Musgrave's unification: The Grocer meets Chris Martin

The Irish market is both familiar and foreign. The language, brands and some of the fascias are well known. Yet structurally, it’s a throwback: independents account for almost 40% of the market. Even with the steady influx of Aldi, Lidl and Tesco, conditions in 2005, when English-born Chris Martin took over as CEO of Irish wholesale group Musgrave, were ideal.

It could even afford to make incursions of its own, with support for its acquisition of Budgens (2002) and Londis (2004) initiated at an almost leisurely pace, and at arms’ length. With the Celtic Tiger, as he puts it, “roaring away”, life was simple: while “establishing retailer relations”, Musgrave could continue to partner entrepreneurial retailers such as Eugene Scally, a SuperValu symbol retailer based in Clonakilty.

Looking back, on the eve of its results next week, Martin recalls how Scally “took his fresh foods team over to New York and brought back ideas about how to create a market fresh presentation. He also identified that he should have a 20ft cheese counter in his store. You’ll still see those cheese counters in most of our stores.”

And then, bang. The Tiger was silenced. As bankrupt banks pulled up credit lines, the housing and jobs market crashed. Unemployment soared to an all time high and GDP contracted 8.5% in the first quarter of 2009 alone. The impact on the consumer was devastating, with food deflation hitting 14%.

Unsurprisingly, multinational supermarket chains – not to mention rivals in Northern Ireland with an advantageous currency rate – seized the opportunity. Martin refers to Aldi and Lidl not as discounters but as multiples – together they now hold 10.2% of the market. The pressure heaped on independents were massive.

Even for Musgrave, a rock-solid, 136-year-old family- owned wholesaling business that, in the time that Martin has been in charge, has turned a €327m net debt into a €20.5m net cash position, these were challenging times: profits in 2010 were 31% lower than in 2007, and sales down 10%

But it was as nothing to the impact on some retailers: as a measure of how tough it’s been, by the time the once mighty Superquinn was acquired by Musgrave for a knockdown €250m last September, for example, “one in three of the lightbulbs in its 24 stores were working,” Martin notes. “Fridge doors were hanging off. Superquinn as a business under its prior ownership was exceptionally challenged.”

Important as it has been occasionally to act as a bank guarantor to its members, speed up rebate payments and help them into new stores, the fact that Musgrave’s symbol-based retailers are in better shape than Superquinn was, is mainly the result of work put in, at the onset of the recession, to address the key weakness for its members: price competitiveness.

“In 2008, we stared at the demise of the Celtic Tiger with recognition that we had to understand the consumer more,” says Martin. “There’s no doubt it’s become a much more value driven market. We went through a period three years ago when people felt very guilty about spending money on convenience.”

Martin’s team worked hard to pare down costs. A high profile campaign claimed the price of an average weekly shop at SuperValu had been lowered from €130 to €100. This also involved a personal hit to Musgrave’s bottom line, down 30% since 2007, to €72m, as Musgrave invested €90m into supporting price, governed, says Martin, by two key family values: “be long term” and “don’t be greedy”.

“But we also changed our way of working with suppliers to get better investment. That’s been achieved by rigorously driving in clearer disciplines in the way we put ranges together.”

To convince suppliers to improve their support to the business, Musgrave needed to demonstrate that retailers would pass on savings and promotions to their customers. Compliance has long been a battle ground between the independent sector and suppliers, but Musgrave found a practical way through. It increased its “performance based rebate” to retailers which reflects in-store execution, must stocks, ranges and presentation.

With a plan in place on its home turf, the last year has also seen Musgrave much more closely involved in directing UK operations. Donal Horgan was sent over in November 2010 to deliver some of the learnings from the Irish operation.

“The trends we’ve seen in Ireland in many respects have pre-dated what we’re seeing in the UK. The actions that have worked in Ireland – greater attention to retail discipline in store, focus on own brand, the use of technology – Donal’s bringing all those things over.”

Trials were also conducted in UK-based Budgens stores to liven up the fresh ranges, including meat, sh and bakery. The most dramatic move, however, was a Budgens initiative to match Tesco on price in the UK. The September introduction of the branded price match across 800 products, was an immediate success, and has subsequently been widened to 1,000 products. So far Budgens stores have seen turnover increase by 2% as a result of the deflationary measure.

The other major project has been unifying the product ranges across the group. For the first time, retailers on both sides of the Irish Sea will stock SuperValu own label products. Musgrave undertook a rigorous retendering process which allowed it to combine buyer power over hundreds of lines. As the smaller partners, Budgens and Londis in particular will benefit from the combined scale. Some products, such as chilled soup, Brussels pate and buffalo mozzarella, would not have justified production exclusively in the UK. “In many cases, prices have gone down while quality has improved,” Martin adds.

A consumer promotion in Budgens this month will display trolleys of SuperValu products next to their branded equivalents in store, with the claim that the own label trolley is 20% cheaper.

But the biggest challenge ahead is back on home turf. The acquisition of Superquinn last September not only saved a major name in Irish retail. It took Musgrave into Dublin for the rst time. And, with its 24 outlets, it’s turned Musgrave into a retailer.

Historically, Musgrave’s approach has always been to dispose of retail assets, and to focus its energies on what it does best: supporting entrepreneurial retailers with “the best supply chain in the business”.

That’s certainly how it’s working with Ryans stores, a SuperValu retailer that, supported by Musgrave, is pushing the envelope and making a success of retail despite the conditions.

But for now Martin is focused on turning the lossmaking Superquinn operations around. With Tim Kenny parachuted into a new division that will run the stores for the medium term, the rst line of attack was to invest in consumer insight and a €3m basic capex programme to sort out those light bulbs and paint the sta room.

But on the eve of revealing its results, Martin admits that a lot more work is needed. Sales – which dropped from €700m to €480m in ve years – will be down yearon- year, but the rate of decline has started to level off. “Now that we’ve got hold of the business over the last five months we’re developing a long term plan that will take on board the synergies that can come from being part of Musgrave and also from what opportunities exist around exploiting the Superquinn brand.

“Superquinn’s uniqueness is around fresh. We’re looking at how we can exploit fresh and take those learnings into our other brands, whereas if you look at SuperValu and we’re seeing how we can take the best of SuperValu in ambient into Superquinn.

“It’s a journey and we’re pleased with the first element of what we’ve done. But I cannot overstress that this business has been so severely challenged that it’s going to take a lot of work to get it back into shape.”