Beyond Recession

Pat Nolan reports from this year’s Beverage Council of Ireland Conference Presentation in the Lyrath Estate Hotel, Kilkenny.

Speakers (from left): IBEC's David Croughan, BCI President John Galvin, Eoin McGettigan, VFI President Gerry Mellett and George Lee.

Speakers (from left): IBEC’s David Croughan, BCI President John Galvin, Eoin McGettigan, VFI President Gerry Mellett and George Lee.

There can be no doubt that the beverage industry has been hit hard by the national and global economic decline. Changes have occurred in the beer market, for example, which have driven it from draught to packaged, reflecting evolving consumption patterns.
Overall alcohol intake has declined and seems unlikely to return to former levels, especially in an increased regulatory regime such as now exists in Ireland. All this points to a shift in power from the brand owner to the retailer. So believes Beverage Council of Ireland’s President John Galvin.
These stark facts ran through the BCI’s theme  – ‘Beyond Recession’ – at the Council’s  AGM, lunch and series of afternoon presentations held in the Lyrath Estate Hotel in Kilkenny recently.
John Galvin told delegates, “There has been a fundamental and radical change in the drinks industry. There has been consolidation in all sectors and consumer habits have changed dramatically – and irrevocably”.
In his capacity as Conference Chairman, he introduced the afternoon’s presentations commencing proceedings by introducing the Keynote speaker, Economist and Broadcaster George Lee.
George, who spoke on the topic of ‘What another fine mess’, provided his audience with a number of interesting insights into the Dáil and how it conducts its business in chamber, holding out little hope of the Government ever getting to grips with the economy any time soon. Nevertheless, he continued to advocate more investment in the economy as the only means of making progress.
He was followed by the Head of Economics and Taxation at IBEC, David Croughan. David has responsibility for articulating IBEC’s view on economic and taxation policy to Government and the EC when appropriate. He’d originally christened his presentation ‘Light at the end of the tunnel’ but thought better of it and instead spoke of ‘Green shoots? But in arid land’.
The first signs of global recovery didn’t come as any surprise to him considering the amount of money put into international banking by various governments. He believes national recovery has begun to take place too however. But while the Eurozone as a whole is likely to show growth of one per cent this year, Spain and Ireland are likely to continue in decline by 0.4 per cent and 1.5 per cent respectively.
However 2011 should see the Eurozone growing by 1.5 per cent with Spain and Ireland taking part in this by 0.9 per cent and 1.9 per cent growths respectively.
Nevertheless, he warned that Ireland should beware what he called, “the deficit debt” as a result of Government borrowing.
This budget deficit debt, presently running 12 per cent, is predicted to fall to three per cent by 2014. However all this is without the inclusion of the Anglo Irish Bank factor which has helped rack up the deficit to 14.3 per cent this year and which may go as high as 17 per cent by the end of the year (and beyond this again in 2011, he told the conference).
“National debt will therefore increase and so there will be more and more interest to pay,” he warned.
Despite this, Ireland has a lot of credibility in Europe as a result of the way it has dealt with its costs and spending and it is that return of confidence that’s going to drive output, he felt. A predicted gain in competitiveness of 13 per cent to 2012 will help drive the economy too.
Unfortunately, unlike the other sectors, bars continue to decline strongly in both value and volume.
The third speaker, David McGee from Price Waterhouse Coopers, has extensive experience in project and programme management, supply chain re-engineering and IT governance, systems selection and implementation. His key clients include some of Ireland’s largest food retailers and several consumer goods manufacturing and distribution companies in addition to a number of well-recognised high street retailers.
He spoke on ‘Who is driving route to market?’ and with the theme ‘Thriving with the New Normal’, he cited three axioms for progress: “re-focus, re-build and re-cover”.
Pointing to where value outstripped volume in 2007 in the Irish economy as input costs rose, the years since then have witnessed declining value outstripping the decline in volume as businesses cut their prices to the max.
“The market structure has now changed fundamentally,” he agreed, “The consumer has changed too and so seeking value will be a permanent feature.”
PWC has conducted a Pulse Survey which indicates that 87 per cent of some 200 Irish Chief Executives across all industry sectors believe that the greatest expected change in business strategy will be responding to the changing consumer while 68 per cent believe that the greatest potential risk to growth is this permanent shift in consumer spending.
“Therefore it’s important to get behind the brand now,” he emphasised.
“The last 12 months have just been about survival. Now we must move to the ‘new normal’.”
David McGee also urged suppliers to take another look at the costs of servicing large retailers like Dunnes Stores. He reckoned that this cost is huge compared to that of another independent store and he advised suppliers to get an understanding of what it’s really costing them in net profits as opposed to gross margins. He also advised suppliers not to forget about the customer.
“It’s going to be important to get out and engage with the customer,” he concluded.
In his address entitled ‘Called to the bar – but not responding?’ the VFI’s new President Gerry Mellet reminded delegates of the dire state of the on-trade with a pub a day being closed at present.
“I envisage that over the next three to five years we could go on to lose 2,000 more pubs,” he told delegates, pointing out that turnover in pubs is down between 25 and 40 per cent.
He himself had invested €599,000 in his pub via a new restaurant, new toilets and new kitchens back in 2005 and had had to close down the restaurant last year as it was making no money. Women in their 30s find it more exciting to go to restaurants now, he said.
Publicans are suffering from a loss of confidence in the industry too.
Between 1998 ad 2000 it was “up-and-away” for publicans, he explained, “We never had any fear of going to the bank to get a loan for €40,000 to do a €70,000 to €80,000 job as we could always get a loan, but confidence has gone now.
“Some 10,000 jobs have gone in the trade over the last few years. How did it come to this?
“The Government of this country has destroyed our industry. They’ve decimated us.”
It began in 1997 when Mervyn Taylor and the Rainbow Coalition “started the rot”, when they began interfering in Equality legislation, he stated.    
“There were 36 pubs in Carlow town of which only one was manager-run. That legislation drove a lot of family pubs out of business and so they left the industry.”
He also had words for Minister Micheal Martin “… who single-handedly destroyed us when he brought in the smoking ban to boost his ratings.
“We spend millions trying to entice tourists here and then we put them out to smoke in conditions that we wouldn’t have for cattle or sheep.”
And the current High Court case against a Naas pub over its canopied smoking arrangements [see page 9 Drinks Industry Ireland last month] will have repercussions for the rest of the trade, he warned.
When Minister Micheal Martin moved on to another Department, he went on to remove the ban on below-cost selling which has “precipitated a race to the bottom”.
In a more optimistic vein however, he noted that a lot of suppliers had come back to the on-trade of late.
“They realise that there’s more in the on-trade for them than there is in the off-trade.”
Publicans too have been guilty of ignoring the increasing sophistication and elaboration of the home environment which has seriously injured the on-trade. One can buy beer for 85 Cent in the off-licence where it costs €5 in the pub.
“We’ve taken the consumer for granted which stems back to the 90s when we’d happily put ‘Full House’ on our doors; we could always get someone to take their place….”
Now, things are different and the taking of €4 billion followed by €3 billion from the economy is bound to have a negative effect on the on-trade too.
Everyone has become more price- and event-conscious, he said, referring in particular to the success of the ‘Stars in our Bars’ competition which has seen 600 or 700 pass through the pub doors in some cases.
“We’re working closely with some companies who recognise the importance of our business and their own,” he said, “We’ve done great work with them in trying to establish what is wrong with the trade and in working together to see how we can put it right.
“Can we save the pub? What needs to be done?”
The attitude of Government has to change, he believes, “If the Government is not prepared to sit down with us and create a roadmap then we’ve no future. They cannot continuously bring us up in the air and kick us out without a parachute. It’s always a one-way ticket”.
By way of example he cited the drink-driving limit that’s due to be lowered in July.
“I believe that legislation should be born of necessity and not at the whim of a civil servant or a minister. There’s no point bringing in this when at the other end, there’s nothing there to fix the problem that this legislation is going to create.”
Road deaths are down as are serious accidents at the present time. And there’s 98 per cent compliance at roadside checks, he pointed out. He’d heard of very few in favour of a reduction and he was also critical of the BCI for its silence on this issue, “which is going to affect you every bit as much”.
He finds it hard to understand the above logic when this industry employs 85,000 and pubs still represent the Number One venue in the country for tourists.
Drink-driving apart, it’s the same for other pieces of legislation that the Government is simply bringing in without any thought.
“Do they want a drinks industry in this country, do they want pubs?” he wondered, “We spend €17 billion on health at present. We can definitely double that in the next 10 years or even triple it as the consequences of home drinking begin to show themselves.”
The pub is the most regulated and controlled environment for drinking “….. and so we need to open discussions with the Departments of Health, Enterprise, Finance etc. We need to remove below-cost selling. We’re no longer prepared to subsidise the off-trade at our own expense any longer. We’re at the edge of a cliff and we’re not going to tip over it on my watch.”
The VFI President concluded his presentation by reminding BCI delegates, “Your future and ours are intertwined. The contribution that the industry has made to this country over the years has not been recognised.  Otherwise, a lot of country pubs are going to become pictures on postcards to remind us of how things used to be.”
He was followed by Eoin McGettigan, an independent retail consultant, who themed his presentation, ‘Just Because Everything is Different Doesn’t mean anything has changed’.
Eoin has been on the boards of both Musgraves and Dunnes Stores, Lifestyle Sports and the Cooperative Group (including 10 years at Chief Executive level). His clients currently include Topaz and Bord Bia and he also sits on a number of other boards. He has spoken extensively on retail matters.
He began by using the analogy of getting off a merry-go-round to give perspective on what has just happened during and post Celtic Tiger. When one gets off a merry-go-round (the Celtic Tiger years), he explained, one may feel disorientated with reality. But where we are today is ‘reality’ and the ‘boom years’ were our experiences on the merry-go-round. It may take some time to adjust.
The boom years produced a number of trends that now characterise Ireland such as increased importation “…. where 27 per cent of our food and drink could be supplied from here instead of being imported”.
With the driving down of prices has come the homogenisation of retail brands with all multiples beginning to resemble one another as some 337 integrated retailer outlets out of 6,400 (five per cent) service 46 per cent of the market, he pointed out, while parallel importing can get better prices far more effectively than going through Irish suppliers.
This being the case, suppliers should remember that the Supermarket Buyer is not your friend.
“He, too, is under pressure on price.”
He advised suppliers to go back to first principles, to recognise that the supply chain is key, that Tesco and the discounters will continue to progress and that brands can be local, global or private.
McGettigan pointed out that it’s expensive to supply the pub and the grocery store. Some 6,000 shops in this country don’t have Central Distribution. Instead, they go to the local C&C while some one else has to look after the outlet while they’re away.
He pointed out that the purchase of off-licences over the past two years by the multiples has simply been because they’ve found them to be a gold mine.
The share that the multiples have taken had to come from somewhere, he said and so it had come from the pub.

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