Supermarkets Slash Milk Prices as Competition Heats Up in Ireland

Lidl has initiated a significant price reduction on milk products, cutting prices by €0.10 across all its offerings. This move prompted immediate reactions from major supermarket chains in Ireland, which quickly matched the price cut. For many households, particularly those facing financial strain, this slight reduction in price for a staple item like milk could provide much-needed relief.

The competition among supermarkets is not merely about prices; it also carries substantial implications for public relations. Being recognized as the provider of the lowest prices for essential goods can significantly enhance a supermarket’s reputation and attract more customers. In a recent press release, Lidl announced it is investing €20 million in over 300 price cuts on essential items, including pasta, cereals, and pet food, underscoring its commitment to maintaining competitive pricing.

The ripple effect of Lidl’s announcement has been felt across the sector, with Tesco, Dunnes Stores, SuperValu, and Aldi all implementing similar price cuts. This reaction marks the beginning of what analysts are calling a potential price war aimed at luring shoppers into stores where they are likely to purchase additional, higher-margin items.

Dr. Oliver Browne, a lecturer in accounting at University College Cork, observed that supermarkets are engaging in “retaliatory price cuts that match what they’re seeing.” He noted that the situation may evolve further if competitors begin cutting prices on items beyond those targeted by Lidl, such as meat products.

While the price cuts may provide short-term benefits, they do not fully address the broader context of rising grocery prices in Ireland. According to data from the Central Statistics Office (CSO), the average price for a two-litre carton of full-fat milk in September was €2.47, representing an increase of €0.27 compared to the same month last year. Similarly, the costs for beef and fresh fish have also surged significantly, with striploin and sirloin steak prices rising over €5 during the past year.

The ongoing inflation in grocery prices has been documented in a report by market research firm Worldpanel by Numerator, which indicated that annual grocery price inflation in Ireland reached 6.3% in the 12 weeks up to September 7.

Farming organizations have criticized the price reductions, expressing concern that such strategies may harm farmers who are already facing pressure to accept lower prices for their products. They argue that milk is being used in a larger marketing strategy among the supermarket chains, risking the livelihoods of farmers in the process.

Dr. Browne pointed out that Lidl’s price cut reflects its belief that prices along the supply chain are inflated. He explained that while supermarkets are often blamed for increased margins, the real profits are made by middlemen in the supply chain.

Social Democrat TD Jennifer Whitmore echoed these sentiments, stating that the price cut demonstrates supermarkets’ capacity to reduce prices. She urged the Government to empower the Agri-Food Regulator to investigate price increases within the supply chain, arguing for greater transparency regarding profits made by middlemen.

The financial performance of the major supermarket chains reveals a complex landscape. Tesco, for example, reported a more than 6% growth in total revenue in the Republic of Ireland, reaching €1.77 billion in its latest half-year results. In contrast, Dunnes Stores, the largest chain in Ireland, is privately held and does not publicly disclose its financial statements.

Despite being profitable, the financial operations of these companies are often obscured by different reporting standards. The Competition and Consumer Protection Commission (CCPC) recently found no evidence of market failure or excessive pricing in the Irish grocery sector, noting that competition has improved and consumer choice has increased.

The CCPC’s analysis indicated that food inflation in Ireland was among the lowest in the European Union, with retailers like Tesco reporting declining profit margins. Tesco’s operating profit margin fell to 3.7% for the year ending February 2024, down from 4% the previous year.

As the holiday season approaches, grocery spending is expected to rise, with Irish consumers spending an average of €1.1 billion monthly on supermarket purchases. Data revealed that in the first eight months of 2023, spending reached over €8.7 billion at supermarkets.

With Dunnes Stores capturing the largest share of grocery spending at 23.9%, followed closely by Tesco at 23.7% and SuperValu at 19.5%, the competition among supermarkets is poised to intensify. While the current price cuts may provide temporary relief for consumers, the broader economic landscape presents ongoing challenges.

As the situation develops, consumers will be watching closely to see if this price reduction leads to a deeper price war or if it remains a strategic maneuver among Ireland’s leading supermarket chains.