The cost of living in Ireland is making it a less attractive place to come to live and work, in turn creating acute shortages in the retail labour market, Retail Ireland director Arnold Dillon has warned.

Post Covid, labour market shortages are the number one problem for retailers and the issue that Retail Ireland members raise with him, he says.

Mr Dillon says there had been the hope that as the pandemic concerns eased and international travel reopened that the labour shortages would be addressed by former retail sector workers returning to Ireland from their homes in other parts of Europe.

“But that hasn’t happened – it’s remained a really acute problem and I think there’s a number of reasons for that,” he told IFCR.

“Certainly one of them is Ireland’s attractiveness as a place to come and work. The cost of living issues in Ireland in terms of the housing, in terms of the rental market, in terms of childcare means that it is much more difficult and challenging to get international workers to come and work here.

Cost of living factor

“Even if the headline rates of pay are often significantly ahead of where they might be in their home countries, you find that when they factor in cost of living here that it doesn’t have quite the same compelling logic that it once did.

“Needless to say, these are challenges that are being faced right across the economy. The pandemic has prompted many people to rethink their careers and their lives, so while I think we have more people than ever working in the Irish economy, actually the number of hours that people are working haven’t increased dramatically.

“So we are often finding that people are trying to reduce their hours and that’s down to personal choices and lifestyle choices, but it makes it more challenging for employers to find the skills that they need.”

Labour intensive sector

On top of the labour issue, retail is facing other significant cost pressures, Mr Dillon says.

“Retail’s a very labour intensive sector, so when it comes to the range of government employment reforms and labour market reforms, the retail sector is particularly affected, more than other sectors.

“So a whole range of new initiatives, many of them very worthy in their own right around statutory sick pay, pension enrolment and other different leave entitlements are all coming at one time for the sector and that does add additional cost for businesses that are already struggling to recruit new staff.”

Mr Dillon says there are some skilled trades in short supply which could be useful to include in the work permit regime.

“For example, butchers and bakers in the grocery sector are obvious examples where we’re having real difficulty recruiting staff,” he says.

“But I think the government’s response will have to be a mix of things – getting cost of living issues under control and reasonable rents and accommodation and childcare. I think those are all really essential in terms of trying to resolve the labour market issue.

Re-entering the labour market

“I think also there needs to be greater incentives for people to come back into the labour market, such as older people or people who haven’t worked in a number of years. Potentially there are incentives that could be looked at.

“I think it’s important that retail is seen as an attractive place to come and work, and certainly in Retail Ireland we have a Retail Ireland Skillnet that offers a whole range of training courses and a degree programme, and we also have an apprenticeship programme. So to be able to offer people careers in retail so they see it as an attractive career path to develop their own professional career within the sector is also key in the medium term.”

Mr Dillon took up the role of director of Retail Ireland in January 2020, and that timing pitchforked him into something of a baptism of fire as the pandemic made its presence known within weeks.

Baptism of fire

“Prior to that I was in a number of different roles in IBEC on the communications side but I had also spent a lot of time working on Brexit as well on policy issues and challenges that arose out of that,” he says.

“But I really wasn’t in the role for very long before Covid hit and it’s only now that we’re getting back to business as usual – a little bit.

“The first time it really struck home was when I was over at a meeting in Brussels for the first time – I was going to meet other trade associations across Europe through our umbrella group in Brussels called Eurocommerce.

“I remember I landed and got a call back that the Minister for Enterprise at the time, Heather Humphries, was convening a special meeting to deal with the concerns that had arisen around Covid and issues around supply chains. So I had to turn around and rearrange a flight home and I actually never made it to the meeting in Brussels on that day because I wanted to be back for that.

“That was an in-person event that was held in the Department the next day which was convening different trade associations and representatives from different parts of the economy, and at that point I suppose it was very clear that something was coming that was going to have a very significant implication for business and the country at large.”

Early Covid concerns

The immediate concerns were around security of the supply chain, heightened consumer anxiety, uncertainty around the implications of the pandemic and where things were headed, he says.

“Obviously the spectre of panic buying and people hoarding arose very quickly and very early on and I suppose the initial concerns across government and across the retail sector in particular were to make sure that we were coordinating a response and that the supply chains remained open and there was going to be an ongoing flow of food and medicine and essentials.

“That was the first of countless meetings that took place during the course of the pandemic that dealt with a whole range of issues, and obviously the employment issue and managing people and closing and reopening – but in the first instance that was the primary concern, to make sure there would be no disruption to the food supply chains.”

While food supply was a serious issue, fuel, logistics and transportation were also central to the thinking of the government at the time.

“During the initial phase of the pandemic, the chair of Retail Ireland was Brian Donaldson of Maxol. So I spent an awful lot of time working with Brian in terms of identifying the key concerns of the retail sector and obviously fed into that with concerns of the energy suppliers and the forecourts and making sure those were up in lights In government when it came to setting out a public policy response.”

Impact on forecourts

The pandemic itself affected different parts of any forecourt business in different ways, he says.

“The core fuel sales obviously would have taken a massive hit at various points during the pandemic because there were very significant restrictions on people’s movement. People were working from home so that would have massively reduced the amount of fuel that was being sold.

“At the same time, forecourts came with their retail offering and their grocery offering and I think depending on where businesses were located had a central bearing on how that business fared during the pandemic.

“In many instances, such as service stations on motorways, clearly there would be a significant drop in footfall and in the number of customers that they’re dealing with.

“Similarly, premises that were located near city centres and town centres that would typically have served commuters, again saw a very significant drop in terms of customers.

“There would be certain examples whereby certain businesses would have been located in suburban areas that would have seen much greater numbers of customers because people weren’t travelling into the city centres. So a certain number of businesses and shops and forecourts experienced an upswing in trade at various points, but by and large it was a very significant hit to certain forecourt businesses during the pandemic.”

Challenging environment

With new challenges such as labour shortage and inflation, the retail sector in Ireland is expected to continue to be a challenging environment in the months ahead, Mr Dillon says.

“We would still expect there to be a very tight labour market and for there to be a real challenge recruiting people, but clearly the cost of living is going to put extra pressure on consumers and we’ve seen over the last couple of months a very significant dip in consumer sentiment which we had seen rise to a very positive level after Covid,” he says.

“I think people were much more optimistic that we’d finally seen the back of Covid restrictions – certainly certain categories and groups of people had managed to put aside savings during that period because people were spending a bit less.

“So retail initially saw the benefit of that and I think in some cohorts of people I think additional savings have been built up, but that’s not the case for all people and there’s a significant proportion of the population that will be hit very hard by energy costs.

Feeding through

“But also these increases are feeding right through into a whole range of different cost headings across the economy – we’re seeing it in the retail sector where there are inflationary pressures in retail in a way that really hasn’t existed in the last 10 years at all.

“It’s been an incredibly low inflationary environment in retail, but with the cost of input costs going up, with raw material or energy of transport, all of those are going to feed in and we’re likely to see those manifest themselves  in increased prices to consumers.

“I would say we have an incredibly competitive retail market out there and retailers will be working very hard to ensure that the amount of increase passed on to consumers is at an absolute minimum. The intensive competition will keep prices at a reasonable level but clearly we’re entering an inflationary environment and that is something that we haven’t experienced for a very long time in Ireland.

“I think that is a particularly challenging environment, in that an awful lot of these inflationary pressures are coming from outside of the country so the costs can’t easily be offset.

“Inevitably right across Europe, at some point there will be a continuing rise in inflation but we would like to think that maybe towards the end of the year those sort of pressures will ease and good business strategies and a good offering for consumers will be able to ensure that businesses retain their positions in the market,” Mr Dillon says.

To read the full interview, visit Ireland’s Forecourt & Convenience Retailer.

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While Danny concedes that the start of 2022 was overshadowed by the continuing global pandemic “restricting the experience economy and dampening consumer confidence,” he is quick to point out that there are other major issues at play for companies plotting the course ahead.

“The bigger challenges facing businesses as they look beyond the improving public health situation across the Island of the Ireland involves factor of excess demand and constrained supply conditions,” he tells the Yearbook.

“The continuing fallout from Brexit and the re-emergence of inflation in prices and in turn wages is challenging the competitiveness of business.”

While Brexit may be causing headaches when it comes to supply chain and prices, there has been a substantial lift in trade between Northern Ireland, with cross-border business increasing in both directions.

The Central Statistics Office in Dublin reported that in the first nine months of 2021 imports from Northern Ireland surged by 60% to €2.8bn , with trade in the other direction also up by 48%, with a total value of trade of €2.57bn.

“Many of the teething issues with the Ireland/Northern Ireland Protocol are still to be resolved,” said Danny McCoy, “but it is clear that it is working as predictably intended in terms of trade channels diversion with greater cross border trade between North and South of the island.”

Ambitious targets

A more pressing issue for us all is saving the environment, with many companies now committing to ambitious carbon neutral targets on the back of COP26, goals which Danny says will be hard to achieve while keeping prices where consumers expect to see them.

He explained: “The challenge for businesses to meet carbon reduction targets whilst growing their activity is immense.

“The need to price environmental assets appropriately to reduce the climatic damage will rise energy costs in the short term. Coupled with the expansion of the global money supply these price rises are driving inflation rates to over 30-year highs.”

One price rise no-one can have failed to notice is fuel, with little chance of a “sharp reversal anytime soon,” according to Danny. However, with a plan to end new petrol and diesel engine car sales by 2030 there may be one upside.

“This will drive demand towards Electric Vehicles, but the demand might be limited by adequate networks of charging points to encourage EV use,” he added. “Governments have a role here to further incentivise this shift.”

Covid lessons

Companies have been forced to make many gear shifts since the emergence of Covid and while some have led to improvements, Ibec in conscious that the long-term impact of the pandemic has put many of the firms it seeks to help at risk.

“Covid has taught the business community many worthwhile lessons about the fragility of supply chains but also the capacity to flex to different outlets for work, like the switch from office to home, but also different channels of delivery,” explained Danny.

“These lessons should lead to improved productivity being embedded in time, but short-term dislocations and surging inflation may mean the negative impacts are more than just transitory.

“For retailers, the experience has been a significant sales bounce since last summer, due to pent up demand and additional saving but this has levelled off over recent months.

“There is confidence in this post-Christmas period and a stabilising public health backdrop that retail sales will have a strong 2022 driven by high disposable incomes supported by elevated savings over pandemic era.

“The primary focus of retailers is to ensure a safe shopping environment for staff and customers, though an immediate concern is staff being out sick and isolating. As a result, we are likely to see stores operating with reduced staff, and hopefully this won’t translate to closures. In any case, retailers will continue to ask public for their understanding as rationing is reaction to excess demand too as much as inflation.”

The flip side

But while some businesses may be flourishing, that’s far from a universal picture.

“Headline figures, of course, mask other trends in the sector and not all parts of retail are experiencing the same uplift as others,” Danny told the Yearbook.

“Grocery retail, for example, has seen sales increase significantly during the pandemic. People are eating more at home, while our town and city centres have been quiet.

“However, on the flip side, the lack of office workers and tourists, along with the extended closure of bars and restaurants, has seen footfall drop dramatically in key urban retail districts.

“This has been a problem in many cities, but Dublin and Belfast have been the worst affected. They are more reliant than others on commuters and foreign visitors, and while suburban shopping centres haven’t fared so badly, the city centre has taken a big hit.

“That trend was starting to correct itself by the end of October, but recent weeks have seen consumers again reduce their activity due to Covid concern. Reduced activity in the hospitality and events sector, spills over into retail and there are simply less shoppers around town.”

“Not only has Covid affected where people shop, it has also affected how people shop. Some of this is short-term, but other trends are probably here to stay.

“Visits to the city during the pandemic have been more purpose driven. Casual browsing has reduced considerably. This led to lower number of transactions in stores, although they were typically higher value. Those parts of retail that rely on more unplanned impulse buying have suffered accordingly.”

Rebuilding retail

When it comes to rebuilding trade for city-based retailers and the hospitality and experience trade that depend on a healthy footfall, Danny believes it will take more than simply fully reopening to do the trick.

“In the immediate term, the sustained opening and recovery of the city’s wider economy is needed to restore more normal levels of retail footfall to the city. Into the future, though, retailers and other city centre businesses will have to work harder to entice consumers back,” he explained.

“The acceleration of online retail and the increase in remote and hybrid working models demand a rethink of the offering, not just in retail, but across the city’s wider experience economy.

“It was always the case that Dublin city centre needed to develop and market itself as a destination retail and leisure experience, but this has taken on a new importance.

“There are some positive indications from the past 18 months, when retail reopening after Covid restrictions consumers were quick to return. A real value is placed on the in-person experience and the supporting amenities that only cities can offer, but we can’t be complacent.

“The city needs to not just deliver a great retail experience; it needs to be a great place to live and work – it’s all interconnected.

“An increasing dilemma for retailers is that EU workers that left during the pandemics are reluctant to return due to the high living costs. This is manifesting itself in skills shortages right across the sector.

“Better transports links, more imaginative open spaces, cleaner and safer streets, quality housing and reduced local charges for retailers and local businesses are some of the initiatives that will help realise the city’s potential.

“At the same time, Dublin and Belfast must continue to reinvent its offering to consumers wanting something more creative and inspiring than they can access locally.”

What to expect

So, what can consumers and businesses expect for the rest of 2022 and beyond?

“The global conditions are likely to get substantially tighter with central banks withdrawing the money pumped out over the last two and governments starting to withdraw the much-needed pandemic supports,” warns Danny.

“Inflation is likely to drop off current highs but settle at much higher elevated levels than experienced in a generation. Interest rates will rise significantly but actually return to much more normal levels pre-the Great Financial Recession over a decade ago.

“The simultaneous rise of interest rates and higher prices will impede the living standards of many segments of the population and is likely to find expression in street protests across the world.

“Politicians will prioritise living standards and will try to deliver on this by tackling soaring costs of living. The appetite in the short term to continue the much-needed emphases on a carbon transition may be dampened.

“The labour market has been particularly distorted by the pandemic. Some sectors have surged like technology and medical sciences whilst for travel and hospitality it has been disastrous.

“Participation in the labour force has been dropping, not so much in headcount but in terms of hours worked. Many are choosing for a multitude of reasons to work less, partly as a result of higher wages, higher savings and increase disposable income.

“Employment rates are high and the corollary unemployment rates are low. In a tight labour market, getting and retaining workers is the top concern amongst the business community.

Prospects for 2022

“The prospects for the coming year are in the round very good with plenty of sustainable opportunities for entrepreneurial businesses and specifically retailers.

“The political backdrop globally looks tenser than in many years but it’s impact on suppressing both business and consumer confidence is very temporary.

“The rising population on the island of Ireland, with higher disposable incomes means that retailers have an opportunity to rise to the myriad of challenges but to seize the moment an expanding marketplace can bring.

“The omni-channel retail environment is here to stay but the move to digitalisation and e-commerce was advanced by years during the early part of the pandemic.

“Getting the offering and supply delivery right, businesses will face buoyant demand over the next couple of years.

“Controlling costs in an inflationary era is tough and maybe next to impossible, but the real change driver is enhancing productivity by investment both in people and technology. This is where the likely winners will focus, those who singularly focus on trying to stop the cost rise will not be able to control the tide. King Canute knew that he just needed to show his followers it was so.

“All stakeholders need to be engaged in the post-Brexit, post-pandemic, socially and environmental aware era we are entering. The importance of having social dialogue mechanisms have never been greater on the shared island to facilitate the transition to more sustainable businesses and societies.”

To read the full article in the Ireland’s Forecourt & Convenience Retailer yearbook, click HERE.

The post Adapt, pivot and prosper: Interview with Ibec’s Danny McCoy appeared first on Ireland's Forecourt & Convenience Retailer.

That’s according to Ibec chief executive Danny McCoy, who warns that there is little chance of a sharp reversal in climbing fuel prices anytime soon.

In a wide-ranging interview appearing exclusively in the Ireland’s Forecourt & Convenience Retailer yearbook, he said many companies are now committing to ambitious carbon neutral targets on the back of COP26 – but these will be hard to achieve while keeping prices where consumers expect to see them.

Government plans to end new petrol and diesel engine car sales by 2030 may bring an upside to the rising fuel prices.

“This will drive demand towards Electric Vehicles, but the demand might be limited by adequate networks of charging points to encourage EV use,” Mr McCoy said.

“Governments have a role here to further incentivise this shift.”

And he said companies face an immense challenge to meet carbon reduction targets whilst growing their activity.

“The need to price environmental assets appropriately to reduce the climatic damage will rise energy costs in the short term,” he said.

“Coupled with the expansion of the global money supply these price rises are driving inflation rates to over 30-year highs.”

Watch out for the full interview in the forthcoming Ireland’s Forecourt & Convenience Retailer yearbook.

The post Spiralling fuel prices could drive demand towards EVs: Ibec CEO Danny McCoy appeared first on Ireland's Forecourt & Convenience Retailer.

Everyone has worked hard during the last two years to contain this problem and in the vast majority of cases, businesses have found new ways of servicing markets, he said.

However,  it is people in sectors like hospitality and travel that have been most impacted, he said, adding that hopefully they will get to see full capacity of all those venues.

McCoy said that probably the largest amount of people who have been impacted by Covid-19 is in the office environment.

The focus now is on ” how we get this working from home and the balance with the office”.

“I think that is best decided at the level of the workplace between employers and employees, so that means more autonomy for the businesses and personal responsibility on the employees,” he said.

The Ibec CEO said the Government and NPHET have done a great job but now it is about handing back those “decision points to where they are probably best made”.

Right measures

The workplace protocol, on which employers, trade unions and government have been working, has been trying to make workplaces safe and ensure when people have to come into work that the right measures are in place.

“It is fair enough that people will have some reticence, but we have gone through two years now, we are not talking about wild abandon here,” he said.

“It is a gradual comeback to the workplace and thanks to the conditions, it can be done a little faster,” he added.

Mr McCoy said businesses working with employees will look to stagger and phase the return but hopefully that can be quite short and they find a new normal.

“There will be more hybrid working – there is no doubt about that,” he said.

Mr McCoy said that “remarkably” employment levels have never been higher and the labour market is tight and responsible and sensible employers will want to facilitate their employees.

He said the temporary wage subsidy scheme is important and the Government has indicated there will not be a cliff edge.

“We definitely need it,” he stated.

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