Saturday 25 November 2017

Musgrave considers plan to enter mobile market

Chris Martin, chief executive officer at the Musgrave Group
Chris Martin, chief executive officer at the Musgrave Group
John Mulligan

John Mulligan

Supervalu owner Musgrave is considering a push into the mobile phone space as it plots ways to capitalise on its brand.

Chris Martin, the chief executive of Cork-based Musgrave, said offering a mobile phone service to customers is just one of the possibilities the SuperValu chain will look at.

A move into mobile would see SuperValu – the country's third biggest grocery retailer – emulate the relative success that Tesco has had here with its phone service.

Tesco now has a 3.7 per cent share of Ireland's mobile market, where Vodafone is the biggest player. The latest market report from telecoms watchdog ComReg showed that there were over 5.6 million mobile subscriptions in Ireland at the end of September.

Tesco's mobile service is provided using O2 infrastructure. O2's Irish arm is being bought by smaller rival 3, subject to approval from the European Commission.

"All the time, we're using our brand framework to really test where we should be," said Mr Martin, confirming that mobile services is one of the options that Musgrave will look at.

He also said that SuperValu will have a test launch of financial services products in the middle of the year.

"In terms of our growth strategy, we're looking at what our brands can grow into," he said. "We looked at SuperValu particularly, but also Centra, and our consumers were saying that they've lost trust in the financial brands and that they would welcome someone like SuperValu moving into that territory."

Tesco also offers financial products here, including home and car insurance underwritten by 123.ie owner RSA. Its Visa credit card service is provided through Tesco Bank.

Mr Martin declined to say which financial services firm Musgrave is working with on its plan.

He confirmed that products such as insurance and credit cards are among those likely to be on offer.

"We're working on the basis that we can extend into other product areas," he said. "This is a natural opportunity that our consumers are saying we should do. We will start to trial this at the half-year."

Mr Martin also said consumers had suggested SuperValu could consider providing pharmacy services. In 2011, Tesco started opening in-store pharmacies here. But Mr Martin said Musgrave has ruled out such a move.

********

'People say Superquinn won't be the same. Well, it won't'

Musgrave chief Chris Martin talks to John Mulligan about the name change, discounter competition and, of course, sausages

OK, let's get the sausages out of the way first. When Cork-based retail group Musgrave announced last year that it was going to rebrand the Superquinn chain it bought in 2011 as SuperValu, there wasn't, strangely, too much fuss caused about the more than 100 back-office jobs that would be lost as a result.

Befitting its position as a retail bastion of well-heeled middle-class consumers, it was the fate of Superquinn sausages that was of concern to many of its customers.

What, God help us, would happen to the sausages?

Musgrave assured panicked Superquinners that they'd continue to be sold. Crisis averted, it seemed.

Indeed, cricket-loving Musgrave boss Chris Martin (53) says that when the group acquired Superquinn two years ago, it was selling 16 tonnes a week of its own sausages. That's now doubled to 32 tonnes a week.

Sixteen tonnes was enough, says Martin, to stretch a sausage trail from Dublin to Munich. Thirty-two will get you to New York, apparently.

Martin, a Yorkshireman who's held the hot seat at the retail business for nine years now, insists he's a Superquinn sausage convert though. He'd want to be.

The bean counter – Martin trained as an accountant, previously worked with the likes of Asda, Pizza Hut and Mothercare, where he was CEO, and was Musgrave finance chief before stepping into the chief executive shoes – needs more than sausages to get a return on the Superquinn investment.

Musgrave (which apart from SuperValu also controls the Centra brand, cash and carrys, and has operations that extend to Britain and Spain) paid just north of €200m for Superquinn after it went into receivership in 2011. It had been acquired back in 2005 from the Quinn family for about €400m by property developers, including Bernard McNamara. It was a lucky escape for the family as the economy – and Superquinn's sales – tapped the compass and headed south.

Family-owned Musgrave will have invested around €30m in the 24 Superquinn outlets by the time they're formally rebranded as SuperValu on February 13, says Martin.

But latest data from research group Kantar Worldpanel shows that Superquinn's share of the multi-billion grocery market fell 6.4 per cent to 5.2 per cent over the 12 weeks to January 5 that obviously included the crucial Christmas period. About 18 of its stores are in the greater Dublin region.

Martin baulks at the suggestion that the outlets haven't performed as well as might have been expected since Musgrave acquired the business.

"I think that's probably a little bit unfair," he retorts in his understated way. "You've got to go back to Feargal Quinn, who was a world-class operator, but operating in a completely different world six or seven years before we bought the business."

He says that after being bought in 2005, Superquinn had "languished" and suffered from underinvestment.

"We went in and we stopped the rot," says Martin. "We've gone back and worked with colleagues to really improve service and engagement. We're getting tremendous mystery shop scores. The reality is that Superquinn as a standalone business didn't have access to the sort of own-brand range that we're able to give.

"As a business, it didn't have scale, it was very niche and perceived to be very expensive.

"There's no doubt that Superquinn has a nostalgia attached to it in Ireland. There's a love of it, particularly in terms of what Feargal Quinn did. When we bought it and even though Feargal had left the business seven years before, consumers still perceived that he was in every store at the checkouts," says Martin.

"What he did at the time was world-leading. But the world has moved on. A lot of what he did is now mainstream. Brands do move and do evolve and you've got to look forward."

He says the decline in the Superquinn market share over Christmas "absolutely supports" why it had to become part of SuperValu. The Superquinn stores will remain owned and operated by Musgrave for the foreseeable future, rather than being sold to franchisees.

"People say it won't be the same. Well it won't," insists Martin, "it'll actually be better." Superquinn die-hards will bristle at the suggestion.

Industry operators reckon Tesco, not SuperValu, will be their natural home after the name change. Martin, of course, begs to differ.

"We can really bring a good alternative into the Dublin market. Our loyal Superquinn customers have remained loyal. I'm also really excited about bringing SuperValu to customers who wouldn't have considered those shops at all." he says.

SuperValu has never had a strong foothold in the capital, with just 16 outlets in the greater Dublin region. It's outside the city where it has been strongest and where the bulk of its 200 stores are.

Those latest Kantar Worldpanel stats say that SuperValu is the country's third biggest grocery retailer after Tesco and Dunnes, with a 20.1 per cent share of the market. Supervalu generated retail sales of €2bn in 2012 and the addition of the Superquinn outlets will bump it to being Ireland's second biggest grocery retailer after an embattled Tesco, whose sales here declined sharply last year.

But here's the thing. While the Kantar figures make things look good for SuperValu, they also show that German discounters Aldi and Lidl have a combined 13.5 per cent share of the market (Aldi on 7.1 per cent, Lidl on 6.4 per cent). Sounds good for them, right?

It does, but industry insiders point something out: Between them, Aldi and Lidl have about 242 stores in Ireland. Spreading out SuperValu's annual €2bn in retail sales across 200 outlets results in each store, on average, generating about €192,000 a week in sales.

Aldi and Lidl don't reveal their sales figures in Ireland, but experts reckon that there could be as much as €400,000 a week, on average, going through the tills at each of the stores. If that's true, that would mean that their combined market share would be above SuperValu's and on par with that of Dunnes. The retailers don't supply information to Kantar, so it bases its estimates on a survey of 3,000 "demographically representative households".

So does the seemingly unflappable Martin think there's something wrong with the maths?

"It's a good question. The danger with looking at the Kantar numbers is that you look at only €8bn of the grocery market and not at the total market," he says.

But regardless of the market rankings, it's clear that Aldi and Lidl have had a huge impact on the retail sector. What's more, while consumers who regularly buy at Aldi and Lidl may traditionally have reverted to Superquinn or Tesco for a big blowout Christmas shop, that didn't happen this year. Both Aldi and Lidl went all out, encouraging shoppers to keep spending there for Christmas with products such as lobster, fancy three-bird roasts and the like. The tactics clearly worked.

"Discounters are very much a phenomenon which has grown in Ireland," says Martin. "I don't see people coming away from them that easily. People see them as part of the shopping repertoire. They offer good range, but we have developed our own brand," he says. "I think that as long as retailers are providing value, then the consumer is going to use the Aldis and Lidls, but they're going to want more. Quality and service are key components as well. You've got to make sure you're being different and better."

Musgrave now has a team of 30 people working on developing own-brand products, which account for 29 per cent of SuperValu's sales. Martin reckons an achievable share of sales for own-brand is about 45 per cent.

As the economy went into a tailspin, all sorts of people found themselves hanging out in the wind from a financial point of view. Some of them were SuperValu retailers. While some may have secured loans to invest in property and unrelated businesses against their retail operations, others had simply borrowed to invest in their livelihoods, to expand and improve. Martin says some SuperValu retailers, but not many, remain in difficulty.

Musgrave has engaged with banks on behalf of a small number of its own retailers who need similar flexibility and has facilitated conversations with banks.

But Musgrave, with a strong balance sheet, can help its retailers to facilitate a discussion with lenders, he says.

"We can give some evidence to the bank via the relationship that the retailer has with us that there is longevity in the business, and a real prospect of coming out the other end," he adds.

Does that support make any difference for retailers entering the banks' lairs?

"It does. It certainly gives the bank reassurance. Our retailers want to get on. They don't want to be held back."

On a group-wide basis in 2012, Musgrave generated sales of €4.9bn and an operating pre-tax profit of €72m. The figures were 11 per cent and 3 per cent higher respectively on 2011. But Martin concedes that things have remained difficult for all grocery retailers and says last year was Musgrave's toughest in Britain in the past five. It controls the Budgens and Londis brands there.

He also reveals that some thought had been given during the depths of the crisis about whether Musgrave should remain in the Spanish market, where it operates the small Dialprix retail network and the Dialsur cash and carry arm. But the group remains committed to its business there, he says, as the country exited its bailout programme last week.

Martin is also enthused about SuperValu's online offering. Its mobile app is performing well, he says, and Musgrave has seven staffers beavering away on developing and improving its presence in the online world.

"It's where the longer term is going to play out. We're all developing own brand and heading to value, but the consumer is going to look for that point of difference."

So, for a guy who hadn't even visited Ireland before he started working with Musgrave, does Martin feel he'll move on or stay put?

He says Ireland has been a "bit of a drug". "I love it. I'm wedded to Musgrave."

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business