Friday 24 November 2017

Falling prices open door for a new grocery chain

With only three groups dominating the Irish grocery market and with substan-tially reduced property prices, now may prove an opportune time for a new overseas chain to enter the market.

The supermarket/grocery market in Ireland has five main players -- Tesco, Dunnes, the Musgrave Group, Aldi and Lidl -- who between them have 89pc market share.

Research by Kantar and Savills Ireland shows that the big three retailers have 79pc of the market. As of December 2011, Tesco and Musgraves had 28pc each of the market with Dunnes having 24pc.

The Musgrave Group's main stores are Supervalu, Superquinn and Centra. Supervalu is the dominant player within the Musgrave Group with 20 of the group's total 28pc market share.

The German discount stores have 10pc market share of which Lidl is leading with 6pc.

With Aldi and Lidl having a 10pc market share, both are increasing their share at the same pace of growth as Tesco and Dunnes. Value remains the key driver.

Other operators have a combined market share of 10pc including M&S, Boots, Spar and independent greengrocers and butchers.

Each of the main five grocery retailer groups have held or increased their market share in the 12-week period running up to Christmas 2011 compared to the same period in 2010, with the exception of one brand in the Musgrave Group -- Superquinn.

Superquinn has lost the most significant share of the market in the last year, dropping from 6.3pc at the end of 2010 to 5pc at the end of 2011.

This drop is partly attributable to the fact that the company went into examiner-ship in 2011 and was then purchased by Musgraves. The expectation is that Superquinn will gain from the benefits of being part of the wider Musgrave Group and should hold or increase its market share in 2012 if it succeeds in leveraging from the economies of scale etc. on offer.

As retail sales overall have been weak throughout 2011, the grocery market has gained in terms of an estimated percentage of total retail sales. Available data indicate that the grocery market has increased its share of total retail sales from just over 50pc in 2007 to almost 60pc in 2011.

Available data also indicate that the grocery market in Ireland was estimated to be worth €14.5 billion in 2011, a drop of 3.4pc since 2007.

This is a very good performance in particular when compared with the drop in the value of the overall retail market, which fell an estimated 14pc over the same period.

However, given that the market has been and remains dominated by three big players, this poses the question that there may be room in the market for a new entrant, with a more competitive offering.

Tesco and the discounter stores have been very active in the occupier market with Tesco taking space in Kildare, Monread in Naas and Balbriggan.

Lidl took space in for example Bray and Aldi in Sandyford.

Historically property prices were seen as a barrier to entry into the Irish property market. However, land prices have fallen by 80-90pc depending on the zoning, location etc, which presents considerable opportunity for UK, European and international supermarkets which are not currently active in Ireland, to purchase, design and build their own retail space.

Availability has also increased with an increasing number of development schemes being re-planned and in some cases sites are being disposed of.

Commercial property prices have fallen by an estimated 65pc. The most recent retail investment deal was the purchase of the Aldi store on Parnell Street, by an Israeli investor, for €4.5million equating to a yield of 8pc. Another Aldi store opportunity is available in Sandyford, Dublin 18 for around €8m or a 7.22pc yield.

Retail planning guidelines have also been updated clarifying the cap on the size of stores and the geographical areas on a county specific basis for these limits.

This levels the playing field for retailers with less scope and interpretation in terms of the planning system.

The outlook for the grocery market in Ireland is positive and we are of the view that the time is right for new entrants to take the opportunity to establish a presence in Ireland.

Larry Brennan is chairman, Savills Ireland

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