10 things we learned from ICA's Q2 results

Harriet Cohen
Senior Retail Analyst
@RetailAnalysis

Date : 20 August 2020

10 things we learned from ICA’s Q2 results

ICA has reported its Q2 results, with net sales increasing by 4.6% to SEK 31,924m (€3.1bn).

We round up the highlights including growth in hypermarkets, larger supermarkets and online, as well as consider the impact of Coronavirus (COVID-19) on KPIs and trends. We also review performance in the Baltics and in the pharmacy business, in addition to a key sustainability achievement.

Source: IGD Research

1. Sweden: high share of small and medium sized stores negatively impacted performance versus the market

In Sweden, net sales increased by 7.4% to SEK 23,496m (€2.3bn), versus the market at +8.1% (according to the Food Retail Index [DVI]).

ICA attributed performance to wholesale growth and price effects (+3.5%). However it acknowledged performance lagging the market due to ‘the relatively high share of small and medium-sized stores in ICA's store network…while larger stores have experienced higher growth'.

2. Hypermarkets deliver 11.8% growth to €1.1bn

Although all formats reported both net sales growth and like-for-like growth, ICA’s 87 hypermarkets, which account for a third of its sales in Sweden saw the strongest performance. Net sales increased by 11.8% to SEK 10,983m (€1.1bn), while like-for-like sales increased by 10.1%.

3. ICA Kvantum supermarkets with a larger range including free-from, healthy, organic and local outperform ICA supermarkets

ICA operates two supermarket banners, ICA Supermarket and ICA Kvantum.

The ICA Supermarket banner, which accounts for a slightly smaller share of sales than hypermarkets, saw Q2 net sales increase by 2.8% to SEK 9,591m (€929.4m), lagging the total market at 8.1% (according to the Food Retail Index [DVI]).

By comparison, the ICA Kvantum supermarket banner saw net sales increase by 8.2% to SEK 8,160m (€790.8m). These stores offer a larger range than standard ICA supermarkets and over-index on ‘alternatives for allergy sufferers, healthy and organic choices, and local products’.

During this period, sales per store at ICA Kvantum were nearly three times that of ICA supermarkets  (€6.1m versus €2.2m).

4. COVID-19 impact on key metrics: average basket and number of items purchased: ↑, visits and promotional share:↓, private label: ↑

On the impact of the Coronavirus (COVID-19) pandemic, a press release from the retailer stated ‘Sales growth during the quarter continued to be affected by the Covid-19 pandemic and was driven exclusively by a sharply higher average spend and a higher number of items purchased per customer visit at the same time that customer visits were fewer. The share of promotional sales was lower during the entire quarter than a year ago, but slightly higher towards the end of the period’.

Private label share of sales continued to grow, accounting for 27.2% of sales in the first half of 2020, an increase of 1.3%.

5. COVID-19 trends: eating in has benefited ICA, although stores in shopping centres or near Norway and Finland have been negatively impacted

The press release continued, ‘The sales increase, which during the quarter was mainly driven by the fact that customers are eating more food at home, has been favourable for the ICA system on a net basis, but the differences between individual stores are considerable. Stores located near Norway and Finland as well as in shopping centres have in many cases experienced sharp drops in sales. The eating-at-home effect will likely continue for some time’.

6. Online share of sales >doubled to 6.4%, lasting shift expected

During Q2, ICA reported online growth of 148% to SEK 1,420m (€137.6m), versus the market at 114% (according to the Food Retail Index [DVI]).

  • Online share of sales in stores actively promoting online reached 6.4%, versus 3.1% in the same period last year.
  • Around 65% of orders are fulfilled via click and collect, with this dropping to 35% in metropolitan areas
  • The number of ICA Sweden stores offering an online grocery service increased by 16% to 339 stores. Although this is only 27% of the ICA Sweden store estate, it allows the retailer to reach nearly 80% of the population through online grocery
  • ICA has also accelerated the rollout of the ICA Pronto rapid delivery app to around 100 stores

Going forwards, ICA expects there to be a ‘significant and lasting shift to e-commerce'. The retailer’s online reach and capacity will be extended further, with a new e-commerce warehouse opening in Gothenburg in spring 2021. The Ocado platform will also be implemented the same year, with a ‘new customer fulfilment centre in Stockholm to be finalised 2022’.

7. Estonia & Latvia lag market growth, Lithuania virtually flat but ahead of the market

In the Baltics, Rimi Baltic’s store sales declined by 0.8%, with comparable sales down by 3.6%.

Negative comparable sales were largely driven by Estonia and Latvia, with comparable sales in Estonia down by 10.1%, while the market increased by 3.3%. In Latvia, comparable sales declined by 2.1%, while the market increased by 5.3%.

In Lithuania, comparable sales were virtually flat at +0.2%, while the market decreased by 0.6%. However, inflation was a key growth driver in the market at 3.0% in Q2.

8. COVID-19 impact: Lithuania and Estonia online grocery launches brought forward, now live in all Baltic markets

As of April 2020, online grocery has been available in all three Baltic countries, offering home delivery in metropolitan areas and over 20 click & collect points.

The launches in Lithuania and Estonia were brought forward, amidst increased demand during the Coronavirus (COVID-19) pandemic. Although ‘the share of total sales is low [it] contributed to some extent – especially in Latvia – to buttressing sales during the quarantine period’. This is especially important, given Latvia is ICA’s largest market in the Baltics, accounting for over half of ICA's Baltic sales in the first half of 2020.

9. Pharmacy sales down ‘due to significant hoarding reversal’, although online grew by 104%

At Apotek Hjärtat, ICA’s pharmacy division, there was a ‘sales drop due to significant hoarding reversal’ versus Q1. Apotek Hjärtat’s store sales declined by 3.1%, with prescriptions and over the counter declining by 3.5% and 12.5% respectively, although traded goods increased by 5.1%.

The bright spot was online, with online sales at Apotek Hjärtat increasing by 104%, versus the wider market at 69%.

10. ICA will be climate neutral by the end of 2020

As part of its Q2 results, ICA has provided a detailed sustainability update. The Company will be climate neutral by the end of this year.

ICA has decreased its emissions by 71% since 2006. This has been driven by introducing more environmentally friendly fridges in-store and switching to renewable electricity at Rimi Baltic.

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