Caveat: Tesco tanker turns as its rivals change course

A little more than a year ago, multinational grocer Tesco wasn't so much the giant tanker of the Irish market. Rather, it was tanking.

Its sales from April to the end of September 2015 fell 3.9 per cent, a continuation of a lengthy rotten run that had knocked it off its perch as the largest grocer in Ireland by market share.

But with its sales apparently stabilising, the spluttering Tesco tanker seems to have finally turned around. This week, Tesco reported its third straight quarter of sales growth, albeit anaemic at 0.1 per cent. Every little helps, however.

The waves created by the tanker’s pivot are nowhere near being big enough to sink its rivals. But there appears to be a growing confidence stemming from within the British chain that it might at least make a few of them a little seasick.

Lidl and Aldi, the German discounters that have forever changed the face of the Irish market since their entry in the noughties, are entering a new phase.

Lidl, in particular, has cottoned on that it isn’t enough to fight its competitors on price alone in post-austerity Ireland.

Lidl recently acknowledged it has an image problem when it comes to its customer service, and has resolved to improve it.

Aldi, too, is shifting its operating model to attract those shoppers who like luxurious treats as much as bargains.

If the German discounters are going all cheap and cheerful – and not just cheap and chaste – this won’t exactly upset Tesco Ireland, however.

They’re moving onto its turf, now.

Clive Black, high-profile retail analyst and head of research at Shore Capital, said the evolution in Lidl and Aldi's business models in Ireland will make them "more complex" businesses, and so possibly less cost efficient.

Product range

Black believes that Tesco, which has focused on narrowing its product range, slashing prices on key items and staffing up at busy periods in Ireland, has “made life difficult” for its rivals, even as it still slides on the market share table.

“Its rivals are moving on to Tesco’s territory, but I don’t think it will be too worried. It has reinstated like-for-like sales growth. And it knows the middle ground better than the discounters.”

There appears to be a sense emanating from within Tesco that it has laid the foundations for an improved run at the market through its strategy of slashing prices on the products that matter – its Staying Down campaign in Ireland.

While it works on removing some of the pressure on its customers to go elsewhere to get the best prices, Tesco is growing increasingly confident that it can nail down their custom by doing all the extra little things – the loyalty card, the range, service, online shopping – better than its upstart rivals.

What about SuperValu, the new market king, and Dunnes Stores, which has drawn level with Tesco as second-biggest grocery retailer on 21.6 per cent?

Tesco makes much of its relationship with Irish suppliers and the fact that it exports hundreds of million s of euro worth of Irish produce to its home market in the UK. It might not win a battle on nationalistic grounds, however. SuperValu and Dunnes don’t just sell Irish. They are Irish.

But as the growth of the German discounters has proven, Irish consumers are perfectly happy to cast off the green flag if they can get a better deal for their families. They will go back to Tesco if it gives them reason to.

Dunnes is printing moneyback vouchers at a rate to make Greenpeace weep, essentially buying it a portion of its increased market share. Not all of its progress has been bought, however.

Dunnes’ push into healthy foods and better store formats has also helped it boost sales. But that investment can’t have come cheap.

The longer this grocery battle goes on, especially in a deflationary environment, the more it will chip away at Dunnes’ bottom line. Tesco might still lose some customers to Dunnes, but are they profitable ones?

As for SuperValu, it should be looking over its shoulder at Lidl and Aldi as much as Tesco. The discounters are gunning for its most profitable customers – well-heeled Dublin mums. This might leave room for a stabilised Tesco to steal back up the inside rail.

There will be losers – just ask the longest-serving of Tesco’s staff, many of whom were recently coerced into redundancy, what they think of its strategy.

But the customer still wins. This is a vibrant and healthy grocery retail market.

Footnotes . . .

Tony McNulty, a veteran management consultant from Britain, was in Dublin this week to promote his new book, Management By Permission, which is an entertaining read when compared to some of the dreadfully boring bilge that passes these days for management literature.

McNulty has worked on and off in Ireland for almost two decades, with clients such as An Post, ESB and one of Ireland's biggest banks, although he wouldn't name it. There are plenty of clues, however, in the pages of his new book, which was co-written with Robin Marks. Anna Maria O'Shea, who is a senior finance executive with AIB, gives the book a glowing endorsement on the inside pages.

Meanwhile, two more senior executives within AIB give McNulty references on his Linkedin page. They list themselves as his “client”.

McNulty’s book basically argues that employees in modern organisations can only be managed effectively if they give their active consent and cooperation. No more dictatorial bosses. Those snowflake millennials won’t wear it.

The book quotes an unnamed chief executive as saying that a biography of Ger Loughnane, the controversial former Clare hurling manager, is the best management book he has ever read. McNulty wouldn’t say who it was.

Surely it is neither of AIB boss Bernard Byrne, a Blackrock College boy, or his immediate predecessor David Duffy, who went to Terenure, also in Dublin. Rugby schools, both of them, although Terenure is reputedly nursing a few handy junior hurlers.

By all accounts, it was an unexpectedly lively morning on Tuesday at the Merrion hotel, where Investec and the Irish Exporters Association launched the Top 150 list of indigenous exporters. Investec's chief economist, Phillip O'Sullivan, gave a speech touching on the challenges posed by Brexit. He cited the Eagles' Hotel California, musing that while the British can try to check-out of the EU, due to the complexities involved they may find they can never leave.

Meanwhile, diplomat Eamonn McKee, who heads up the trade division at the Department of Foreign Affairs, cited the famous Brendan Behan quote about Ireland "apologising for our condition", when discussing how bad things were in the past.

When assessing the post Brexit fiscal risks for Britain, I’d prefer to mangle a different (if of its time and slightly crude) Behan quote, found in another context in McNulty’s Management By Permission: “Every [economic] cripple has his own way of walking.”