Twenty months on from its acquisition of the Quinnsworth/Crazy Prices chain, Tesco Ireland still has some way to go to shake off the "British" tag.

Despite assurances that it would increase the supply of Irish-made goods in the long run, questions continue to be asked about the company's commitment to domestic producers and distributors, a number of whom have already reported a loss of business since the British multiple's arrival.

The perception among consumers, in particular, that Irish-made goods are being replaced on the shelves by Tesco imports has contributed to an unspectacular early performance by the company with independent research by Taylor Nelson suggesting that its market share grew by just 0.2 per cent over the past year.

However, the company insists that the perception is quite different from the reality with some 200 Irish-made Tesco brand goods already in stores and with goods supplied in Ireland accounting for more than 40 per cent of total sales.

This compares less favourably with Irish-owned retail chains such as Superquinn, which says Irish-produced goods account for 62 per cent of total sales, and the Musgrave Group, covering SuperValu and Centra, which claims that Irish suppliers account for as much as 80 per cent of sales. However, the Tesco figure is similar to that of its predecessor, Associated British Foods, from which it bought Quinnsworth/Crazy Prices for £630 million in May 1997. Ironically, ABF was never as closely scrutinised in relation to its supplies despite the fact that it sourced many of its own brand products in Britain.

Tesco has also pledged to increase its trade with Irish suppliers by more than 40 per cent from £697 million last year to £997 million in 2002. Already it has established a direct supply chain to a number of farming co-operatives, providing them an opportunity to supply Tesco stores in Britain as well as Ireland.

But, as Mr Pat Delaney, director of the Small Firms Association (SFA), explains, there have been winners and losers from Tesco's arrival. "We are getting some positive and some negative feedback from our members. Some smaller producers are telling us they are finding it more difficult to get shelf space. Others, however, are flourishing."

He said one company which provided security chutes at check-out counters at Quinnsworth has done more than £2 million worth of new business with Tesco this year, installing the device in stores here and in Britain.

"The main fear was that Tesco might bring people in from the UK to replace Irish suppliers. But that doesn't seem to have been borne out. The approach from Tesco now is that all previous suppliers are invited to tender for contracts if they meet certain requirements. Tesco has learned that the Irish market is different and the consumer is different and it is now very keen to have open dialogue with small firms."

A number of suppliers who spoke to The Irish Times, however, were not as positive about Tesco's arrival and said they were being edged out of the market by the British multiple's own-brand goods. One firm complained that "hundreds if not thousands of product lines have been discontinued since Tesco took over".

Another firm, which like others asked not to be named, said "we are being given far less shelf space and have had to reduce our product lines by half. We've been told we might be given a shot at an own-brand product but the margins for that would be much tighter".

The biggest changes, however, have been felt by independent distributors and agents arising from Tesco's decision to consolidate its distribution system with the proposed introduction of two new distribution centres, which along with its existing centre in Tallaght, Dublin, will supply all Tesco stores in the Republic.

Other chains such as SuperValu have been operating a similar system for a number of years but the impact of Tesco's restructuring strategy is far greater.

A new study compiled for the Oireachtas Joint Committee on Enterprise and Small Business by Senator Mary Henry showed a high level of concern among firms about this strategy.

One firm said it had built up a strong business in niche market products but "with the arrival of Tesco, this business has almost been eliminated. Previously the products were supplied to Quinnsworth but now they have been delisted".

Another said: "Despite promises to support Irish suppliers, Tesco are conducting all `buying' and `price file' negotiations in their UK office for transnational brands. They are using their group muscle to negotiate best trading terms which will adversely impact the Irish suppliers of these products."

Speaking to The Irish Times, another firm said Tesco Ireland had begun asking for substantial sums of money from suppliers to carry out promotions in store.

"The result is that small suppliers are finding it more difficult to get into the stores. Tesco are only interested if you're making huge turnovers of volume. There used to be a local autonomy, which enabled regional managers to promote local suppliers, which seems to have gone. Everything is done from head office now."

However, Mr Simon Walsh, manager of Dublin Meath Growers, a co-operative of 33 producers supplying Tesco stores, said the British multiple had introduced more certainty to the market as it guaranteed prices and volume requirements.

"For the first time ever we know exactly how much we have to produce. Before, we weren't doing a quarter of the business that we're doing now."

He said the centralised distribution system has saved the co-op time on administration, transport and invoicing as well as providing Tesco with an easy means of tracing all produce to its source.

"We would have Tesco people in the field three to four times a week. When it was Quinnsworth, you'd be lucky if you saw the buyer three times in 10 years," Mr Walsh said.

Savings made by Tesco by streamlining its distribution system could be passed onto consumers in terms of lower prices.

However, Mr Alan Collins of the Department of Food Economics at UCC said it depended on whether competition was strong enough in the retail sector. "Unless there is competition, there is a danger savings may be used merely to increase operating margins."

In Britain, Tesco is being investigated by the Office of Fair Trading, along with Britain's three other big supermarket chains, for squeezing suppliers without passing on gains to consumers. Operating margins in Britain are much higher - at about 6 per cent for most food multiples - compared to Ireland, where Tesco's margin is estimated at 4.4 per cent and Musgrave's at 2.95 per cent.

This issue is one of many which demands close examination in the coming months, according to Mr Delaney of the SFA. While he was "heartened" by a seemingly more positive outlook in Tesco to Irish suppliers, he said the Department of Enterprise, Trade and Employment had a crucial role to play in ensuring guarantees on keeping Irish produce in stores were met.

"On reflection, you have to admit efforts are being made by Tesco to increase their business with Irish suppliers," he said. "The only thing that can be done is to make sure over time the dialogue is continued, the process of co-operation with suppliers is continued and that the Department keeps a close eye on them."