Macroview weekly news update - 22nd february 2016

Macroview Weekly News update Your window on the latest trends in Packaged Groceries

Stephen Hall

Friday 26th February

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• SuperValu outlines expansion plans after strong 2015 • Sainsbury’s given more time to finalise bid for Home Retail Group • Sysco to acquire Brakes Group for £2.2bn • Food and drink manufacturers set sights on growth and investment • John Lewis sales up 6.9% last week • Retail sales growth slows and set to ease further • Over half of online sales now made through mobile devices • Whole Foods Market UK delivers sales and profit growth • Consumer confidence slips in February • Better understanding of shoppers key to keeping products on supermarket

shelves

Weekly News Summary –22nd February 2016


SuperValu Outlines Expansion Plans After Strong 2015 SuperValu has revealed that it generated retail sales of €2.6bn in 2015, compared to €2.58bn the year before, underlining its position as Ireland’s largest grocery retailer with 25% market share. Building on this robust performance, the Musgrave-owned chain said it plans to invest €28m in the year ahead, opening five new stores to add to its current 221-strong chain. SuperValu said that its fresh food leadership strategy was a core driver of its performance last year with particularly good trading over the 12 week Christmas period when it outperformed the market with 4.3% growth. Martin Kelleher, Managing Director of SuperValu, said: “We are pleased to announce that we have achieved a new sales milestone in what is a highly competitive marketplace. The fact that we are the largest grocery retailer in Ireland clearly illustrates that we have the best offer in the market, with consumers responding to our commitment to fresh food leadership and opting for locally-sourced, quality Irish food and in-store expertise.” Kelleher pointed to the group’s support of the Irish food industry, sourcing from over 1,800 Irish suppliers – more than any other grocery retailer in the Irish market – equating to an economic contribution of €2.19bn. The group added that its success in 2015 was underpinned by its Good Food Karma campaign, which was designed to demonstrate the benefits of wholesome food and the importance of making time for food occasions. The campaign is said to have resonated strongly with consumers, helping to drive fresh food sales and enabling SuperValu to “grow its engagement with customers across all channels”. Online shopping was also a key sales driver for the retailer last year, growing by 32% for the last six months of the year with further strong grow predicted over the next twelve months. The chain’s online shopping active customer base grew by 23.6%, whilst its online Shopping App had 129% more downloads and visits to SuperValu’s website on mobile phones increased by 37%. Source: NamNews22nd February 2016


Sainsbury’s Given More Time To Finalise Bid For Home Retail Group Following the surprise rival offer for the Home Retail Group from Steinhoff International, Sainsbury’s has been given more time to finalise its bid. . Sainsbury’s was due to make its final takeover proposal today but after Steinhoff came forward with a higher offer on Friday, the supermarket sought an extension from the Takeover Panel. It now has until on 5pm on 18 March, the same date as Steinhoff, to either announce a firm offer or walk away from the deal. Steinhoff, a South African retail conglomerate that owns Harveys and Bensons for Beds in the UK as well as France-based furniture chain Conforama, has put forward an initial offer of 175p per share, valuing Home Retail at £1.42bn. This compares to Sainsbury’s offer made early this month which is worth 167p per share and values the owner of the Argos chain at around £1.35bn. Amid expectations of bidding war, Home Retail’s share price closed up nearly 13% yesterday at 173.5p. Analysts said they expected Sainsbury’s to at least match Steinhoff’s offer, although the supermarket group has always stressed that it will not overpay to secure a deal. Steinhoff is said to have significantly more financial muscle to pursue Home Retail which could force Sainsbury’s to abandon its plans. However, analysts believe that walking away would create its own problems. Bernstein analyst Bruno Monteyne said: "Sainsbury’s has effectively questioned the rationale of a standalone food retailer and it needed this extra non-food capability to strive. Pulling away from the deal would leave an important strategic question mark of how they plan to fill that gap." Source: NamNews23rd February 2016


Sysco To Acquire Brakes Group For £2.2bn Leading US foodservice distributor Sysco announced yesterday that it has reached an agreement to acquire the Brakes Group for around £2.2bn. . London-based Brakes, which operates as a foodservice business in the UK, Ireland, France, Sweden, Spain, Belgium and Luxembourg, is currently owned by Bain Capital Private Equity who bought the company in 2007. Sysco said the deal will expand its footprint in the UK and Ireland and further into Europe, positioning it for potential future expansion in these markets. Last year, the company dropped its 18-month long pursuit of smaller rival US Foods after the Federal Trade Commission blocked the $3.5bn deal. Brakes will operate as a standalone company within Sysco and continue to be led by Chief Executive Officer Ken McMeikan and his existing management team. In fiscal 2015, Brakes’ revenues grew 6.5% to £3.3bn ($5bn), whilst Sysco generated sales of more than $48bn. The deal is subject to customary regulatory review by European Union competition authorities but is expected to be completed before the end of Sysco’s fiscal year in July this year. Bill DeLaney, Sysco’s Chief Executive Officer, commented: “This transaction will unite Sysco with a leading foodservice distributor in Europe with demonstrated capability to sustainably grow its business over time. Beginning with a common customer-centric mindset, our companies are strategically aligned with compatible cultures and similar business models. We expect to retain key members of Brakes Group’s talented leadership team and to experience little distraction from integration given the minimal overlap of the businesses.” He added: “We have complete confidence that Ken’s team will achieve its planned business objectives. We expect to augment this growth by leveraging our combined scale to provide our customers with an even more competitive offering.” McMeikan commented: “It’s very exciting for Brakes Group to be joining the recognized worldwide leader in foodservice distribution. Last year we said we would look for the best strategic option for Brakes Group’s next stage of development. We are delighted to have now concluded this process by joining Sysco.” Brakes supplies an extensive range of fresh, refrigerated and frozen food products, as well as non-food products and supplies, to more than 50,000 foodservice customers including pubs, restaurants, hotels, hospitals, schools, and contract caterers. Its subsidiaries include Brakes, Brakes Catering Equipment, Brake France, Country Choice, Davigel, Freshfayre, M&J Seafood, Menigo Foodservice, Pauley’s, Wild Harvest and Woodward Foodservice. Meanwhile, Sysco operates 196 distribution facilities serving approximately 425,000 customers with operations in the US, Canada, Ireland, Northern Ireland and The Bahamas, as well as joint ventures in Mexico and Costa Rica. Additionally, Sysco International Food Group (IFG) provides services to a number of multi-national contract customers conducting business in many different countries. Source: NamNews23rd February 2016


Food And Drink Manufacturers Set Sights On Growth And Investment After decades of living in the shadows of more visible manufacturing sectors, the food and drink sector is stepping into the limelight thanks to rising business confidence, product innovation and investment in automation, according to a new report published by accountancy and business advisory firm BDO. BDO’s Food & Drink Report 2016, in association with the Institution of Mechanical Engineers, found that 79% of those surveyed are positive about the future of the industry, with 86% of firms expecting revenue growth of up to 20% in the next year. Pricing pressures, the volatility of raw materials costs and skills shortages are major challenges for manufacturers. However, through product innovation and investment, and with 70% of surveyed firms having arranged fixed price agreements with energy suppliers, the sector has become increasingly efficient and smart in dealing with market pressures. Nearly two thirds of firms surveyed said that new product development would be a major source of growth, with 60% and 43% saying access to new UK markets and export markets respectively will be increasingly important part of their growth strategies. Organic growth is the priority as, for a sector that is usually a vibrant source of mergers and acquisitions, only 15% expect growth to come from transactional activity. Automation has become an important issue on the boardroom agenda, with more than half of the food and drink firms questioned by BDO and the Institution saying they are increasing investment in this area. According to the report, some companies have been slow to adopt automation on production lines, due to the downtime and disruption it could cause in a busy factory. However, the realities of a modern business needing to compete on quality and cost, combined with the impact of the introduction of the National Living Wage on many manufacturers, is prompting more automation investment for the year ahead. Operating margins continue to be squeezed, according to 82% of companies, and pricing pressures remain the top challenge for food manufacturers and processers. Interestingly, attracting and retaining skilled labour was named the second biggest challenge, on a par with the volatility of raw materials. Nearly three quarters (70%) of those surveyed said they were experiencing difficulties in recruiting the skilled people they require, which has been historically blamed in part by engineers’ desire to work in more attractive sectors such as aerospace and automotive. Paul Davies, Head of Food & Drink manufacturing at BDO said: “Pressures on pricing and margins remain hugely challenging, but the overall sentiment of the sector is a positive one. It’s been a tough few years for food and drink companies, but it seems they are finally stepping out of the shadows and focusing on future growth. “We all know that the manufacturing sector plays a critical role in rebalancing our economy and driving long-term sustainable growth for the UK, yet little action is being taken to support the food and drink industry, the single largest manufacturing sector in the UK. “The proposed tax on sugar will have a huge impact on food and drink manufacturers and could set many firms back. We would urge the Chancellor support the sector in his Budget next month. Increasing the annual investment allowance to £5m for five years in support of automation investment and introducing a temporary reduction in Employers’ National insurance for manufacturers to recruit the talent they need, would be a great step in the right direction.” Dr Tim Fox, Chair of the Institution of Mechanical Engineers’ Food & Drink Engineering Committee said: “Food and drink manufacturing plays a hugely important role in the UK and it is encouraging that the manufacturers surveyed as part of this report are so optimistic about the sector’s future. “However, this report highlights the critical skills shortage the UK is facing. About 70% of the food and drink manufacturers surveyed said they were struggling to recruit people with the right skills. We need to encourage more people to pursue engineering careers and to champion the diverse and exciting career prospects for engineers and technicians working in food and drink manufacturing.”

Source: NamNews24th February 2016


John Lewis sales up 6.9% last week John Lewis has said the half term school holidays helped it achieve strong trading last week with sales up 6.9%. Sales in the home category rose by 7.8% as trade was boosted by good performances in 'big ticket' items. Furniture led the way with growth in both upholstery and beds. Electricals and home technology sales climbed by 11.1% driven by Microsoft products and television soundbars. Meanwhile, the fashion category posted a 1.9% increase, with beauty and menswear among the top performers. Mark Blundell, head of retail development at John Lewis, said: “In the week ahead, our shops and online channels continue to showcase the new spring and summer season assortments and with Mother's Day a week away, there are plenty of reasons to be positive.” Source: NamNews24th February 2016


Retail Sales Growth Slows And Set To Ease Further After a relatively good start to 2016, growth in the retail sector appears to have slowed in recent weeks with further weakness expected in the months ahead. . The CBI’s latest quarterly Distributive Trades Survey of 124 firms in the sector showed that retail sales growth slowed more than usual in the year to February. 38% of respondents to the survey reported that sales volumes were up on a year ago, while 28% said they were down, giving a balance of +10%, down from +16 in January. Meanwhile, the balance of retailers who expect sales volumes growth to dip next month stood at +2%, the lowest for almost three years (-6% in May 2013), with 25% expecting them to rise and 23% to fall. However, respondents also expect a decent improvement in business conditions (which considers recent trends in sales, orders and profitability) over the next three months. Average selling prices crept up for the first time in three quarters, easing pressure on retailing margins. And although recruitment growth slowed, it remained well above average rates with a similar rise expected next month. But retailers now plan to slightly scale back investment spending in the year ahead, following two quarters when firms expected to raise capital spending. Meanwhile, grocers’ expectations for growth for the month ahead fell to their weakest in nearly three years, as tough trading conditions continue to exert pressure on the sector. Rain Newton-Smith, CBI Director of Economics said: “Overall, conditions remain challenging for retailers. Although sales have continued to grow and optimism has risen, expectations for sales growth are lacklustre and retailers are still wary of investing. And unreformed business rates are making it tougher for retailers to open up new shops on the high street. “But retailers still stand to benefit from the low level of inflation and strong job creation across the economy, which should continue to support household spending.” Source: NamNews25th February 2016


Over half of online sales now made through mobile devices New figures have revealed that a major digital tipping point has been reached with the percentage of UK online retail sales made through mobile devices exceeding 50% for the first time. The data from the IMRG Capgemini Quarterly Benchmarking report shows that smartphones and tablets accounted for 51% of UK online retail sales in the three months to January 2016 which was a substantial increase on the 45% recorded in the previous quarter and up from the 40% reported in the same period a year earlier. IMRG and Capgemini said the leap in mobile penetration was driven by increased confidence in using smartphones for online shopping. Sales growth through the devices rose sharply in 2015, while growth through tablets reached a record low in December 2015. Tina Spooner, chief information officer at IMRG, said: “Smartphones have played an important role in the overall online shopping process for a long time – often used for research and comparison on the go – but over the past year they have really started to become a major component of the checkout process too and that is what is driving this leap in mobile penetration. In January sales via smartphones grew 95.6% year-on-year for example – over 7x the rate of those via tablets.” Sales via tablets accounted for 33% of sales while those by smartphone reached 18%. Sales through desktop computers or laptops accounted for 49% of sales. Visits to retail websites via mobile devices made up 66% of traffic in the three months, up from 63% in the previous quarter. This compares with 53% in the same period a year earlier. Richard Tremellen, retail insight and data specialist at Capgemini, said: “This is a very significant milestone in the history of the online retail sector and reflects the work retailers have put into improving the customer experience on smartphones. Not only have mobile platforms become more secure, but the payment process is also much slicker. The result is smartphone conversion rates that are 70-80% higher than this time last year.” Source: Retail Bulletin25th February 2016


Whole Foods Market UK delivers sales and profit growth Whole Foods Market has grown overall sales by 12.5% in 2015 and driven profit growth for the first time since its UK launch in 2007. Turnover increases behind 2014 benchmark Accounts submitted to Companies House by Fresh & Wild, the UK division of Texas based Whole Foods Market, show that UK turnover has grown by 12.5% to £114.1 million across the 52 weeks to 27th September 2015. This continues a succession of strong annual turnover growth for Whole Food Market, which has now seen sales more than double from £50.6 million in the year ending 25th September 2011 (+125%). Turnover growth of 12.5% is behind the 24.3% sales increase recorded in 2014; driven primarily by a lack of new store openings in Whole Foods Market's most recent financial year. 2014 on the other hand saw the addition of two new stores to grow the retailer's portfolio to nine outlets. LFL growth outpaces 2014 This year's growth has been driven by an 8.7% increase in like-for-like stores, alongside the full-year contribution of new space opened in 2014. Like-for-like growth in 2015 has outpaced that of 2014 (6.8%). Strong like-for-like growth is indicative of Whole Foods Market's continued focus on strong store execution and customer satisfaction, whilst also reflecting polarised UK shopping behaviour, which has seen specialist food retailers and soft discounters grow sales in recent years at teh expense of the Big Four supermarkets. Unlocking profit growth 2015 marks the first year that Whole Foods Market UK has reported a profit gain since its first outlet was opened in High Street Kensington in 2007. Gains within the 2015 financial period total £1.3 million; a dramatic improvement on the £7.5 million and £14.2 million losses recorded in 2014 and 2013 respectively. The retailer's profitability has been driven by a £3.1 million (6.4%) reduction in its administrative expenses, alongside its £12.7 million (8.7%) turnover growth, with Whole Foods Market crediting labour efficiencies throughout the organisation. Gross profit as a percentage of turnover has also increased by 46 basis points to 4.1% which reflects improved shrink.

Source: IGD 25th February 2016


Consumer confidence slips in February

UK consumer confidence has slipped in February as consumers worry about the prospects for the general economy. GfK’s long-running Consumer Confidence Index shows that the main headline index dropped four points to zero this month. While the index relating to the forecast for personal finances over the next 12 months decreased by one point to 8, the index measuring expectations for the general economic situation over the next 12 months fell by seven points to -12. Meanwhile, the climate for major purchase index declined by four points to 12. Joe Staton, head of market Dynamics at GfK, said: “While faith in our own personal financial situation continues to remain strong for the year ahead with just a one-point drop to +8 points, we are clearly worried about the general economic situation for the country. “Here, there have been sharp drops both for the view over the past year and the coming year. So, despite the positive impact of continued low interest rates and subdued inflation on our day-to-day household budgets, the feeble outlook for growth and a variety of economic uncertainties since the start of the year has depressed our New Year optimism.” Source: Retail Bulletin 26th February 2016


Better Understanding Of Shoppers Key To Keeping Products On Supermarket Shelves

A conference of food and drink manufacturers in London has been told that keeping products on shelf in supermarkets in 2016 depends on a better understanding of shoppers and how they behave, and then aligning these insights with pro-active range management. . Patrick Finlay, Director of Marketing & Strategy at category and shopper management specialist Bridgethorne, was addressing delegates at the Food & Drink Federation’s Staying On Shelf event in London yesterday. The event focused on the decisions by some retailers to delist added sugar drinks and the implications for British food and drink manufacturers. “Suppliers need to address the sugar issue through a shopper lens,” Finlay said, “because if we understand what shoppers think and how they behave it will help inform, firstly, what we should put on the shelf and importantly how to keep it there.” This, he continued, means ensuring that suppliers and retailers do what is right for both shoppers and consumers. Simplistically, he said, this means understanding how shopper decisions change according to when they are shopping, what they are purchasing and why, who for and for what occasion, because their choices will be different according to the answers to these questions. Finlay argued that, whilst we all recognise the importance of sugar in our diet, the answer may not be as simple as removing all sugary products from the shelves. It is a question of balance, he contended, and that whilst acknowledging that there is a responsibility to ensure we all eat a balanced and healthy diet, lurching to extremes in the process may not necessarily be the answer either. He cited research from the Bridgethorne Shopper Index, the company’s quarterly survey of shopper opinions, which showed that sugar content in food and drinks is the greatest concern for shoppers, being rated as more serious than fat content, additives, salt content and calories and that this is having an impact on buying behaviour. This concern appears to be driven primarily by health concerns (28.2% cited the fact that sugar caused health problems as their principal concern) and is possibly top of mind due to recent media coverage. “Shoppers do have an appetite for lower sugar products but this doesn’t mean that is all that they want,” Finlay told the conference. “They want variety. This might include more reduced sugar lines, a full range of sugar levels, more products with sweeteners or simply just the products they want to buy. 'In short they want a range that reflects their growing concerns but not a range that ignores all of their shopping and consumption needs.” This, Finlay continued, will require suppliers to devote more resource to organising the shoppers in their categories into manageable groups based upon common shopping behaviours and personal profiles and then to overlay this shopper intelligence with range data to ensure the correct balance and market coverage is achieved. “The danger for suppliers and manufacturers is that they hit the panic button now instead of using a more measured, informed and balanced approach,” Finlay added. Source: NamNews 26th February 2016

Macroview Weekly News update Your window on the latest trends in Packaged Groceries

Stephen Hall

Friday 26th February

Macroview weekly news update - 22nd february 2016

Food

Transcript of Macroview weekly news update - 22nd february 2016