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Ireland Food and Drink Report Q1 2011
Business Monitor International, Jan 2011, Pages: 65
Business Monitor International's Ireland Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ireland's food and drink industry.
With control of around 25% of the market, Tesco Ireland is the country's largest grocery retailer and one of the firms hit hard by the downturn. Faced with the rising popularity of the discount channel and an increase in cross-border shopping, the company responded with aggressive price cuts, followed by similar actions across the entire retail sphere. This action is likely to continue weighing on spending levels and has been taken into account in our forecasts, with only modest growth expected from 2011 onwards. However, despite the difficulties of the current market, Tesco continues to invest – recently announcing plans to deploy EUR113mn in Ireland to open six new stores and refurbish one existing outlet. This continued commitment chimes with our more positive outlook for the longer term.
Headline Industry Data
- 2011 per capita food consumption = -1.3%; forecast to 2015 = 8.6%
- 2011 alcoholic drink sales = -1.9%; forecast to 2015 = 3.1% ?? 2011 soft drink sales = -3.5% ; forecast to 2015 = 1.1%
- 2011 mass grocery retail sales = 1.9%; forecast to 2015 = 12.3% Key Industry Trends & Developments
Greencore-Northern Foods Announce Merger – In November 2010, UK-food group Northern Foods and its Irish counterpart Greencore announced that they are to merge in an all-share deal. Shareholders in the two companies will each receive 50% of the equity of the enlarged group, which is to be named Essenta. The firm will have annual sales of around GBP1.7bn and will be a major player in the ready-meal sector, while also having significant interests in biscuits and frozen food. Investors in both companies have responded very positively to the news, with the share price of both up by more than 20% on November 17 2010. This reaction highlights the operational overlap of the two businesses and the resulting cost synergies from a merger and also reflects the stronger negotiating power that the enlargement of the group will bring.
Return To Growth For C&C Supports Acquisition Strategy – The latest results posted by Irish drinks producer C&C Group point to a possible turnaround for its beleaguered Magners brand. For the six months to August 31, volumes of Magners in the UK increased by 0.7%, representing the first lift in volumes since 2007. In April, C&C further demonstrated its commitment to restoring growth at its core cider unit by announcing the sale of its spirits and liqueurs division to UK-based William Grant for EUR300mn. The sale boosted the firm’s net profits for its fiscal first half to EUR276.1mn, from EUR51.9mn, and allows the firm to focus on its core cider operations. At the time of the sale the firm said that the proceeds would be used for debt reduction and general corporate purposes. However, with the sale bringing down the firm’s pro forma 2009/10 net debt to earnings before interest, taxes, depreciation and amortisation ratio to 0.6 (against an industry average of 3-4), BMI believes the move could actually be the prelude to further expansion in the cider or beer categories, to further build its on-trade proposition.
Key Risk to Outlook Consumer spending fails to recover in line with economy – With the Irish economy yet to emerge from recession, it is clearly going to take a long time for confidence to return. There are signs that this process has begun but the domestic economic situation is expected to remain extremely fraught, with high unemployment, an ongoing property-bubble unwind and unavoidable fiscal austerity likely to ensure conditions feel recessionary to most Irish citizens, even once headline GDP growth returns. This could mean that private consumption growth lags the wider economic recovery to an even greater extent than we are currently predicting, putting further downwards pressure on our forecasts.
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