Sterling Euro Differential – are the shops being honest?

With all the commentary recently about the price differential between southern and northern Ireland, I thought I’d republish a section of a post I originally wrote back in July when this issue was raised following a pointless survey carried out by the National Consumer Agency that told us that the Pope was indeed Catholic.

At the time, I had a few of observations, that are still relevant today. My main interest was to investigate whether or not businesses were actually being honest when they tell us that the price differences are due to the higher costs of doing business in Ireland, and not their naked profiteering greed.

  • On the same day as the NCA released their research results, it was revealed by the CSO that an average basket of goods costs 5% more in Dublin than it does in the rest of the country. All of the Northern based supermarkets chosen for this current research can easily be described as “country based” – Newry, Enniskillen and Banbridge. Yet all the supermarkets visited down here were Dublin based. I guess it’s reasonable to assume that a similar city (Belfast) vs country divide is just as applicable up there as it is down here. So, let’s assume we add 5% to the northern prices so that we’re comparing like (city = Belfast) with like (city = Dublin) – the “headline” figures from the National Consumer Agency now drop by 5%.
  • Now, let’s look at the price of wages down here compared to Northern Ireland. There’s no mention of this comparison of this in the National Consumer Agency report. Lets assume that the majority of employees in these stores on a fulltime basis are aged 22 and over. The minimum hourly wage in Ireland is, as of July 2007, €8.65 per hour. The equivalent national minimum wage in Northern Ireland is £5.52 per hour. That’s a Euro equivalent of €6.99. Therefore the cost of labour in Ireland is 24% more expensive than it is in Northern Ireland. I guess that’d be a good reason for things to be more expensive down here than up there.
  • What about the price of property – to either buy or rent? Do you think the cost of having a retail premises in Finglas, Blanchardstown or Rathfarnham is equivalent to having one in Banbridge, Enniskillen or Newry? If we look at house prices, which everyone is familiar with – a 4 bed, 2 bath detached house with garage in Newry would cost you upwards on €650k while a similar type house in Rathfarnham would cost you double that. A recent CBRE survey on the cost of renting office property showed that Belfast had a rate of €304 per sq metre, while Dublin had a rate of over twice that amount at $860 per sq metre. And on top of that, our comparison shops up north are based in areas there are probably even cheaper to rent – and all in a market where rental rates are falling in the north, while they’re pretty stable down here, over the past 12 months. Again, a legitimate reason for prices to be more expensive down here.
  • However, we also know that Irish shoppers are more strongly tied to branded items than many of our European neighbours, and as such, we will naturally pay a premium for wanting these branded items. But that’s our choice – we’re not forced to buy these items, but we like them and we chose to.

Irish based retailers will claim that the cost of doing business in Ireland is what causes the price differential we all know and see. While not trying to become an advocate for these businesses, I think that above 3 examples show how this can be somewhat justified.

I’ve written so many times before about this whole euro sterling pricing differential, and each time my message is the same – no matter what retailers or regulators or governments are telling us, the one main factor that will in the long term influence the prices is the shopping behaviour we ourselves follow.

If you think something is expensively overpriced, then don’t buy it. Tell your friends so that they don’t buy it. When that shop suffers a drop in sales, they’ll either drop their prices, or close down. It’s only consumer action that can cause that to happen – or not happen as was the case for the past few years.

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