Simone Margulies: "A continued positive trend in customer traffic and increased volumes"
Axfood summarises a third quarter with a continued positive trend in customer traffic, increased volumes and reinforced market positions, despite high comparison figures. Profitability was impacted by additional initiatives to strengthen price positions. The quarter was also characterised by a continued strong focus on investments for the future, and the ramp-up for all stores was finalised at the new logistics centre in Bålsta. In addition, the Swedish Competition Authority recently approved the Group’s City Gross acquisition, an acquisition that will strengthen competition on the market and create new opportunities for Axfood.
Households' purchasing power has deteriorated considerably in recent years and, although consumers in general are slightly more optimistic now about the future, shopping behaviours remain very cautious. It is also clear that competition has intensified even further during the year, and all food retail chains have a complete focus on attracting new customers and retaining existing ones. In addition, the year has been characterised by low food price
inflation and persistent high cost pressure on the market players, from for example increases in salaries and rents.
Under these market dynamics, all of Axfood’s businesses have a strong focus on increasing their competitiveness by strengthening price positions and
ensuring attractive customer offerings. Although comparison figures remained high, Axfood’s growth for the third quarter was in line with the market, with higher volumes and a positive trend in customer traffic contributing to a 3.5% increase in retail sales. As a result, we are once again reinforcing our market positions, and conditions to continue challenging and growing.
Focus on attractive customer offerings
Regardless of the economic situation, the discount segment has been the fastest growing segment of the food retail market for many years. Willys is the leading discounter and has attracted significantly more customers in recent years, gaining market share at a historically high rate. The fact that Willys continued to defend its strong position this quarter, with growth of 3.8%, is a sign of strength. Initiatives to strengthen its price position had a negative impact on profitability during the quarter in a market with intense competition. These initiatives are implemented to secure the profile with Sweden's cheapest bag of groceries, and contributes to a continued high level of customer traffic and loyalty as well as a strengthened market position going forward.
Through favourable growth of 4.5% in like-for-like sales and effective cost control, Hemköp continues to successfully and profitably navigate the traditional grocery retail segment of the market. Following its efforts in recent years to develop its product range, focus on price value and accelerate the pace of store modernisations, the chain is further strengthening its position.
Restraint and caution also dominates dynamics on the café and restaurant market. Our restaurant wholesaler Snabbgross is taking further steps and strengthens its market position. Growth was 5.6% in the quarter, with higher volumes and an increased number of customers. Snabbgross’ earnings were in line with the prior year.
New steps towards the logistics of the future
The establishment of the Group’s new logistics structure continued during the quarter. Extensive work is under way to streamline product flows, and this is ongoing while the supply of goods to thousands of stores around the country is in full operations.
Towards the end of the quarter, the final volumes of frozen food were transferred to the new logistics facility in Bålsta, which means that the ramp-up for all stores is now complete. We are now in a phase where we will gradually increase focus on operational adjustments and fine-tuning to improve productivity and efficiency. Tests are now also under way for the roll-out of e-commerce. In addition, the expansion of the existing high-bay warehouse in Backa, Gothenburg, continued to increase the Group's capacity and efficiency.
The logistics investments are largely focused on efficiency and more automated processes, but are also intended to ensure the Group has the capacity to continue growing in the future. We have experienced strong volume growth in recent years, which together with the acquisition of the wholesale business Bergendahls Food, has resulted in a need to rebalance our volumes between our various warehouse facilities. Establishing a new logistics structure is an extensive endeavour – one that continued to give rise to additional costs in the third quarter. This is however an important long term shift that will result in cost savings and greater competitiveness over time, as well as an even more efficient and sustainable product supply.
Acquisition of City Gross approved
We are delighted to have recently received approval from the Swedish Competition Authority for our acquisition of City Gross, which was eagerly anticipated. We now look forward to taking over as the company’s new owner on 1 November, welcoming our new colleagues to the Axfood family, and starting the work to invest in strengthening the chain’s competitiveness and challenge the leading players in the hypermarket segment.
Focus on green transition and climate
When it comes to sustainability, we have an ambitious agenda, working systematically and taking continuous steps in many areas. Climate change is a central focus of our sustainability agenda, and I would particularly like to highlight our efforts to accelerate the transition to renewable fuels in transports. Accordingly, we have reduced the carbon footprint per tonne of goods transported from our owntransport operations by 40% since last year and by nearly 60% over a three-year period. We are also preparing to
reapply to set science-based targets in line with the Paris Agreement through the Science Based Targets initiative (SBTi).
A strong culture and clear development agenda
This is my first interim report as President and CEO of Axfood. In summary, we have reinforced our market positions despite high comparison figures and intense competition, and taken new steps in our investments
in the future, aimed at strengthening our long-term competitiveness. Since taking over the helm, I have focused on learning the business from my new perspective and spending time out in the organisation. Meeting dedicated employees and witnessing our strong culture is incredibly valuable and makes me confident that we have what it takes to write the next chapter of our journey together. Axfood will continue to challenge. We have a plan in place and a development agenda to ensure our continued competitiveness and to increase our market share. And this is something that my colleagues and I truly feel passionate about.
Simone Margulies
President and CEO, Axfood AB