Our Profile in Ireland
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OUR PROFILE IN IRELAND SPAR operates in Ireland through its ownership of the BWG Group – the market leader in convenience retail in Ireland, with approximately 12% total grocery market share, and over 40$ share of the convenience channel. In South West England, through Appleby Westward, we service 288 (2017: 285) SPAR stores. The BWG Group operates a multi-brand retail strategy, which includes SPAR, MACE, XL, Londis and Value Centre Cash and Carry. The acquisition of 4 Aces added the Gala convenience group and the acquisition of Corrib Food Products, expanded our offering in fresh and frozen poultry and other frozen foods this year. SPAR Ireland has a three-tier house brand strategy with S-Budget (entry level), SPAR (emphasis on value and quality) and SPAR Select (a premium offering). We also offer a Fresh Choice brand for fruit and vegetables and the Glenmor brand for fresh meat and poultry. There are three main offerings within the SPAR brand, namely SPAR, SPAR Express and EUROSPAR. SPAR - all rights reserved. 2018 | 1 SPAR SPAR provides neighbourhood shopping, with central locations and extended shopping hours to maximise convenience. EUROSPAR EUROSPAR provides comprehensive supermarket shopping, offering a broad range of groceries and general merchandise, fresh produce, in-store bakery, butchery, deli and ready-to-eat products and home-meal replacements. SPAR Express The SPAR Express format is used exclusively on forecourt sites. Londis Londis has a mix of store formats from neighbourhood supermarkets to small convenience stores. Our recent development plans and recruitment of new stores have dramatically changed the look and feel of the Londis brand. The brand promise of ‘Local Like You’ is about a family philosophy that permeates throughout the group. MACE MACE is the longest-established convenience shopping brand in Ireland, and includes community stores and forecourt shopping, with a total of 216 stores around the country. XL The XL brand is concentrated on a rural spread of smaller, independent stores that are serviced by the Value Centre Cash and Carry network. Value Centre Value Centre has a network of 20 Cash and Carry branches (excluding the recent 4 Aces acquisition) servicing over 20 000 customers across the independent retail, licensed and foodservice trades. SPAR - all rights reserved. 2018 | 2 BWG Foodservice BWG Foodservice specialises in product innovation and the supply of multi-temperature products to all sectors of the foodservice industry and has about 3 000 customers. Gala Following the acquisition of the 4 Aces wholesale business, BWG Foods now supplies 34 Gala retail stores in Ireland. AWARDS FOR 2018 BWG Group and the SPAR brands have a strong reputation following many top industry awards over the years, with individual SPAR stores also regularly featuring among the best in their categories. Recent awards for the BWG national distribution centre facility in Kilcarbery include the following: We have also garnered digital technology awards for Best B2B Technology from Eir Spiders in 2017 and the Tech Excellence Awards for the Private Sector Project 2018. SPAR Fermoy won the Best Convenience Store Award for Stores 2 500 – 4 000 Sq ft at the ShelfLife National C-Store 2017 Awards. The Londis advertising campaign won a range of innovation awards from the Institute of create advertising and design. Cash and Carry Manager of the Year, Garry O’Callaghan from the Value Centre, Limerick, was selected by ShelfLife for a Grocery Management Award. SPAR - all rights reserved. 2018 | 3 UNDERSTANDING OUR OPERATING ENVIRONMENT Since the deep recession 10 years ago there has been a structural change in consumer behaviour towards value-conscious choices. Although Irish consumers are positive about their spending outlook, the shopping habits developed during the recession have not been forgotten. This has led to smaller average basket sizes and a greater level of promiscuity as shoppers spend across a wider range of store options. Online options made it easier for consumers to seek out value, which in turn change how they engage with stores. Christmas 2017 was a victim of this, with deep Black Friday discounting disrupting consumer spend in a key trading period in terms of revenue and profit generation. Groceries however remain predominantly a ‘bricks and mortar’ channel with low but growing penetration of online. The grocery sector overall returned to growth this year and the persistent gap between sales value and sales volume growth started closing in recent months. This would suggest that retailers are finally beginning to extract some value growth from what has been a highly competitive, price-obsessed market over the last decade. There has been sustained grocery deflation in the Irish market with the cost of food decreasing. This is putting ongoing pressure on wholesale and retail margins. On the upside, in many cases where deflation has occurred because of changes in the €/£ exchange rate, the lower cost of goods yielded a dividend to retailers as retail pricing did not always track the lower cost of goods. In the supermarket sector, the three largest competitors have very similar levels of market share and continue to vie for top position. Competition remains intense and geared towards discount options. Consequently, BWG Foods has had to invest in pricing support to EUROSPAR retailers to ensure that they remain competitive within the supermarket segment. BWG invested in the wholesale pricing of key impulse categories such as soft drinks and confectionary to ensure competitive pricing on the best-selling lines on our wholesale price from the distribution centre. Competitor prices are tracked weekly and our prices amended accordingly to match the lowest competitor price. This ensures that the distribution centre is aligned to its key competitor set – an important guarantee to retailers and an assurance that they are consistently able to buy at the very best prices available on categories where profitability is key to the retail model. The Kantar Worldpanel, a world leader in consumer knowledge and insights based on continuous consumer panels, describes Ireland as ‘Europe’s most competitive grocery landscape’. To match or outperform the market in terms of growth will continue to be a significant achievement for BWG Group. In the UK market we saw several acquisitions of competitors by the large multiple supermarket operators. Food inflation is forecast to rise with uncertainty over Brexit, the value of the sterling and weather impacts following a wet winter and an exceptionally hot summer putting pressure on the agriculture sector. Half of Britain’s food is imported, with 30% from EU countries. Food prices have varied by commodity type, with an average 2.9% like-for-like inflation during 2018. Forecast for food prices post Brexit vary widely. SPAR - all rights reserved. 2018 | 1 Above-inflationary increases in labour rates – resulting from government-introduced changes to the National Living Wage and National Minimum Wage – impacted overall wage costs for wholesale and retail businesses. Regulatory changes remain a significant threat to total category sales in Ireland, particularly related to the alcohol category. The Public Health (Alcohol) Bill was signed into law by the President on 17 October 2018; each module within the legislation requires activation by the responsible Minister and no activation has yet been triggered. There has been a long period of consultation on the Alcohol Bill and the structural separation element has been substantially diluted from the original draft bill. In terms of minimum unit pricing (MUP), this is unlikely to be introduced in the near future based on the uncertainty of the seamless border and the need to balance pricing across the island of Ireland. The potential impact of legislative and other tariff or duty changes post Brexit remains significant and unquantifiable at this stage, based on the uncertainty of the final solution post March 2019. SPAR - all rights reserved. 2018 | 2 OPERATIONAL OVERVIEW Buoyed by a long spell of fine weather, sales in the Irish retail sector grew by 2.8% in 2018. Retail categories such as grocery, DIY and hardware, and fuel benefited strongly from the sustained spell of warm weather during June. From a grocery perspective, there was particularly strong demand for seasonal products such as soft drinks, beer and wine, ice cream, BBQ food and fresh food categories, with the spike in demand pushing retailer supply chains to the limit during summer. Once-off events such as the football World Cup and the royal wedding in the UK provided a welcome boost to trade for retailers, with sales of soft drinks, alcohol, and magazines benefiting most. This trend reflects a broader move towards event-led retail in recent years as retailers seek to leverage such events to help promote consumer spend. All BWG retail brands showed growth in 2018 and either maintained or marginally grew their market share. According to Nielsen Scantrack statistics, the convenience market grew by 3.7% year-on-year and the supermarket channel grew similarly by 3.7%. Londis was the strongest performer among the BWG Group brands, with sales growth of 5.9%. SPAR, as our largest brand, increased sales by 4.1%. EUROSPAR outperformed the supermarket channel by achieving 4.3% sales growth. There is no empirical track of wholesale or cash and carry channel sales but based on volume and value sales growth over the last 12 months, combined with supplier feedback, we are confident that Value Centre has grown its market share in the wholesale channel, as has BWG Foodservice. STORE PERFORMANCE OVERVIEW EUROSPAR operates in the supermarket sector of the Irish grocery trade, which remains highly competitive in nature. EUROSPAR delivered wholesale sales growth of 1.79% – consistent with that achieved over the past number of years –despite strong sterling weakness-induced deflationary headwinds. EUROSPAR store numbers also continue to grow, with four new EUROSPARs opened.