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Spain-based Mercadona is to invest €120m in automated systems at its four new distribution centres (DC) in the country.

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Spain-based Mercadona said it grew sales by 6% in 2018, generating €24.305bn in the year. Profits rose by 84% to €593m, which came despite the retailer investing €1.5bn in its network and operations.

Mercadona said it had invested €962m in store openings and renovations, €257m in the automation of its logistics platform, €225m in its digital transformation and €60m in its expansion into Portugal. Commenting on the results, Mercadona’s president, Juan Roig, said: “Mercadona is doing very well and this year will be even better”.

Investment in stores continues to pay off

Roig said the focus on the customer and improvements to its store estate were helping Mercadona to win. Given the success of its efficient store concept, with 400 updated during 2018, Mercadona will continue to roll out the design until 2023. During the timeframe the retailer will invest €10.0bn in its store network to improve and digitise them. In 2019 this will also see the opening of a further 60 stores, the closure of 100 more and the relocation of 400.

The investment is aimed at helping support Mercadona’s target of growing sales by 3.7% to €25.2bn in 2019. The retailer said it would invest €2.3bn in the year ahead, while its net profit was forecast to fall by 27% to €435m.

Expansion of ‘Ready to Eat’ sections

Following a successful launch and roll out, Mercadona will add its ready to eat ranges at 250 supermarkets. The range, which is made up of 35 dishes, has been rolled out to 17 stores in Valencia, Madrid and Barcelona. Mercadona has invested €5.0m in the range to date. Roig said the step was necessary as ‘the food of the 20th century will not exist in the middle of the 21st century’. The retailer is actively looking for suppliers to support the range’s expansion as it does not have the scale to meet expected demand.

While online investment will be sustained

Following investment in the channel, Mercadona said it generated a monthly turnover of €2.2m online, an increase of 120%. Despite the growth in sales, Roig admitted the retailer ‘does not make a profit [from the channel]’.

The service, which is available in 134 postal codes in the province of Valencia, has seen the volume of orders double since its launch and expansion. Roig said in 2019 The retailer will launch a new model for grocery ecommerce in Barcelona, while this will be added in Madrid at the end of the year or in early 2020. After that the system will be extended to Zaragoza, Alicante, La Coruña, Bilbao, Murcia, Seville, Las Palmas and Palma de Mallorca.

Regional expansion is next on the list

Starting in 2019, Mercadona will begin to expand outside Spain. The first of 10 stores will be opened in Portugal, in Porto initially, and expanded to Lisbon later. Mercadona has already acquired sites for a further 10 stores and is aiming to operate around 150 in the next seven or eight years.

Without giving a timeframe, Roig said the retailer was interested in expanding into Italy. In both cases, Portugal and Italy, the retailer ruled out buying any local chains to quicken the pace of expansion.

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Companies in Spain pledge to making food healthier, DIA makes more leadership changes, and Makro accelerates the digitalisation of the HoReCa industry in Spain.

Reducing sugar, saturated fats and salt

The minister of health, consumption and social welfare, Maria Luisa Carcedo, has signed agreements with 20 associations that represent 398 food and drinks companies to reduce the average amount of sugar, saturated fats, and salt in products by 10% by 2020. The plan covers 13 food groups including: soft drinks, ready meals and breakfast cereals. 

The strategy fits into the government’s strategy of nutrition, physical activity and prevention of obesity. Spain has one of the highest obesity rates in Europe with 37% of adults overweight and 17%. The figures are worse for children with 40% overweight and 18% obese. The agreements are a step towards preventing obesity and countering inequalities in health, with the government keen to use a collaborative approach between the public and private sector.

According to Europa Press, leading retailers and manufacturers like Mercadona, Consum, Kellog’s, Coca Cola, Pepsico and Bimbo are involved. Businesses will need to reformlate their products and make the first move to gain a competitive advantage.

Further changes to personnel at DIA

The group has created a new executive committee of seven members, headed by CEO Borja de la Cierva. With these most recent changes DIA aims to make its offer more appealing to customers, simplify processes and drive efficiencies.

Makro driving digital transformation

InfoRetail reports that Makro has driven the digital transformation of 12,000 bars and restaurants in Spain during 2018. Its initiatives fit into Metro AG’s international plan to digitalise the hospitality industry, and bring it on par with other industries like travel. To support the sector, Makro will launch a digital platform service to aid companies with their digital transformation.

The first electric lorry is tested in Spain

According to International Supermarket News Lidl and Mercadona have been chosen to test Man's heavy duty 26-ton electric truck. Germany-based Man Truck & Bus will run distribution tests in Madrid, the first location chosen outside Austria. The initiative is expected to be rolled out in 2025. The truck currently takes over four hours to charge, and it is hoped by 2025 the time will have reduced. Man Truck and Bus partnered with SPAR Austria last year and has been testing its electric truck there since September 2018. 

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Spain-based Mercadona is to evolve its supplier strategy for its private label products, Expansión reports. It will move from an exclusive contracting model initiated 20 years ago, to a “proveedor total” (total supplier) model.

The current model, and how it will be adapted

Mercadona’s current supplier model is comprised of two parts: integrated suppliers, and specialists. The 120 integrated suppliers are closely linked to the retailer and supply a group of products within a category, or even a category of products. Given the long-term contract, breaking it requires a three-year unhooking period. Whilst it is a secure relationship for the supplier, they often have little opportunity for independent business initiatives, due to exclusivity with Mercadona.

The model was expanded three years ago to incorporate specialist providers, hired for a small number of products, specially developed for Mercadona. Currently there are around 1,300 specialists according to Expansión. With the total provider model, Mercadona will unify all of it suppliers under one label, and contract suppliers on a product-by-product basis. Moving forward, when Mercadona wants to introduce a new product, it will choose the supplier that can offer the best quality and price, rather than choosing a supplier that produces similar products. In addition to reinforcing its low-cost strategy, Mercadona aims to become more agile with this strategic shift.

Hacendado (left), Deliplus, Bosque Verde and Compy (right) are Mercadona’s private label ranges affected. Source: IGD Research, Mercadona

Best quality, lowest cost

Mercadona has always favoured a model which passes on low prices to customers at the highest quality; the total provider model sees it further invest in price. The discount format is performing well in Spain, and investment in prices will help Mercadona to remain competitive and maintain its market share. For other national retailers in the Spanish market, pressure to lower prices and remain competitive may increase.

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Presentations

03/05/2019

An essential summary of trading priorities, latest developments, and other key commercial insights for Mercadona.

16/10/2018
We review Spain's grocery market leader Mercadona's outlook for the next five years. We look at its strategic initiatives, including its efficient store model, investment in grocery ecommerce and its future growth opportunities.
05/07/2018
We visited Madrid to discover latest retailer initiatives, explore new and innovative concepts. See our pick of the best stores that show how retailers in the city – from national chains to local champions – are evolving their stores to meet shoppers’ desire to buy little and often.
View all presentations

We review Mercadona's outlook for the next five years, including its strategic initiatives and future growth opportunities. 

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