Tuesday, June 9, 2009

Bye Irish

Barely a week goes by without one foreign-owned company or another announcing it is shrinking or closing its Irish operations due to costs. Especially those serving the Irish retail sector (the most recent example is Coca-Cola). Their rationale is that meeting retailer demands for equivalent prices to what they pay suppliers in the UK and elsewhere makes it too expensive to have a separate, dedicated operation in Ireland.

Of course, it isn't just foreign-owned suppliers to Irish-based retailers who are facing the pressure. Irish brands selling into chains like Tesco are likewise under pressure to reduce prices and reduce costs - or face shrinking sales as they are replaced by cheaper, non-Irish brands on the supermarket shelves.

What is driving this? For operators like Tesco it's simple: if they don't provide Irish consumers with the same value-for-money offers that cross-border shoppers and shoppers at discount stores like Aldi and Lidl are demanding then their business will also be threatened. Irish consumers want their diminishing incomes to go further: and old nostrums about buying Irish are increasingly ignored. Tesco and others are simply responding to these new realities - as they always have. That's good news for Ireland's hard pressed consumers - even if it makes life more difficult for hard pressed suppliers.

So where will it end? For the profession I know best - marketing - things look challenging. A lot of managers of fmcg companies that I have spoken to in recent months are now under ferocious pressure to deliver on price reductions to their retail customers. Taken to its logical conclusion this could see the mass closure of the Irish operations of a great many fmcg brands - with Ireland becoming part of their UK sales divisions. A region once again.

But what about Irish brands? Here I am more optimistic. Patriotism might well be the last refuge of a scoundrel - and initiatives like Guaranteed Irish may have run their course - but many consumer markets are still remarkably local. Parochial even. Moreover, the Irish consumer market is a lot bigger than it was back in the 1970s and 1980s when 'Buy Irish' was a matter of government policy. Consumers will spend an average of €88 billion this year and next, even allowing for the worst of the recession.

That's a big enough market for many Irish brands, entrepreneurs and innovators to get started: and from which to expand into the UK and further afield. As they often have in the past. Irish businesses need to learn from one of the most successful Irish businesses of all time: Ryanair. Who in turn learned much of their trade from Southwest Airlines. And as a new report from the Economist Intelligence Unit - Taking Advantage of the Pitstop - reminds us, businesses that respond effectively to recessions (like Southwest) often go on to be significant global players in their own right.

But back on the ground, retailers are in the business of selling consumers what they want at a price they are prepared to pay. And so the Irish suppliers who will succeed will be those who demonstrate a better understanding of what Irish consumers want and that can meet their needs at a price they will pay. It isn't 'Bye Irish' yet. Not by a long shot.

1 comment:

  1. Some retailers have been commanding much lower prices from suppliers and have not translated these savings into lower prices for consumers. So it's important that we break the implicit acceptance amongst people that killing suppliers, ruining brands and destroying Irish jobs is the price to be paid for lower prices. Certain retailers have commanded huge cost savings and one-off payments of hello money to generate a war chest to wage a price war on other retailers, despite making an unheard of profti margin in this jurisdiction. In other words, certain international retailers had the capacity to drop prices below the level of even discounters and still make a healthy profit but didn't. We are becoming a region of the UK!

    This will mortally wound many Irish suppliers and retailers and as we have seen doesn't equate to lower prices, means less choice and eventually will lead to lower quality food.

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