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Greedflation

Is Ireland once again a 'Treasure Island' for supermarkets?

In 2013, TDs wondered if there was truth behind the rumour that Tesco called Ireland, ‘Treasure Island’.

‘GREEDFLATION IS SENDING prices soaring at supermarkets, with grocers raking in super-high profits at the expense of hard-pressed consumers, pushed ever-tighter to the collar.’

That statement may be true. Or it may not.

The government seems to think it’s likely, with senior figures such as Leo Varadkar saying he suspects supermarkets are engaging in some form of profiteering.

The problem is, some of the most important supermarket firms in Ireland don’t publish financial information, so the government simply does not know. 

While that is the case, any talk of windfall taxes on supermarkets or various other crackdowns will likely amount to the square root of zero.

There’s no question that supermarket prices have soared. Kantar Worldpanel puts annual grocery price rises at around 16%, the highest in well over a decade, while the Central Statistics Office has recorded inflation of more than 20% on some staples like fresh milk.

The questions are – are supermarkets themselves being stretched by rising costs, and just passing on higher input costs to the consumer? Or – are we in the grip of ‘greedflation’ This is essentially where companies – in this case, supermarkets – use inflation as an excuse to hike prices more than needed and make extra profits.

The main issue with trying to figure out whether this is true or not is the data available simply isn’t good enough.

Of the five main grocery firms in the country, three – Tesco, Lidl and Dunnes Stores – do not publish detailed accounts for the Republic of Ireland which would show their profits.

While both Aldi and SuperValu (as part of the Musgrave group) give their Irish profits, the most recent figures for both are from 2021, before inflation started to soar. Neither are due to report updated figures for 2022 until November.

Until then, there is no real way of knowing how these companies are performing. And even then, without three of the largest five businesses in the market, the picture will be far from complete.

In the absence of complete information, reporting on the issue defaults to being ‘even-handed’. A politician says they suspect supermarkets of profiteering, supermarkets say they’re not, and the general public is not much the wiser.

From a high-level view, there appears to be some evidence of corporate profiteering. The European Central Bank has said corporate profits are driving as much as half the eurozone’s inflation rate.

In this publication last week, economists Oana Peia and Davide Romelli noted research from the Federal Reserve Bank of Kansas City which shows that more than half of the 2021 inflation in the US could also be attributed to corporate profits.

The problem is this data is too high level – just because other domestic companies are making good profits, does not necessarily mean it is true for supermarkets. Indeed, this is the exact argument made by industry group Retail Ireland, which said that Irish food inflation has been 17% over the last two years, below the EU average of 27%. 

Although if this is coming from a high base, it could still see supermarkets with high profits – again, this is not clear.

This leaves politicians aiming to tackle high prices in a pretty weak position. At last week’s retail forum, Neale Richmond had a clear objective – get supermarkets to lower prices.

But without knowing if they were making higher than normal profits, he had no way of knowing if this ask was reasonable, or even possible.

So when grocers told Richmond they were under pressure because inflation had put a squeeze on their margins, in the absence of any data showing otherwise, he could do little other than ask nicely for lower prices when possible.

While some politicians recognise the issue, it’s not clear what, if anything, will be done. The most straightforward method would likely be a simple requirement for supermarkets above a certain size to publish full financial statements for the Republic, although there would be a lag in the data.

The Labour Party has proposed new legislation which would give the Competition and Consumer Protection Commission (CCPC) the power to examine the profits of supermarkets in detail, although the state watchdog has indicated it is hesitant to get involved with pricing.

Simon Coveney has also indicated he wants more transparency around grocery pricing, although has not given full detail yet around exactly what shape this increased transparency could take. 

The Department of Trade told The Journal in a statement that it is discussing “accusations of profiteering that have been made in respect of the retail sector” with the CCPC, but again gave no detail of any action it may take, only saying that it was looking at “measures that may follow”.

This problem is not new. We’ve even seen this debate before but in the midst of a different crisis. In 2013, then-Independent TD John Halligan told the Dáil that supermarket giant Tesco was “rumoured to dub this country ‘Treasure Island’”, while criticising its failure to release information on its profits in Ireland. 

At the time, TDs called for legislation which would oblige supermarket firms to publish sales and profit figures.

Ten years on? The issue remains the same.

The upshot is that politicians can still only talk tough, because without clear data proving there is an issue, there’s little they can do. 

So in the absence of strong, mandatory transparency rules, politicians will continue flying blind.

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