Supermarket Wars
Pressure is on for price regulation which will have an immediate impact on what every shopper pays for basic foodstuffs.
When supermarkets first opened in Ireland they were regarded variously as the first wave of the Communist menace or the latest import of American bubblegum cullture. Their guiding principle was contained in an aphorism attributed to the original barrow-boy made good, the late Tesco pioneer Jack Cohen:
"Pile it high and sell it cheap." It was the Henry Ford philosophy appplied to food instead of cars - the retailer making profit through the sheer volume of goods sold.
By definition this wreaks havoc among independent grocers from whom the supermarkets multiple wins custom. In 1967 there were 12,681 such shops in business in Ireland. By last year only 7,736 remained. In Britain, according to A.C. Nielsen market research, it has been calculaated that one goes out of business every hour.
This year independents, represented by the wholesalers trade association, chose to stand and fight on the issue of multiples' selling of goods at below the buying-in price offered to the rest of the market. In the last month they have wrung from an all party Dail committee a recommendation that 'below cost selling' be banned. If they succeed, top selling lines from beans to biscuits, could become more exxpensive.
In their drive to offer cheaper prices, supermarkets multiples - today primarily Dunnes, Quinnsworth, Tesco and Superquinn, with H. Williams trailling in fifth place - have increasingly fought on a second front. This involves putting pressure on suppliers for bigger and bigger discounts for bulk. Fraggmented, and towered over by both expanding competitors and the food manufacturers, independent. grocers have little muscle to extract remotely comparable concessions.
With growing markets shares, the multiples' leverage over suppliers has increased. This has reversed the power structure in the industry. In the early seventies the largest corporate entities in the Irish food industry were the manufacturers. Today - if one leaves aside the subsidiaries of multinationals - they are dwarfed by the turnover of the multiples. Irish Biscuits for exammple, with a turnover of some £50 million a year, is now towered over by the likes of Dunnes and Quinnsworth, each with sales several times that figure.
Responsibility for introducing much of the hard-nosed battling into trading is generally attributed to the late Ben Dunne Senior. He made demands on suppliers no one else had the nerve to, such as getting their delivery staff to stock his shelves for him. One such tussle reportedly led to a procession of reps from different suppliers being locked out of one of his largest Dublin stores. They were only allowed back into the building in return for a further discount. Within the company he exerted pressure at least as great upon his own managers, who at one store in the capital departed with a frequency that made soccer clubs seem tolerant. To outsiders he could be equally obtuse. Reporters invariably struck a verbal brick wall - his stock reply to all questions was "Dunnes Stores better value beats them all."
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The Multiples' Armoury
Shoppers do not have to be clubbed over the head to go into superrmarkets - they go there by choice. Surveys by the National Prices Commmission show that customers in areas without supermarkets pay more for certain foodstuffs (NPC monthly report January 1984). At the same time the multiples have no monopoly of tough tactics when it comes to bargaining with suppliers. But their very size and purchasing power confer on them weapons unavailable to lesser rivals.
The supplier may be expected to assist in the costs of opening a new multiple outlet, as in taking space in press ads announcing the new arrival. Not surprisingly this is seen as a key factor in getting the product featured prominently in the store. As a veteran supplier puts it: "It's the price of staying on the shelves." Some years ago the price was dearer - "entrance fees" were levied for stocking newlyylaunched products, a practice that has now dwindled.
Staple lines of food stores usually involve the supplier in a "long term agreement" (LT A). Central to this in the cases of multiples is a discount payable to the store firm by the suppplier, typically at the end of the year. This in theory is tied to a turnover threshold - when the quantity of sales of the item are met then the cheque is written out by the manufacturer or their agent. In practice, even if the target stipulated is not passed, the payment may still be made - again, in order to maintain good relations with the multiple.
Because it is very difficult for the manufacturer to survive without the custom of the multiple, it has to endure other unattractive trading condiitions. These include often unilaterally imposed credit terms that benefit multiples' cash flow. This point provided the spectacle of prolonged questioning of supermarket executives at the hearings of the Dail Committee on Small Businesses this summer, when it considered multiples' trading practices. In a recent issue of the trade magazine Checkout it was reported that a supplier arrived at Dunnes headdquarters to personally request payyment of unpaid bills. He was kept waiting in an ante room for some four hours. Along with him were several others in similar circumstances. In all, they calculated between them, there were in excess of £3 million in outtstanding bills queueing to be paid. Dunnes are not alone in this, however, say suppliers, with Quinnsworth being mentioned by several as difficult to obtain payment from at times.
Perhaps the most upset is caused by the practice of "delisting". When a supplier refuses to accept terms for discounts demanded by a multiple, the latter may summarily drop the company's products from its range - effectively a lock-out of one firm by another. This can go on for months, or indefinitely until the price is acceppted. Dunnes acquired a particular reputation under the late Ben Dunne Senior for laying down prices not open to negotiation. Their executive who appeared before the Dail Commmittee mentioned made no bones about this: " ... to get the supplier to come to terms with us he either has to be delisted or has to do someething to help us make the margin with his products."
This June saw Dunnes take this action with at least eight suppliers, and according to some reports, as many as twelve. Those reportedly affected included Beechams, Rank Hovis McDougall, importers Stafford Lynch, the health care firm Johnston and Johnston and the agents for the Me Vitie 's range of biscuits, Johnson Brothers. Dunnes reportedly were seeking to buy at prices that would enable them to match offers then curren t at Quinnsworth's new 'Crazy Prices' stores and at Tesco , and still allow them to make a profit.
The subject of contractual hagggling is one which both sides for public relations reasons are most reluctant to discuss openly. While some of the above were prepared to admit privaately they had been delisted this summer from Dunnes, only Beechams would say so openly. "We had a number of products delisted. They (Dunnes) viewed the manufacturers as having passed on one product below cost." These were appearing in other stores but not in Dunnes. "We then got deelisted for all our products, though it was resolved after a couple of weeks," said their sales director.
Delisting is by no means restricted to Dunnes, but as another supplier put it "it has been a feature of that firm's 'marketing strategy' over many years." Dunnes' own purchasing exeecutives were unavailable for comment on the matter.
Delisting also works in reverse Ðsuppliers aggrieved at retailers selling their products at below the prices agreed may cease supplies to the outtlet until the practice is halted. This occurs from time to time in Ireland but is most dramatically seen in Britain where larger food distributors are perhaps less timid. Recently the massive Cooperative Retail Society (CRS) chain found itself suddenly without sherry and whisky - Allied Lyons decided that CRS were using the lines as loss leaders to bring in customers and cut deliveries at a stroke. CRS hit back, and delisted every Allied Lyons product it could find on its shelves, which included everything from biscuits to tea-bags.
A variant on this practice, which is if anything even more painful for the supplier is "partial delisting", invollving the retailer stopping purchases of all the manufacturer's most profiitable lines, while continuing to buy in products at the sharp end of compeetition over price, on which little or no profit is taken by the maker. The products left in the multiples' stores may not only provide no surplus, but actually incur losses for the firm.
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Below Cost Selling
The most controversial allegation levelled at multiples by indepenndents and small chains is that they compete unfairly through the pracctice of 'below cost selling'. What is meant when independents use the phrase is selling at prices forced on suppliers that effectively mean them supplying a particular product at a loss, for fear that a rival will take up the business if they refuse. At the same time, outside the multiple secctor, it is argued, the same product can only be procured for sale at prices higher than the multiples buy in at.
This is not necessarily a complete picture. In exchanges with the Dail Committee on Small Businesses, Fearrgal Quinn of Superquinn attempted Xwithout much success - to get the politicians present to accept that below cost selling could be financed by the retailer without the supplier suffering.
The independents' main gripe is of course that they can never match the multiples on below cost selling. But to persuade others of the inequity of the tactic, they have stressed another potential consequence - that employyment in indigenous Irish food manuufacturers would be decimated by its widespread application.
The logic of this runs as follows. By forcing suppliers to deliver their prooducts at a loss, however small, the multiple drives these firms into a slow decline and ultimately liquidation. If the producer rejects the price offered the trade may then go to an overseas firm. Either way, the jobs previously supported by this business may be lost to the Irish economy. In a market such as biscuits, worth over £20 million in imported brands alone, the stakes are high. Within the 26 counties there is only one major manufacturer in the sector - Irish Biscuits (Jacobs), which until recently found it unecoonomic to trade in unbranded generics or own-brand biscuits such as 'Yellowwpacks' (Quinnsworth), 'Thrift' (Superrquinn) or 'St Bernard' (Dunnes).
Rampant below cost selling, say the wholesalers' body the IADT (Irish Association of Distributive Trades, now amalgamated with the Retail Grocers and Allied Trades Association [RGDATA]) is the fastest way to a monopoly in food retailing. Its logical consequence they claim would be to turn multiples in to massive importers of British and European goods. Last month the Irish suppliers in the shape of the Food Drink and Tobacco Federation of the CII took the same position in lobbying of Industry Minisster John Bruton.
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Lines, Damned Lines, And Statistics
The Dail Committee eventually came out in favour of a ban on below cost selling, in part due to the assiduous lobbying from the IADT. Even so, members of the committee seemed less than clear during hearings with multiples' executives from the four major chains as to what it actuallly was. Few apparently took into connsideration the existence of L T A disscounts in deciding whether prices were in fact below cost. (A High Court judgement in December 1979, during a case between IADT/RGDATA and Three Guys Stores effectively removed L T A discounts from the legal definiition of below cost selling - despite their critical role in practice.)
In the event several multiples' representatives said they were not opposed to a ban, some denying their companies were involved in it. Quinnssworth's managing director, Richard Reeves, bemused deputies with a masterful "Yes, we have no bananas" assertion: "If our policy is that we do not sell below cost, then frankly we do not care if the Government introoduces a ban," he said. "It will not affect us. That is a truthful answer." He had earlier conceded that there could be sporadic below cost selling within the group - but not as a matter of policy.
The energy of lobbying evidently blinded some of its targets to the massaging of statistics that took place. TDs were encouraged to believe that there were only 6,000 family grocers left; that their numbers had been halved in six years; and that the degree of concentration of food retail outlets was greater than in any other Euroopean country. None of these claims were in fact true, but that did not stop TDs on the committee, including Frank Fahey of Fianna Fail, repeating them as if they were. "We found their case was somewhat overstated," says committee chairman Ivan Yates diploomatically, of the IADT version.
NeverthelessYates makes no bones about policy priorities: "We are puttting the long term interest of the independents before the short term interest of the consumer." Along with colleagues in Labour and Fianna Fail he is concerned about the effect of dynamic competition on the surrvival of small grocery businesses in rural areas. At the same time he accepts that multiples take the credit for raising standards in food retailing generally.
An emotive charge levelled by the independent sector - that the multiples are effectively marketing agents for overseas food manufacturers - gets a rapid dismissal from the big five. Paddy James of Dunnes claims the big buyer is often driven overseas for supplies when the Irish producer cannot meet production targets. " ... Say they have a problem at factory level. They tend to deliver their own national brands and leave your own label brands out. In that case one has no alternative but to look for another supplier. "
Feargal Quinn points out that many lines traditionally imported were simply not available in Ireland from local suppliers: "A good example here last year was toothpaste. We said (to the IDA) that we could not get Irishhmanufactured toothpaste. They went out, found somebody and introduced them to us and within a couple of months there was an Irish manufacctured toothpaste. As far as I know it is the only Irish manufactured one available ... The same thing occurred with about six different things."
Though it would not seem so from the intensity of recent arguments, the central row over below cost selling had been thought buried by a Government directive outlawing advertising of such selling practices. With Quinnsworth leading the way in alternative methods of competition (mainly by giving away cars) - to the distaste of purists like Feargal Quinn who feel this is not what it is all about - the market had seemed to be heading in a different direction.
Pressure for a complete ban on belowwcost selling is now being conducted via the Fine Gael chairman of the Dail Small Business Committee. It will be ironic if a ban - an election pledge in the last Fine Gael manifesto - were now scuppered by the party's own Minister.