Axfood merges units to bring down prices

Related tags Stores Cent Spar Profit

In one of the EU's most expensive food retail markets, Sweden's
Axfood group is to merge its supermarket and convenience store
businesses in a bid to cut costs and lower its prices - vital if it
is to see the same level of success from these units as from its
two main discount fascias.

The 200 or so stores currently trading under the Hemköp, Spar and Billhälls fascias will now be united under the Hemköp banner, giving Axfood around 22 per cent of the Swedish 'traditional store' market with sales of SK10 billion a year.

Synergy gains from the merger are estimated to amount to SK60-80 million over the next three years.

"Combining the three brands under a single brand name will give us better opportunities for growth and development,"​ said Mats Jansson, president and CEO of Axfood. "We see clear co-ordination benefits that can be gained with respect to revenues and expenses. The new Hemköp will have a considerably stronger foundation to stand on, with twice as many stores."

Hemköp, Axfood's traditional supermarket format, had a mixed first quarter, with strong volume gains (5.2 per cent on a like-for-like basis) helped by a new marketing programme (based on direct mailing of customers each week) leading to a 1.6 per cent increase in revenues to SK1.5 billion.

But operating profits at the chain - which consists of 86 stores and 12 bakeries - dropped sharply from SK19 million to SK7 million as a result of costs related to store closures.

Axfood has already begun a major restructuring at Hemköp, with staff reductions alone expected to generate SK40 million in savings this year. A number of outlets have been remodeled, with positive results (sales increases of 5-15 per cent), and several more will be refurbished in the second and third quarters of the current year.

The Spar business in Sweden has also been underperforming in recent months, with operating profits dropping from SK13 million to SK8 million in the first quarter and same store sales edging just 0.9 per cent higher during the same period.

Bolstering the Hemköp chain through the merger with the Spar operations in Sweden should allow the chain to accelerate its return to profitability, not least because the majority of the Spar business is franchised - i.e. there will be no additional personnel costs for the company.

"We see the fact that half of the stores will be run by private merchants as a strength. It is an excellent way to combine the benefits of chain operation with entrepreneurial drive," said Jansson.

The conversion of the Spar stores to the Hemköp fascia will commence in October 2004 and is expected to be completed by the end of 2005. The cost of switching banners is likely to be around SK30 million.

While the majority of the new business unit will operate in Spar's traditional convenience store sector, there will also be a number of larger stores included in the operation, in particular those currently operated by the Gothenburg-based Billhälls. These stores will be given their own format ad identity - although they will still trade under the Hemköp name. They will also have their own distinct marketing and product portfolios.

The merger will also mean the loss of around 30 jobs through the combination of the Hemköp and Spar head offices.

Carl-Erik Möller, president of the new chain, said that the economies of scale created by the merger of the businesses would allow the chain to become much more competitive. "Due to the new chain's size, we will be able to offer attractive prices as well as the best foods - in terms of quality as well as new trends."

Axfood's most successful operations in Sweden are its Willys and Willys hemma business, both of which are discount stores, and the importance of low pricing is clear from the much stronger performances posted by these two units in the first quarter.

Willys posted a 14.1 per cent increase in revenues in the first quarter to SK2.8 billion, while operating profit rose from SK87 million to SK93 million. Willys hemma, the hard discount format, showed more modest gains, with sales ahead 5.7 per cent to SK331 million, but continued to suffer from high overheads which kept it SK 2 million in the red at the operating level (albeit with a SK3 million improvement compared to the previous year).

Axfood is continuing to expanding its discount format, introducing a new Super Willys format this month which will operate from much larger stores and include a wide range of non-food products such as textiles, toys and electronic goods.

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