The Dynamics of the Retail Sector in Ireland THE NATIONAL POLICY AND ADVISORY BOARD FOR ENTERPRISE, TRADE, SCIENCE, TECHNOLOGY AND INNOVATION FUNCTIONS OF FORFÁS Is é Forfás an bord náisiúnta um polasaí agus comhairle le haghaidh fiontraíochta, trádála, eolaíochta, teicneolaíochta agus nuála. Is é an comhlacht é a bhfuil comhactaí dlíthiúla an stáit maidir le cur-chun-cinn tionscail agus forbairt teicneolaíochta dílsithe ann. Is é an comhlacht é freisin trína dciomnaítear cumhachtaí ar Fhiontraíocht Éireann le tionscail dúchais a chur chus cinn agus ar ghníomhaireacht Forbartha Tionscail na hÉireann (GFT Éireann) le hinfheistíocht isteach sa tir a chur chun tosaight. Is iad feighmeanna Fhorfáis : - comhairle a chur ar an Aire ó thaobh cúrsaí a bhaineann le forbairt tionscail sa Stát - comhairle maidir le forbairt agus comhordú polasaithe a chur ar fáil d’Fhiontraíocht Éireann, d’GFT Éireann agus d’aon fhoras eile dá leithéid (a bunaíodh go reachtúil) a d’fhéadfadh an tAire a ainmniú trí ordú - forbairt na tionsclaíochta, na teicneolaíochta, na margaíochta agus acmhainní daonna a spreagadh sa Stát - bunú agus forbairt gnóthas tionsclaíoch ón iasacht a spreagadh sa Stát, agus - Fiontraíocht Éireann agus GFT Éireann a chomhairliú agus a chomhordú ó thaobh a gcuid fe i d h m e a n n a . Forfás is the national policy and advisory board for enterprise, trade, science, technology and innovation. It is the body in which the State’s legal powers for industrial promotion and technology development have been vested. It is also the body through which powers are delegated to Enterprise Ireland for the promotion of indigenous industry and to IDA Ireland for the promotion of inward investment. The broad functions of Forfás are to: - advise the Minister on matters relating to the development of industry in the State - to advise on the development and co-ordination of policy for Enterprise Ireland, IDAIreland and such other bodies (established by or under statute) as the Minister may by order designate - encourage the development of industry, technology, marketing and human resources in the State - encourage the establishment and development in the State of industrial undertakings from outside the State, and - advise and co-ordinate Enterprise Ireland and IDA Ireland in relation to their functions. BOARD MEMBERS Tom Toner, Chairman Peter Cassells, General Secretary, Irish Congress of Trade Unions Sean Dorgan, Chief Executive, IDA Ireland Dan Flinter, Chief Executive, Enterprise Ireland Paul Haran, Secretary General, Department of Enterprise, Trade and Employment Professor Michael Hillery, Chair of Manufacturing Engineering, University of Limerick John Lynch, Director General, FÁS William Murphy, Partner, Tynan Dillon and Company Fergal O’Rourke, Partner, Taxation, PricewaterhouseCoopers William Scally, Economist Professor Yvonne Scannell, Trinity College John Travers, Chief Executive, Forfás Page i THE DYNAMICS OF THE RETAIL SECTOR IN IRELAND Foreword The services sector will be the largest contributor to employment growth over the period to 2010. The retail sector is the largest part of services, accounting for 11 per cent of total employment in the economy. The retail sector plays a critical role in sustaining competitiveness. Strong competition in the sector has kept prices low and contributed to Ireland’s low inflation. The retail sector also contributes to competitiveness by influencing Irish manufacturers and suppliers to increase productivity. Forfás data indicates that around 50 per cent of the output of Irish- owned food and clothing firms is sold on the Irish market. Over the years, retailers have played a key role in providing a ‘shop window’ for Irish manufacturers and assisting them in launching new products and developing the scale and competitiveness required to compete on international markets. Supplying to the international retail market has served to enhance innovation, quality and competitiveness of Irish manufacturers. The pace of structural change in the retail sector in Ireland, underway for the last decade, has significantly accelerated with increased international ownership. This is evidenced in the development of larger sized outlets, variations in formats to meet locational and demographic needs and the growth of symbol groups. Structural change is being driven by the search for economies of scale, increased market share, vertical integration of the supply chain, consolidation among the major companies and the integration of information and communications technologies. The last five years have witnessed a dramatic increase in cross-border retailer expansion and the internationalisation of large retailers across Europe and the US. In order to better understand the impact of these changes on Ireland’s economy, Forfás commissioned this review✝ of the dynamics of the retail sector. The review was undertaken in consultation with the retail sector itself and with suppliers and distributors in Ireland and internationally. The review analyses the nature of the change underway and sets out the strategic and operational implications for: • Retailers; • Manufacturers and suppliers; • Distributors; and • Consumers. A high level of competition in Irish retail markets is ultimately good for the consumer and for national competitiveness. This requires Irish retailers and manufacturers to heighten their awareness of the changes underway and consider how best to respond. The major strategic challenge for Irish retailers is how to respond to the increasing flow of international retailers into the Irish marketplace. For Irish manufacturers, the challenge is how best to respond to the emergence of a small number of multinational retail chains with significant market share. Increasing retail concentration will result in purchasing for the Irish market being centralised. The ‘own-label’ share of the Irish grocery market is forecast to exceed 20 per cent within three to four years. These developments require manufacturers to strategically reposition their businesses, to develop the scale required for supplying re t a i l e r s ’ national and international needs and to increase their supply-chain efficiencies. ✝ review was undertaken by a consortium of KPMG Management Consulting, Fitzpatrick Associates Economic Consultants and the Centre for Retail Studies, UCD. THE DYNAMICS OF THE RETAIL SECTOR IN IRELAND Page ii Distributors will face challenges posed by the centralised distribution systems of the major retailers. Efficiencies in distribution will reduce the number of deliveries to each retail outlet. The benefits of increased competition and efficiency are being passed on to the consumer in lower prices. However, the retail industry needs to continue to respond to the changing lifestyles and purchasing requirements of consumers. The Government support agencies, particularly Enterprise Ireland, Shannon Development and An Bord Bia, have a key role in assisting Irish suppliers respond to the challenges. The regulatory environment has an important contribution to make in retaining the spatial balance of retail activity in the regions and in ensuring balanced development in urban areas. Irish retailers and manufacturers that are leading and adapting to the structural changes are reaping the benefits of the buoyancy in consumer demand in the Irish economy. In particular, Irish manufacturers are benefiting from the opportunities for accessing new markets by supplying to multinational retailers abroad. For those adopting a ‘wait and see’ approach, the need to develop a response is immediate. These and associated issues are discussed in detail in this review. The analysis set out and conclusions drawn will be of interest to retailers, manufacturers, distributors, consumers, the State development agencies and policy makers. Forfás November 1999 The Dynamics of the Retail Sector in Ireland Report prepared for Forfás by: KPMG Management Consultants Fitzpatrick Associates Economic Consultants The Centre for Retail Studies, University College Dublin THE DYNAMICS OF THE RETAIL SECTOR IN IRELAND Page iii Contents Forfás Foreword i Executive Summary iv 1. Overview of the Retail Sector 1 1.1 Introduction 1 1.2 Study Approach and Methodology 2 1.3 Definitions 2 1.4 Supply Chain 4 2. International Retail Sector 5 2.1 Summary 5 2.2 Retail Structure and Structure Trends 7 2.3 Developments in the Retail Sector 15 3. The Irish Retail Sector 37 3.1 Summary 37 3.2 Consumer Spending & Shopping Patterns 38 3.3 Retail Outlets and Formats 40 3.4 Food Sector Retail 42 3.5 Clothing Sector Retail 45 3.6 Role of Retail in the Economy 46 3.7 Competitiveness of the Retail Sector 58 3.8 Future Scenarios 64 4. Supply Chain Implications 72 4.1 Summary 72 4.2 Implications for Retailers 75 4.3 Implications for Distributors 81 4.4 Implications for Suppliers 82 4.5 Implications for the Consumer 104 4.6 Implications for Retail Employment 105 5. Conclusions and Recommendations 106 5.1 Summary 106 5.2 Introduction 109 5.3 Retailers 109 5.4 Suppliers 111 5.5 Distributors 113 5.6 Environment Enabling 114 Page iv THE DYNAMICS OF THE RETAIL SECTOR IN IRELAND EXECUTIVE SUMMARY 1.0 INTRODUCTION In its long term strategy report ‘Shaping Our Future: A Strategy for Enterprise in Ireland in the 21st Century’, Forfás noted that the dynamics that drive the development of the services sector, in particular of the domestic services sector, are poorly understood. As a first step in examining the dynamics of this substantive sector of the Irish economy and its role in improving and sustaining