RetailAnalysis
03 March 2017
Mercadona to invest for the future after FY 2016 results

Announcing its 2016 annual results, where it said gross sales rose 3.9% to €21.6 bn, Spain-based Mercadona has said that it will surrender profit in 2017 to enable it to invest for the future.

FY2016: volume sales rise quicker than value

Mercadona said that while gross sales rose 3.9%, volume sales rose 4.0%, underlining the company’s continued investment in prices. The retailer’s net profit rose 4% to €636m. It invested €685m in 2016 to open 50 new stores, taking its store base to 1,614, update a further 35, build a new distribution centre, a new data processing centre and on a plot of land in Valencia.

Underlining its support of the local economy, Mercadona said it had made purchases worth €16.06 bn in 2016 in Spain, a rise of 4% from 2015. The retailer said it worked with 126 inter-suppliers and more than 500 specialist suppliers. During 2016 Mercadona expanded its range with the addition of 350 products and 300 innovations, such as freshly squeezed orange juice, enhanced 350 products, enhanced its fresh assortment, lowered prices by 1%, in a market where inflation rose 1.6%, and improved services.

Net profit targeted to fall 69% in 2017

Mercadona said that it was expecting to generate a net profit of €200m in 2017, a 69% fall on 2016’s €636m. The retailer said that the expected fall in net profits was down to it wanting to consolidate its position in the market and invest strongly in rolling out its new store design.

Discussing the new look and feel, the company’s president, Juan Roig, said that the retailer was aiming to make the stores feel warmer. The new layout will also provide more space for fresh fruit and vegetables, dedicate more space to fish and make the beauty sections of the stores warmer too.

Mercadona said it would invest between €1.0 bn and €1.2 bn in 2017, with between €200m to €300m to be spent on opening 30 stores and updating a further 126. In 2018 it will update between 200 and 250 stores, while it was targeting 2022 or 2023 to have updated all its stores to the new design. The figure is a strong increase on the amount invested in 2016, when it spent €685m. Mercadona said it expected volume and value sales to rise 1.5% in 2017.

Entry into Portugal and online to receive more investment

As part of the results announcement, Roig said that Mercadona envisaged opening four stores in Portugal in 2019. He stressed that the retailer would look to be ‘Portuguese in Portugal… with a Portuguese assortment’ informed by feedback from local shoppers.

In relation to online, Roig said that the retailer was investigating new solutions for its online store. It is aiming to relaunch its online store in 2018 to grow the share of sales above 1% that it accounted for in 2016. He said that the company was looking to make its online store profitable, an aim that will be driven by Roig’s daughter, Juana Roig.

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