Dan White: Clarke faces tough task as new Tesco Ireland boss
As recession-hit shoppers flock to Aldi and Lidl, the supermarket giant must try to win back market share, writes Dan White
PHILIP J Clarke takes over as boss of Tesco Ireland, the most important job in Irish retailing, next month. With the grocery market flat and customers increasingly shopping with the discounters, online or for private label, he can expect a baptism of fire.
With a 27.6 per cent market share, Tesco is very much the 800lb gorilla of the €8.9bn-a-year Irish grocery sector. However, even the UK giant is feeling the pinch. While it recently reported Irish sales of €3.15bn – including non-grocery items such as clothing, electrical, hardware and petrol – for the 12 months to the end of February, a 1.9 per cent increase on the previous year, the real story has been the rise of the German discounters, Aldi and Lidl.
The most recent figures show that the discounters now have a combined Irish market share of 13.6 per cent, up from 11.6 per cent a year ago. The discounters' increased market share has to come from someone else. Tesco has seen its market share shrink from 28.4 per cent to 27.6 per cent, while Dunnes' market share has slipped from 22.4 per cent to 22.1 per cent over the past 12 months.
Traditionally, purse-proud Irish shoppers preferred branded products to supermarkets' private label.
However, the recession has forced Irish consumers to look again at private label. The relentless rise of the discounters, who stock virtually 100 per cent private label, is just one sign that Irish shoppers are changing their attitudes.
Research published last year by Kantar Worldpanel showed that private label had captured 35.4 per cent of the Irish grocery market by value, up 2.5 per cent since 2010.
Even where shoppers are sticking with branded items they are boxing clever. The Kantar research shows that about 11 per cent of total supermarket volume, private label as well as branded items, is now sold by promotion or special offer. Such deals yield far less profit for retailers.
One of the few bright spots has been the increase in online grocery sales, up 7.9 per cent over the past year – admittedly from a very low base – compared to flat in-store sales.
There are also clear signs that grocery sales have held up much better than other categories of retail. While the CSO estimates that the value of total retail sales has fallen by as much as a quarter from their 2007 peak, the fall in the grocery sector has been far less precipitous.
Despite the problems in the Irish market, Tesco is still a highly profitable business. While the company doesn't break out its Irish profits, lumping this country in with Europe, it seems reasonable to assume that its trading margin is comparable to the 5.2 per cent being earned by Tesco's UK operation. This would translate into operating (pre-interest) profits for Tesco Ireland of about €160m.
Now, Mr Clarke faces many challenges. Not alone must he increase the proportion of Tesco's private label sales and see off the discounters, he must also grow the chain's online sales while minimising the cannibalisation of sales through its existing stores.
It's a tall order. But not as tall an order as Mr Clarke's previous job as head of Tesco's Japanese operation. A year ago, Tesco announced that it was paying its Japanese partner £40m to take the Japanese business off its hands. By comparison, the Irish job should be child's play.