Klas Balkow: "We are summarising a quarter with a positive development in our chains"
Axfood is summarising a quarter with growth higher than the market once again, despite e xceptionally highcomparison figures. Market positions were thereby strengthened even further, with a continued positive trend in customer traffic and increased volumes. Earnings were negatively impacted by a weaker sales development in Dagab, as well as costs associated with operational disruptions and the restructuring of logistics during the period. In the quarter, an agreement was signed to acquire City Gross, which gives Axfood growth opportunities in the hypermarket segment and improves competition in the market.
Going into this year, we were aware that we would be operating in an environment of low inflation, cost pressure and intense competition. Surveys show that households now have a slightly more optimistic outlook for the future following the sharp drop in inflation, and we now see volume recovery too some extent in the food retail market. However, this has not had any major impact on consumption patterns, as a strong focus on price value continues to dominate market dynamics. With low inflation and a negative calendar effect, overall market growth in the second quarter amounted to 2.2%. Against this backdrop, in Axfood we have focused on securing our customer offering and our price positions.
Growth higher than the market despite high comparison figures
Despite exceptionally high comparison figures, where growth in the prior year amounted to 17% compared to 9% for the market, Axfood grew more than the market during the second quarter. Retail sales increased 2.6%, driven by continued volume growth due to a strong inflow of customers. It is clear that our concepts are consolidating their market positions which have been significantly improved in recent years.
Willys’ ambition to offer Sweden’s cheapest bag of groceries is fundamental to the chain’s strategy, and during the quarter Willys continued to secure its price position. The 2.6% growth – in the face of the highest comparison figures in the market – shows that its strategy is working. This is also confirmed by Willys' customer surveys, which show high customer satisfaction and strong loyalty.
Hemköp is continuing to work on its assortment, price value and store modernisations, and once again posted strong growth in like-for-like sales of 4.6% during the quarter. Its earnings performance was also strong as a result of the growth combined with effective cost control. During the quarter, we announced that Shoan Etemadi, Deputy Managing Director and Head of Sales for Hemköpskedjan, will take over as the new Managing
Director starting on 15 August.
The café and restaurant market is facing a challenging situation as many consumers are prioritising other types of spending than eating out. Our restaurant wholesaler Snabbgross delivered growth of 1.8%. On a positive note, the number of unique customers is increasing, which provides a good basis for continued growth.
Progress in logistics restructuring but disruptions during the quarter
The ongoing work to establish a new logistics structure creates conditions for improved efficiency and competitiveness. During the quarter, we gradually scaled our frozen food volumes at the new logistics centre in Bålsta, which means that the facility now has operations up and running in all temperature zones. In addition, the expansion and automation of the existing high-bay
warehouse in Backa, Gothenburg has also intensified.
However, we have experienced operational disruptions while ramping up Bålsta and have re-balanced volumes between warehouses to optimise logistics flows. During this transition, we have prioritised stability in deliveries to stores which has resulted in significantly higher personnel
and transport costs. At the same time, Dagab's sales development has been soft which has contributed to a negative earnings development. Overall, the establishment of the Group’s new logistics structure results in higher costs in the short term, but with annual efficiency improvements in line with what has been communicated earlier. We are now in a better position to be back on track with the restructuring in the second half of the year and to gradually accelerate the work on operational adjustments.
Acquisition of City Gross leads to growth opportunities
In early June, we announced that we are acquiring the City Gross hypermarket concept, in which we already have joint control through a minority stake. We are delighted to have reached this agreement and now await the Swedish Competition Authority’s review. We believe strongly in
City Gross and, as its owner, will invest in developing the concept and streamlining operations to create long-term profitable growth. This is something we have both experience and knowledge of thanks to the extensive work and development we have carried out in both Willys and Hemköp. We look forward to working to strengthen the chain’s position and more clearly challenge the major players in the growing hypermarket segment.
Strengthened competitiveness for the future
We are summarising a quarter with a positive development in our chains, but weaker earnings with a negative impact from costs of SEK 86 m related to operational disruptions and the acquisition of City Gross. We have a strong
financial position and are confident that the investments we are making will create a solid platform for improved competitiveness in the future.
This is my last interim report as President and CEO of Axfood. I am proud of the strong culture and broad expertise we have in our Group, with employees who are passionate about taking a leading position in affordable,
good and sustainable food. I am glad to hand over to my successor Simone Margulies who will lead Axfood into its next chapter.
Klas Balkow
President and CEO, Axfood AB