By contributor Sean Carey
Almost the first thing I noticed as I entered the one-way system in Youghal, a seaside town at the mouth of the River Blackwater in East Cork, was a huge banner draped over a high stone wall at the rear entrance of the local Supervalu supermarket. It was advertising the merits of the “Real Rewards”, a loyalty scheme which gives customers points that can be used on future purchases.
The next day I needed to buy some provisions for the family holiday. So I paid a visit, using the front entrance of Supervalu in the main high street area of the town. In the foyer of the shop was a picture of current owner, Ken Brookes. His family had first opened a grocery shop in another part of the town in 1888. All sorts of price cuts on products which were available within the store were flagged up at the entrance.
I recalled that this upfront advertising explicitly emphasizing “price” wasn’t there on my last visit to Youghal three years ago.
When I got to the checkout, a young Irish woman asked whether I had my “Real Rewards” loyalty card with me. “I’m on holiday so unfortunately I’m not going to be here for long enough to make it worthwhile either for Supervalu or for me,” I replied. “That’s fine,” she smiled as she took my credit card.
In case anyone, including recently arrived tourists like me, didn’t get the message, the Irish television broadcaster, RTE, was also running a series of commercials on its various channels. In the ad a friendly Irishman with a banner behind him proclaiming “Permanent Price Cuts” walks towards the camera, and declares: “There’s no need to go anywhere else.”
“Anywhere else”, of course, refers to Tesco, the UK’s largest supermarket group and the third-largest in the world (after Wal-Mart and Carrefour). Tesco established a significant presence in the Irish Republic in 1997 and then expanded greatly especially after 2000, taking advantage of the economic boom which ran until the so-called “Celtic Tiger” imploded in 2008.
Unlike some of its U.K. competitors like Asda, Sainsbury’s, Safeway (now Morrisons) and Marks & Spencer, Tesco was quick to spot the potential profits in tapping into the new and fast-expanding middle class to be found on the other side of the Irish Sea. This social group was growing because people who would have traditionally left Ireland to seek opportunities in other parts of the globe, especially English-speaking countries like the UK, US, Canada and Australia, no longer needed to migrate because well-paid jobs, often available with US and other foreign hi-tech companies, were in plentiful supply.
The big question for Tesco given the size of investment that would be required was: would its entry into the Irish market be sufficiently scalable to be profitable or not?
I knew someone who was involved in the original market research in the late 1990s which Tesco commissioned to find out whether it was in its interests to enter the Irish market. The main focus of the project was to determine whether young affluent consumers, who would typically marry in their late 20s or early 30s and create households with three or four children (approximately twice the number of children compared to the average U.K. household), were keen to try something different. Options at the time were the traditional franchise chains like Supervalu and Centra, both part of the Cork-based Musgrave Group, and the so-called “hard discounter” German-owned chains like Aldi and Lidl, as well as the small independent-owned shops which punctuate the high streets of towns and villages in the Irish Republic.
The answer was a resounding “yes”. Put simply, the research strongly indicated that Tesco would have the advantage of entering a relatively uncompetitive market (certainly compared with the U.K.) as both a “new” and “aspirational” brand for middle-class consumers.
The rest is history. Tesco Ireland Ltd. is now the largest food retailer in Ireland. It is also the most profitable part of the ever expanding global company, which also operates in Europe, the Far East and the U.S. where at the last count it has rolled out 177 Fresh & Easy brand stores.
A Tesco supermarket was opened on the eastern edge of Youghal in November, 2003. As someone with a long-standing interest in consumer behavior, I have made numerous visits to the store while holidaying in Ireland to understand better how it works.
In terms of architecture and design, this branch of Tesco, including the logo at the entrance, is pretty much indistinguishable from those on the U.K. mainland. Also, the type and range of products and services within the supermarket are very similar to those available in the UK, although there is a greater proportion of Irish products in the bakery, dairy and fresh meat sections. The inclusion of Irish products is in part strategic, designed to counter the accusation that Tesco is not doing enough to help local producers and suppliers.
New customers are also encouraged to sign up to the hugely successful Tesco Clubcard scheme, a loyalty card, which additionally allows the company to track customer behavior and offer personalized incentives in purchasing goods and services — no surprise, then, that Supervalu felt obliged to launch its own Real Rewards scheme in February, 2010 in order to keep up with its rival.
These days, though, the Irish economy is still under the cosh – unemployment is still rising and hit 14.4 per cent of the working population in August and migration is happening once again. Tesco has clearly taken the decision, at least while economic conditions remain problematic, to partly reposition itself so that it is perceived as a “value” as well as an “aspirational” brand. Moreover, it is not afraid to show its marketing muscle. At the entrance to the Tesco branch in Youghal, a board lists a long number of products from Coca-Cola to Gillette razors and mushrooms, which it claims can be purchased in its store more cheaply than at Supervalu.
Tesco’s emphasis on price undoubtedly accounts for the response of Supervalu, which because it has a long-standing reputation for being more expensive than the UK-owned giant and the German-owned discounters has chosen to respond in the way it has. But is it wise for Supervalu, which has established itself more around the attributes of “locality,” “heritage” and “Irish products and suppliers,” to take on Tesco on price? I think not.
Why? Partly because Tesco has very deep pockets to sustain a price war for a very long time, and also because of what I learned from talking to a small sample of middle-class Irish consumers, who I met in everyday situations on my recent visit (note: not in formal interviews or focus groups utilised by market researchers). I found growing resistance even amongst those who shop regularly in Tesco, and who have the Tesco Clubcard key fobs to prove it, to its dominance in the market place.
Put simply, by applying the sort of brutal rules of competition that have worked so well in the U.K., the perception at least among some segments of consumers in Ireland is that Tesco operates like the “bully in the playground” – a foreign-owned company, predominantly supplied by foreign firms which is almost totally preoccupied with the bottom line. In many towns in the Irish Republic, where to use Max Gluckman’s concepts, multi-stranded rather than single-stranded social relationships are the norm –- in other words, there really is a community rather than a population — the pursuit of profit above all else is not seen as either altogether legitimate or contributing to social cohesion.
The lesson? Surely, Supervalu, while keeping an eye on price, would do better to market itself using other attributes to differentiate itself from Tesco. It might, for example, focus on “ethical trade –- the fair exchange of goods and services” promoted by its parent company, Musgrave. And perhaps its long-standing role in maintaining the social economy of the high street in Irish towns like Youghal.