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Klas Balkow: "Through continued growth in customer traffic and increased volumes, we maintained a very high growth rate"

Klas Balkow: "Through continued growth in customer traffic and increased volumes, we maintained a very high growth rate"

In a market characterised by a lower inflation rate and focus on price value, Axfood delivered very high growth with stable profitability in the second quarter and continued to strengthen its position in all market segments. Growth was mainly driven by Willys, but Hemköp also outperformed the market. Axfood also took several major and important steps in the area of sustainability during the quarter and continued to maintain a high pace of development in terms of laying the foundation for the logistics platform of the future.

The high rate of inflation slowed significantly during the second quarter, with food prices in certain categories falling slightly. We believe and hope that the inflation rate will continue to decline, but there is a great deal of uncertainty and many factors that can have an impact, such as the uncertain geopolitical situation, the impact of climate change on this year’s harvests and the very weak Swedish krona.

The quarter was characterised by an ongoing strong focus on price value and an increased level of activity in the market. Swedish consumers have largely continued to look for low prices and purchase campaign products, and it is clear that there is now a much greater awareness of price value.

Willys continues to deliver exceptional growth

In this market, Axfood is maintaining its momentum with a retail sales growth rate of 17% in the second quarter, compared with 9% for the market. Through increased customer traffic and higher volumes, we maintained a very high growth rate despite a significant decline in inflation. It is clear that with our different concepts, we hold a strong position in a market where price value has become increasingly important.

Willys continued its exceptional progress and, despite high comparison figures, grew a full 20%. Willys’ ambition to offer Sweden’s cheapest bag of groceries through cost efficiencies in operations has attracted new customers for many years. Over the past year, the growth rate of new members in the Willys Plus loyalty program has accelerated, doubling in recent quarters. Willys is Sweden’s most recommended grocery chain, with high customer loyalty and an excellent platform to build on to further strengthen its position in the long term.

Hemköp also demonstrated good growth during the quarter, which was not only higher than the growth rate of the other players in the traditional grocery segment, but also higher than the market’s growth overall. Hemköp has a competitive offering with a strong focus on price value and inspiration, and maintains a high pace in store modernisations. Hemköp is also continuing to strengthen its sustainability position and has had the highest
share of organic food sales in the industry in recent years.

Snabbgross also had a strong quarter, gaining market share in a somewhat more cautious market. It is gratifying to see that Snabbgross is continuing to develop and has now for the first time exceeded SEK 5 billion in annualised sales.

Stable profitability and strong finances

The significant growth in customer traffic and high growth rate strengthened Axfood’s operating profit, despite high campaign activity in the market and the fact that we have not fully passed on supplier price increases to consumers. Profit for the quarter was also impacted by operational cost increases, such as higher rent and salary costs. In all, we report an operating margin in line with the prior year.

Transition to new automated logistics centre

We are currently undergoing a transformation of our logistics operations during which large volumes will be moved to the newly established, highly automated logistics centre in Bålsta outside Stockholm. The Group’s new logistics structure offers a number of long-term benefits, such as increased capacity and efficiency, for both our own operations and external customers.

During the second quarter, we gradually moved volumes of the dry assortment to stores in the Mälardalen region. However, certain disruptions in the ramp up and operational adjustment of the facility, and new ways of working, led to lower delivery reliability to some stores, which I will be the first to apologise for. After making some adjustments, we now have a much more stable operation in Bålsta and can take several important learnings with us as we continue to scale up. To maintain a high level of stability and provide greater flexibility, we have chosen to extend the current time plan by six months until summer 2024. The extension will have a limited impact on costs for the transition. Our forecast that efficiency improvements and cost savings will be realised starting in the second half of 2024 is not affected by the adjusted time plan.

Strong focus on the green transition

We have an ambitious and broad sustainability agenda and took important steps in a number of areas during the quarter. We have initiated several major investments in solar power facilities in a short period of time. In addition to taking Sweden’s largest roof-mounted solar panel facility into operation at the new logistics centre in Bålsta and a large solar panel facility at the new fruit and vegetable warehouse in Landskrona, we have now received permission to build Sweden’s largest onshore solar park in Hallstavik, north of Stockholm, which will be operational within a year. With these initiatives, we are continuing to reduce our climate impact and also promoting an increase in the amount of renewable electricity in the market.

We are continuously developing our assortment of sustainable and healthy food. Part of this work involves expanding the range of products with a lower climate impact, and as an example of new innovative products, we carried out the large-scale launch of an affordable mince made from equal parts beef and vegetables during the quarter, together with Generation Pep. A smart and healthy option for those who want to eat a healthier diet and significantly reduce their carbon footprint in a simple way.

Attractive positions and looking ahead

We continue to maintain a high pace of development in all areas of Axfood, and a number of large, Group-wide projects are currently under way to further strengthen our long-term competitiveness. In logistics, we are developing a data-driven and efficient flow of goods, and a highly automated logistics platform. In the customer meeting, we invest in strengthening loyalty, establishing a record number of stores, modernising existing stores and introducing relevant and intuitive digital solutions. With a strong financial position, we are able to adopt a long-term approach and make the investments needed to strengthen our position in the market.

We aim to continue to challenge and develop our Group to create an even stronger offering of affordable, good and sustainable food for all our customers.

Klas Balkow
President and CEO, Axfood AB