(A) Acquisition risks

Axfood acquires and establishes new operations on a regular basis. If the conditions in the operations do not correspond to the information provided prior to an acquisition being carried out, there is a risk that this could have a negative impact on Axfood. With respect to acquisitions, a well-executed integration and retaining key persons are also important. All acquisitions and new store establishments are preceded by thorough market analyses of the competition as well as demographics, with every investment calculation stretching over several years. In addition, the external operating environment as well as the business profile are analysed, in part based on sustainability-related aspects.

City Gross was acquired in 2024. Axfood intends to carry out a number of improvement initiatives to strengthen the customer offering, implement a chain management structure and streamline operations.

(B) Supplier risks

Axfood conducts extensive quality, safety and sustainability work particularly regarding its private label products, but also for other products in its assortment. To uphold and strengthen the trust of customers and other stakeholders, it is also important to maintain good control of the supply chain. Mapping of risks at the supplier level is based on a number of different dimensions such as work environment, water supply, human rights, food and
product safety, and animal welfare. Human rights challenges may arise in certain supplier countries. Quality assurance is conducted at several levels before a supplier is approved, and the selection criteria include sustainability work. Purchasing is steered toward suppliers with structured sustainability work or a willingness to change. Axfood also makes recurring visits and/or conducts audits at suppliers to discuss product knowledge, product development, compliance with the Code of Conduct and, where applicable, to investigate and follow up any defects. A bankruptcy or serious fire at a critical supplier could result in disruptions in product flows. Therefore, alternative solutions are reviewed on a regular basis at the same time as high demands are placed on fire safety and the financial stability of critical
counterparties.

(C) Market risks

Axfood operates in a competitive and dynamic market, which requires flexibility in the operations to meet new customer needs and behaviours. To stay up to date with competitors and new trends, the market is constantly monitored. For example, customer and consumer surveys are conducted regularly, which together with other analyses form the basis of the Group’s strategies. In 2024, Axfood’s assessment is that competition in the market intensified, and this development is being carefully monitored.

(D) Employee risks

The food retail market is changing rapidly, and change management is becoming increasingly important. Recruiting, developing and retaining competent and committed employees is a prerequisite for Axfood’s development. To counter the negative effects of losses of key persons, the Group works continuously with succession planning. Axfood also devotes a great deal of focus to diversity and inclusion. All workplaces are to be free from all forms of discrimination and offensive treatment, which is clearly specified in an equal treatment policy. Axfood is to be an attractive and sustainable workplace where the focus on a constructive, healthy and inclusive work environment is fundamental.

(E) Regulatory risks

For Axfood, compliance with laws and other rules and regulations is fundamental, as is conducting business in accordance with generally accepted business practice. Violations or negligence in these areas could harm the Group’s reputation and result in sanctions as well as fines. For risk prevention purposes, a number of policies, a well-working system of internal control and an ethical approach to counter the soliciting or accepting of bribes and corruption have been established in all areas. Every supplier the Company enters into an agreement with is required to adhere to the Group’s Code of Conduct or to have its own corresponding requirements. The Code of Conduct is an integrated part of the purchasing process and is included in all supplier agreements, except for certain local suppliers, which are handled directly at the local level. In connection with new laws or regulations, measures are reviewed well before the new regulations are enacted. Axfood also strives to influence regulatory processes by, for example, actively participating in comment rounds or sub-reporting to ensure that the upcoming requirements are adapted and applicable.

(F) IT and information security risks

Digitalisation presents opportunities, but also places greater demands on the ability to protect information and customer data as well as ensuring stable IT operations. In the past few years, an increase in cybercriminal activity has been observed. Information security is therefore a prioritised area and part of the strategic agenda. Systematic efforts are ongoing based on a management system for information security, and the level of protection is continually monitored based on the current threat scenario. Major emphasis is placed on preventive work and the organisation in order to detect, handle and protect the Group’s operations from threats and disruptions as well as on ensuring operational continuity in the event of unforeseen events. Axfood has an updated IT security architecture based on Zero Trust and activities that are being implemented according to plan. This also involves continuously working on raising awareness of the risk of operational disruptions or losing sensitive data.

(G) Risk of disruptions in the logistics chain

One of the most serious business risks that Axfood must manage is the risk of disruptions in the logistics chain, especially the risk of fire in its warehouses and distribution centres, which would result in property loss and business interruption losses. The Group devotes a great deal of focus to its systematic fire safety work and places emphasis on maintaining a well-working fire safety organisation with preventive measures such as adequate training and pertinent procedures, adapted technical fire safety measures, and recurring inspections and follow-up. Continuity planning is sustained and active. Another aspect that could affect the logistics chain is Axfood’s IT structure; see more information under Risk (F), IT and information security risks.

(H) Criminality

Crime in society impacts both Axfood’s operations and its employees, and the retail industry have seen an increase in threats, violence and organised crime in recent years. Within the Group, extensive preventive security work is being conducted, including training, establishment of procedures, and deployment of technical and human resources to deal with various situations, such as shoplifting, fraud, threats and violence.

(I) Climate and environmental risks

The risk scenario with respect to climate and environmental matters is multi-faceted and covers brand issues, availability of food ingredients as well as costs that may arise as a result of political decisions. The development toward more environmentally conscious consumers, combined with the risk of an inability to be sufficiently fast at adapting the assortment to changed expectations, could lead to deteriorated competitiveness. However, risks are also opportunities for those in the industry that are far ahead.

(J) Liability and trust risks

Axfood is one of the leading players in Swedish food retail, and its ability to meet stakeholders’ expectations in terms of quality, transparency, and compliance with laws and standards as well as social and ethical norms is therefore crucial for maintaining a high level of credibility. Examples of issues dealt with on a daily basis include food safety, hygiene, the cold chain and product liability for products that could cause property damage or personal injury. Should a serious defect be discovered in any of these areas, there is a risk that the Group would be exposed to financial loss as well as damage to the brand. Axfood works actively with these issues, for example, through extensive internal inspection programmes at stores and quality assurance of private label products. As part of the inspection programmes, stores conduct certain daily arrival controls and temperature controls in various parts of the store. Clear procedures are in place, such as for handling unpackaged foods to ensure that food hygiene is maintained and to uphold the integrity of the cold chain. Failures in the environmental area, such as having excessively high levels of pesticides in foods or unsuitable chemicals in other products, could undermine trust in Axfood’s brands, private label products and the Group’s various concepts. The quality assurance process of private label products involves imposing requirements on food and product safety during the manufacturing of goods. The contents of the products in the form of ingredients and additives, as well as sensory qualities such as taste experience, are reviewed and analysed for every individual product. To ensure Axfood’s competitiveness, it is important to continually develop the assortment according to customers’ needs and preferences, which for example may involve offering sustainable food, such as sustainability-labelled and organic products. Weak goal fulfilment in the area of sustainability could, over time, undermine customers’ trust in the Axfood brand and the various concepts.

(K) Pandemics

For Axfood, the health and safety of its employees and customers is the top priority, at the same time as the Company is to live up to its social responsibility to deliver food to Swedish consumers. The Covid-19 pandemic provided lessons when it comes to managing the spread of infection with a number of measures and restrictions of different kinds. The risks that the pandemic gave rise to, including the risk of disruptions in the logistics chain,
risks related to the supply chain and employee risks, could be managed without significant disruptions in operations. While established correlations between climate change and the spread of diseases and pandemics will probably entail new challenges for Axfood, risk management has been developed and improved as a result of the experiences from Covid-19.

(L) Risk of labour market conflicts

There is a risk that labour market conflicts, such as a strike or lockout in any area of the business, could result in operational disruptions. Negotiations of collective bargaining agreements for Axfood’s operations are conducted through the auspices of Swedish Commerce, in which Axfood is a member. At the end of 2024, a new round of collective bargaining began.

(M) Risks of errors in the financial reporting

Axfood continuously analyses and assesses risks that could lead to errors in the Group’s financial reporting. Each year, the Board of Directors decides which risks are material to take into consideration in order to ensure a high level of internal control over financial reporting.