Analysis: SuperValu merger makes sense

A number of years ago, then Superquinn chairman, Simon Burke, who fronted a consortium of investors that bought the business in 2005, said that if he was doing his job properly, his customers wouldn't have to bother shopping in Marks & Spencer.

It was a nod to the fact that both operated at the premium end of the grocery market and that the UK retailer had stolen a march in the Celtic Tiger years on a Superquinn brand that was jaded, in need of capital and new ideas.

This positioning is part of the reason why M&S is closing four of its Irish stores and why Musgrave has decided to rebrand Superquinn's 24 shops under the SuperValu brand.

Burke failed to turn around Superquinn’s fortunes before the business was sold for €229 million to Musgrave in late 2011.

Superquinn had actually begun to lose its way in the latter years of Feargal Quinn’s ownership. The Senator and his family received a handsome cheque for €420 million when they sold the chain to the Select Retail Holdings consortium, but much of that value was backed by the development potential from the properties occupied by Superquinn, which was predominately Dublin based.

Market share peak
Under Musgrave's watch, its market share has stabilised at 5.4 per cent, thanks in large part to a €15 million investment in the chain which had been starved of cash for a number of years. But this is well off its 8.8 per cent market share peak and sales have declined by 22 per cent over the past decade to a level of about €450 million.

Superquinn has been running hard just to stand still under Musgrave’s ownership. Merging it with SuperValu, which has been on an upward curve despite the recession, makes sense on several levels.

It will save a significant amount money on branding and eliminate 102 administrative posts. It will also give SuperValu a significant foothold in the Dublin market.

When Musgrave acquired Superquinn, SuperValu’s share in Dublin was just 8 per cent. It will rise to 22 per cent once the merger is completed in February.

The risk is that the company might alienate Superquinn’s customer base, who have remained loyal to the brand.

Musgrave chief executive Chris Martin was keen to stress yesterday that this merger will bring together the best elements of both brands – Superquinn’s reputation for fresh produce and baked goods and SuperValu’s 2,000 own-brand products that offer price value to customers.

Since the economy crashed in 2008, price has dictated consumer buying patterns. This chimed well with the emergence of German discounters Lidl and Aldi, who have overtaken Superquinn in market share and now control about 14.4 per cent of the market.

Martin acknowledged that the consumer perception of Superquinn was that it was expensive. The reality was actually somewhat different, however it was hard to break through the perception.

For M&S the reality is more cut and dried. It hasn’t been immune to the slump in consumer demand since 2008 and the loss-making stores in Tallaght, Mullingar, Dún Laoghaire and Naas that were products of the boom years are being cut adrift.

Irish market
However, M&S has signed up to the proposed Horizon Mall retail scheme in Limerick, where it wants to open a 72,000sq ft shop in 2016 employing 250 staff. It's a clear signal of its commitment to the Irish market.

Musgrave’s chief executive said the Irish grocery sector remains “tough” and is cautious about calling a turn in the market.

The fine summer weather has given supermarkets and convenience stores a bounce in sales, but October’s budget might yet take it all away.