."

The crucial question for Gubay in Ireland is whether he will be able to secure terms from manufacturers which will allow him to continue to make a profit at lower prices.

Gubay thinks he can. On opening day he estimates his prices will be 10 per cent cheaper than Dublin's cheapest, and by the end of the first year, if the New Zealand experience repeats itself, he'll be cheaper still.

His strength lies in negotiating one drop deliveries to a central warehouse in Tallaght and so far most manuufacturers and agents have agreed to a new price structure, discounting the service charge which is included in the deliveries to Dublin's major multiples. These deliveries can sometimes run to three per week.

There have been problems with some suppliers, however. One, in parrticular, from whom Gubay ordered 1,000 cases, delivered only 35, "because he had to please his other friends in the trade."

The £12m. warehouse, which is the central pivot of the 3 Guys system, is designed to service 13 outlets in the Dublin area within a year, and will also hold a stockpile of goods as a hedge against the 24 per cent inflation in the dry groceries business.

Gubay's competitors, however, see the warehouse as a white elephant. Traditionally, only a few Irish wholeesalers have invested in warehouses, and they buy at similar rates to the big supermarkets, passing on the costs to independent and voluntary group reetailers.

The multiples Superquinn, Quinnsworth, Dunnes Stores and H. Williams, which hold approximately a third of the Dublin grocery business - therefore had no need for their own warehouses.

"For the estimated 2 or 3 per cent saving on buying costs, it just wouldn't be worth it," says Brendan Rooney, general manager of Superquinn. "We have seven large stores, of an average 25,000 square feet, all within a few miles of our suppliers. You just wouldn't believe the service we get. Our total stock turns over every nine days and we have three deliveries a week. We have no storage space at the stores, just loading bays. It's a system that could only work in a city like Dublin, which is small and centralised, with all the suppliers at hand. "

Quinnsworth, too, with its 39 stores all over Ireland, finds a central wareehouse unnecessary. This offshoot of Associated British Foods did a cost benefit analysis and found direct deliveries more economical.

Quinnsworth management is keeping a more open mind on discounting than some of the other multiples. It has opened a pilot or "learning" discount store of its own in Finglas which sells only 500 lines. So far there are no plans to extend the operation.

The other difference between the UK, New Zealand and Irish markets which may hamper Gubay is that gross margins in Ireland are lower. Opinions vary as to the precise figures: Brendan Rooney says that margins in Ireland tend to be around 12 per cent, as compared to 18 to 22 per cent in the UK. "If we took our operation to the North of England we'd already be discounting more than anyone else."

Gubay on the other hand feels the Irish under-estimate their margins, and that there is plenty of room for mannoevre. In any event he does not claim to be able to make huge profits overrnight.

This is a point with which his competitors would probably agree. As Jim Blanchard, financial director of Quinnsworth puts it, "Albert is going to do business, good business, but whether he will make an adequate return on capital employed is quite another thing. We don't underestimate him for a minute, but we're not quaking in our boots either."

*************************************
BHS: the thin edge of the wedge

ON OCTOBER 12th Dublin's Lord Mayor and representatives of Government and unions will attend the opening of the first overseas branch of British Home Stores. There is more than a touch of irony in the fact that the new branch is to be situated beside the G.P.O.

This time the battles will be fought on a different plane. BHS is a highly aggressive and professional organisation which employs close on 24,000 people in 103 outlets and which declared a profit last year of £25m. In Dublin it enters a market already occupied by some of the great names of Irish commmerce - Arnotts, Clerys and more recently Roches and Penneys on the north side; Switzers and Brown Thomas on the south; and Dunnes Stores straddling both sides with four city-. centre branches. Two branches of the long-established British firm, W collworths, also occupy prime trading sites in Henry Street and Grafton Street.

Already the past three years has seen an unprecedented boom in city-centre trading, with an estimated annual turnover of around £250m. Despite the so-called recession - or perhaps because of it - people have money in their pockets and are prepared to spend it. Trade has become more streamlined and class-conscious. Clerys, Switzers, Brown Thomas, Penneys and Roches Stores all show the signs of radical changes in boardroom attitudes with Brown Thomas having opted exxclusively for the upper end of the market, Penneys for the lower and the others for a broadly based appeal. BHS's

target market will be the pnceeconscious housewife, and its goods, which will be slightly dearer than in the UK because of import duties, will neverless be in the low to middle price range. A £10m. slice of mid-city turnnover within two years is already being projected by the company following this policy.

Immediately interesting to observe as the months go by will be the shop's impact on its only O'Connell St. rival, Clerys, situated just across the road. This shop with its bright awnings and cleaned up frontage has been adding a much needed touch of sophistication to our main street in recent months. In years gone by, Clerys was mainly freequented by priests and country visitors "up for the day". But a gradual transsformation of image has meant that now, vying with the collarless shirts, are rows of Michael Jacobs fashions, "balloon" shirts and kimono style lingerie; while in the household deepartments, solariums, yoghurt makers and 3-in-l hi fi's have joined the tin openers and china bowls.

At a time when it is still in the process of establishing a new image, it could find itself vulnerable to a brash, confident chain store across the street.

But with its main emphasis on value for money, BHS will aiso face big competition from Penneys and Dunnes Stores which offer by far the cheapest deals in town. Whether these are also value for money is a matter of opinion but there can be no doubt that in some categories both shops shine.

For example a child's duffle coat in either shop costs just under £10; in Amotts and Roches over £2 can be added to that price - and more deepending on size. Woolworths, which incidentally now stocks a small range of clothes, is also offering a child's duffle coat for under £10.

By offering a limited selection, multiples can sell at keener prices. Department stores on the other hand push variety and a broader price range. BHS is strictly in the first category. Its two shopping floors covering about 60,000 sq. ft. will sell a range of men's, women's and children's wear, accesssories, lighting, houseware and house-hold textiles. It is unlikely, therefore, that the shopper will be able to buy a set of weights as in Arnotts, a pair of ballet pumps as in Roches, a life-size china dog as in Brown Thomas or a grandfather clock as in both Switzers and Clerys.

What BHS will offer is good value and a "refund or exchange" purchase guarantee. It also has its own specialty which is light fittings, and it should fill a definite gap in the Irish market. In the UK, the chain holds a dominant position in the total domestic lighting market with its range regularly shown in the pages of the glossy magazines and appealing to a broad cross-section of the market. Indeed by standardising design and quality in lighting and household goods, the store could revolutionise city trade in these areas. At the moment price and quality, even in the chain stores, varies considerably. Pressure cookers, for example, retail at £25.95 (Prestige) in Clerys, £15.65 (Prestige) in Switzers, and £13.28 (Hawkins) and £19.75 (SEB) in Roches.

The opening of the shop will certainly add to the element of healthy competition among Dublin's chain and department store trade. Cut price has become the order of the day - even in Brown Thomas ("Ireland's Loveliest Department Store") an 88 piece Mansion House Chancellor canteen cabinet normally costing £331.90 was being offered recently for £265.

Most important perhaps is the question, could this be the first of an invasion by British chain store groups hungry for new markets? If BHS succeeds, can Marks & Spencer and Littlewoods be far behind? If those giants arrive with their formidable reputation for efficient marketing and quality control, the competition could get very tough indeed for our own chain stores.