The Irish retail landscape is changing, and retailers are investing in order to adapt, says head of Retail Sector at Bank of Ireland Owen Clifford.
Irish grocery inflation has hit 12.4% reflecting the supply chain issues and uncertain geo-political landscape – this represents the highest level of inflation since Kantar have been recording in the country.
The large supermarket operators have been proactive in addressing cost of living concerns with targeted ad campaigns and voucher offers being strongly promoted in recent weeks.
“Retailers are now assessing the impact that current inflationary trends may have on discretionary spend in upcoming months and tailoring their business plans accordingly”
As consumers seek cheaper alternatives across some product lines, all leading operators recognise that a strong own-brand offering is now critical to maintain customer engagement – the value of own-label product sales increased by 7% in the 12 weeks to October 3rd representing an annual equivalent increase of c€90m.25
Investment continues within the market
As the ever more discerning Irish consumer seeks excellence in store standards, Irish grocery and convenience retailers/brands recognise that investment/differentiation is required to retain and attract footfall to their business.
This investment includes the delivery of new and revamped best in class stores that showcase new initiatives and offerings from individual brands. Aldi have announced a €63m investment programme focused on the Connacht/Ulster regions, Musgrave have added McCambridges – Galway and Wicklow based Italicatessen to its wider portfolio and Applegreen have partnered with Marks & Spencers to trial the sale of M&S products in a number of locations nationwide.26
Changing retail landscape
The wider retail sector has delivered a robust performance to date in 2022 with sales volumes (excluding motor & bar sales) c8% better than the equivalent pre-pandemic period in 2020.
There has been strong performances in the electrical, food and furniture/home improvements sub-sectors in particular.27
Retailers are now assessing the impact that current inflationary trends may have on discretionary spend in upcoming months and tailoring their business plans accordingly. Ireland remains an attractive location for international retail brands with Lego, Pret a Manger, Lush and Flannels all opening new flagship outlets in recent weeks.28
Outlook Q4 2022
The retail community recognise that wider economic conditions and consumer sentiment will impact on discretionary spend patterns in the pivotal quarter ahead – traditionally the busiest period in the retail calendar. The following developments support progressive retailers in facing the period with pragmatic optimism:
- Level of recent investment in robust omnichannel systems that integrate all elements of the retail operation – this facilitates engagement with a wider customer base, more efficient processes and increased customer satisfaction.
- Cost of Living initiatives announced in Budget 2023 – double Social welfare payments, double Child Benefit payments, increased tax-free small gift exemption from €500 to €1,000 and Energy credits. These will all support improved consumer sentiment and spending power in the weeks pre-Christmas. The Temporary business energy support scheme will also reduce the overhead burden on retailers during an energy-intensive period.29
- A reduction in shipping/container costs from Asia from a peak of c €15,000-€20,000 per container in 2021/early 2022 to more normalised levels of €2,000-€3,000 in Q4 2022. This supports a more competitive marketplace where Irish retailers have the option to source from a wider supply-base facilitating a renewed cost review of their supply-chain network.
I discussed a number of these topics in a recent, wide ranging interview/podcast on the outlook for the Irish retail sector with Melissa Moore, The Retail Advisor.