Ireland Food and Drink Report Q4 2011

Despite negative headwinds, there are signs that the Irish consumer sector may have bottomed out. During recent months retail sales data from the national statistics authority have been stagnating, rather than declining significantly as it has been previously. While discount stores have certainly been picking up customers, the country's mainstream retailers have started posting sales growth, suggesting that demand, although still weak, is starting to tick up.

This improvement in retailing sales figures can be partly attributed to the end of the deflationary operating environment that had characterised the sector for the last two years. In response to the economic downturn many retailers started aggressively cutting prices, in an attempt to shore up market share and reduce the number of customers taking advantage of cheaper goods available across the border in Northern Ireland. However, given the global inflationary headwinds and the fact that, with margins now much tighter than they were going into the downturn, there is likely to be little further movement in this direction, a floor under prices has now been generally established.

Headline Industry Data ?? 2011 per capita food consumption +0.6%; forecast to 2015 +6% ?? 2011 alcoholic drink sales -4.9%; forecast to 2015 +7.2% ?? 2011 soft drink sales -0.5% ; forecast to 2015 +5.4% ?? 2011 mass grocery retail sales +2.0%; forecast to 2015 +8.9%

Key Industry Trends & Developments Greencore Secures Uniq Acquisition But Needs To Do More To Drive Consolidation In Private Labels – In July 2011, Irish convenience food producer Greencore signed a deal to buy UK food group Uniq in an acquisition worth GBP113mn. The move came after Greencore failed to secure a merger with UK food group Northern Foods after it accepted a rival offer from Boparan Holdings. Although much smaller the takeover is driven by similar factors, with the firm looking to consolidate the convenience sector to deliver economies of scale and improve its negotiating position in the price-driven world of private labels.

Musgrave Acquisition Of Superquinn Turns Ireland Retail Into Three Horse Race – In July 2011, Irelandbased retail group Musgrave agreed a deal to buy local rival Superquinn out of receivership. Superquinn was put up for sale by receivers KPMG after struggling to contend with high debts primarily attributed to property related loans. The deal will see Musgrave take on Superquinn's 24 outlets and will make it joint leader with Tesco in terms of grocery market share. This move comes despite the Irish retail sector still being in decline, yet, along with continued investment from Tesco, highlights that existing players still see a long-term opportunity for growth within the difficult Irish market.

Key Risks to Outlook Rebalancing of the economy towards exports – Our outlook for Ireland's long-term growth requires a rebalancing of the economy towards exports. We are fairly optimistic that Ireland will continue to see its economy bolstered by the export sector, which, in our view, stands to benefit from an economic recovery in three of its largest export markets – the US, Germany and the UK. However, if demand in any of these core markets fails to deliver the momentum we are currently expecting, then our Irish economic outlook may need to be revised downwards. Consumer spending fails to recover in line with economy – A second risk is 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. While there are signs of improvement in the consumer sector, the domestic economic situation is expected to remain extremely fraught, with high unemployment, an ongoing property-bubble unwind and unavoidable fiscal austerity likely ensuring conditions feel recessionary to most Irish citizens, even once headline GDP growth returns.

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