Looking after the pennies

 
 

Many have seen the gradual equalisation of the euro-sterling exchange rate as a chance to save money over what they feel are extortionate prices, but Catherine Maguire explains why we’ll need more than a good exchange rate to save at the local shop.

We’ve all seen the reports following Galway families travelling to Asda in Enniskillen to do their monthly shop, and images of Sainsburys’ car park jammed with Wexford numberplates. It’s a well-known and obvious fact that shopping ‘up North’ is not just cheaper, but markedly so.

This has been more apparent in recent months with the steep decline in the value of the pound sterling, and consumers nationwide have begun to realise what those on the border counties have known for many years. With this realisation has come anger and resentment at the inflated cost of shopping locally.

What makes matters worse is that direct comparison of prices in major retailers common to both sides of the border has revealed that their prices are not quite in line with the currency exchange. But before labelling all cross-border traders as cheats, we should investigate all the reasons behind the price differences.

Although the gap between the euro and sterling is expanding again, what most consumers have not taken into account are the many differences in trading costs between Ireland and the UK. It is not just the exchange rate that plays a part in the setting of the prices in any retailer; many other expenses must be taken into account.

“Those who reduce their prices to echo a reduced exchange rate lose huge sums of money in the process”

A substantial amount of the seemingly inflated prices we see in Ireland are required to cover staffing charges. The National Minimum Wage Act of 2000 states that any experienced employee must be paid €8.65 per hour. In comparison the minimum wage in Britain is £5.52 – or around €6.27. Paying higher staffing costs automatically increases operational costs, which unfortunately are passed on to consumers.

Asda in KirkcaldyFurther to differing pay rates between the two countries, trading in Ireland is also more expensive than in Britain. Taking property, labour and utility costs into account, operating in Ireland is about a quarter more expensive than in the UK – and this is after the retailer has bought the goods at a set rate. Overall, a National Consumer Agency survey showed that the total cost base of Irish retailers is about 5-6 per cent higher than their UK counterparts. With the result that the NCA reports grocery charges as 31 per cent more expensive in the Republic of Ireland than in the North – with even own-brand goods between 11 per cent and 17 per cent dearer.

Elsewhere, exaggerated prices on both land and property elevate trading costs, particularly in Dublin, and many retailers in more expensive areas – such as the Dundrum Town Centre or Grafton Street – also rent their outlets. Rent in these well developed areas is considerable, as the lease is calculated at five percent of the unit or property’s worth. Nevertheless, prices in larger high street retailers remain the same throughout the country in comparison to much smaller individual businesses, resisting the logical step of adapting their prices to account for local property prices.

Another reason explaining the discrepancy in the euro-sterling rates is the pre-purchase of goods at certain times of the year. Most retailers operating in the UK and Ireland buy stock at the beginning of the UK tax year in April. Therefore those who reduce their prices to echo a reduced exchange rate lose huge sums of money in the process – meaning that companies like the Arcadia group, who run high-street chains including Burton, Dorothy Perkins, Miss Selfridge and Topshop, incurred substantial losses when lowering their prices by a fifth earlier in the summer. Adopting prices to a consistently changing market would prove expensive to retailers who would then have to pay even more for labour and waste charges. Accordingly, as proportions of total operational fees, labour comprises 49 per cent, while property charges entail a further 28 per cent.

While Tesco are to be applauded for introducing euro-for-sterling pricing, the losses they incur as a result are less destructive to their business than if for example, Next were to offer the same deal.

It would seem then a severe cut in wages and devaluing of property is the only way to address the extra price of operating in Ireland, and addressing the extra price of operating in Ireland is the only sure way to decrease the prices consumers pay.

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