Multiples target the Province

With Tesco ruling the mainland, Sainsbury’s is moving into Northern Ireland to regain share. But Tesco is hot on its heels. Philip Wisson is an independent consultant.

It is 18 months since Tesco beat Sainsbury’s in the battle to acquire William Low, as a short cut to gaining a bigger share of the grocery market in Scotland. Tesco has 17.5 per cent share of the Scottish market, while Sainsbury’s has less than four per cent, according to Nielsen’s household panel Homescan. Nationally, in the four weeks to December 23 1995, Tesco, with 20 per cent of the market, is now a clear two percentage points ahead of Sainsbury’s, an almost exact reversal of the position in 1994 when Tesco took William Low.

Despite its new year price promotion on a range of 200 basic grocery products, backed, it claims, by 3.5m of press and point-of-sale advertising, Sainsbury’s is obviously going to face a long, hard fight to regain its market share nationally.

There is one region, however, where Sainsbury’s could make major gains, the sole remaining region where it and Tesco do not operate at the moment – Northern Ireland. Both Sainsbury’s and Tesco have said they intend to expand into the Province in 1996.

There are several reasons why this is a market with good potential and where it would make sense for Sainsbury’s to undertake a major initiative. The cease-fire, and the accom- panying improved political situation, is leading to increased investment by international corporations, and the European Union continues with its special regional development support. This augurs well for economic prosperity for the region over the next decade.

The impetus given to the increasing homogeneity and integration of markets north and south of the Irish border will also be helped by the big overlap of UK terrestrial and satellite broadcasters into the Republic.

A retail analyst in Northern Ireland claims British multiples see the Province as their bridgehead into the Republic. The shape and structure of the grocery market itself in Northern Ireland is another reason why Sainsbury’s must be keen to develop there.

In 1995, according to Nielsen, it was worth 1.7bn and grew by four per cent from 1994 – this growth coming from an already high base. In terms of the average four-weekly spend per household, Northern Ireland, with 133.33 per household, is 5.2 per cent higher than the average for Great Britain, and ranks third out of ten regions – only London and the South are ahead of it.

The retail structure in the Northern Ireland grocery market is also promising. As can be seen in table one, the top four multiple groups account for 58 per cent of the total – the same as in mainland Britain. But they are Stewarts, Wellworth, Crazy Prices and Dunnes, not Tesco, Sainsbury’s, Asda and Safeway.

Even more encouraging for potential entrants, is the fact that whereas the second level multiples – Kwiksave, Somerfield, Iceland, Morrisons and Waitrose – account for 20 per cent of the British grocery market, the second level does not exist in Northern Ireland.

Marks & Spencer, with two per cent, and Co-op, with seven per cent, of the market are in a similar position in the Province and in Britain, but the independents and other small outlets show a contrasting picture. They still control 33 per cent of the Northern Irish market, but have been reduced to 14 per cent in Britain.

Back in June 1995, when David Sainsbury confirmed that Sainsbury’s would be opening seven stores in the region, he commented that they could be competing head-on with existing multiple groups by pricing two to three per cent below them and by strongly featuring cut-price petrol as part of their marketing activity.

He added that the independent trade, being particularly convenience store-oriented in the Province, was unlikely to suffer. Most retail analysts would disagree. The 33 per cent share held by the smaller outlets will almost certainly decline.

With Tesco claiming it will also be entering the market, the battle is bound to intensify. The most obvious area for activity will be price cutting – retail prices for many basic grocery items are significantly higher at present in Northern Ireland than in Britain.

David Sainsbury may well say that Sainsbury’s will price two to three per cent below existing competitors when, for a range of selected core grocery items the price premium is more than seven per cent at the moment, and on particular items can be as much as 12 per cent.

The top four multiples in Northern Ireland are sure to respond to any price-cutting initiative that Sainsbury’s takes, and this will be a critical element in the share of trade battle in 1996.

As well as price cutting, the war is likely to be conducted through advertising. Register-MEAL data in table two shows that the top three British grocery multiples spent 80m in 1994 and 100m in 1995. With Tesco leading the way, the advertising approach in Britain began to change in the second half of 1994, with emphasis being put on micro-marketing and tactical advertising to support customer loyalty schemes.

In Northern Ireland, Register-MEAL data shows the top three multiples spent 2.1m in 1994, and the same amount in 1995. This is likely to be stepped up in the intensified battle in 1996.

When Tesco and Sainsbury’s were fighting each other in Scotland to acquire William Low in 1994, retailer advertising in the region increased by 60 per cent, from an annual expenditure of 3.9m in 1993 to 6.2m in 1994. It would be no surprise if a similar pattern were to develop in Northern Ireland.

In Scotland, in 1994, Sainsbury’s withdrew from a head-on fight with Tesco after the preliminary skirmish. In Northern Ireland it badly needs a victory to keep out Tesco and gain significant market share.

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