The top-line figures from Tesco's Irish division last week were positive, but behind the 5% growth figure lay evidence of how cross-border shopping is ravaging the Irish grocery sector. Stripping out the impact of new shops, the key like-for-like yardstick showed negative sales growth across the Tesco operation – a trend likely to be repeated at most other retailers this year.

Tesco may not be alone in singing the recessionary blues, but the tune being played in its Dun Laoghaire HQ is in a decidedly different key to that sounded by Dunnes, Superquinn or SuperValu. As reported in Checkout's 'Retail Intelligence' news service and the Sunday Tribune last week, Tesco's move to a wholly UK-based procurement model for international brands is proceeding apace, with key elements of the buying function for big-name brands now moving back to the Tesco motherland.

Tesco's Irish business had taken a huge hit from cross-border shopping, and ROI/NI price comparisons are causing "unacceptable" damage to the Tesco Ireland brand. The solution? Buy brands centrally, using the scale of Tesco UK and the benefits of weak sterling, and deliver them straight to Ireland.

On the surface of it, Tesco's plan makes a lot of business sense. Ireland is the only Tesco territory that shares a land border with the parent company, giving it immediate access to the buying power of the third-largest retailer in the world. Ireland also shares many characteristics with Tesco's domestic market, meaning that much of what is sold in a Tesco in Dublin or Cork is the same as what is sold in a Tesco in Manchester or London.

Perhaps most crucially, Tesco's Irish business now boasts a distribution operation which makes it far less reliant on its suppliers' sales and marketing teams than its biggest rival, Dunnes Stores.

The combination of all these factors puts Tesco in a rather unique position in the Irish mainstream retail market, and is the genesis of what is referred to within Tesco as 'Project Scale'.

While the likes of Dunnes and Superquinn can dip in and out of the grey market to 'cross-stock' brands which are cheaper through a UK wholesaler, Tesco can feasibly move to a model where literally every 'international' brand is bought and distributed directly from the UK.

To the casual observer, this may make little or no difference. If it leads to lower prices, many consumers may even welcome the move. Indeed, there is already a considerable volume of 'grey' product across the Irish grocery sector, some of it undiscernibly grey (as many big brands carry dual UK/Republic Of Ireland packaging), some of it more obvious (German Capri 'Sonne', for example). And in both cases, consumers are lapping it up. Price, it would seem, is all that matters.

There may be a certain inevitability about Project Scale, but it has caused huge concerns for the distributors and subsidiaries that now stand to be bypassed.

For the multinational brands, cross-stocking may 'net out' at a group level, in that their products are still being bought, even if not through the Irish agent. However, many of them have not been slow to rationalise their Irish operations, now that a large chunk of their business has gone.

The impact is worse still for the third-party agents which do not own the brands they distribute, as they gain no net benefit from an international sourcing model.

This places the import/distribution sector in a difficult position. Losing a big customer means reduced volumes and reduced staff levels to service these lower volumes. However, it also weakens their position with the other Irish retailers, as lower volumes mean less scope for promotions and price cuts.

The net result of this vicious circle (and something that is already happening in a number of cases), is that other retail groups, such as Spar parent BWG, are now exercising their own 'international' power and bringing in more products from the UK.

Blaming Tesco alone for this shift would be wrong, as many other parties are exploring similar options. However, by virtue of its scale, a changed sourcing model at Ireland's biggest grocery retailer has far-reaching consequences. Put simply, when the Tesco butterfly flaps its wings, it creates a gust far more powerful than that caused by a border-crossing Irish wholesaler.

Many in the supply chain are also seeing more ominous portents within the tornado stirring in Tesco HQ. The supplier communiqué may have referred to international brands alone, but detailed descriptions of how the new model will work have exacerbated fears that Tesco's long-term game plan is to harmonise its ROI and UK businesses to such an extent that Irish brands will be phased out.

In particular, suppliers point to Irish trials of UK-only planograms (the model by which goods are arranged on shelves) as evidence that Irish variants will be inevitably excluded, something that Tesco denies but which the controversial document suggests could very easily happen. Of course, consumer demand will determine what ends up on the shelves, but if shoppers are not offered the choice, this decision-making is compromised from the outset.

Whether Tesco cares about a few disgruntled Irish suppliers is doubtful, particularly if it means it can now take the gloves off in its battle against Dunnes. Sources close to the retailer have indicated that "significant" price drops are on the cards once the new buying model is harmonised.

However, with some other Tesco territories having a more difficult time (namely the Fresh & Easy venture in the US), conspiracy theorists are suggesting that the new model is more about earning higher cash margins for Tesco's Cheshunt parent than it is about lower prices for Irish shoppers.

As Ireland's biggest grocery retailer, Tesco has done much to boost the sales of Irish products. Through its supermarket network, it has created significant employment, while its international connections have opened doors for suppliers to export into other Tesco territories.

A recent Tesco-commissioned report showed that, in 2006, over €650m of Irish food exports had been facilitated by the Irish operation. Back then, however, the international connection was presented as an advantage to the Irish supply base. In the tough economic climate of 2009, it is now seen only as a threat.

John Ruddy is Editor of 'Checkout' magazine and its weekly 'Retail Intelligence' news service