AM51013

AMA RESEARCH MARKET REPORT : Building & Home Improvments Product Distribution Market Republic of Ireland November 2003.

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BRIEF DESCRIPTION

This report provides a review of the structure of distribution in the Republic of Ireland's DIY product market, focusing on builders merchants, DIY multiples and independent hardware retailers.

Key areas covered in the report:-

BACKGROUND ECONOMIC/CONSTRUCTION

Broad review of social, economic and construction background in Ireland.

GDP, population statistics - Ireland fastest growing economy in the European Union.

Construction - Overall construction statistics, 1994-2003 - analysis of key sectors - housing, commercial, industrial, infrastructure, health and education etc. Opportunities and threats to current construction boom, key areas of potential growth.

Housing - volume growth since 1994, key influencing factors, future prospects for housing market, geographic distribution of housing. Impact of new housing on product mix between new work and RMI.

Trading with the Republic of Ireland - key legislative and cultural differences to the UK.

BUILDERS MERCHANTS

Market size - value growth 1996-2002. Forecasts for 2004-06. Rapid growth of market, review of key influencing factors. Higher growth than DIY sector in recent years, in contrast to UK market.

Key factors influencing market for building materials - key opportunities and threats within the construction industry. Lower level of market maturity for many building products.

Key Builders Merchants - major players, size, shares, market structure, number of outlets, changing degree of concentration in sector. Comparisons with UK market

Future prospects for sector - key trends, market structure etc.

DIY SECTOR

Market size - value growth 1996-2002. Forecasts for 2004-06. Strong growth rates.

Key influencing factors - economic, housing, emphasis on private RMI and DIY activity etc.

Brief analysis of product trends

Major DIY outlets - role of Multiples, leading players, market shares, structure, number of outlets etc. Comparisons with UK market.

Independent DIY/Hardware outlets - a stronger sector in Ireland, - major retail operations, structure, Buying Groups.

Future prospects for sector - key trends, market structures, entrance of B&Q and potential impact etc.

GENERAL

Other key channels of distribution - emphasis on Co-op's, Garden Centres, Electrical Wholesalers, Catalogue/Mail Order, specialist distributors, direct supply etc.

Overall future prospects for construction and distribution of building and home improvement products.

EXECUTIVE SUMMARY

Ireland remained the fastest growing economy of the European Union in 2002 when measured in GDP growth terms, a position it has held consistently since 1994. With a population of 3.96 million people in 2003, Ireland represents just over 1% of the total European Union population, only Luxembourg has a smaller population. Ireland is also the fastest growing population within the European Union with an increase of 1.52% in 2002 compared with 0.28% for the same year in the UK. This combination produced a 7% increase in construction output value to €21.5 billion for 2002, amounting to 2.2% of total European Union Construction estimates. Further progression is forecast in 2003 with construction output value growing by a further 3% to €22.2 billion.

During the period 1994-1999, construction industry volume increased by 13% per annum on average representing the most vigorous growth period in the history of the state. GNP grew cumulatively in real terms by 75% for the period, or around 8% per annum for the same period. The three years 2000-2002 has seen a deceleration in output growth during which the industry has experienced a weakness in demand, continued increases in building costs and very competitive tendering. Although the industry value has increased over this period, lately this has been driven by inflationary factors as output volume is forecast to drop in 2003 by 3% despite a value increase of 3%. Construction accounted for 16.8% of GDP in 2002 - around twice the contribution from construction to GDP in the UK.

Forecasts indicate that construction value will peak in 2003 and slow down annually until 2006. This is based on the continuing strength of the Housing sector, offset by a slow down of the non residential (office and retail) construction and the gradual reduction in large civil engineering projects as the 2000-2006 National Development Plan (NDP) approaches completion.

Over the last decade, the construction sector has benefited greatly from foreign direct investment, particularly from the US, which in turn has stimulated both industrial and commercial construction. Both sectors have seen considerable growth in construction since 1994.

However, foreign direct investment is expected to experience a substantial slowdown in growth rates due to the deterioration of the international environment, especially in the US, and it has been estimated that output in commercial and industrial construction will continue to decelerate in the short to medium term.

The RMI sector has seen an increase in value in both the residential and social sectors every year over the period 1997-2001. However, the annual increase in inflation every year has been greater than the increase in value, with the exception of 1999 and 2001. As a result, the volume of RMI output declined in 1997, 1998 and 2000. The subsequent modest increase in 2001 (+3.4%) reflects a strong increase on the private RMI side. However, the strong decline (-14%) in RMI investment in 2002 reflects evidence of a decline in private housing RMI investment in 2002, with a further decline expected in 2003, despite a reduction in the rate of construction inflation applied to contracts.

New private residential housing completions reached record levels in 2002 with a 3% growth in number. A new record in excess of 60,000 is expected for 2003 with the residential sector accounting for 56% of all construction output. The residential construction sector recorded its ninth year of growth in 2002.

The Builders Merchant's (known as "Builders' Providers" in Ireland) market has experienced growth over the last 5 years that is equal to the growth in the Construction sector. As a result, there has been a great deal of expansion and acquisition activity between the major and minor players in the market, with Grafton, Heiton and Brooks leading players in a relatively fragmented market. The total value of the sector at RSP in 2002 was €2.64 billion.

The DIY Retail market in Ireland was estimated to be €435 million in 2002. The sector has four major chains - Woodie's (owned by Grafton), Atlantic Homecare (owned by Heitons), Homebase (GUS plc) and B&Q (Kingfisher plc). Due to its low and dispersed population density, Ireland still has a high incidence of traditional local 'Hardware Stores' that fulfil the role of supplying many of the products needed for home decoration. All of the major DIY chains, apart from Homebase, have increased the number of store locations over the last 2 years and continue to do so. In particular B&Q, who have announced plans to have 10 stores operational in Ireland by 2008.

The overlap of ownership between the major merchants and DIY groups has prevented the same level of aggressive pricing between the sectors, as experienced in the UK, though the entry and expansion of B&Q may result in a more competitive environment.

Many of the smaller Hardware stores are members of Buying Groups such as Associated Hardware, based in Dublin, where purchase requirements are pooled to increase volume and reduce prices in an attempt to match the low prices offered by the DIY multiples. As a result, the range of products offered by the hardware stores is small and choice is limited when compared with the DIY stores. Planning restrictions on the size of retail stores in Ireland has hindered the penetration of large out of town stores across all sectors and large retail parks such as those seen in the UK and Mainland Europe are not being built. Government lobbying by interested parties to lift the store size restriction is increasing, as pressure rises to meet the needs of employment and investment as the economy cools.

Despite the moderate reduction in growth rates, prospects for the construction industry in Ireland remain stable, at least in the medium term. Inflationary pressures have eased in the second half of 2003 and the Government now faces a reduction in income revenues, but public investment projects and a buoyant housing market are anticipated to provide good opportunities for building material suppliers in the medium term. While GDP growth is forecast to fall to around 4-5%, this is still very high by European standards and should provide a sound base for construction and home improvement sales in the short to medium term, providing consumer confidence remains high.

TABLE OF CONTENTS

DIAGRAMS

Text © 2003 AMA Research

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