SuperValu boss keeps his eyes on the prize
Supervalu is Ireland's biggest supermarket chain, with a quarter of the market. Their 2015 sales topped €2.6bn. But lurking in the shadows are German discounters, an economic recovery that is patchy at best, and new rules which make buying from Irish suppliers more complicated. SuperValu managing director Martin Kelleher walked Sarah McCabe through the Supervalu in Glanmire, Co Cork, to explain what he is doing to keep the tills ringing
Martin Kelleher, 46, is drinking a coffee from Costa when we meet at the sprawling SuperValu in Glanmire, just outside Cork city. But his drinking habits are about to change.
The country's top supermarket chain is developing its own in-house coffee shop brand, he explains, as we stroll through the store, wandering past teenagers buying ice cream after school and well-dressed mums and dads doing their weekly shop.
The new brand will be pitched at the luxury end of the spectrum, targeting Ireland's new wave of coffee connoisseurs. The plan is to roll it out to all of the country's 221 SuperValus as well as 450+ Centras, the other brand Kelleher controls for Cork parent company Musgrave.
Sunday Independent staffers will be pleased; the SuperValu beside us on Talbot Street in Dublin city centre keeps many of the country's best journalists fed and watered.
Kelleher is just back from SuperValu's annual conference, where he says the coffee plan was met with optimism by the hundreds of independent retailers who operate its stores. The vast majority are run this way. The exceptions are the Superquinns bought out of receivership by Musgrave in 2011 and rebranded as SuperValus in 2014, which are directly managed. Five more SuperValus will open this year (one of them in Kilcock in north Kildare, the rest are top secret), plus 16 new Centras.
The conference took place days after the release of SuperValu's annual results. The company reported sales of €2.6bn for 2015, a record. But this represented growth of less than 1pc compared to the year before, a deceleration on the growth seen in 2014.
"Some of that is because of the investment we made in value during the year," explains Kelleher. "There was an element of deflation in our numbers - selling stuff cheaper, selling more stuff, but selling it cheaper.
"It changed in the last half of the year, up to Christmas we would have grown at up to 4pc. And without getting too technical, we had a very sunny summer the year before, which we didn't have last year. SuperValu benefits from good weather because we're the place you stop in for picnic supplies or where you stock up for a barbecue.
"So we were up against hard figures from the summer before, we performed okay against them and then we took off again in the last half of the year."
One of its biggest success stories in 2015 was the SuperValu Food Academy initiative, Kelleher says, its joint mentoring programme for Irish food entrepreneurs with Bord Bia and the Local Enterprise Office network. The 250 companies who have won a place on the programme are given a range of supports, including shelf space in SuperValus.
The Glanmire store boasts a rustic-style display unit with placards which tell the story behind each food start-up. Food Academy companies hit a collective €13m in sales in 2015, far ahead of targets. Its amped-up Health and Wellness offering also exceeded expectations in 2015, Kelleher says.
Most SuperValus now have at least an aisle devoted to health foods, from quinoa to cashew butter to coconut oil. The aim is to remove the need for health and food shops entirely - shoppers should be able to get whatever they need, no matter how exotic, in their supermarket.
Online is flying too. SuperValu was the second big supermarket chain to launch an online shopping service in Ireland after Tesco. It currently makes up just 3pc of sales but is growing much faster than the overall business.
"We are targeting 50pc growth for the online business this year and we are hitting it already - we probably need to raise the target," says Kelleher. Growth goals for in-store sales are more modest, in the low single digits.
SuperValu is willing to spend money on untested waters because its success is based on shopping experience and food quality, Kelleher says, not price.
"Value will always be important and price will always be important and we are confident and happy to play in that market. We've exited the recession as the largest supermarket and we stand for quality more than any other supermarket.
"But there's more to it than just price. You need choice. Discounters have a limited range; that's why they're called limited range discounters.
"People want choice, they want good quality, they want experience as well, the ability to talk to someone about how to cook the leg of lamb, what goes well with it, what wine pairs with it.
"You can go up to our staff and say, 'I want to cook a meal for four friends but I'm not a great cook' and they can help you to pick and cook the right stuff with the right product. We think that expertise is important."
It helps that cooking from scratch is back in fashion, he adds. The company is playing on that heavily with advertising campaigns and promotions which emphasise wholesome, traditional ingredients.
"We have a huge campaign coming up around April, focused on cooking and healthy, wholesome food. Not health food in inverted commas, but the food your granny probably ate and lived to 94 on."
He and the rest of the management team at SuperValu have been tasked with trying out new cookbooks. He got Ella's Woodward's Deliciously Ella. They've been swapping pictures of the outcomes on Whatsapp.
Dad of three Kelleher, a big sports fan, has worked for Musgrave since 1996. He started his career as an accountant, training with SKC (now KPMG).
"It was a far smaller business back then," he says, recalling that a new centralised distribution model for chilled food pioneered around the time he joined kickstarted a major period of growth.
It meant rural stores no longer had to rely on individual suppliers for deliveries and bigger stores saw a big reduction in the number of deliveries they had to handle. All the big chains would follow suit.
Today, the Irish grocery market is a different story, regularly cited as one of the most competitive in Europe. Kelleher doubts there is room for another player. "Ireland has an awful lot of supermarket space - we're one of the most dense in Europe. Take Glanmire, take any town - you drive 10 minutes, you've got a choice of three of four supermarkets.
"I don't think we need any more. I haven't heard any rumours in terms of interest. I think people would look at the market and see it's fairly full, with a lot of competitors of a fairly good standard."
A Lidl opened in Glanmire last week and an Aldi opened two years ago. But Kelleher isn't worried about the impact on the Glanmire store or on owner Liam Ryan, who runs four Supervalus. "It may affect this business, but it may not" he says. "Liam does a very, very good job here and people appreciate what he does for the community.
"One of the things that came out when the Aldi arrived was we looked at Liam's business and realised he had given 1,500 people their first job since first opening. There's no comparison between the jobs provided here [and at the Lidl and Aldi]. It's the quality of the jobs as well as the number.
"We are happy to take on youngsters for their first job but you will also see more mature people working here who have grown up with the business and managers who have gotten very good careers out of the store."
SuperValu's relationship with suppliers also differentiates it from competitors, he maintains. In Ireland the lion's share of the retail grocery trade is controlled by Tesco, Musgrave and Dunnes Stores. Groups like the Irish Farmers Association say this concentrates buying power in the hands of a small number of very powerful retail groups.
The IFA and others such as Food and Drink Industry Ireland have long lobbied for better laws to control the relationship between supermarkets and suppliers for years. This culminated in the signing of the Grocery Goods Regulation by Jobs Minister Richard Bruton at the start of February. It takes effect on April 30. The European Commission is also examining the various relationships in the food chain and there may be some initiatives forthcoming in 2016, according to the Department of Jobs. The new rules prescribe, among other things, that suppliers must be paid within 30 days; that grocery goods contracts must all be in writing; that contracts cannot be changed unilaterally; that suppliers can require retailers or wholesalers to provide a forecast of the goods that will be needed; that suppliers cannot be asked to pay for being stocked, promotions or better positioning on shelves except in strictly specified circumstances based on written contracts; and requirements for retailers and wholesalers to submit an annual compliance statement as well designate and train staff for compliance purposes. It will be policed by the Competition and Consumer Protection Commission, which can hand down penalties up to a fine of €100,000 or two years in prison, while suppliers can also take proceedings for damages.
Kelleher has several issues with it.
"We are disappointed with certain aspects of it because we feel that it penalises businesses like Musgrave that are Irish and support Irish businesses.
"There is a temptation or a possibility that one of the easiest ways to get around the regulations is not to buy from Irish businesses. The rules are that you only have to record and do the administration parts of it when you are dealing with Irish suppliers. When you buy from abroad, which obviously multinational companies can do more easily... It incentivises that behaviour. We don't think that's good.
"We also think it's an administrative burden that adds cost and, we believe, very little value. We are very clear that Musgrave's relationships with its suppliers and partners are strong, clear and fair. We don't believe there is any benefit from this to people dealing with us.
"I believe our payment policies and approach to suppliers have been fair, strong, clear and supported by suppliers. I don't think anyone will pick up any evidence of Musgrave doing anything that isn't supporting its suppliers."
Suppliers are not asked to pay to be stocked on SuperValu shelves, he adds.
Switching to foreign suppliers "would be a last-ditch resort of ours", Kelleher says - but it is not completely off the table.
"We are so focused on supporting Irish and supporting local suppliers. But if our competitors are getting price advantages or administrative advantages by doing so, it puts you in a difficult position, it challenges us.
The ship has sailed, he admits - the rules have already been signed into power.
"It's a pity. We made these points to government and they were ignored. We'll get over it and get on with it."
The IFA has criticised the new rules as not going far enough, by failing to ban below-cost selling or establish an independent ombudsman. SuperValu has always broadly supported the banning of low-cost selling, says Kelleher.
"We'd still support it. We do sell below cost today in some instances but we are very mindful of it… It's not at the expense of a supplier or a farmer."
New proposals that will change the way stores can sell alcohol are also a concern, he adds. If the Public Health (Alcohol) Bill becomes law, large retailers will be required to errect barriers which separate the area where alcohol is sold. Smaller retailers will be required to remove alcohol from view.
"The only aspect of it that we are disappointed at and frustrated with is the structural separation element of the bill, which we feel is not doable," says Kelleher.
"This says that alcohol should not be visible. What this would mean is that ceiling-height barriers or doors will have to be put at either end of the alcohol area. That would create an unbelieveable amount of issues for stores.
"Theft, shoppers inside the doors on their own, staff not being able to see in when people are in there, you could have accidents or fraudulent claims. The answer to that is you have to put a staff member in there all the time and that adds costs and means more waste.
"In the smaller store version, similar blocking of visibility is required, so that means - take wine, for example - you'd have blank doors covering all of the bays of wine. But wine is a browsing product. It's not practical, it's not implementable, it's not well drafted.
But the biggest issue facing stores isn't new regulations, or even the high crime rates regularly cited as the scourge of rural Ireland. The biggest issue, Kelleher says, is the more boring but more challenging matter of costs like energy bills, labour and local rates.
"And getting finance is another challenge. The banks closed there for a number of years and these businesses needed working capital. It made it very difficult.
"Musgraves worked closely with our retailers to work our way through it. We support retailers with banking and getting finance [though they don't lend directly]."
As head of a company with a national reach, operating in all corners of Ireland, he has a unique insight into just how patchy the economic recovery has been.
"There's definitely a pace of recovery in Dublin that everybody sees and knows. There are definitely other areas like Cork and some good-sized towns where you can see the start of the recovery and you'd have a belief that it will continue and catch up with Dublin. And there are some areas that you'd be a little more concerned about.
"It is town-centric - some towns got hit by unemployment a bit harder - I wouldn't regionalise it excessively because some of the most vibrant parts of the country are in the West and the Midlands. But Dublin is the standout performer from a recovery perspective.
"I think we need to be careful, collectively as a society, that we don't have a divide that we will regret in a couple of years time."
Sunday Indo Business