There is something a bit too good to be true about Musgrave Group. Profit may not be a dirty word in the corporate lexicon of the Cork-based grocery franchise operator and wholesaler, but neither is it something to harp on about. Most managing directors would make time somewhere in the course of an interview to throw out a few flattering numbers, but Séamus Scally seems happier talking about values.

That is not to say Musgrave is not profitable. It made €59.3 million last year, most of it from distributing products to the 630 holders of SuperValu and Centra franchises in Ireland.

Equally, the extended Musgrave family - which owns 75 per cent of the business - is not adverse to money. The group paid them and other shareholders a €12 million dividend last year as well as spending another €22 million buying in a 5 per cent stake held by Bank of Scotland.

The remaining 25 per cent of the company is split between a staff share scheme (15 per cent) and past and present management (10 per cent).

It probably makes sound business sense not to draw too much attention to how well Musgrave's owners do out of its middle man role, but to say this is the real reason for Mr Scally's modesty would be unfair.

He genuinely believes Musgrave - founded in 1876 by the eponymous Quaker family in Cork - is different.

"The values of Musgrave are well understood by everyone who works in the organisation... we talk about them and they are our guiding principles," he says.

The company is in the business of building long-term relationships through straight dealing and trust, even if it costs money in the short term, he says.

Last year, for example, the group took an exceptional charge of €8 million in relation to property dealings.

"As a policy we don't take a profit on property when we sell on to independent retailers. We are investing here for the long term so we are quite happy to sell those at cost - or indeed at modest losses if we have to - because we are investing in growth and are quite happy to take that profit on trading in future years," he explains.

It is a nice way to do business and not that expensive apparently.

Musgrave's net margins would not be very different to those of BWG, the owner of the Spar franchise in the Republic, "not that it's something we compare..." says Mr Scally. BWG, which is owned by management and venture funds, does not have quite the same touchy-feely image as Musgrave.

"We do it because we want to do it and we believe it's the right thing to do," according to Mr Scally.

It was surprising then that Musgrave should have got the initial stages of its recent takeover of Londis in the UK so badly wrong. In December last year, the Cork group agreed a €57 million deal for the group only for it to be stymied when the 2,000 or so shareholders rebelled over the deal which would have seen the lion's share of the money, €30 million, going to four executives.

Mr Scally is keen to put the record straight. "We were approached by Londis initially [in spring 2003] and we had a very good look at the business.

"A key issue for us in the early discussion was the shareholding that would trigger in the event of the sale whereby 51 per cent of the shareholding fell to four executives.

"We were never comfortable or happy about that, but it was the shareholders themselves who in earlier years voted that in," he explains.

The legal position, according to Mr Scally, was that the agreement could not be changed and "we made an offer based on what the position was at the time in the full knowledge that we couldn't influence it".

Following the revolt by shareholders KPMG was brought in to manage the sale and, crucially, was able to persuade the management to give up their valuable right. How they did this is not clear.

"We didn't ask," said Mr Scally.

"Through KPMG's involvement more detailed information became available to us which did help us put a different figure on the table and, of course, there was a competitive tender process. Naturally we were forced to pay a bit more.

"We have paid what we consider to be a very full price, but a fair price at the end of the day. What we have bought, if you like, is the goodwill of 2,200 or so independent retailers," he says.

Mr Scally is confident that this goodwill has not been damaged by Musgrave's willingness to participate in the deal thrown out in December.

He points to the 97 per cent vote in favour of accepting Musgrave's improved €90 million offer at last week's extraordinary general meeting of Londis.

"The vote clearly demonstrates that the shareholders were very happy to accept our offer and they had decided that we were the best fit - there were other bids and some higher offers," he says.

Musgrave also met around 500 shareholders in the lead up to the vote.

"They were very impressed by our track record on the island of Ireland where, despite the fact that international multiples and European discounters compete, we have a 24 per cent share of the the market in the Republic and have grown share in Northern Ireland in the space of eight years from zero to 12 per cent," he says.

A key plank of Musgrave's domestic success is the continued existence of the Groceries Order which bans below-cost selling in the Republic and thus prevents predatory pricing.

The Consumer Strategy Group established by the Tánaiste, Ms Harney, earlier this year is currently examining the order which the Competition Authority would like to see scrapped because it is a barrier to competition and - the authority believes - contributes to higher food prices. Not surprisingly, Mr Scally is adamant that it should be retained.

"I will certainly contend that the order and some regulation has served the consumer well, on the basis that there is wider consumer choice in this country than there is in Britain where no such order exists and four players control in excess of 80 per cent of the market and that can't be healthy," he says.

Musgrave's decision to aggressively target the convenience store market in the UK seems a little perverse, given the dominance of the multiples.

But he says the group's own market research shows that a significant percentage of UK consumers are growing tired of super-store shopping. "They are happy to shop locally if the right service is provided for them in a quality environment and the multiples are now responding to that," he says. ...

While you could interpret this trend as proof that the small retailers do not need regulatory protection, Mr Scally believes there is another factor at play.

"There is very significant evidence that the multiples in the UK deliberately targeted independent retailers, using predatory tactics, to try and put them out of business. They have not been able to do that here and that is because of the Groceries Order and that is the key reason why it is essential that the order remains in place," he says

Even some sort of hybrid, which would see the Groceries Order repealed, but new regulations introduced to prevent predatory pricing, will not work, he says.

By the time a regulatory body makes a decision that a major player is in breach of competition law, the retailer will be long gone out of business, says Mr Scally

Despite lack of the the comfort of a Groceries Order, the UK convenience store market will be the focus of group activity for the next couple of years, he predicts .

Musgrave faces a number of challenges, including the selling on to independent retailers of 170 stores acquired as a result of the group's initial foray into the UK when it bought the Budgen's chain in 2002.

"The second thing we have got to do is bring the Budgen's and Londis businesses together and that will happen over the next six to 18 months. We have to make sure that we get the benefits of increased size through better purchasing and any other synergies in relation to operating costs and so on."

Heis also optimistic that the UK operation can grow organically. Since announcing that it planned to sell the Budgen's stores the group has received more than 600 enquiries from prospective small shopkeepers.

There is no end in sight to the Irish public's love affair with convenience stores, which will see 40 new Centra stores open in the Republic this year and the extension and refurbishment of another 50.

"It is more expensive [to shop in convenience stores\] but consumers still look for value and that comes in a number of forms. Price is one of course, but the pure convenience aspect, the level and quality of the service and the choice and variety, are other factors," says Mr Scally.

Consumers are prepared to pay what he calls a "modest premium" for this, he says. And Mr Scally believes UK consumers will be happy to pay a similar premium.

One group of consumers who don't seem keen on "modest premiums" are the Spanish. Musgrave has found it hard to transfer its model to Spain where it has had a presence since acquiring Alicante-based Dailsur in 1994.

"We have found it difficult to attract in franchisees. Those SuperValu stores we have, we are running them ourselves. There are plenty of corner shops, but they are typically independent and likely to remain that way," he says.

In future Musgrave will only open larger stores in the range of 6,000 to 8,000 sq ft while closing down smaller outlets.

"It will be modest growth. It's a profitable business, a small part of our business, but important to us."

The new stores will be opened in tourist areas in which there are large residential developments.

It will be a busy couple of years and a recent management reshuffle in the wake of the departure of Mr Michael Nason - who ran the Musgrave SuperValu/ Centra division - has led to speculation that the 61-year-old Mr Scally may be thinking of bowing out.

"I am not going anywhere in a hurry," he laughs.