Axfood
Annual Report
2008
Axfood is a Swedish company governed by Swedish law. All monetary amounts stated here- in are in Swedish kronor. Millions of kronor are abbreviated as SEK m, billions as SEK bn and thousands as KSEK. Figures in parentheses pertain to 2007, unless stated otherwise. Market and competitive data are Axfood’s own estimates, unless reference is made to a specific source.
These estimations are based on the best and most recent data available from published sources in the public sector, the consumer goods industry and competitors.
BUSINESS REVIEW Axfood at a glance 1 Highlights 2008 2 CEO’s message
4 Mission, goals and strategy 9 Private labels
11 Market and trends 14 Hemköp
16 Willys 18 PrisXtra 20 Axfood Närlivs 22 Dagab
25 Corporate Social Responsibility 33 Corporate governance
40 Board of Directors 42 Executive Committee
FINANCIAL STATEMENTS 46 Administration report 50 Income statement
51 Comments on the income statement and balance sheet 52 Balance sheet
54 Cash flow statement
55 Comments on cash flow and shareholders’ equity 56 Shareholders’ equity
57 Financial and operational risks 60 Notes
82 Proposed disposition of profit
83 Audit report
84 Several-year overview 86 Axfood share data 88 Annual General Meeting
89 Financial information and Investor Relations 90 GRI table
92 Definitions and explanations Addresses
Contents
Axfood reports in conformity with the Global Reporting Initiative (GRI) guide-
Presenting Axfood
AXFOOD AT A GLANCE
Axfood conducts food retail and wholesale trade in Sweden. The Group’s retail operations are conducted through the wholly owned Willys, Hemköp and PrisXtra chains, comprising 226 stores in all. In addition, Axfood collaborates with a large number of proprietor-run stores that are tied to Axfood through agreements. These include stores within the Hemköp and Willys chains as well as stores run under the Handlar’n and Tempo profiles. In all, Axfood collaborates with some 650 proprietor-run stores. Wholesale business is con- ducted via Dagab and Axfood Närlivs. Axfood is listed on Nasdaq OMX Stockholm AB’s Large Cap list. Axel Johnson AB is the prin- cipal owner with approximately 46% of the shares. Axfood has a 17.1% market share in Sweden.
Market shares, largest competitors in Sweden 2008
ORGANIZATION
Axfood’s organization is characterized by few decision-making lev- els and strong focus on low administrative costs. At the central lev- el the Group achieves economies of scale in such functions as pur- chasing, private label products, logistics, IT, finance administration, human resources and leadership development.
The management teams of the individual chains are responsible for store operations, marketing, product range and pricing strategies.
The individual store managers/proprietors have day-to-day responsibility for ensuring that their stores are appealing and well- stocked, and for treating customers in a professional manner that reflects the profile of their respective chains.
Source: Sales data for ICA, Coop, Bergendahls, Lidl, Netto and Vi are derived from a compilation prepared by the retail trade journal Fri Köpenskap.
Axfood’s data include own estimates of sales for Tempo, Handlar’n and other collaborating stores.
1)
Willys, Hemköp (wholly-owned & franchises), PrisXtra, Tempo, Handlar’n and other collaborating stores.
2)
AG’s, City Gross, Eko, Matöppet and other stores.
3)
Other convenience stores, grocery stores and service station stores.
Lidl 2.5%
Netto 1.7%
Vi 2.4%
Other
3)8.1%
Axfood
1)17.1%
Ica 45.0%
Coop 18.5%
Bergendahls
2)4.7%
Business concept: Hemköp develops Sweden’s best food stores. We promote our customers’ well-being by helping them find healthy foods.
SEK 5,640 m 18%
SEK -8 m -1%
1,705 25%
Number of Group-owned stores: 80
Number of franchise stores: 89
Retail area: 131,300 sq.m.
Business concept: Willys’ goal is to lead and develop the discount retail food segment by offering “Sweden’s cheapest bag of groceries” and giv- ing its customers an inspiring shop- ping experience.
SEK 16,776 m 53%
SEK 730 m 68%
3,077 45%
Number of Group-owned stores: 140, of which 31 Willys hemma
Number of franchise stores: 3 Retail area (Willys – Group- owned): 266,900 sq.m.
Retail area (Willys hemma):
20,400 sq.m.
Business concept: PrisXtra strives to provide the most fulfilling and trend- inspiring grocery shopping experi- ence to people in Stockholm, at the lowest price.
SEK 653 m 2%
SEK 9 m 1%
193 3%
Number of Group-owned stores: 6
Retail area: 15,700 sq.m.
One online store
Business concept: We make it easy for our customers to do good busi- ness.
SEK 5,662 m 18%
SEK 110 m 10%
595 9%
Distribution centres: 3 Cash and carry outlets: 19
Business concept: Dagab streamlines the flow of products and informa- tion between suppliers and retailers.
Dagab is being integrated increasing- ly with Axfood’s wholly owned store chains in the aim of enhancing effi- ciency and delivery reliability.
External sales SEK 2,799 m 9%
SEK 138 m 13%
907 13%
Distribution centres: 2 Cold-storage warehouses: 2 Total sales: SEK 23,424 m
OTHER SEK 133 m
0%
SEK 98 m 9%
370 5%
Total number of Group-owned stores: 226
One online store
Total number of distribution centres: 5
COMPANY SALES
OPERATING PROFIT
AVERAGE NO.
EMPLOYEES KEY DATA
Share of Group total Share of Group total Share of Group total
Highlights 2008
Consolidated sales amounted to SEK 31,663 m (29,189), an increase of 8.5%.
Like-for-like sales increased during the year by 4.7%. Retail sales for Group-owned stores increased by 9.6%.
operating profit for the year was SEK 1,077 m (1,121). operating profit for the preceding year included a one-time positive effect of SEK 19 m.
Earnings per share were SEK 14.05 (14.88).
Axfood’s acquisition of Prisxtra was completed on 28 January.
In September Axfood launched its own Garant Ekologiska brand of organic products, which is being sold in all of the Group’s store concepts.
In december Axfood and the Vi Retailers Asso- ciation entered into a cooperation agreement.
Cooperation commences in November 2009 and will continue for a five-year period.
The Board of directors proposes an ordinary dividend of SEK 8 (12) per share.
THE YEAR IN FIGURES
2008 2007 2006 2005 2004
Net sales 31,663 29,189 28,808 28,086 28,658
operating profit 1,077 1,121 1,204 1,040 1,126
operating margin, %
1)3.4 3.8 3.9 3.7 3.9
Profit after financial items 1,011 1,086 1,183 1,026 1,096
Profit after tax 737 781 852 729 786
Earnings per share, SEK 14.05 14.88 16.03 13.37 14.67
Earnings per share after dilution, SEK 14.05 14.88 16.03 13.35 14.42
Average number of employees
during the year 6,847 6,463 6,569 7,066 6,941
1)
operating margin for 2006 excludes payment of SEK 89 m for the settlement with the Vi Retailers Association.
Quarterly data can be found under “financial information” on Axfood’s website: www.axfood.se.
CEo’s message
Consolidated operating profit and operating margin Consolidated net sales
The high level of sales can be credited primarily to Willys’
strong performance, but also to the sharp rise in food prices during the start of the year.
Axfood achieved its earnings target for 2008. The lower operating margin is mainly attributable to the weak
2008 was yet another successful year for Axfood, with good sales growth, stable profitability and continued strong cost control. We thereby achieved our earnings target, and it is extra gratifying to note that we were able to end the year with a positive result for Hemköp for the fourth quarter.
These achievements would not have been possible without the commitment and strong contributions of our employees.
2008 was a turbulent year that was initially marked by sharply ris- ing food prices caused by higher prices for raw materials and rising global demand. This trend subsided during the third quarter. At the same time, the faltering economy in the wake of the financial crisis became increasingly apparent, and the Swedish krona weakened.
for Axfood this entailed, above all, a large number of negotiations with suppliers to ensure the right prices for consumers.
A WINNING CONCEPT
for Willys, 2008 was a record year. Sales as well as operating prof- it developed favourably, and the number of customers rose sharply.
Willys’ success can be credited to good store operations, an expand- ed product offering and improved communication with custom- ers. Another contributing factor has been Willys’ ability to continue developing and adapting to ever-changing customer demands. By year-end the ongoing renewal of the Willys concept had been com- pleted at 15 stores. The rising stream of customers is also a sign of how well Willys is positioned in a weaker economy. A total of four new Willys stores were established during the year.
POSITIVE EFFECTS IN FOURTH QUARTER
Unfortunately, Hemköp did not perform in line with the expecta- tions we had at the beginning of the year. The conditions for achiev- ing a positive operating margin for the full year were made con-
siderably more difficult by the worsening economy. In response, we have further accelerated the pace of the ongoing action pro- gramme to improve stores with poor profitability. focus has been on cost control, a changed price and product range strategy, and efforts to ensure the right gross profit, more effective staff planning, and quality monitoring of store operations. This resulted in tan- gible effects during the fourth quarter, when a positive operating result was achieved. Two Group-owned stores were acquired dur- ing the year.
FOCUS ON INTEGRATION
Prisxtra was acquired at the end of January. Its integration work with Axfood has had high priority, and the process has proceeded accord- ing to plan. Sales for two stores have been hurt by traffic re-routing and road construction associated with the construction of the Norra länken traffic connector in Stockholm. However, both of these store locations are right from a long-term strategic perspective. The new- ly established store, which opened at fridhemsplan in Stockholm in october, has performed well from the start.
GOOD YEAR FOR WHOLESALE OPERATIONS
Axfood Närlivs has shown favourable, stable performance in a com- petitive market. Several contracts were signed during the year, including a renewed agreement with the oKQ8 service station chain. The cash and carry operation posted good sales growth.
dagab has completed the reorganization of its warehouse oper- ations that was begun in 2007. operations in Borlänge have been refined to that of a full-range cold storage warehouse, and a new, fully automated high bay storage facility has been put into opera- tion in Jordbro. during the second half of the year, the planned implementation was begun of the new system for automated store restocking. dagab continues to show the highest level of delivery reliability in the industry.
28,658 28,068 28,808 29,189 31,663
600 900 1200 1500
1,126 1,040 1,204 1,121 1,077
4 6 8 10
3.9 3.7 3.9 3.8
“2008 was the best year ever for Willys”
NEW COOPERATION AGREEMENT
In december we were happy to announce a new, five-year cooper- ation agreement with the Vi Retailers Association. Under the terms of the agreement, the Axfood Group – through dagab – will supply retail food products to the Vi stores starting in November 2009, and the Vi stores will be included in Axfood’s purchasing process. The agreement also opens up opportunities for deeper cooperation in store establishment, product range matters, IT and training.
PROFITABLE ENVIRONMENTAL WORK
Business-driven environmental work entails beneficial conserva- tion of resources and also leads to opportunities for cost savings, not least with respect to energy use in stores and warehouses. for Axfood, a responsible approach to business is a vital part of our operations. Accordingly, during the year we raised the bar consid- erably with respect to our environmental and social responsibili- ty goals and appointed a new head of Environmental Affairs. We have also continued to work actively on reducing the environmen- tal impact of our transports.
STRONG FINANCIAL POSITION
Axfood’s capital structure today is well-suited to the Group’s oper- ations. our balance sheet is strong, and interest-bearing net debt ended up at SEK 1,069 m, an increase of only SEK 599 m despite the high level of capital expenditures and the dividend payout of SEK 630 m. We were also able to meet our equity ratio target of a minimum level of 25% in each quarter.
WELL POSITIONED FOR WEAK ECONOMY
The price trend and market outlook for 2009 are both difficult to judge. one reason is the weak Swedish krona, which may counter- act the effects of lower raw material prices and also lead to price increases. Another reason is the deepening recession, which could put a damper on sales as households tighten their belts. However, we believe that private label products and discount alternatives will benefit from this trend. In this respect, Axfood is well-positioned. In addition to Willys’ leading position in the discount segment, for sev-
eral years we have had the highest private label share in Sweden’s retail food market. our goal is to further increase this share, from 20% today to 25% by 2010.
GOAL FOR 2009
It is in our stores that we create the conditions for continued suc- cess. Customer benefit will continue to permeate our way of work- ing, and we continue to develop and improve our store concepts.
Adaptation to changes in the external environment and to custom- er demands is a vital part of this. our goal – through continued strong cost control, an effective price and product range strategy and greater efficiency – is to attain a higher market share as well as profitable growth. Axfood’s goal for 2009 is to achieve an operating profit of at least SEK 1 billion.
Solna, 6 february 2009
Anders Strålman
President and CEo
MISSIoN, GoALS ANd STRATEGIES
Axfood’s strategy for profitable growth
Vision
Axfood will be one of the leading retail food companies in the Nordic region through profitable growth.
Mission
Axfood’s business mission is to develop and run successful retail food concepts in the Nordic countries based on clear and attractive customer offerings.
Core values
The work on building a shared base of values aims to foster an entrepreneurial and customer-focused culture throughout the Group. Axfood’s core values strengthen cohesion within the Group and integration of the Company’s various parts while providing guidance to all employees in their daily work:
■
The store is the stage
■You are important
■
We dare
■We are aware
■
Together we are strong
Goals
Axfood’s overarching goal is to create sustained value for share- holders and other stakeholders through profitable growth. This also entails creating the greatest possible value for customers and employees.
Apart from being the most profitable company in the Swedish retail food market, Axfood aims to grow its market shares by strengthening and developing its position, with the goal of being the number two food retailer in the Swedish market by 2012 at the latest.
Axfood also seeks to be the challenger in the industry by giving customers the best shopping experiences through clear and unique offerings of quality, wholesome food at attractive prices.
Axfood puts a premium on employees who are willing, able and empowered to generate tangible results together with co-workers and customers.
FINANCIAL TARGETS
Axfood’s financial targets are to have an operating margin of 4%, a minimum equity ratio of 25%, and to pay a shareholder dividend of at least 50% of profit after tax.
Strategy
PROFITABILITY
Strategic objective
Axfood will be the most profitable company in the Swedish retail food market.
Achieving this goal and, over time, an operating margin of 4%, requires intensive work at every level along with growth in sales, development of store operations and continued cost control.
Earnings for Hemköp will be strengthened through a new price and product range strategy, better control over gross profit, increased sales and quality monitoring of store operations. The right staff resources and reduced shrinkage will also contribute to overall earnings improvement.
A key part of this work also includes increasing the private label share from 20% today to 25% by 2010. Attaining the next level of development of the Group’s private label offering will require continued product development and in some cases more innova- tive products. one option under consideration is the development of a Group-wide private label that would enable larger purchasing volumes, better negotiating terms and the opportunity to sell in all of the Group’s store concepts.
To streamline and develop the Group’s chain and store opera- tions, further focus will be put on quality monitoring in all of the Group’s stores in order to ensure that they live up to set standards for uniform and well-run store concepts. Critical success factors, such as food safety, routines, quality, sales and service are monitored in the aim of making continuous improvements to operations.
Effective logistic solutions are another decisive factor for suc- cessful store operation. Toward this end Axfood is proceeding with the roll-out of Autoorder, the automated ordering system, in all Group-owned stores. In addition, a voice-picking system is set to be implemented at dagab and Närlivs to improve the quality of store deliveries.
further, through continued coordination of the product range and
PRIVATE LABELS
Axfood’s goal is to increase the private label share from 20% today to 25% by 2010.
Attaining the next level of development of the Group’s private label offering will require continued product development and in some cases more innovative products.
GROWTH
Strategic objective
Axfood will grow its market shares with the goal of being the num- ber two food retailer in the Swedish market by 2012 at the latest.
Growth of the Group’s market shares in Sweden will be promoted through investment in concept development designed to gener- ate greater organic growth as well as through new store establish- ment, acquisitions and deliveries to external customers. Sales strat- egies are being further developed to ensure restocking levels in stores, strategic pricing, customer- and store-segmented product ranges and by introducing a sales competition for store employees and other sales associates. In addition, a new work model will be adopted and implemented to achieve more integrated sales activity within the Group. This new model will define the various roles and responsibilities primarily between the purchasing department and the business-conducting chains.
The IT environment is being standardized and consolidated. for example, to provide support to the above-mentioned sales strategies, a new, integrated business system that features better traceability through all processes will be implemented.
New sales channels, such as e-commerce and web portals, are being evaluated. A project has therefore been initiated to develop an e-commerce platform.
CUSTOMERS
Strategic objective
Customer focus will permeate the way of working throughout the Group.
The customer is the heart of Axfood’s business. The Company will strive to meet and exceed customers’ expectations on service and quality toward the goal of having satisfied, loyal and profitable cus- tomers.
To ensure that every concept rests on an attractive customer offering, new product range and price strategies are being devised for the Group’s respective retail concepts. Axfood will strive to pro- vide a product range that meets customer demands on health and well-being. Customers will encounter an inspiring and broad prod- uct offering at competitive prices. Initiatives surrounding customer loyalty cards will be further developed to better capitalize on, ana- lyze and address the shopping patterns and greater customer loyal- ty that these bring. Loyalty cards will also be used to offer attractive bonuses and special offers to customers.
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
Strategic objective
Axfood will be an active driver of work on sustainable development in order to become the best in the industry.
Sustainability issues will be driven from a holistic perspective in all aspects of the business. This will help create the right customer offerings and thereby contribute to favourable business opportu- nities. An overall environmental programme is being developed to establish a shared view and clear communication internally and externally. This programme will describe goals, strategies, actions and follow-up of the Group’s environmental work. In addition, focus is being sharpened on social audits of suppliers to ensure that the terms of contracts have been met and compliance with the Group’s code of conduct. for the individual product categories, policies are being drawn up to promote a shared view on these matters and as support in both internal and external dialogues.
EMPLOYEES AND ORGANIZATION
Strategic objective
Axfood wants proud and engaged employees who embrace the Group’s core values in a collaborative and cost-conscious organi- zation.
Axfood will continue the work that has been started with the Group’s core values in an effort to further build upon the shared foundation of values within the Group. Through knowledge-sharing, training and dialogue, the core values are being put into practice.
To ensure the right employee competence and profile, a recruit- ment training programme will be conducted for managers. Career paths within the Group are being more clearly delineated, and sup- port is being given to competence succession. To further promote leadership, the Company will use employee surveys to measure and evaluate perceptions of leadership, pride and the commitment of all leaders.
The Company will have simple, straightforward processes that support effective decisions and their execution. Cost-consciousness will permeate the entire organization. Having a cost-effective orga- nization will improve the Group’s ability to compete with prices and improve customer satisfaction. Axfood puts a premium on employees who are willing, able and empowered to generate tan- gible results together with co-workers and customers.
MISSIoN, GoALS ANd STRATEGIES
STRATEGIC OBJECTIVES STRATEGIES
Axfood will be the most profitable company in the Swedish retail food market.
Profitability
• Improve growth and earnings for Hemköp
• Increase the private label share to 25% by 2010
• Further develop chain and store operations
• Strive for the best purchasing prices in the market
• Implement effective logistics solutions
• Cost control in all areas
Axfood will grow its market shares with the goal of being the number two food retailer in the Swedish market by 2012 at the latest.
Growth
• More clearly position and develop the Group’s various concepts
• Increase sales in all parts of the Group
• Supply more to external customers
• Evaluate new sales channels, such as e-commerce and web portals
• Be active in establishing and acquiring new stores
• Establish a modern and stable IT environment
Customer focus will permeate Axfood’s way of working toward the goal of having more customers who are satisfied and loyal.
Customers
• Strengthen and develop the distinguishing features of the respective concepts in an effort to meet customers’ needs
• Offer an attractive product range and special offers
• Build customer loyalty through greater focus on loyalty cards
Axfood will be an active driver of work with sustain- able development in order to become the best in the industry.
Environment and social responsibility
• Increase awareness of environmental impact and social responsibility with respect to energy, transports and products
• Maintain good control of social and environmental responsibility among suppliers
Axfood wants proud and engaged employees while promoting a collaborative and efficient organization.
Employees and organization
• Develop managers’ competence regarding recruitment
• Ensure succession plans for store managers
• Clearly delineate career paths for employees within the Group
• Build and establish a dynamic, shared foundation of values based on Axfood’s core values
MISSIoN, GoALS ANd STRATEGIES
• Sales growth targets have not been reached, but the pace of improvement measures has increased
• Positive reception of the Garant Ekologiska brand of organic prod- ucts in all store concepts
• Non-food product line accounts for 2.4% of total
• Autoorder successfully imple- mented across the Willys chain
ACTIVITIES 2008 OUTCOME ACTIVITIES 2009 FINANCIAL TARGETS
Axfood’s goal is to have an operating margin of 4%.
Axfood’s goal is to maintain a minimum equity ratio of 25%.
Axfood’s goal is to pay a share- holder dividend corresponding to at least 50% of profit after tax.
• Continued high pace of activity in Hemköp’s action programme
• Further develop private label strategy
• Evaluation of non-food product strategy
• Increase focus on quality monitoring
• Further develop purchasing strategy
• Continued launch of Autoorder
• Continued launch of voice picking system in warehouses
• Promote sales growth at Hemköp
• Further develop private label offering
• Introduce new non-food product line
• Implement Autoorder through- out the Willys chain
• A total of 15 stores have been adapted to the new concept (of which three newly established)
• During the year, Närlivs devel- oped its brands, expanded its product range, improved store operations and renewed several agreements
• PrisXtra is receiving deliveries from dagab and is successive- ly being incorporated into the Group’s routines and processes
• Seven stores established
• Continue to develop existing concepts
• Update sales strategies
• Implement new work model for sales activities
• Introduce internal sales competitions
• New supplier agreement with Vi Retailers Association
• Evaluate new sales channels, such as e-commerce and web portals
• Preparations prior to implementation of new business system
• Establish new stores
• Further develop Willys’ concept
• Strengthen Närlivs’ position
• Integrate PrisXtra
• Establish new stores
• Willys increased its product offering by approximately 1,000 items – mainly fresh foods – and expanded its opening hours to be more competitive
• In addition to the launch of the Garant Ekologiska brand of organic products, 65 items were added to the private label offering
• Hemköp’s new customer loy- alty card, which was launched in 2007, achieved the goal of having 200,000 cardholders in 2008
• Follow-up customer satisfaction and loyalty
• Devise new product range strategy
• Refine price strategy
• Implement new campaign strategy
• Increase focus on loyalty cards with- in the Group
• Expand product range at Willys and establish more generous opening hours
• Sharpen focus on fresh foods, organic products and locally produced products
• Continue launch of Hemköp’s loyalty card
• New Head of Environmental Affairs appointed
• New fish policy introduced
• New travel policy established
• Launch of Garant Ekologiska brand
• Implement an overarching environ- mental programme
• Increase focus on social audits
• Continue work with sustainable development
• 3,340 employees participated in the e-learning programme
• The core value process contin- ued, with approximately 4,700 employees taking part during the year
• Continue e-learning activities
• Recruitment training for managers
• Measure leadership
• Evaluate compensation system
• Continue roll-out of core values
• Invest in employees through competence development and well-being programmes
• Establish support for core value process
0 1 2 3 4 5
04 05 06 07 08
0 1 2 3 4 5
3.9 3.7 3.9 3.8
3.4 Target 4%
0 10 20 30 40 50
04 05 06 07 08 0
10 20 30 40 50
38.3 38.9 39.8
32.6 30.7 Target 25%
0 30 60 90 120 150
04 05 06 07 08
0 30 60 90 120 150
73
120 123
81 57 Target 50%
MISSIoN, GoALS ANd STRATEGIES
Group operating margin, %
Equity ratio, %
Dividend as % of profit
A growing private label share is making a significant contribution to the Group’s profitability target. The goal is for private label products to account for 25% of total sales by 2010.
Profitability
PRIVATE LABELS
Successful launch of own organic brand
Having a high share of private label products is a key part of Axfood’s strategic goal of being the most profitable company in the Swedish retail food market. In 2008 Axfood’s private label offer was expanded through the launch of the Garant Ekologiska brand of organic products.
Axfood has the highest private label share in the Swedish retail food market. The goal is to increase this share to 25% by 2010, com- pared with approximately 21% today.
At Hemköp, private label products accounted for 14.6% of sales in 2008. At Willys, own brands accounted for 23.4% of total sales, while for Willys hemma the private label share was 27.1%. In all, a total of 129 new items were added to the Group’s established private label product offering.
Axfood’s private labels consist primarily of the Willys and Hem- köp house brands. The Willys and Hemköp brands are positioned to maintain the same standard of quality as the market-leading product in their respective categories, at a price that is 10%–15%
lower. In addition to these are the Group-wide Eldorado discount food brand, func (batteries, light bulbs, etc.) and fixa (kitchen sup- plies). during the year, Axfood’s private labels were also introduced at Prisxtra, which began selling Eldorado and Garant Ekologiska products.
GARANT MEETING HIGHER DEMAND
To increase its private label share, Axfood is conducting continuous product development along with the addition of new and innova- tive products. one such endeavour that was initiated in 2008 was the launch of the new Garant Ekologiska brand of organic products.
This new, Group-wide label is designed to meet the steadily grow- ing demand for organic foods and is also in line with Axfood’s strat- egy to raise the bar in its own environmental work.
The roll-out of Garant Ekologiska began in autumn 2008, and by year-end the brand included 64 products, including 12 in the fruit and vegetable department. The aim is to gradually add new items to the product line.
The criteria for a product to be able to be marketed under the Garant Ekologisksa brand is that its ingredients – apart from meet- ing basic standards under food laws – also meet the requirements for KRAV (the Swedish organic labelling association) or EU certifica- tion. The product must also maintain a high level of quality with respect to taste in order to compete with the market leader in its area, but at a price that is 10%–15% lower. Another important cri- teria is high transparency regarding the product’s origin and pro- ducer. More information can be found on the Garant Ekologiska website: www.garant-eko.se.
A line of fair trade products is also being developed and will be launched in 2009 under the Aware label.
Complementing with profiled premium products and value-added products.
Customer benefit = Unique products for creating a unique offering that is directly coupled to the chains’ own brands.
Mid-range products – quality that is comparable to the market leader in the respective categories, such as Willys and Hemköp.
Customer benefit = Quality products at a lower price that are directly coupled to the chain’s own brands.
Discount products – with a brand coupling, such as Eldorado.
Customer benefit = Low price coupled to a brand that is unique for the chain.
Discount products – generic.
Customer benefit = Simple low prices.
PRIVATE LABEL STAIRCASE, DEVELOPMENT STAGES
xxxxxxxxxxxxxxxxx
one way of generating growth is to develop and clarify the Group’s various concepts. The next generation of Willys is a vital step in that direction.
Growth
MARKET ANd TRENdS
Trends hard to predict in a challenging economy
The composite shopping behaviour of consumers today is strengthening and continues to present a major challenge to retailers. The trend of wanting premium products, discount items and convenience all at once continues. At the same time, demand for climate- and environmentally friendly yet wholesome food is a strongly emerging trend that is here to stay, even though it softened slightly due to the current economic situation.
The economy quickly lost steam toward the end of 2008 as pessi- mism grew among both households and businesses. At the same time, inflationary pressure continued into the autumn, and as late as early September Sweden’s central bank raised its repo rate, citing inflationary pressures caused by rising energy and food prices, among other things. However, the accelerating financial cri- sis marked the start of a series of interest rate cuts by Riksbanken at the end of the year. Added to this was a weakening of the Swed- ish krona during the autumn.
The increase in food prices levelled off during the third quarter.
on a full-year basis, prices rose 6.0% (4.8%), according to the SCB consumer price index for food and non-alcoholic beverages. for Axfood, this period of rising raw material prices entailed a strong focus on the raw material markets, and in recent years the Com- pany has built up a base of internal know-how in order to strength- en its position in price negotiations with suppliers.
Retail food sales rose 5.7% in current prices compared with a year earlier. Measured by volume and taking into account the num- ber of business days (calendar effect), retail food sales fell by -0.6%.
TRENDS THAT AFFECT THE RETAIL FOOD TRADE
The composite behaviour of consumers today is being strength- ened by several different consumption patterns at play within one and the same individual. The tendency to want both premium and discount products remains, even though an economic slow- down may lead to certain restraint. Consumers also want to be able to shop conveniently – either close to home or by shopping at a hypermarket, where the convenience lies in the ability to meet most needs at a single location.
Moving forward, four salient trends have been identified which are increasingly affecting consumption patterns:
■
Challenging economy
■
The climate and environment
■
Health and well-being
■
Convenience
Challenging economy
It is difficult to predict exactly how the effects of the weaker eco- nomy will play out. As household budgets come under increasing strain, people will most likely cut back on their grocery shopping and give preference to cheaper products, which will affect the value of their total purchase. However, this may lead to higher sales of pri- vate label products, which would have a favourable impact on prof- itability. Sales of certain premium products may also rise as peo- ple refrain eating at restaurants in favour of cooking at home. The recession is also benefiting discounters, where Willys has a leading position in the market. At the same time, this could force more tra- ditional grocers to adjust their prices downward and increase com- petition for customers.
The climate and environment
Awareness of climate and environmental issues has become an estab- lished megatrend in the Western world, i.e., a trend that is steadily growing and that is likely here to stay for some time. Climate change resulting from carbon dioxide emissions has put the spotlight on energy consumption and transports, and this trend is driving greener consumption and conservation of raw materials and resources.
In addition, a growing number of consumers have their eye out for products that are made in a natural, environmentally adapted and ethical manner. This has accelerated growth for organic prod- ucts. Interest is also rising for locally produced products. This pic- ture is confirmed by a number of consumer surveys that were car- ried out during the year.
Health and well-being
Interest in the role that food plays for health and well-being is another emerging trend. Consumers are becoming increasingly knowledgeable about the connection between food, exercise and health. Moreover, many people associate sound eating habits with organic products. But while many want to eat healthier foods, they don’t want to spend more time cooking. Instead, interest is rising for products that are both healthy and easy to prepare.
Convenience
Today’s consumers appreciate products that save them time in the kitchen, and demand is rising for ready-made and prepared food.
However, consumers distinguish between how they prefer their
lunches and dinners. Whereas heating a ready-made lunch in the
microwave is no problem, many would rather prepare at least part
of their dinner themselves. This can be seen in higher demand for
semi-prepared meals with components that people can put together
themselves. More such products – both for everyday meals as well
as more festive occasions – can be expected in store refrigerators
MARKET ANd TRENdS
A CHALLENGE FOR RETAILERS
These complex trends in consumer behaviour continue to present a lot of challenges to food retailers.
The growing demand for organic products will require product development in the industry at the same time that retailers are limited by a shortage of organic ingredients. finding suitable local suppliers who can meet the growing demand for locally produced foods is also a challenge.
There are also problems surrounding the various standards of labelling for organic, fair trade and locally produced foods, which are complicating consumers’ choices in their everyday shopping.
Establishing a climate label specifically for Sweden has proven to be more complicated than originally expected and means that it will take some time before an effective label is in place.
New media channels are growing in importance, and retailers are now searching for other ways to reach and interact with con- sumers, especially digitally. Gaining the right exposure on websites and establishing a dialogue with consumers are growing increas- ingly important.
The Swedish market
The fierce competition with continued price pressure and market sat- uration remains. However, openings of new stores and hypermarkets slowed somewhat compared with 2006 and 2007. This slowdown is expected to continue during the weakening economic climate.
The rate of growth varies between the various segments, and it is the discount segment along with hypermarkets that are judged to have the best prospects of maintaining or strengthening their position in the current, challenging market climate.
International industry trends
In both the USA and the UK, it is clear that consumers are mak- ing cuts in their grocery budgets and that price is becoming more important. The discount segment as well as private labels are ben- efiting from this trend. Several chains have plans to expand their private label offerings and develop additional, attractively priced offers. The trend among American chains is to slow down the pace of store openings and test smaller formats in response to rising costs and lower sales growth.
Hard Discount 5% Discount 13% Hypermarkets 17% Traditional
grocers 47% Service stations/
mini-markets 18%
1,100–1,800 items 7,500+ items 12,000+ items 10,000–15,000 items 1,000–3,000 items
Price index –
1)Price index 88–95 Price index 93–97 Price index 96–110 Price index 104–130 Level of service 2–3 Service level 3–5 Service level 7–8 Service level 6–10 Service level 3–5 Residential and external Residential and external External City centres, residential Traffic- or residential
oriented Netto
Lidl
PrisXtra Willys Willys hemma City Gross
Ica Maxi Coop Forum
Hemköp Vi stores Coop Konsum Coop Extra Ica Supermarket Ica Kvantum
Tempo Handlar’n Ica Nära 7-Eleven Service stations Coop Nära
Source/interpretation: Axfood. Some data are estimates in cases where statistics were not available for 2008.
SEGMENTATION IN SWEDEN
Previously the Swedish retail food market was relatively homogenous, with comparable offerings and comparable prices in stores. The entrance of discount and hard-discount chains has changed this picture, and today the market’s players have more clearly profiled their positions and strategies in the various segments. Although traditional grocery stores still account for nearly half of sales in the industry, growth is taking place in the hypermarket and discount segments.
Market share/trend Based on a total market in 2008 of approx. SEK 203 bn incl. VAT. Trend pertains to overall development for the profiles in the segment along with a number of generic stores.
Price index Based on results from Axfood’s price surveys of Sweden’s main store concepts.
Responsiveness to customers’ needs, an attractive product range and offering, and knowledgeable and engaged store staff lead to satisfied and loyal customers.
Customers
HEMKÖP
focus on increased sales
Hemköp’s ambition is to offer its customers a broad selection of high-value products and to provide inspiring food choices with a high level of service. Hemköp aims to provide a wide range of choices while sharing its continuously developing knowledge about food and health in an effort to exceed the customers’ expectations.
Hemköp’s stores, which range in size from 400 to 4,000 square metres of retail space, are centrally located in city centres and residential areas. At year- end the Hemköp chain comprised a total of 169 stores, of which 80 were Group-owned. Hemköp stores carry approximately 10,000–12,000 items.
ACTIVITIES DURING THE YEAR
Hemköp posted weak performance in 2008 com- pared with the industry as a whole. The conditions for attaining a positive operating margin for the full year deteriorated significantly as a result of the eco- nomic downturn. In response, Hemköp stepped up the pace of the ongoing action programme for under- performing stores. This generated tangible effects during the fourth quarter, when a positive operating result was achieved.
Priority has been given to cost control, a new price and product-range strategy, better control over shrinkage and gross profit, and continued focus on quality monitoring of store operations. Parallel with this, a review of staffing was conducted nationwide to ensure that staff density is greatest during times when customer numbers in stores are highest. As a result of these changes, working hours correspond- ing to 24 full-time positions were eliminated.
This work also resulted in changes in Hemköp’s organization. A new management team was installed, areas of responsibility were more clearly delineated, and ten positions were eliminated from the support office.
The launch of Hemköp’s loyalty card, which began in 2007, has been a continued success. The goal of having 200,000 cards in issue during the course of 2008 was reached by November, and at year-end there were 217,000 registered cardholders.
FUTURE CHALLENGES
Hemköp’s overarching challenge is to increase sales and improve gross profit in order to secure profitable growth in a challenging economic climate. As house- holds come under increasing economic strain, they are likely to become more price sensitive and will be drawn to cheaper products. To address this, Hemköp has plans to develop additional attractively priced offers and will increase its private label offering at the same time that it continues to offer customers a wide range of products and high service.
one important long-term measure in Hemköp’s work on pricing and the product range will be to build on perceptions that Hemköp has competitive prices compared with competitors in the same segment.
Hemköp has long been challenged by general market saturation in its segment. It is possible that competitive pressure will soften somewhat due to a slower pace of store openings in the currently weak economic climate.
PRIORITIES 2009
The pace of activity in the action programme that was initiated in 2008 to boost sales and earnings will remain high, as much work remains to be done.
focus in 2009 will continue to be on gaining bet- ter control over gross profit and fine-tuning the price and product range strategy. Parallel with this, contin- ued quality monitoring will be performed to ensure that the stores meet customers’ expectations.
Continuous review of the store structure will be conducted with the goal of maintaining the level of total sales.
Increasing customer loyalty and customer sat- isfaction through attractive offers and good service also has top priority. The goal is to increase the num- ber of Hemköp loyalty cardholders by 50% during the year, to 300,000.
Business concept Hemköp develops Sweden’s best food stores. We pro- mote the well-being of our customers by helping them find healthy foods.
Vision
Hemköp promotes passion for food in Sweden.
Customer structure due to the location of Hem- köp’s stores, in cities and residential areas, our cus- tomers shop more fre- quently and for lower aver- age amounts. Hemköp customers are looking for inspiring foods and com- petitive prices all at the same time. They are attracted to Hemköp’s broad product selection and accent on fresh prod- ucts, health and personal service.
The future
focus in the years ahead will be on growing sales and improving gross mar- gins. Clarifying what the brand represents, and implementing the product- range and price strategies are also priority areas, as is building further upon Hem- köp’s health profile.
The year in figures Hemköp’s store sales rose 2.4% to SEK 9,514 m (9,295), including propri- etor-operated stores. An operating loss of SEK -8 m (53) was posted, with an operating margin of -0.1%
(0.9%).
Key ratios
Amounts in SEK m unless otherwise indicated
2008 2007 Store sales incl. proprietor-run stores 9,514 9,295
Net sales 5,640 5,674
Like-for-like change in sales, (%) -3.0 -0.9
operating profit -8 53
operating margin, (%) -0.1 0.9
Number of Group-owned stores 80 79
Average number of employees during the year 1,705 1,740
Private label share 14.6 14.0
Sales and operating margin
Sales, SEK m operating
margin, %
“The launch of Hemköp’s customer loyalty card, which began in 2007, has met continued success. The goal of having 200,000 cards in issue during the course of 2008 was reached by November, and at year-end there were 217,000 registered cardholders.”
6,167 6,198 5,829 5,674 5,640
04 05 06 07 08
1.7
0.5 1.4
0.9 -0.1
WILLYS
Next generation of Willys launched
Willys is Sweden’s leading discount chain, with 140 wholly owned stores, of which 31 are Willys hemma. Willys stores can be found nationwide in shopping centres and other locations just out- side city centres. A few also have central loca- tions. Willys stores range in size from 1,100 to 4,700 square metres of retail space, while Willys hemma stores range from 300 to 1,200 square metres. Willys stores carry approximately 9,000 items.
ACTIVITIES DURING THE YEAR
Sales as well as earnings developed very favour- ably during the year, among other things as a result of effective store operations, an expanded product offering and improved communication with custom- ers. Customer numbers rose steadily. four new Willys stores were established during the year, while two Willys hemma stores were closed.
The introduction of the next generation of Willys was begun in 2008. This took place through the estab- lishment of three new stores – in Uppsala (Gränby), Staffanstorp, and Älvsjö (Stockholm Trade fairs) – as well as through conversion of existing stores. At year- end a total of 15 next-generation Willys stored had been unveiled, and conversions will continue in the years ahead.
The next generation of Willys stores entails a modernization of the entire customer offering, with a strong accent on fresh products and an expansion of the product range by 1,000 new items. The stores are also acquiring an external facelift along with a more modern layout at the same time that Willys’
hallmark – Sweden’s cheapest bag of groceries – is being retained.
In cooperation with dagab, Willys has implement- ed Autoorder, an automated store restocking system.
The system has been put into operation at all Willys and Willys hemma stores. Autoorder advantages include a more efficient product flow and better- suited deliveries, since the system signals the need to restock products. for customers this translates to more amply filled store shelves and a lower risk that the products they are looking for are out of stock.
lanes result in a smoother flow in stores and shorter checkout queues. They also have ergonomic benefits for store employees. Self-service solutions have been implemented at some 15 stores.
during the year, work on instilling Axfood’s core values among all employees was carried out across a broad front. This is a long-term undertaking and will be a dynamic process in the years ahead.
A large number of employees have also com- pleted Axfood’s new training programme, which includes pointers on how to create a better shopping experience. The programme has been used for new- employee orientation as well as for refresher training for existing employees in fresh products – which are a vital attraction in new-generation stores.
Willys hemma, which was integrated into the Willys chain in 2007, is making a positive contribu- tion to Willys’ earnings. The integration of these stores has also opened up new career paths for employees through the opportunity for job rotation between the two store formats.
Thomas Evertsson took office as President of Willys on 1 September.
FUTURE CHALLENGES
Willys works in a fiercely competitive market. The chal- lenge is to continue generating profitable growth while strengthening the chain’s position as Sweden’s lead- ing discounter among a growing base of loyal custom- ers. The continued roll-out of the next generation of Willys along with further efficiency improvement mea- sures are a strong response to this challenge.
PRIORITIES 2009
The overarching priority is to continue improv- ing sales and profitability, primarily through organ- ic growth. This will be done with the help of a large number of activities – above all the continued con- version of stores to the new generation of Willys.
Efficiency improvement measures continue, such as through the implementation of Autoorder. Willys will also be changing over entirely to centrally pack- aged meat.
The year will also be characterized by continued focus on improving customers’ shopping experience.
Business concept Willys aims to lead and develop the discount retail food segment by offering
“Sweden’s cheapest bag of groceries” and giving its customers an inspiring shopping experience.
Customer structure Willys is the food store for price-conscious shoppers.
With a wide selection and rich offering of fresh prod- ucts, Willys seeks to meet its customers’ main grocery needs plus a little more.
Large families with children are Willys’ priority cus- tomer category.
The future
Willys’ major changeover to a new, modern store con- cept – the next generation of Willys – will be carried out at all stores in the years ahead.
The year in figures
Sales amounted to SEK
16,776 m (15,382), an
increase of 9.1%. operating
profit was SEK 730 m
(666), with an operating
margin of 4.4% (4.3%).
“Willys’ sales and earnings developed very favourably in 2008.
The next generation of Willys was introduced at a total of 15 stores, including three that were newly established.”
Key ratios
Amounts in SEK m unless otherwise indicated
2008 2007
Net sales 16,776 15,382
Like-for-like sales growth (%) 7.3 1.7
operating profit 730 666
operating margin (%) 4.4 4.3
Number of Group-owned stores 140 138
Average number of employees during the year 3,077 2,886 Private label share (Willys/Willys hemma) 23.4/27.1 23.1/26.5 Sales and operating margin
04 05 06 07 08
13,073 13,926 15,115 15,382 16,776
4.0 3.6 3.7 4.3 4.4
Sales, SEK m operating
margin, %
PRISxTRA
A third store concept in Axfood’s portfolio
PrisXtra is a successful grocery chain in the Stockholm market comprising six stores plus an online store, NetXtra. Its business concept is to provide the most fulfilling and trend-inspiring grocery shopping experience to Stockholm shoppers, at the lowest price.
Prisxtra’s concept involves positioning itself as a dis- count store with a gourmet touch. Its stores, which range in size from 1,100 to 3,500 square metres of retail space, are located in central Stockholm and near- lying suburbs. The stores carry approximately 12,000 items. The basic product range consists of brand- name goods combined with discount items and a distinctive offering of premium products. The pre- mium product offering addresses a preference for gourmet items and allows Prisxtra to compete with the city’s gourmet food markets. Netxtra provides an online sales service to private and commercial cus- tomers in Stockholm.
ACTIVITIES DURING THE YEAR
Axfood’s acquisition of the family-owned Prisxtra gro- cery store chain was completed in late January, and the company was consolidated in the Axfood Group as from february.
development proceeding according to plan dur- ing the year, and intensive work was carried out to integrate Prisxtra into the Axfood Group. This per- tained above all to IT systems, control and manage- ment systems, and purchasing. The goal is that the conversion plan for IT systems, which covers such areas as payment flows, time reporting, checkout systems and loyalty cards, will be fully implemented before summer 2009.
Previously, many aspects of the business were handled locally by each individual store. To improve efficiency and profitability, a review has been con- ducted of Prisxtra’s organization as well as its rou- tines and product range. This has resulted in the implementation of a uniform pricing model in all stores. A new, coordinated media and marketing plan has also been created that is centrally controlled.
Activities have also been initiated to integrate Pris- xtra with dagab’s supply chain. In addition, Axfood’s own Eldorado and Garant Ekologiska brands have been introduced into the product range. At the same time, Prisxtra will retain its distinctive character and concept of offering leading brands at low prices and of positioning itself as a balance between gourmet market and discount chain.
A new store – Prisxtra’s sixth – was opened at fridhemsplan in october, and has performed well since the start.
FUTURE CHALLENGES
Prisxtra’s future challenge is to stay a step ahead of the competition and to expand at a pace that allows continued good profitability.
PRIORITIES 2009
focus in 2009 will continue to be on integration with the Axfood Group. In time this will also include imple- mentation of the Autoorder automatic ordering sys- tem.
Sales at two stores continue to be hurt by traffic re-routing and road construction in connection with the construction of the Norra länken traffic connec- tor. A number of campaigns have been scheduled to boost customer flows to these stores. The store loca- tions are strategically favourable for the future, as a considerable amount of housing is planned in their vicinity. Activities have also been planned for Pris- xtra loyalty cardholders in an effort to boost cus- tomer loyalty.
Measures will also be conducted to include Pris- xtra in Group-wide employee activities, such as the work with Axfood’s core values, leadership develop- ment and training.
Business concept Prisxtra strives to provide the most fulfilling and trend-inspiring grocery shopping experience to Stockholm shoppers, at the lowest price.
Customer structure Prisxtra caters to a broad spectrum of urban custom- ers who are price-conscious yet also have their eye on premium products.
The future
Prisxtra’s goal is to expand to ten stores in the Stock- holm area by 2011.
The year in figures
Sales amounted to SEK
653 m. operating profit
was SEK 9 m, and the oper-
ating margin was 1.4%.
“PrisXtra, which was acquired at the end of January, had its focus primarily on integration with the Axfood Group. A new store was opened in October.”
Key ratios
Amounts in SEK m unless indicated otherwise
