After an unprecedented year, two leading Swedish retailers, ICA and Axfood have released their 2020 annual reports, while ICA recently ran a virtual Capital Markets Day event.
In this article, we reveal the channel trends driving this exceptional year in Sweden and report on the impact on retailer strategy. Next week, we’ll consider the shopper trends and retailer priorities for IGD Retail Analysis subscribers.
What trends defined 2020 in Sweden?
- Top line growth driven by COVID-19, especially from Q3 onwards – ICA reported that growth was beyond expectations with 2020 net sales increasing by 7.6%. Axfood delivered net sales growth of 5.8%
- COVID-19 drove improved margins – Both ICA and Axfood increased operating margins by 0.2%
- The pandemic increased average basket spend and the popularity of larger stores – ICA’s Q4 average basket grew by 13%; while hypermarkets were its fastest growing physical channel in 2020, with net sales increasing by 10.5%. Axfood’s large format, value-led, Willys chain delivered net sales growth of 9.5% in 2020
- Acceleration of online, with the channel shift expected to last - Despite Sweden taking a varied approach to lockdown to other Western European markets, the Swedish online food retail market saw exponential growth. The channel accounts for 5% of sales, with the shift expected to last. At Axfood, click & collect grew at three times the rate of home delivery in 2020
- Despite COVID-19, existing strategy remains – The role of e-commerce, sustainability and health and price value have become even more important. Personalization and meal solutions remain key priority areas too
1. Top line growth driven by COVID-19, especially from Q3 onwards…
‘COVID-19 has given the industry a sales uplift beyond our expectation’ - Anders Svensson, ICA Sweden CEO, ICA Capital Markets Day 2020
The Swedish market leader reported that its 2020 net sales increased by 7.6% to SEK 91.7bn (€9.1bn), with estimated COVID-19 impacts of +3.7%. In Q4, the COVID-19 impact was higher, at +4.6%, likely due to the new restrictions placed on society in Sweden Q3.
At Axfood, net sales increased by 5.8% to SEK 50.7bn (€5.0bn) in 2020.
2. …COVID-19 drove improved margins too
Both retailers delivered improved profitability in 2020, driven in part by the impact of COVID-19.
ICA Sweden saw its operating margin increase by 0.2% to 4.6%. Meanwhile, Axfood’s operating margin increased by 0.2% to 4.7%, with this partly attribued to strong like-for-like performance at its Willys value-focused chain.
3. The pandemic increased average basket spend and the popularity of larger stores…
ICA advised that its Q4 performance in particular was affected by the COVID-19 pandemic. Shoppers visited less frequently, although they spent more, with average basket rising by 13%.
Categories that performed well included ‘dry goods, fruit & vegetables, frozen products and meat’.
Although all formats reported growth, the strongest performance was seen in hypermarkets, where net sales increased by 10.5% to SEK 42.1bn (€4.2bn) and like-for-like sales increased by 9.3%.
While other European countries have seen hypermarket channel share become increasingly challenged, driven by the growth of online, discount and convenience; ICA's hypermarkets have accounted for around 30% of its grocery sales in the last five years. Despite this success, ICA has partnered with retail innovation design agency Blink and ROL Fredbergs to ensure its hypermarkets are relevant to a new generation of customers.
Watch this video to see ICA's latest thinking in its fastest growing physical channel:
At the ICA Capital Markets Day event, Svensson further noted that ICA’s market share was negatively impacted in the first half of 2020 by consumer preferences for larger stores, while ICA over-indexes on medium and smaller sized stores. He also acknowledged that ICA hadn’t opened stores at the same pace as the competition.
At Axfood, growth continued to be driven by the Willys value-led chain, with sales increasing by 9.5% to SEK 31.9bn (€3.2bn). Like-for-like sales grew by 7.9%. Axfood attributed Willys performance to ‘its positioning and compelling discount concept’. Higher average basket spend was another key contributing factor.
4. … And accelerated online too
In 2020, IGD published exclusive research on how the pandemic will change grocery retail. This featured 10 hypotheses to provide a framework for business planning. One key driver of change that we identified was an elevated shift to online grocery.
Despite Sweden taking a varied approach to COVID-19 lockdown to other European countries, this IGD hypothesis was accurate, with the Swedish online food market seeing exponential growth. The country has leapfrogged its expected online grocery development by many years, with the online channel now accounting for 5% of food sales, according to HUI Research.
ICA Sweden achieved online grocery net sales of SEK 5.0bn (€494.9m) in 2020, an increase of 117% versus last year.
Source: ICA, DVI (Dagligvaruindex) by HUI, on behalf of the Swedish Food Retailers Federation
In its annual report, ICA stated that ecommerce accounted for 30% of store sales growth during 2020, rising to 45% in Q4. At its Capital Markets Day event, ICA Sverige CEO Anders Svensson said that growth could have been even higher, were it not for capacity constraints.
In 2019, online as a total share of store sales was 1.6% but in the rolling 12-month period to November 2020, this grew to 3.4%. Online accounted for 6.3% of sales for stores offering an online service in 2020, with the service available in an additional 72 stores. In some weeks, the share was as high as 8-9%.
Exclusive IGD research published in October 2020 highlighted that we expect the consumer shift to online grocery amidst the COVID-19 pandemic to last, although this may vary by market. Anders Bärlund, Chief Strategy Officer, speaking at the ICA Capital Markets Day event echoed this, describing how when ICA surveyed its new shoppers to online, the majority of responders said that they’re going to stay with the channel and almost half said that this will be their main channel going forwards.
Chief Digital Officer, Jan Prokopec also added how internally, ICA adapted in an agile way to support vulnerable groups during the pandemic.
For instance, The ICAx innovation hub launched the ICA Pronto rapid delivery app in late 2019. When the pandemic hit, stores that didn’t have an online platform struggled to support the vulnerable. In just 12 days, ICA onboarded 150 new stores to the ICA Pronto platform to support vulnerable customers. Many of these stores have since started offering ICA's full online service.
For more insight on how retailers have helped communities cope during the pandemic, IGD Retail Analysis subscribers can access this exclusive presentation, ‘Coronavirus (COVID-19): stores at the heart of the community’.
Meanwhile, at Axfood, online growth in 2020 has largely been driven by click and collect. This now accounts for 52% of online orders, with the remaining 48% being delivered to home. Click and collect has grown three times as fast as home delivery over the course of 2020.
Source: Axfood, HUI Research
5. Despite COVID-19, existing strategy remains
At its Capital Markets Day event, ICA Sverige CEO Anders Svensson described how the COVID-19 pandemic has led the Company to review its existing priorities to ensure that they are still relevant.
Having done so, these priorities remain the same, although the role of some areas has been accelerated, especially e-commerce, sustainability & health and price value.
Want to learn about the impact on shoppers? Next week, we’ll consider changing shopper trends in Sweden and consider the outlook for ICA and Axfood, exclusively for Retail Analysis wubscribers
For more IGD insight on Sweden, click here.