Northern Ireland food processing companies will have to fundamentally alter the way they operate if they want to do business with the new breed of retailer which will dominate the local market by the end of the decade, according to the author of a new report on "Food Retailing in Northern Ireland".

Mr Andy Carter, the manager of Euromonitor Consultancy, which produced the report, said that the changes would affect every company, regardless of size, and whether or not they wanted to do business with the UK multiples. "Companies which refuse to recognise the need to change," Mr Carter said, "or which are unable to adapt, will have to start looking at other retail sectors, or in extreme cases, go out of business altogether."

Mr Carter said that by the year 2000, the share of total grocery sales taken by the major multiples will have increased to more than 60 per cent, compared with the current level of 52.5 per cent.

"This will benefit the companies already supplying them," he said, "and particularly those which are producing own-label goods."

Mr Carter said that Northern Ireland companies would also have to adapt to greater competition from producers in the Republic because in the longer term the British multiples were looking at the island of Ireland as a single market.

"Differentiation is vital," he said. "Smaller companies will not have the opportunity to supply the multiples with commodity products. The multiples already have a core of key suppliers in these areas, and they are looking to rationalise their supplier base, not expand it."

He said that diversification would be a necessary strategy for those companies which have supplied the likes of, for example, Wellworths or Stewarts in the past, but are unable or unwilling to continue with the business now that they are owned by Safeway and Tesco. "They will need to replace the business they have lost," he said. He also said that the multiples would look to develop established brands.

Euromonitor's senior research analyst, Mr Michael Oliver, said that the arrival of Tesco in Northern Ireland was particularly significant because the company's sales were roughly twice the value of the entire grocery retailing market of the island of Ireland. "That gives them tremendous purchasing power when negotiating with suppliers," he said.