The importance of retailing to employment and economic growth will continue to increase in the next few years, although manufacturers must prepare for major structural changes in the industry, according to a new report by Forfas.

The report, The Dynamics of the Irish Retail Sector, found the sector now contributed 6 per cent of gross domestic product in the Republic as opposed to 5 per cent a decade ago. While the report argues this increase should continue, it says structural changes in the sector will have major implications for all retailers, their suppliers and intermediaries such as distributors. It pinpoints continued internationalisation of the sector, the growth of own-label or retailer brand products and the move to centralised distribution as the most significant drivers of change.

Manufacturers need to decide whether to develop and invest in their own brands or concentrate on supplying retailers with branded products. They also need to focus on continuous improvement in operations, specifically in the areas of quality management, use of IT links with retailers and continuous new product development, says Forfas, the policy body for enterprise and trade.

The report highlights a new supplier development programme, introduced by Enterprise Ireland, which assists manufacturers to prepare for these changes, as a good example of the opportunities presented by cross-group sales.

"For many Irish companies there are new opportunities to develop their own brands and to supply high-quality innovative food products both to retailers in Ireland and internationally," said Forfas chief executive Mr John Travers.

The strategic challenge facing domestic retailers is how to respond to the increasing flow of international retailers into the Irish marketplace and to the small number of multinational chains with significant market share, says the report. This increasing retail concentration will result in a centralisation of purchasing in the Irish market. as says.

It is estimated that, if savings and efficiency gains were passed on to consumers, it would total £300 million a year.

Employment is forecast to rise in the sector from 161,000 in 1998 to almost 199,000 by 2003.