The boom times are over for the Celtic Tiger with the recession hitting Ireland’s retail sector. With consumers trading down, the country’s food retailers increasingly see price as a key weapon to maintain market share and Aldi, Lidl, Musgrave Group and Tesco are battling it out. Dean Best reports.

The gloves are off in Ireland.

Just days after Tesco, seeing wave after wave of Irish consumers flock north of the border to reduce their shopping bills, launched a series of price cuts, German discount giants Aldi and Lidl each fired their own salvos on price.

The Celtic Tiger has lost some of its bite amid the global economic downturn. The recession has meant that the Irish retail sector is now one of the most competitive in western Europe and, after the price cuts announced in the last week or so, one of the most cut-throat.

At the start of the month, Tesco reopened 11 of its stores in Ireland and slashed prices by as much as 25% in a bid to stem the number of shoppers crossing the border. “From now on, this is as far north as anyone needs to go to get great value,” Tony Keohane, chief executive of Tesco Ireland, claimed.

On the face of it, Tesco’s move was also a bid to see off growing competition from the likes of Aldi and Lidl. The discounters are thriving as Irish consumers become ever-more price conscious, with Aldi this week revealing that its sales in Ireland had jumped by 23% during the first quarter of the year.

Earlier this week, Lidl was the first to respond to Tesco’s price cuts with news of its own reductions across its Irish stores. “All new, dramatically lower prices will apply to all our stores – from Youghal to Dundalk”, said Lidl spokesperson Aoife Clarke.

A bullish Aldi also set out its stall this week with plans to create over 1,000 jobs in Ireland through the building of a new distribution centre and the opening of 35 more stores. “We have a strong commitment to Ireland and to this market,” Donald Mackay, MD for Aldi Stores Ireland, said.

Of course, the key question is whether Irish consumers will still shop at Aldi and Lidl when the economy bounces back. Industry watchers are divided on whether shoppers will stick with the discounters but there is some evidence – Germany being a prime example – where demand for discounters has persisted even when people’s purchasing power improves.

For Aldi’s Mackay, the German retailer’s investment is a sign of its long-term faith in the Irish market. “We have no hesitation in continuing to invest in Ireland with full confidence that a stronger, more sustainable economy will emerge from the current recession,” he said.

The company behind Ireland’s SuperValu and Centra stores has also signalled its determination to keep pace with its price-conscious competitors. Musgrave Group may have posted a 20% fall in pre-tax profits yesterday (14 May) but the firm insisted it will continue to support its banners.

Musgrave chief executive Chris Martin said the retailer had spent over EUR140m (US$190.2m) on price cuts in Ireland and would continue to invest in promotions this year. “This ongoing support is our commitment to ensuring that we and our retailers are able to compete in an extremely challenging market,” Martin said.

The crucial unknown is how long these “extremely challenging “ conditions will last. Tesco, with its Change for Good campaign, seems to believe that the competitive nature of the Irish food retail sector will persist, which may not bode well for the country’s suppliers.

Tesco’s moves have already drawn heavy criticism from manufacturers and farmers. Irish Farmers Association president Padraig Walshe has accused Tesco of using Irish meat, milk and vegetable suppliers as “cannon fodder”, while local industry body Food and Drink Industry Ireland also voiced its anxiety about the state of the Irish food retail sector.

With Tesco’s Irish bosses facing the prospect of being hauled in front of a parliamentary committee over claims of its high profit margins in the country, it is likely that competition and controversy will be hallmarks of food retailing in Ireland for some time yet.