Mr. Kenneth McGrath:

I thank the Acting Chairman and members for inviting us to address the committee. In addition, we are grateful for the committee's understanding in rescheduling the appointment upon our request. We hope that our contribution today will add positively to the important work of the committee. I am joined today by my colleagues, Mr. Ryan McDonnell, purchasing director, and Ms Sara Jane Higgins, compliance manager.

Lidl is a privately held international discount supermarket retailer operating in 26 European countries. Having first entered the Irish market in July 2000, we now, 13 years on, trade from 135 stores spread throughout all 26 counties in the State. In the past three months alone we have opened three new stores, with a further five due to open throughout the remainder of 2013. Our capital investment programme for this year and next amounts to €100 million. This extensive network of stores is serviced by three regional distribution centres, located at Newbridge, County Kildare, Charleville, County Cork, and Mullingar, County Westmeath. Further support is provided from our head offices, which we intend to relocate to Tallaght, County Dublin from their current location in Newbridge and Naas upon the completion of a new facility. Lidl employs 3,059 employees across all 140 locations in Ireland, a team we consider to be the best in our sector and of which we are immensely proud.

Lidl has become renowned in Ireland for exceptional value for money, offering consumers top quality products at market-leading prices every day. This is achieved through a well organised business model which places great emphasis on efficiency and sustainability in everything we do. This includes the store itself, which is standard in both floor plan and fit-out. Each facility uses standard operating systems and follows a standard layout or merchandising plan. This standard layout allows, for example, for optimum space management, deliveries and pack-outs, with each store receiving products in the same flow as the store layout from its regional distribution centre. Point-of-sale signage is standardised and also received in flow, adding further efficiencies. An additional benefit of this for customers is that they can switch between Lidl stores and enjoy a consistent shopping experience. Such efficiencies exist across each element of our business, which in turn supports an extremely competitive cost base.

Our selected assortment strategy with regard to product range also fits with our efficient business model. We stock some 1,500 lines in total, which cover the typical consumer's everyday needs comprehensively. The lack of duplication within products or ranges results in a significant cost advantage to our business, one which we are pleased to pass on to the consumer in the form of low prices. Approximately 90% of our entire range consists of own brand products, which are as good as if not better than the equivalent brands and offer the consumer savings of up to 51% on food and 73% on household lines, as evidenced by our current brand challenge campaign.

I will now address the proposed statutory code of practice for the grocery goods sector. In the context of sustainability, which underpins our success at Lidl, respect for our business partners is fundamental. In 2007, Lidl introduced a code of conduct across Europe to govern our dealings with business partners. This covers principles of fairness, clarity with respect to expectations, trust, negotiation and partnership. The code of conduct is discussed with all new suppliers and is available on our website for public access. I have issued a copy for members' review.

The alleged practices in the industry are far removed from our daily business at Lidl. We shun the very notion of hello money and do not solicit moneys for new listings. We alone determine placement and layout. We determine and finance our own advertising and promotions strategy and do not "tap up" our suppliers retrospectively to reach financial targets. We do not seek compensation for wastage or shrinkage, nor do we seek merchandising support of any nature. We categorically do not demand money from suppliers. In fact, we aim to make doing business with Lidl as efficient and sustainable as possible. Our advanced logistics systems, based on our regional distribution model, fully support this objective whereby suppliers deliver to three locations throughout Ireland. We also manage the remainder of the supply chain. Based on our unequivocal code of conduct, we are naturally unconcerned by the principles set out in any balanced code or legislation governing the retailer-supplier relationship. Lidl has engaged fully in the consultative process to date and our opinions are therefore a matter of public record.

We do, however, have concerns regarding the current proposal to legislate for a code, in respect of which we remain unconvinced. Our primary concern emanates from the potential for additional costs for Lidl and the consumer in complying with additional legislation without the intended benefit of the code being realised. Such costs would include legal advice on compliance with the code, the appointment of a compliance officer, buyer training and operational costs, and the maintenance and supply of records as required under the code. This increase in costs is set against the background of current legislation. The Competition (Amendment) Act 2012 already prohibits or prevents some of the sharp practices reported to exist in the industry. Yet, to date, no cases have been brought before the courts under the Act. It is difficult, therefore, to see how a code of practice will address this problem.

I would like to be in a position to offer some perspective from the experience of our colleagues in the United Kingdom in respect of the new legislative framework there. However, given how recently that framework was introduced, we can attest only to the costs of implementation and not its efficacy at this juncture.

Notwithstanding our concerns, we are, however, respectful of the position in which the Oireachtas finds itself in legislating to deal with an alleged problem. We will fully comply with any and all measures.

Consistent with our objective of delivering value for money for our customers, we maintain strong relationships with all of our suppliers to which we offer fair prices for the products they supply in line with clear specifications. Our business is conducted by way of agreements which we always honour. We pay all invoices promptly and have invested in streamlining this process with the recent introduction of electronic data interchange, EDI. Contracts are awarded on foot of a competitive tender process and agreements typically range from six to 12 months, depending on the nature of the volatility of the primary commodity. We typically do not deal directly with primary producers. However, a small number of our suppliers produce at a primary level. This affords us the opportunity to gain direct insight into input costs. We negotiate competitively and make no apology for doing so. We are absolutely confident of our stance in this regard, particularly in the light of our overall approach to doing business with suppliers on the terms set out previously. Some of our 159 Irish suppliers have been working with us since 2000 and our relationships are built on mutual trust and respect. This has given suppliers such as the Meade Potato Company, Lobinstown, County Meath, or Liffey Meats, Ballyjamesduff, County Cavan, the confidence to invest alongside us and in doing so significantly grow their businesses.

While our investment in expansion and a supporting infrastructure demonstrates our commitment to Ireland, we also wish to state Lidl is fully committed to working with an Irish supply base. Since 2009 it has trebled its annual spend on Irish products and this growth is set to continue apace. Almost 40% of our grocery range is sourced from Irish suppliers. Lidl currently partners 159 Irish suppliers, producers and manufacturers covering categories such as fresh meat and poultry, cooked and breakfast meats, dairy, fresh fruit and vegetables, breads, cakes, eggs, spring water, juices, drinks, pet food and many more. In order to support this growth we have invested significantly in resourcing a purchasing division which now has over 60 staff, all dedicated to establishing and developing locally sourced products from an ever expanding network of Irish suppliers.

While we are equipped to deal with major Irish and international suppliers, we pay particular attention to supporting smaller indigenous suppliers which specialise in the production of niche products traditional to Ireland. Our distribution infrastructure is designed to give all producers an equal opportunity to place their products in our network with the minimum of investment on their part. Examples of such indigenous suppliers who currently have products in all 135 Lidl stores here are Mileeven Fine Foods in County Kilkenny which supplies honey and condiments, the Scullery in County Tipperary which supplies our award winning country relish, Spice O'Life Limited, Dunmanway, County Cork which supplies spices and sauces and Virginia Health Food Limited, Navan, County Meath which supplies cereal toppings and wholefoods.

We promote innovation across our existing supply base in order to meet the changing tastes and needs of the Irish consumer. This does not conflict in any way with our selected assortment strategy. We are always open to approaches from new suppliers to add to our supply base and welcome the opportunity to engage with suppliers in their environment to witness, at first hand, the excellent work they do. In this context, we acknowledge the work undertaken by Bord Bia to promote the diverse range of quality suppliers throughout Ireland. Lidl has certainly benefited from regular input from Bord Bia in respect of information on prospective suppliers.

As previously stated, establishing trust with our suppliers is key to our success. Despite difficult economic conditions, we are very encouraged by the commitment of our Irish suppliers to invest in the highest standards of production that continually raise the bar in terms of quality. We are extremely proud that Lidl suppliers won the largest number of awards of any group supplying to retail, including four gold awards for products supplied to Lidl, at Blas na hÉireann 2012. Significant success was also enjoyed by our Irish suppliers in the prestigious Great Taste Awards 2012, with a total of 19 awards won. It is not just the Irish consumer who is benefiting from this commitment to quality. We promote our Irish suppliers to all purchasing divisions within the Lidl Group and both permanent and seasonal listings have been successfully agreed by a number of them with many of our counterparts across Europe. Two examples in this regard are Terra Limited, Bailieborough, County Cavan, which exports its award winning cream liqueur to the United Kingdom, Romania, the Czech Republic, Slovakia, Austria, Spain and Italy, and P. Mulrine and Sons, Ballybofey, County Donegal, which exports drinks to the United Kingdom, Holland and Belgium.

The customer is our primary concern in the context of our approach to labelling. We aim to provide accurate and informative labelling on each product on the shelves at Lidl and are midway through a major programme of labelling changes to meet this objective. While this is of importance right across our ranges, it is particularly important in the case of locally sourced produce. In the absence of clear guidelines, we have developed our own system, to which reference is made in the brochure provided in support of this presentation. If a product is farmed, grown or reared in Ireland, it is brought to the shelf carrying the logo "Produce of Ireland". This is the case, for example, with our Carrick Glen water which is bottled at source by Glenpatrick in County Tipperary and with our Dairy Manor Irish creamery butter which has been supplied fro the past 13 years by Town of Monaghan Co-operative. A product which has undergone a full production process in Ireland but which may contain an imported ingredient will carry the logo "Produced in Ireland". An example of this is our Bridge Bakery range of cakes which are baked near our Newbridge base by Comerford Brothers. Where a product is sourced from Northern Ireland, we also indicate this clearly. The product will carry the equivalent logos set out above with "Northern Ireland" simply replacing "Ireland". In addition to country of origin, declarations on ingredients and nutritional information are also part of our extensive programme of labelling updates. In this context, we are mindful of EU guidelines - EU food information regulation.

The recent issue highlighted by the Food Safety Authority in respect of frozen burgers highlighted the need to address standards and declaration guidelines. We have always been clear on our obligations. As previously indicated, the vast majority of our product is own label. It is, therefore, of fundamental importance to Lidl that when we place our brand on a product, we can stand over it. It is not good enough to hold the producer responsible and to do so at arm's length. As a result, we agree detailed specifications with our suppliers and document same. We run an extensive internal audit programme which now includes DNA sampling and testing to verify specifications and standards of production for us and our customers. Our compliance standards are noted at industry level for their exacting nature and our suppliers consistently meet them. We owe this to the end consumer in order to ensure he or she can trust Lidl on each occasion that he or she makes a purchase.

I will conclude on that point. My colleagues and I will be happy to answer questions which members may wish to pose.