Inflation will herald a new era of competition in the Irish grocery sector

Comments this week from senior Irish grocery retailers suggest that the supermarkets sector is readying itself for another period of intense upheaval.

Noel Keeley, the chief executive of Musgrave, the owner of Super Valu and other retail brands, fears Irish grocery shoppers are facing a “perfect storm” of challenges in September, according to remarks reported by Reuters. Speaking at the Consumer Goods Forum Global Summit in Dublin, he said that by the end of the summer, most families will have burned up their pandemic savings, swallowed at least one hike in their mortgage interest rate, and be staring into a cold winter of massive energy price spikes.

Only then, Keeley suggested, will the true impact of inflation on the behaviour of Irish consumers become apparent. Retailers will have to respond. Speaking at the same event, Corkman Ken Murphy, group chief executive of Tesco, said he thinks people are already “terrified” of inflation.

Murphy also reminded people of an old grocery sector truism — when times are bad the bottom and the top ends of the market both do well, but the middle gets squeezed out.

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There tends to be a clear flight to discounters from people feeling the financial pinch. That is to be expected. But as people also strip out discretionary entertainment spending, they tend to compensate by spending more on premium eat-at-home products. So they might cancel the romantic dinner for two at the local restaurant but buy a supermarket luxury meal-kit as a treat instead.

All supermarket chains in Ireland have invested heavily in premium ranges in recent years. Competition is already intense there. But in the months to come, we are likely to also see a renewed focus on developing core discount lines. Everyday brands that are pitched in the bland middle of the grocery sector are already under pressure, as customers switch to private label products to save cash.

For Dunnes Stores, Tesco, SuperValu, Aldi and Lidl, it feels like a fresh period of competition is about to begin, with new and unpredictable battle lines.