Business Irish

Tuesday 12 December 2017

Dunne deal - Margaret Heffernan's shifting strategy

Irish retailer Dunnes Stores has drawn level with the mighty Tesco in terms of market share. Gavin McLoughlin analyses how it happened.

Dunnes Stores supremo Margaret Heffernan. Photo: Andrew Downes
Dunnes Stores supremo Margaret Heffernan. Photo: Andrew Downes
Gavin McLoughlin

Gavin McLoughlin

Margaret Heffernan may have felt some satisfaction this week after the release of the latest grocery market share figures.

Heffernan's Dunnes Stores group was the top performer in the 12 weeks to September 11, with the value of sales jumping 6.3pc year on year.

Now Dunnes is level with Tesco when it comes to market share in take-home grocery spending, at 21.6pc. The two rivals have been going in opposite directions.

In the same period last year. Tesco had the biggest market share ahead of SuperValu (which now tops the charts). Dunnes was in third, 1.8 percentage points behind Tesco.

So what is behind the two chains' differing fortunes?

David Berry, director at Kantar Worldpanel - the researchers who put out the grocery market statistics - attributes Dunnes' rise to the success of its 'Shop and Save' campaign.

The shelves of the supermarket chain which has just managed to draw level in the Irish market with the global grocery giant Tesco
The shelves of the supermarket chain which has just managed to draw level in the Irish market with the global grocery giant Tesco

For every €50 spent in Dunnes, customers get a voucher entitling them to €10 off their next €50 shop.

"It incentivises people to spend money in Dunnes," Berry told the Sunday Independent. "It encourages people to spend a bit more when they're in store to hit certain thresholds.

"And then it also encourages them to come back again to make a further shopping trip in Dunnes. They're building spend when people are in store and they're also bringing them back in again."

Compared with the same time last year, the average spend on a trip to Dunnes had increased by €2.50 to €37.20. Furthermore, the supermarket managed to tempt people into buying more expensive things.

The downside is the margins are being squeezed by the voucher system at Dunnes. Market share is growing, but at what cost?

Vouchers also attract shoppers in the short term but don't necessarily build up shopper loyalties.

Over at Tesco, it's a different strategy and a different story. Market share was down 1.3 percentage points year on year, with value of sales down 2.3pc, even as volume sales rose 1.9pc. It has been pushing a price-cutting campaign it calls 'Staying Down Prices' - whereby the lower price is left in situ for at least three months.

"What we're seeing from Tesco at the moment is that they're selling more things," Berry says. "They're selling more groceries but they're selling them at a cheaper price point.

"That's something that Tesco have purposely done themselves. They've cut the price of products on the basis that it will encourage people to buy more - but the downside of that is that people spend less because they're getting a better deal."

Dunnes' growth in market share comes after a long period spent trying to move the brand upmarket. On the food side, it has partnered with the likes of cheesemonger Sheridans and acquired Cafe Sol. In clothing, it has left 'Better Value' behind in favour of collaborations with well-known designers such as Paul Costelloe. Most recently, it has partnered with designer Joanne Hynes, whose range includes a €900 shearling coat. The jury is still very much out on how that price point will go down with Irish shoppers.

Retail and business advisor Keith Harford said the arrival of the discounters Lidl and Aldi shifted the calculus for Dunnes.

"They were famous in the Seventies and 'Eighties for a 'pile it high, sell it cheap' approach to retailing and indeed were very put out when Aldi arrived in Cork," Harford told the Sunday Independent.

"I think they were probably already trying to move upmarket - and then when the discounters came along, that drove the impetus. They've done an awful lot of good work, such as bringing in the likes of Paul Costelloe and other well-known designer names to work with them.

"They've purposely been driving that strategy of pushing themselves to a higher place in the market, if you like. That has been a clear Dunnes strategy for a good number of years now. But you cannot overturn overnight the 'pile it high, sell it cheap' approach and get people to all of a sudden realise that you do have good quality and you do have strong brand names. That takes time but I think it is slowly but surely paying dividends."

The grocery business accounts for the most revenue at Tesco, but the the textiles business, comprising of homewares and fashion, delivers a much higher margin. Harford believes the British giant needs to establish a closer connection with the consumer.

"Tesco became ultra-efficient in everything they did but it was almost like it was being run by a machine. They were the first to really push the self-checkout and that kind of thing,

"I think they became detached from the customer, that's their first and biggest sin.

"The second piece is that to adapt to what you might call the new marketplace I think they've done an awful lot of work around pricing and trying to restore faith in the Tesco brand, which was obviously severely damaged by the financial scandal in the UK. But while they have been chasing that, the whole shopping pattern has changed.

"As we emerge from the recession, the habits of shopper have changed dramatically to different styles of buying. Instead of going to a large Tesco or any of the large grocery operators to do all our shopping, people are now buying different things in different places. The butcher on the high street, the fruit and veg operator, the local bakery, they're all becoming strong again, with the emergence of some very good brands," Harford says.

"I feel that Tesco are just a little lost. It's not all just down to price any more. To go into a very large Tesco shop just to get your bread and milk for a midweek shop just doesn't work any more. The place is too big. I think their model needs to adapt to the modern way of shopping."

Outside of Dunnes and Tesco, there are some rather interesting trends. The Kantar figures put the share of the market belonging to "other retailers", including everyone from Marks & Spencer (M&S), to convenience retailers such as Centra and Spar, to your local butcher or greengrocer, up 0.7 percentage points year on year. The value of sales for the same category rose almost 11pc.

Those figures emerge as Centra - the brand owned by SuperValu owners Musgrave - embarks on an overhaul of its store network to stay on top of consumers' growing desire to eat more healthily. Kantar Worldpanel's David Berry tells me healthy goods are selling more.

Petrol stations too have been looking to muscle in on some of the action, with Maxol and Topaz recently overhauling their retail and food offerings to try and match the standards set by Applegreen.

Elsewhere, SuperValu remains the most popular place for grocery shoppers to spend their money. It has 22.4pc of the market, 0.8 percentage points ahead of Tesco and Dunnes.

The value of sales rose 3.1pc there, with shoppers putting more items in their basket on every trip.

Lidl's market share remained the same at 11.7pc, though the value of its sales rose 4.5pc.

"Three core categories have contributed most significantly to the strong performance, with produce, meat and bakery together accounting for €11m of extra sales compared with last year. Lidl has also managed to increase the number of repeat visits its shoppers make, with the average customer returning 11 times over the past 12 weeks, compared with fewer than 10 times last year.

Aldi's market share was up 0.2 percentage points year-on-year, with sales value up an impressive 5.4pc - the best result apart from Dunnes.

"It's a really really competitive market," Berry says. "You've got five major supermarkets and if you were to take the majority of people in the country they've probably got a good selection of those within easy reach. People have access to loads of different stores - so it's up to the stores to do a good job to hit customers' needs. It's massively competitive and it shows in the figures."

Sunday Indo Business

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