Brexit could fuel a cross-border shopping exodus - Musgrave CEO
Brexit is the "main challenge" to Ireland's economy and consumer confidence, the chief executive of Musgrave, the Cork-based retail group that controls the SuperValu brand, has warned.
Chris Martin predicted that if sterling continued to weaken against the euro on the back of a vote for the United Kingdom to leave, there could be a return to the exodus of shoppers to Northern Ireland that occurred in 2009 when the two currencies neared parity.
Mr Martin, inset, said that Musgrave, whose stable of brands also includes Centra and Daybreak, has drafted a Brexit battleplan but that the consequences of the UK voting to leave the European Union in June's referendum couldn't be accurately predicted.
He was speaking to the Irish Independent as the family-owned retail group reported revenue of €3.7bn and a pre-tax profit of €52.8m from continuing operations in 2015. SuperValu is Ireland's biggest grocery retailer, with a 24.9pc share of the market.
The shareholders in the group were paid a total dividend of €15m in respect of 2015, down from €16.4m in 2014, Musgrave's annual report shows.
Founded 140 years ago, the Musgrave group is owned by shareholders including Switzerland-based Peter Musgrave, UK-based Christopher Musgrave, and Stuart Musgrave, whose great-grandfather co-founded the business. Musgrave exited the British market last year, selling its troubled Budgens operation to Booker Group for just €59m. That was less than a quarter of the net price Musgrave had paid for it. The sale was completed last September.
Total Musgrave revenue for 2015 was €4.4bn, including Budgens turnover for part of the year, with pre-tax profit of €67.5m on that basis. That compared to a loss of €9.6m in 2014 after Musgrave shouldered €70m in exceptional costs, mostly related to its British business. The group had made a loss of €95m in 2013 on the back of writedowns.
"The main (challenge) is clearly Brexit," said Mr Martin.
"Without getting into the complexities of Brexit, the challenge is that if the UK votes to leave then we've got internal issues of exchange rate management and so on, but the broader challenge is going to be about consumer confidence."
Mr Martin pointed out that a lot of branded product originates in the UK.
"We've been here before, when the exchange rates were close, and we had to renegotiate. We saw all the cross-border activity and some of that may re-emerge." Mr Martin said the big question is what will happen in June if the UK votes to leave. "What will happen to financial markets? How will it play out in tourism into Ireland? So it does have an impact on our business and in retail consumer confidence plays a significant role," he said.
He also effectively ruled out a future return to the British market. The group does have a presence in Northern Ireland.
"We came out of Britain because we really didn't have real scale. If you don't have real scale, then you're going to have to be either really specialist or do something different," he said.
Mr Martin added that Musgrave's businesses in Spain - where it has a small retail and wholesale network in the Alicante region - performed well in 2015. Musgrave has about 80 retail outlets there.
Mr Martin said the wholesale operation there performed well in 2015 and it has begun refurbishing the outlets. He added the Spanish retail arm is "beginning to turn the corner".
"I don't see it being a national player in Spain… but I do see it being a strong regional player," he added.
Musgrave has also introduced a number of new initiatives at its Centra and SuperValu stores that have resulted in increased sales, according to Mr Martin.