The Impact of Tesco on the Irish Economy

Executive Summary

Prepared for Tesco Ireland by Indecon International Economic Consultants

Executive Summary

Introduction and Background

This report was prepared for Tesco Ireland by Indecon International Economic Consultants. The report concerns an independent assessment of the impact of Tesco on the Irish economy. The analysis provides new quantified empirical evidence on exports facilitated by Tesco and other economic impacts.

Tesco entered the Irish retail market in 1997 when it purchased the British-owned Power Supermarkets Ltd, which included 76 Quinnsworth/Crazy Prices stores in Ireland and Stewarts in Northern Ireland.

In light of the rapid development of the Irish grocery retail sector and the Irish economy generally over the last decade, and Tesco’s strategy for the Irish market, it is considered that an appropriate juncture has been reached to assess the impacts of Tesco Ireland on the Irish economy and on the food and agriculture sectors.

This study focuses specifically on the following aspects:

The impact of Tesco Ireland to the Irish macro-economy in terms of expenditures, employment generation and export stimulation, and through tax payments to the Exchequer;
The contribution of Tesco Ireland to the food retail supply chain, and the development of its supplier base and the wider Irish food and agriculture sector; and
The contribution of Tesco Ireland to local economic development.

Macro-economic Impact of Tesco on the Irish Economy

This study identified and assessed the overall macro-economic impact of Tesco Ireland and the wider Tesco Group on the Irish economy. The key findings from this element of the study are highlighted below.

The economy-wide impacts of Tesco on the Irish economy take into account the following elements:

Tesco Ireland domestic expenditures on Irish-produced food and other products for re-sale through its store network,
Tesco Ireland domestic expenditures on wages & salaries of its staff,
Tesco Ireland domestic expenditures on Irish-produced business inputs and capital investment,
The value of expenditures on Irish-produced exports into the Tesco Group internationally facilitated by Tesco Ireland;
The inter-sectoral and multiplier impacts of the above expenditures across the Irish economy.

Overall economic impact

The overall economy-wide output impact of the Tesco Group on the Irish economy amounts to €2.5 billion in annual terms in 2006. This comprises total expenditures by the Tesco Group on Irish-produced goods & services amounting to €1.94 billion and the additional inter-sectoral demand amounting to €558 million created across the Irish economy resulting from these expenditures (see chart below).

Components of Economy-wide Impacts of Tesco on Irish Economy - 2006

Facilitation of exports

Tesco Ireland facilitates exports of Irish-origin food and other products into the Tesco Group internationally. Overall, Tesco Ireland facilitated Irish suppliers to export a total of €654.8 million of Irish-origin products to the Tesco Group internationally in 2006. This compares with exports of Irish product in 2001 totalling €351.3 million, implying a growth of 86.4% over this 5-year period (see chart below).

Tesco Ireland Facilitation of Exports of Irish-produced Food and Other Product - 2001 and 2006 - € Million

In addition, the export impact includes the facilitation of export sales across a diverse range of small, medium and large Irish companies including, for example:

Kerry Foods
Diageo
Lir Chocolates
Bewleys
Kerrygold
Boyne Valley Group

The value-added contribution to the Irish economy generated through additional exports facilitated by Tesco Ireland can see seen within the context of overall exports of food & drink from Ireland. During 2006, the value of exports facilitated by Tesco Ireland was above the total exports of food & drink to France - Ireland’s 2nd largest market for such exports - which amounted to €606 million.

Domestic expenditures

During 2006, Tesco Ireland’s domestic expenditures on Irish-produced goods & services - including expenditures on food and other products for re-sale, on wages & salaries, on business inputs and on capital investment - totalled €1.28 billion.
Overall domestic expenditures expanded by almost 29% between 2004 and 2006, indicating a substantial increase in Tesco Ireland’s direct expenditure impact on the Irish economy.
Combining the total domestic expenditures of Tesco Ireland on Irish-produced goods and services with the demand for Irish product in the form of exports to the wider Tesco Group internationally indicates that the total demand for Irish-origin food and other product supported by the Tesco Group amounted to €1.94 billion during 2006.

Sales of Irish-produced food/drink and other product

As part of its overall domestic expenditures, Tesco Ireland plays a role in the development of the Irish food and agriculture sector through its purchases and sales of Irish product/produce. During 2006, in retail sales terms, Tesco Ireland sold €910.8 million worth of Irish-produced food and other products. Of this total, food-related items constitute the largest proportion of Irish-produced sales, at €832 million, while other, non-food products accounted for €78.6 million during 2006 (see table overleaf).

Tesco Ireland Retail Sales of Irish-Produced Food/Drink and Other Products
Product Area	Sales - Irish-origin Products - 2004 - €Million	Sales - Irish-origin Products - 2005 - €Million	Sales - Irish-origin Products - 2006 - €Million
Food/drink-related items	659.1	763.8	832.2
Non-food/drink products	53.7	77.8	78.6
Total Sales of Irish-produced Goods	712.8	841.6	910.8
Source: Indecon analysis based on Tesco Ireland data

Of more significance to its contribution to the Irish economy is the fact that Tesco Ireland sales of Irish-origin product increased by almost 28% between 2004 and 2006 while Irish-origin food/drink sales have grown by 26.3%. The expansion in sales of Irish products highlights the growing strength of producers within the Irish food and agriculture sector. This contribution also reflects the underlying competitiveness and innovation activities of Irish producers within Tesco’s supplier base.

Employment supported

The economic impact of Tesco is also apparent through analysis of the extent to which it generates employment in Ireland. Indecon, however, notes that Ireland has very low levels of unemployment and there is a very high opportunity cost attached to labour resources in the Irish economy. This study considered the following component of Tesco’s contribution to employment:

Employment created and supported within Tesco Ireland across the organisation’s store network, distribution centres and head office;
Employment supported within supplier firms through Tesco Ireland’s domestic purchases of Irish-produced food/drink and other product; and
Employment supported within Irish supplier firms through exports facilitated by Tesco Ireland to the Tesco Group internationally.

In total, Tesco Ireland currently directly employs 13,044 persons (as at October 2007) (see chart below). This compares with 8,385 persons in 1998, representing an increase of 4,659 employees over the period, or a growth of 55.6%.

Tesco Ireland Direct Contribution to Employment Creation since 1998

Based on Indecon’s research with Tesco Ireland suppliers, it is estimated that a total of 9,747 jobs within these firms are supported directly through their business with Tesco Ireland.
Exports of Irish product facilitated through the Tesco Group also support employment in related sectors. It is estimated that a total of 4,106 jobs are supported directly by export sales by Irish suppliers to the Tesco Group.
Overall, it is estimated that purchases of Irish-produced food/drink and other product by Tesco Ireland and the Tesco Group internationally supports a total of 13,853 jobs among Irish supplier firms.
Taking into account the number of jobs supported within Tesco’s Irish supplier base in addition to the numbers of persons employed within Tesco Ireland, we estimate that a total of 26,897 jobs are currently supported directly and indirectly by Tesco (see chart below).

Components of Overall Employment Supported by Tesco Ireland and Tesco Group - Persons

Exchequer contribution

It is also instructive to consider Tesco Ireland’s annual contributions to the Exchequer in the form of various tax payments. Tesco Ireland’s Exchequer tax contribution amounted to €135.5 million in 2006. This compares with €115.6 million in 2004, representing a 17.2% increase over this period (see chart below).

Tesco Ireland Exchequer Tax Contribution

Contribution of Tesco to Development of Irish Food and Agriculture Sector

Tesco Ireland and the Tesco Group have played a role in the development of the Irish Food and Agriculture sector. This study assessed the impact of Tesco on the Irish food and agriculture sector by reference to the following channels:

Tesco’s contribution to the development of the Irish Food and Agriculture sector through domestic purchases of Irish product by Tesco Ireland and export demand supported through the Tesco Group in the UK and internationally.
Tesco’s contribution to the growth of its Irish supplier base, contributing to sales and employment generation, with very positive economic benefits for local communities.
Tesco Ireland’s support for the development of enhanced technical capability, process and product innovation within its Irish supplier base.
Tesco’s role in the farming sector, focusing on the supply of high quality meat and dairy products and fresh produce.
Its contribution to the growth of local and artisan producers throughout Ireland.

Indecon’s analysis and assessment of the contribution of Tesco to the development of the Irish Food and Agriculture sector highlights the following specific findings:

During 2006, Tesco sales of Irish food reached €832 million;
Additional Export Demand for Irish-produced food amounting to €654.8 million was facilitated by Tesco during 2006.
Through the engagement of Tesco with its supplier base, significant Process and Product Innovation has taken place.
Through expanded technical capabilities, Tesco suppliers have commenced production in Ireland of previously imported produce, improved availability of product to the consumer and developed value-added products across a range of areas.
Tesco Ireland stores now supply an average of over 10,000 grocery product lines and almost 15,000 product lines in total.

Contribution of Tesco Ireland to Local Economic Development

This study also assessed Tesco Ireland’s economic impact at county level in Ireland. A summary of the local economic impact of Tesco Ireland at county level is presented in the table below. Tesco Ireland generates economic impacts at county level in Ireland, in the form of employment and expenditures, including through local buying.

Local Economic Impact of Tesco Ireland - Summary
Component	Impact
Store operations	96 stores across 25 counties
Employment - Persons employed in store network	11,991 (Oct 2007)
Expenditures on Wages & Salaries in Store Network - € Million	€227.5 Million in 2006 (+68.4% since 2002)
Capital Expenditures on Store Network Development - Total - € Million	€311.5 million (2004-2006)
Capital Expenditures - Estimated Irish-sourced element - € Million	€219 million (2004-2006)
Source: Indecon analysis based on Tesco Ireland data

The key findings from the assessment of local economic impact are as follows:

Tesco Ireland currently operates a total of 96 stores across 25 counties.
As at October 2007, of Tesco Ireland’s overall employment of 13,044, a total of 11,991 persons were employed in its store network across 25 counties.
Significant levels of expenditures are supported by Tesco Ireland at local level local in Ireland. In relation to employment-related impacts, expenditures on wages & salaries generate significant economic impacts across all counties.
Total expenditures on wages & salaries across Tesco’s store network in Ireland reached €227.5 million in 2006. Expenditures on wages & salaries have increased by 68.4% since 2002.
Employment incomes supported by Tesco Ireland also generate indirect and multiplier impacts on local economies. These wider impacts arise through the spending of these incomes by employees on goods & services in their local areas.
A total of €311.5 million in capital expenditures (excluding site acquisition/land costs) have been undertaken by Tesco Ireland on store development since 2004. It is estimated that over €219 million of this non-site acquisition related expenditure involved labour costs and Irish-produced raw material inputs.
At individual county level, Tesco Ireland has generated significant economic impacts through expenditures and employment/income generation.

Acknowledgements and Disclaimer

Indecon were assisted during the course of completion of this study by a number of individuals who provided detailed inputs to the analysis and we would like to acknowledge their contribution. We would particularly like to thank Irish-based suppliers of Tesco for their extensive inputs provided through the completion of responses to our survey research among suppliers and the provision of additional information on their development. We would also like to thank Tesco Ireland for their assistance throughout the course of the assignment. The usual disclaimer applies and the analysis in this report remains the sole responsibility of Indecon.