Reeling In The Year: Highlights That Impacted The Grocery Retail Sector In 2018
The implementation of the much talked about Sugar Tax, the enactment of the controversial Public Health (Alcohol) Bill and, of course, the weather, were some of the unprecedented changes and challenges that impacted the grocery retail sector in 2018. Checkout highlights these and other standout moments for the sector during the year.
Taxing Times For Soft Drinks – But Who’s Next?
Ireland's biggest retailers reformulated their private label carbonated soft drinks to avoid being subjected to the sugar tax, which came into force on 1 May. The new tax saw €0.20 per litre being applied to drinks that contain between 5g and 8g of sugar per 100ml, and €0.30 per litre being applied to drinks that contain more than 8g of sugar per 100ml. So, what impact has the legislation had on consumer behaviour in-store and, more importantly, what could happen with other ‘sugary’ categories?
Soft drinks are the only category impacted by a sugar tax but are they the biggest contributor of sugar to our baskets? What is the single biggest area accounting for the 64 kilogrammes? Surprisingly, milk is the highest single contributor, with 3.4 million kilogrammes of sugar being bought within milk each year in Tesco. That’s according to information from dunnhumby, published in our March 2018 edition. They revealed that the average household buys 3 kilogrammes of sugar from milk (more than soft drinks). Milk contains quite a bit of sugar - 5 grammes per 100ml, but the sheer volume of litres sold makes it the biggest offender. If milk were a soft drink, it would be eligible for a 20c tax per litre.
So, this tax has started with soft drinks but, if it is perceived as being successful, it is likely that we will see the introduction of sugar taxes on confectionery and biscuits.
Public Health (Alcohol) Bill
The Public Health (Alcohol) Bill, 2015 was enacted on 17 October 2018, which is the first piece of legislation that addresses alcohol as a public health matter. Essentially, this will lead to stricter rules on how alcohol is sold in Ireland in the future. It means that alcohol products will now include health warnings, including the link between alcohol and cancer, nutritional information, and the dangers of drinking while pregnant. Advertising alcohol will be restricted in certain places, while there will also be restrictions on how alcohol companies sponsor sporting events. Moving forward, action will also be taken on the separation and visibility of alcohol products in stores. New rules will also be laid out for advertisers, and the times and content of television advertisements will be restricted.
While welcoming the overall intention of the legislation, the Alcohol Beverage Federation of Ireland (ABFI) strongly criticised aspects of the proposed legislation throughout 2018, particularly the cancer warning labels. The ABFI believes that the labels will cause huge reputational damage to Ireland’s food and drink industry – no other country in the world has mandatory cancer labels on alcohol products – creating barriers to trade, in and out of Ireland. The ABFI also claims that small producers will suffer, saying, “It is anticipated that it will cost approximately €50,000 to redesign an entire suite of labelling for a single product line, and additional stock control costs will also arise. In addition, similar labelling requirements could be extended to other Irish food and drink products. For example, red meat and processed meat has been associated with an increased risk of cancer.”
Bord Bia announced in May that it planned to conduct a comprehensive risk assessment and opportunity analysis report for the Irish food industry following the news that Sainsbury’s and Asda were to join forces to create the UK’s biggest supermarket chain. Bord Bia believes that each Irish exporter affected by the merger will require bespoke advice, so it is offering one-to-one guidance and support to companies, allowing them to explain their own situation and exposure. When the merger is completed, the new £7.3 billion (€8.3 billion) entity will enjoy never-before-seen bargaining power, and it announced that it expects to lower prices by about 10% on popular products. Irish suppliers are afraid that this will be done at their expense, with many potentially forced out of the business. Both Asda and Sainsbury’s source between £250 million (€285 million) and £300 million (€342 million) worth of produce from suppliers and producers in the Republic of Ireland and Northern Ireland each year. Many of Ireland’s largest food producers, such as Kerry Foods, Glanbia and Greencore, are major suppliers to the big UK supermarkets, and are therefore seen as being at risk from any pressure put on their margins after the deal completes.
Speaking to Checkout, Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said that “if the combined retailer comes into existence it will no doubt be looking for better terms from suppliers, as potentially the largest supermarket group in the UK”. When it comes to what motivated both retailers to make such a bold move, he says that Sainsbury’s and Asda have been losing FMCG market share to the discounters. “They are therefore looking for greater scale to compete more effectively on price. On measures of affluence and regional strength, the brands currently serve distinct audiences, which is why it makes sense that both brands are retained. For non-food, they will be looking to compete more effectively with the likes of Amazon. Asda have a long heritage of non-food sales and Sainsbury’s are likely to roll out Argos stores to the majority of Asda sites.”
Single-Use Plastics & Sustainable Retailing
2018 was most definitely the year of single-use plastics. On the 16 January the European Commission launched the first-ever European-wide strategy on plastics, with a focus on reducing waste and moving towards a more circular economy. The strategy aimed to ensure that all packaging in the EU market is reusable or recyclable by 2030.
Throughout the year some of the biggest global manufacturers in the grocery retail sectors outlined their targets for plastic reduction and elimination, as did Ireland’s leading retailers. Indeed, the rollout of environmentally-friendly initiatives by Irish retailers was impressive, with SuperValu becoming the first retailer in Ireland to introduce fully compostable and biodegradable produce bags for use by customers in April. The move was part of a broader strategy to reduce packaging and make 100% of its own-brand and fresh produce packaging recyclable, re-usable or compostable by 2025.
As retailers and FMCG manufacturers continued to ramp up their efforts on the sustainability front throughout the year, research by dunnhumby and Nielsen, published towards the end of 2018, revealed that Irish people believe it is the responsibility of retailers to reduce the amount of packaging used on grocery products. The Nielsen survey revealed that almost half of Irish shoppers either actively seek products with minimal packaging (48%), actively seek products in recyclable packaging (46%) or actively seek products with no packaging (46%). Nielsen’s research also found that almost 90% of respondents claim to actively recycle all the plastic packaging they can, with 78% saying they worry about the effect their grocery packaging has on the environment.
Given the recent dire warning that have been issued about the future of the planet, most notably by Sir David Attenborough at the COP24 summit in November, the development of sustainable practices throughout the entire retail supply chain is an issue that grocery retailers and FMCG companies must continue to address, both globally and in Ireland.
Ireland’s top retailers showed their commitment to achieving an Ireland where food isn’t wasted when they signed up to the Food Waste Charter, which was introduced on 25 January. By signing up, each business and industry leader pledged to take at least one action that will help reduce food waste. The initiative is part of the Retail Action Group on Food Waste, established by the Minister for Communications, Climate Action and Environment, Denis Naughten, to ‘accelerate progress towards meeting targets set by the UN as part of their Sustainable Development Goals, which seek to halve per-capita food waste and reduce food losses by 2030.’
While investment in in-work training programmes and further easing of the consumer tax burden was welcomed, Budget 2019 did little to protect the competitive position of the Irish retail sector. It was regarded by most in the Irish retail industry as a “missed opportunity”. A decision was made by the Government to increase the National Minimum Wage (NMW) to €9.80 in 2019, a cumulative increase of over 13% since 2015, will have a major impact on the industry in the New Year.
In its Budget 2019 submission, Retail Ireland pointed out that the persistent gap between sales value and sales volume growth had begun to close. "Nevertheless, Irish retailers are coming under increasing pressure from rising input costs such as labour, insurance, rates and utilities,” said Retail Ireland director, Thomas Burke. “Such costs have now become a survival and competitiveness issue for many Irish retailers. The State has played a significant role in driving input costs upwards. Therefore, they must ensure that no additional costs or tax burdens are placed on the Irish retail sector in Budget 2019.”
Ireland’s Most Hi-Tech Store
In the October issue of Checkout we reported on how an artificial intelligence-powered Londis store in the heart of the Dublin City University (DCU) campus has created an ambitious road map for the future of grocery retailing in Ireland. Londis officially launched Ireland’s most technologically advanced and sustainable grocery store on 26 September, but the concept store has been in development for well over a year, through a formal partnership between DCU and Londis’s parent company, BWG Foods.
To facilitate today’s connected generation, the store features a highly sophisticated central intelligence platform that continuously monitors in-store activity to enhance operational efficiency, improve the customer experience, and, ultimately, increase the overall profitability of the store. In addition, through BWG’s supply chain and store network, Londis and DCU are researching and testing new/emerging technologies that could be integrated into the shopping experience of the future. It will be interesting to see how many stores around Ireland will embrace some or all of the technologies featured in the store, including cutting-edge image projection, self-scanning checkouts, lower carbon refrigeration and digital shelf-edge labelling in 2019.
The Beast From The East
Despite the catastrophic impact that the storms had across the country, research revealed that the ‘Beast from the East’ and Storm Emma provided a huge boost to the Irish grocery market in March. According to Nielsen’s published retail performance data, grocery shoppers spent €9.6 million more on groceries (+4%) in the week of the storms than they did the week before, and €15.2 million extra (+6%) than in the same week a year ago. It was widely reported at the time that bread aisles in stores nationwide were the first to be emptied during the extreme weather event. Research indicated that, in terms of relative growth, bread saw an overall increase of €1.2 million. BWG Foods surveyed more than 1,000 shops in the run up to Storm Emma and Brennan’s Sliced Pan was the number one choice for consumers in their hour of need. In second place was a litre of milk (nutritious), followed by eggs (high in protein), firelighters (sensible), and, of course, wine.
The Long Hot Summer
Irish farmers were counting the cost of a summer heatwave that shrunk cereal harvests and shrivelled pastures, leaving some farms struggling to survive. However, not all sectors were burnt by the exceptional summer heat. Ice cream consumption and soft-drinks soared as consumers sought respite from the sun. In fact, the heatwave was a major retail boost, benefiting almost every consumer category. The good weather benefited the Irish high street in particular, with face-to-face spending recording the strongest increase since January 2018 - and recording the fastest rise since July 2016.
© 2018 Checkout – your source for the latest Irish retail news. Article by Maev Martin & Donna Ahern. Click subscribe to sign up for the Checkout print edition.