The chief executive of the retail giant's Irish operation says cost-cutting has not resulted in any indigenous products being dropped, writes PAUL CULLEN, Consumer Affairs Correspondent

SAY WHAT you like about Tesco, but you can’t ignore it. The State’s biggest retailer has been at the heart of massive controversy over the past two months since it started a cost-cutting campaign in its Border stores.

After years of talk, political inaction and other forms of hot air, it took a single company to grab the issue of high prices by the horns by rolling out reductions of up to one-third across thousands of products last May.

That action started the biggest price war in grocery retailing in years as competitors sought to emulate the UK-owned multiple’s lead. However it also prompted a wave of criticism over Tesco’s treatment of Irish suppliers and their products.

Politicians railed against the “Tesco-isation” of Ireland, economists warned of thousands of job losses in food production, farmers stormed a meeting of the company’s top brass and the company itself announced 140 redundancies at its Dún Laoghaire headquarters.

A defiant but not visibly bruised chief executive Tony Keohane was holding out an olive branch to suppliers when The Irish Times interviewed him this week. “We’ve had to be so focused on what we’re doing that that maybe some of the contacts with stakeholders slipped a bit,” he admits. “We need to improve that.

“When change happens and everyone isn’t quite in the loop, people can jump to the wrong conclusion,” he says of suppliers’ claims that the shelf space devoted to Irish products has been drastically reduced or even eliminated.

“We’re going to be doing more for our suppliers and become more proactive about introducing Irish products into the system.”

He maintains that Tesco hasn’t dropped any Irish brands, where the definition of an Irish brand is one “made in Ireland” rather than “known in Ireland”, unless they weren’t selling.

“That’s normal retailing. All the Irish lines that people are buying are still in our shops and all the contracts we have with suppliers are still in place.”

Tesco has not delisted any Irish line on the basis of a cheaper import becoming available, he adds: “What we have done is sit the products side by side.”

Customers are then supposed to decide, assuming they can find their favoured product on an increasingly crowded shelf.

Some wondered about Tesco’s ability to roll out a €100 million cost reduction programme through all its stores, but Keohane believes the doubters have been well and truly answered. In reality, there was no going back once the initiative was launched in Border stores, especially when competitors were trumpeting their nationwide price cuts.

He accuses rivals of muddying the waters – and, privately, company sources fume about what they see as a concerted campaign against the market leader – but claims none has introduced price reductions on anything like the same level as Tesco.

It’s not about “weekend specials”, he says, and competitors will need to change radically what they’re offering consumers if they are to keep up.

If they even can. Tesco’s parent company is the third largest grocer on the planet. Tesco Ireland has the biggest and most efficient distribution system of any retailer and, due to its size, it can negotiate the biggest economies of scale – and that’s before you even consider the hardball tactics employed to make the current campaign possible.

Suppliers have been told to take a 20 per cent cut in the prices they charge; some say they have been threatened with delisting or told to organise their own deliveries to each of Tesco’s stores. The jury is out though on whether Tesco’s strategy is an act of desperation or genius.

The internal business plan revealed by The Irish Times earlier this year shows that it aims to use its muscle to maintain high profit levels and make inroads on weaker competitors as well as dropping prices. The cost of the new strategy is being borne by suppliers, not the company itself.

Tesco and all the other retailers were suffering from the exodus of shoppers across the Border and the recession. The retail market is down at least 5 per cent, not bad compared to other sectors, perhaps, but critical for traders operating on tight margins. Falling sales had prompted the UK bosses to take an increasingly critical look at operations here and the influence of the plc’s headquarters in Cheshunt is increasingly to be seen in the Republic.

Keohane accepts Tesco’s market share has dropped and says profits this year will be “challenged”. The company doesn’t publish profit figures for its Irish operations – “because nobody else does” – but the internal plan puts them at about €250 million a year.

He is gloomy about prospects for an improvement, either in profits or for the Irish economy generally. “I don’t believe we’re through the worst of this. There’s still a way to go. As consumers feel the real effect of taxes and levies and everything else and select cheaper options, that should be a watch-out for Irish supply base if it hasn’t responded adequately.”

This year will be a slower year for Tesco Ireland, though on the back of considerable expansion last year, Keohane adds. The company is replacing its stores in Douglas and Ballinasloe and hopes to open “five or six” smaller express stores before the end of the year.

“I think that reflects some of the uncertainty out there. We’re pausing a bit to make sure we understand what is happening in the marketplace.”

One the most widespread rumours in retail is that Keohane himself will be upping sticks shortly as UK headquarters shortens the leash on its Irish operations.

So is he staying around? “Absolutely. I love this,” he replies.