Axfood Annual report 2010

1. Axfood 2010
A N N U A L R E P o R T A N d S U S TA I N A B I L I T Y R E P o R T
7.2%
higher operating profit
5.8%
sales growth There are1,000
and more details that drive quality
ANNUAL REPORT 2010

2. Contents
BUSINESS REVIEW SUSTAINABILITY REPORT 70 Statement of financial position,
Group
Axfood at a glance 30 Corporate responsibility at Axfood 72 Statement of cash flows, Group
Highlights 2010 32 Environment 73 Statement of changes in equity,
1 CEO’s message 36 Customers Group
4 Attention to detail 39 Suppliers 73 Comments on statement of cash
flows and statement of changes in
6 Axfood’s strategy 40 Society
equity
10 Private labels 41 Employees
74 Income statement and balance sheet,
13 Market and trends Parent Company
16 Group overview 75 Cash flow statement and share-
18 Willys FINANCIAL SECTION holders’ equity, Parent Company
20 Hemköp 76 Notes
22 PrisXtra 46 Administration report 99 Proposed disposition of the
24 Axfood Närlivs 50 Risks and risk management Company’s profit
26 Dagab 56 Corporate governance 100 Audit report
64 Board of Directors 102 Several-year overview
66 Executive Committee 104 Axfood share data 2010
68 Statement of comprehensive 106 Annual General Meeting
income, Group 106 Financial information and Investor
69 Comments on the statement Relations
of comprehensive income and 107 Definitions and glossary
statement of financial position 108 GRI table
Axfood is a Swedish company governed by Swedish
law. All monetary amounts stated herein are in
Swedish kronor. Millions of kronor are abbreviated as
SEK m, billions as SEK bn and thousands as KSEK.
Figures in parentheses pertain to 2009, unless stated
otherwise. Market and competitive data are Axfood’s
own estimates, unless reference is made to a specific
source. These estimations are based on the best and
most recent data available from published sources in
the public sector, the consumer goods industry and
competitors.
Axfood reports in conformity with the
Global Reporting Initiative (GRI) guide-
lines for sustainability work and applies
level B in its report for 2010.
CEO’s message Axfood’s strong Strong financial position Sustainability Axfood’s goals and strate-
performance continues, and in 2010 we and dividend Our profitable gies rest on the conviction that care for the
delivered record earnings. Through great performance has once again created environment, social responsibility, a strong
commitment in all areas, an aggressive the conditions to pay a dividend to our customer orientation, and proud and com-
pace of store establishment and good shareholders. The Board of Directors has mitted employees are vital driving forces in
cost control, we succeeded in strength- proposed a dividend of SEK 12 per share. the Company’s value creation. It is for these
ening our profitability as well as our This would entail a payout of 73% of reasons that Axfood aspires to conduct its
sales growth. our earnings after tax while enabling the work on sustainable development, so that the
Company to maintain its financial strength. Company will be the best in the business.

3. Axfood at a glance
Axfood conducts food retail and ■ Axfood is listed on Nasdaq OMX ■ The management teams of the indi-
wholesale trade in Sweden. Retail business Stockholm AB’s Large Cap list. vidual chains are responsible for store
is conducted through the wholly owned operations, marketing, and product
■ Axel Johnson AB is the principal owner
Willys , Hemköp and PrisXtra chains. range and pricing strategies.
with approximately 46% of the shares.
■ The Group owns 230 stores. In addition, ■ The individual store managers/proprie-
■ Axfood has an approximate 20% share
Axfood collaborates with a large number tors interact with their customers on a
of the food retail market in Sweden.
of proprietor-run stores that are tied daily basis and have day-to-day respon-
to Axfood through agreements. These Organization sibility for ensuring that their stores
include stores within the Hemköp and ■ Axfood’s organization is characterized are appealing and well-stocked, and for
Willys chains as well as stores run under by few decision-making levels and treating customers in a professional
the Handlar’n and Tempo trademarks. strong focus on low administrative manner in accordance with the profile of
■ In all, Axfood collaborates with approxi- costs. At the central level the Group their respective chains.
mately 840 proprietor-run stores. achieves economies of scale in such
functions as purchasing, private label
■ Wholesale business is conducted
products, logistics, IT, finance, human
through Dagab and Axfood Närlivs.
resources and business development.

4. Highlights 2010
NET SALES OPERATING PROFIT NUMBER OF EMPLOYEES
34,260 1,209 6,895 SEK m SEK m
+5.8% +7.2% +1.2%
1%
8% Willys 6% Willys
Willys Hemköp 14% Hemköp
12% 16%
Hemköp PrisXtra* PrisXtra
10% 47%
17% PrisXtra 9% Närlivs Närlivs
54%
Närlivs 64% 2%
Dagab Dagab
2% Dagab 3% 21%
14% Other Other
Other
* PrisXtra SEK -5 m

5. ‘‘ A good, healthy and enjoyable meal starts at the grocery store. We want
our customers’ visits to our stores to be an inspiring experience. The store
is our stage – and our performance for our customers is continuously evolv-
ing. Our employees are well rehearsed for the show. It’s a matter of always
taking that extra step. Of constantly caring and paying attention to the fine
details. Together they help make the difference that counts.” The store is
the stage – our own performance and our own EAN code.
ANDERS STRåLMAN, PRESIDENT AND CEO
Every detail is
important for quality
and profitability
T H E STO R E I S T H E STA G E
Axfood ANNUAL REPoRT 2010
1

6. CEo’S MESSAGE
CEO’s message
Record earnings
Axfood’s strong performance continues, Axfood Närlivs held its own against the com- Sustainable development
and in 2010 we delivered record petition and showed growth as well as higher Our sustainability work continued at an ever-
earnings. Through great commitment market shares. This strong performance can higher pace. It is our conviction that sustain-
in all areas, an aggressive pace of store be credited to new agreements and improved ability work and sound finances go hand in
store operations at Axfood Snabbgross. hand. In line with our ambitious sustaina-
establishment and good cost control,
Dagab posted a continued high level of bility programme, we have identified energy
we succeeded in strengthening our
delivery reliability – 97.2% – and very good consumption, transport and waste handling
profitability as well as our sales growth.
cost control, which is critical for Axfood’s as priority areas. Unfortunately, we fell short
success. The new collaboration with the Vi of our energy target for 2010 – to reduce our
I therefore want to extend my heartfelt grati- stores also developed well and contributed consumption by 4% per square metre – as
tude to all our employees for their dedica- to the favourable growth in volume. a result of a warm summer and cold winter.
tion and hard work in 2010. It is you who, in However, we did succeed in significantly
“
your day-to-day work, make the differences reducing our climate impact by switching
that count. I also want to thank all our cus- Every detail is important over to renewable and source-labelled elec-
tomers, who showed such confidence in us for quality and profitability” tricity. We also conducted a large number
during the year. of other activities. Among these, Willys
For PrisXtra, sales remained unsatisfactory. completed the ecolabelling of all its stores,
Favourable performance for Willys, Excluding restructuring costs of SEK 14 m, Dagab installed wind power plants at its
Hemköp, Axfood Närlivs and Dagab operating profit was SEK 9 m. These costs facilities, and Hemköp became the first in
Willys continued its profitable and stable were incurred in connection with the closure Sweden to introduce plastic grocery bags
development during the year and gained of the chain’s smallest store. made of renewable material.
market shares. This was a major accom-
plishment considering the high pace of store Weak volume development High share of private label sales
establishment and remodelling in the face for the food retail sector Over the years, having a high private label
of tough competition and dampened volume Despite the economic recovery during the share has proved to be a profitable and
growth in the food retail market. year, food retailing did not grow in pace with successful strategy for Axfood. Our goal
Hemköp posted a solid operating profit other retail sectors or the restaurant sector. is for private label products to account for
and favourable like-for-like sales growth. In Industry statistics show that consumers gave at least 25% of sales. At year-end we had
addition, the ambitious price-cutting cam- more priority to consumer durables and res- reached 22%. The trend remained positive
paign that was carried out during the first taurant visits while enduring high energy in 2010, though somewhat slower than
quarter and subsequent seasonal cam- costs through an exceptionally cold winter. planned, which is why we believe it will take
paigns attracted steadily higher customer another couple of years to attain our goal.
numbers every month.
Highlights 2010
■ 3 February 2010 Hemköp ■ 20 April 2010 Axfood presents ■ 2 July 2010 New ■ 20 October 2010 Axfood names Anne
appoints Ola Andersson as sustainability programme with cooperation agree- Rhenman Eklund as new Head of Corporate
new President. ambitious climate targets. ment between Communications.
■ 26 March 2010 Dagab ■ 11 May 2010 Axfood main Axfood Närlivs ■ 6 December 2010 All Willys stores bear the
appoints Anders Agerberg sponsor of Save the Children and Preem service “Good Environmental Choice” ecolabel.
as new President. Sweden. station chain.
■ 29 December 2010 Hemköp first in Sweden
■ 30 June 2010 Axfood Närlivs to offer plastic bags made of renewable
AB signs agreement to acquire material.
Reitan Servicehandel Sverige ■ 31 December 2010 In partnership with its
AB’s cold storage distribution customers, Axfood contributes more than
centre south of Stockholm. SEK 2 m to Save the Children.
Q1 Q2 Q3 Q4
2 Axfood ANNUAL REPoRT 2010

7. New salary agreement Ambitious pace of investment
In late spring the Swedish Trade Federation for profitable growth
and the Commercial Employees Union Our strategy proved to be fruitful in 2010. In
reached a new collective agreement for a 2011 Axfood will therefore continue to ensure
two-year period through spring 2012. The strong profitability and growth through a
agreement entails a cost increase of 3.55%– high pace of establishment, increased effi-
3.85% over the entire period. Axfood’s ciency and stringent cost control. We will also
combined payroll cost accounts for 11% of continue to focus on developing our con-
the Company’s total annual costs. cepts, stimulating sales and further develop-
ing and increasing our private label share.
Strong financial position and dividend To further strengthen our position and
Our profitable performance has once again offer customers a better shopping experi-
created the conditions to pay a dividend to our ence, we plan to establish 14 new stores
shareholders. Axfood’s policy is that the divi- and modernize approximately another 40.
dend should amount to at least 50% of profit Parallel with this, we are also continuing with
after tax. The Board has proposed a dividend the implementation of our new business
of SEK 12 per share. This would entail a payout system. Together these measures will result
of 73% of our earnings after tax while enabling in capital expenditures in the range of SEK
the Company to maintain its financial strength. 900–1,000 m (862) in 2011.
Axfood’s goal for 2011 is to achieve an
Favourable starting point for 2011 operating profit at least at the same level as
Indications are strong of growing optimism in 2010.
among households and that they will have In closing, I want to welcome even more
a relatively good year in terms of personal customers to our stores in 2011!
finances despite rising interest rates. At the
same time, we do not see any major changes Solna, 7 February 2011
in the market conditions – they continue to
be stable but are characterized as earlier by
tough competition and price-conscious cus-
tomers. Our judgement is that food inflation
will average 2%–3% in 2011. Raw material Anders Strålman
prices are initially expected to be high, but President and CEO, Axfood AB
the strength of the Swedish krona is having
a damping effect on price increases.
Key ratios
2010 2009 2008 2007 2006
Net sales 34,260 32,378 31,663 29,189 28,808
Operating profit 1,209 1,128 1,077 1,121 1,204
Operating margin, % 1) 3.5 3.5 3.4 3.8 3.9
Profit after financial items 1,172 1,082 1,011 1,086 1,183
Profit after tax 862 793 737 781 852
Earnings per share, SEK 16.42 15.13 14.05 14.88 16.03
Equity ratio, % 38.8 36.7 30.7 32.6 39.8
Ordinary dividend 12.00 2) 10.00 8.00 12.00 12.00
Average number of employees during the year 6,895 6,816 6,847 6,463 6,569
1)
For 2006 excluding compensation of SEK 89 m from the settlement with the Vi Retailers Association.
2)
Proposed by the Board of Directors.
Quarterly data can be found under “Investors” on Axfood’s website: www.axfood.se.
Axfood ANNUAL REPoRT 2010
3

8. ATTENTIoN To dETAIL
Attention to detail
Every little detail in the product supply process is important for Axfood’s success.
Hundreds of steps and decisions are taken along the way, from initial contact with
a supplier to the product ending up in the customer’s grocery cart.
CHOICE OF
SUPPLIERS PRICE LOGISTICS AND
NEGOTIATIONS, STOCK-KEEPING
PURCHASING
ATTENTION TO DETAIL BEGINS WITH PRODUCT SELECTION WORKING FOR OPTIMAL OPERATION
A Group-wide products and Although the choice of suppliers The logistics flow is central to Axfood’s
purchasing function makes is made centrally, Axfood is also profitability strategy, which is based on
Axfood a strong player. embracing locally produced food. efficiency at every level.
Being able to offer suppliers attractive The product offering is one of Axfood’s Dagab works continuously on improving its
volumes improves Axfood’s ability to most important cornerstones, where delivery reliability, quality, time-planning and
secure the lowest purchasing prices in local products can provide added value productivity. In 2010 Dagab achieved a
the market. In the end this benefits to the offering and value for money. delivery reliability rate of 97.2%, which is
consumers and contributes to the Local suppliers’ food production very high for the industry.
company’s profitability. facilities must be approved by their
respective municipalities.
4 Axfood ANNUAL REPoRT 2010

9. STORES,
CUSTOMERS,
GREAT FOOD
KEEPING THE CUSTOMERS’
GIVING CUSTOMERS OPTIONS CREATING AN INSPIRING SHOPPING EXPERIENCE
WELL-BEING IN MIND
Axfood’s customers must be able Demand is rising for value-for-money The store is the stage for our interaction
to trust that the food they buy is products with an environmental and with customers, who will be offered an
handled in a responsible manner. health profile, and Axfood’s offering inspiring shopping experience.
Axfood exercises strict quality control of of such products is growing. Willys, Hemköp and Snabbgross are all working
its product offering and internal control Enkla Vägen (“The Simple Path”) at on modernization and rejuvenation of their
programme, and of external inspections Axfood stores helps customers find prod- store concepts, with focus on such areas as
of stores and warehouses. More than ucts that bear one or more of the most customer service, sustainability profile, a wider
3,500 Axfood store employees have established labels for organic, environ- offering of fresh products and new store layout.
completed training in store operations mentally adapted and Fairtrade Certified
and knowledge about perishables. products.
Axfood ANNUAL REPoRT 2010
5

10. AXFOOD’S STRATEGY
Axfood’s strategy
for profitable growth
Mission and Strategies
objectives Customers
Vision
Through profitable growth and innovative think- Greater customer orientation will provide the best shopping experience.
ing, Axfood aspires to be the best food retail
company in the Nordic region. For Axfood, the customer always comes first. It is therefore crucial that all parts of
the Group work together to meet and exceed customers’ expectations regarding their
Mission shopping experience, the product offering, marketing and logistics.
Axfood’s business mission is to develop and run Providing an attractive product selection, prices and offerings enhances the
successful food retail concepts based on clear customers’ shopping experience. Axfood will therefore continue to ensure that its
and attractive customer offerings. respective concepts meet the customers’ preferences and needs. Parallel with this,
local and regional offerings will be improved to
Core values better meet varying tastes and preferences. In
Axfood’s core values represent a shared foun- 2011 the product offering will be rejuvenated in
dation of values and shared approach for the most important product categories.
employees in their daily work. The aim is to To better capitalize on and cater to cus-
strengthen cohesion and integration between tomers’ buying patterns and boost customer
the Company’s various parts while providing loyalty, loyalty card initiatives will be further
guidance to all employees: developed.
• The store is the stage • We are aware Axfood is also continuing to help conscious
• We dare • You are customers make wise choices through an envi-
• Together we are strong important ronmentally adapted and Fairtrade Certified
product offering.
Profitability
Axfood will be the most profitable company
in the Swedish food retail market.
Axfood has a target operating margin of 4%. Achieving this requires a relent-
less effort to boost profitability in all parts of the Group. Focus areas include
selling more at stores and a higher private label share, but also continued fine-
tuning of Axfood’s cost-effective organization.
Over the years, having a high private label share has proved to be a prof-
Objectives
itable and successful strategy. Axfood’s goal is for private label products
Axfood creates value for its shareholders and
to account for at least 25% of sales. At year-end 2010 this share was 22%.
other stakeholders by adhering to five strategic
The trend remains favourable, but is developing somewhat more slowly than
objectives and three financial targets. The strat-
planned, which is why we believe it will take another couple of years to reach
egy emanates from the customers’ experience
this target. Work will continue in 2011 on establishing Garant as a Group-wide
and is focused on profitable growth, sustainable
house brand.
development and a cost-effective organization.
Axfood also intends to increase the degree of automation at stores and in
logistics. Customers are increasingly asking for simpler and faster ways of
Financial targets
paying at stores. To address this trend, the number of stores with self-scanning
• Operating margin of 4%
and self-checkout lanes will be increased. Autoorder is another priority area.
• Equity ratio of at least 25%
In 2011 the product range included in Autoorder will be expanded to further
• Shareholder dividend of at least
improve re-stocking at stores.
50% of profit after tax
6 Axfood ANNUAL REPoRT 2010

11. Having a high share of private label
products is an important feature
in Axfood’s strategic objective to
be the most profitable company
in the Swedish food retail market.
Today Axfood has the highest
private label share in the Swedish
food retail market.
Environmental and social responsibility
Growth
Axfood will be an active driver of sustainable
Axfood will grow its market shares and strengthen its position development and thereby be the best in the industry.
as the number two player in Sweden’s food retail market. Axfood’s continuing work rests on a foundation of
Stable like-for-like sales performance is one of the most important conditions the sustainability programme that was adopted in
for profitable growth. Toward this end, Axfood will focus on developing its chain early 2010, with several concrete and ambitious
and store operations. In 2011 sales will be stimulated through new campaigns, objectives. A few examples are reduced energy con-
an improved product offering, improved customer service and – above all – sumption, less shrinkage and improved waste han-
improvements in the customers’ shopping experience. dling. Axfood is working internally and externally to
Parallel with organic growth, an aggressive pace of store establishment in build a steadily improving sustainability profile.
major cities and other growth areas is a key strategy. Axfood will also maintain Together with auditors, Axfood also continues to
a continued high pace of remodelling and modernization of the store concepts. visit production facilities of selected suppliers to
During the last two years, e-commerce and ready-made meal solutions have ensure that they live up to Axfood’s standards with
expanded substantially, albeit from low levels. Axfood’s goal is to significantly respect to child labour, workers’ rights, work environ-
increase sales through these channels, either on its own or in partnership ments and housing conditions. The goal is to double
with others. the number of inspections in 2011.
Employees and organization
Axfood wants proud and committed employees and grocers
who work together in a cost-effective organization.
For Axfood, competent and committed employees and
grocers boost competitive strength and are a prerequisite
for profitable growth.
To better meet customers’ needs and expectations for
service, Axfood will be conducting extensive training in sales
and service. Parallel with this, in-store seminars will be held
for office staff to foster a better understanding between
support functions and stores.
Axfood is also committed to developing leadership within
the Group in order to enhance business acumen while devel-
oping managers’ recruitment skills. More internships are
being offered at workplaces to promote the retail sector as
an attractive place to work.
Axfood ANNUAL REPoRT 2010
7

12. AXFOOD’S STRATEGY
STRATEGIC OBJECTIVES STRATEGIES
• Focus on attractive selection and offerings for an
Customers improved customer shopping experience.
• Increase innovativeness in product development
Axfood will increase its customer
for key categories.
orientation and offer customers the
• Boost customer loyalty by developing loyalty
best shopping experience for the
programmes .
respective concepts’ target groups.
• Improve local and regional customer offerings.
• Expand selection of environmentally adapted and
Fairtrade Certified products.
• Increase private label share.
Profitability • Cost control in all areas.
Axfood will be the most profitable • Increase automation at stores and in logistics.
company in the Swedish food • Strive for best purchasing prices in the market.
retail market.
• Increase like-for-like sales through develop-
Growth ment of chain and store operations.
• Aggressive pace of store establishment in
Axfood will grow its market shares
major cities and other growth areas.
and strengthen its position as
• Grow in e-commerce and ready-made meal
the number two player in Sweden’s
solutions.
food retail market by investing
• Develop a long-term and stable business
in Group-owned and proprietor-
model for grocers.
run stores.
• Reduce climate impact and energy use.
Environmental and • Improve waste handling.
social responsibility • Increase the number of social audits among suppliers.
Axfood will be an active driver of
work for the environment and sus-
tainable development and thereby
be the best in the industry.
• Establish a more customer-oriented organization.
Employees and • Develop leadership and enhance business acumen.
organization • Develop managers’ recruitment skills.
• Ensure access to stores and grocers.
Axfood wants proud and com-
mitted employees and grocers
who work in concert in a cost-
effective organization.
8 Axfood ANNUAL REPoRT 2010

13. OUTCOME OF ACTIVITIES 2010 PLANNED ACTIVITIES 2011 FINANCIAL TARGETS
• Hemköp carried out the first steps of a rejuvenated • Improve selection in key categories, including
price and product range strategy. Further develop- meats and fruits & vegetables.
ment of initiatives for loyalty card holders. • Offer customers an improved shopping
• Willys continued to strengthen and develop its experience, among other things through further
customer offering. An additional 17 stores were store upgrades and regional adaptations.
upgraded to create a better shopping experience • Develop product range and offering in
for customers. e-commerce, wholesaling, and cash and carry. Group operating margin, %
• Continued improvement of store operations and • Continue developing loyalty programmes, 3.9 3.8
product range at Axfood Snabbgross. consumer information and environmentally 3.4 3.5 3.5
adapted product range.
• Launch of Garant Såklart line of private
label products.
06 07 08 09 10
• Favourable profitability development at Willys. • Focus on greater sales, cost control and
• Improved profitability and margins at Hemköp. efficiency improvement in all operations. Target 4%
• Stable private label share and roll-out of the • Increase private label share and continue The operating margin for 2010
Garant brand. roll-out of Garant private label. was 3.5%. Axfood’s strategy
• Favourable development for Axfood Snabbgross. • Increase automation at stores and in logis- creates conditions for achieving
tics through continued roll-out of Autoorder this long-term target within a
• New purchasing strategy implemented.
and more stores with self scanning and self few years.
• Continued strong cost control.
checkout lanes.
50
Equity ratio, %
40
39.8
38.8
36.7
30
• Increase in like-for-like sales growth at Hemköp. • Continue developing chain and store operations.
30.7
32.6
20
• Seven new Willys stores, five conversions from • Modernize approximately 40 stores.
Hemköp to Willys, and new establishment of one • Fourteen new stores planned. 10
Hemköp store. • Broaden e-commerce offering.
• Modernization of 17 Willys stores and eight • Develop sales of ready-made meals. 0
Hemköp stores. 06 07 08 09 10
• Continue implementation of new business
• E-commerce solution developed for Axfood Target 25%
system.
Närlivs, which also took over NetXtra. The equity ratio target was met
• Implementation of new business system on track. in every quarter through strong
earnings and cost control.
Dividend as % of profit
• New sustainability programme implemented. • Continue implementation of sustainability 125
• Changeover to renewable and source-labelled programme.
123
electricity. • Continue efforts to reduce energy consumption 100
• Guidelines drawn up for waste sorting. and climate impact.
75
• Implement new waste handling strategy at
81
• Twelve social audits carried out.
73
stores and warehouses.
66
• Ecolabelling of all Willys stores.
• Double the number of social audits compared
57
with 2010. 25
• Carry out web-based environmental training
for all employees. 06 07 08 09 10
Target 50%
Axfood’s goal is to pay a share-
• Trainee programme carried out for prospective • Continued training in sales and service. holder dividend corresponding to
store managers. • Continue leadership and competence development. at least 50% of profit after tax.
• Start of one-year trainee programme at Group • Conduct an annual employee survey. The Board of Directors proposes a
level. • Trainee programme. dividend payout corresponding to
• Completion of several sales and service courses. • Open up workplaces to internships. 73% of the year’s profit after tax.
• Continuation of core values process according
to plan.
• Sales premium introduced at stores.
Axfood ANNUAL REPoRT 2010
9

14. PRIVATE LABELS
Private labels
– strategically important for profitability
Axfood’s private label products are backed by a thorough quality control process
Axfood decides to The next step is an offer to The product samples are The product sam- Final negotiations are The products
add a new private a number of suppliers to tested internally. Based ples are tested once held on terms and are delivered
label product to its submit tenders along with on this, 3–4 suppliers are again internally, af- conditions with one to Dagab and
product offering. pertinent documentation in selected and requested ter which an exter- supplier. In some cas- gradually reach
accordance with Axfood’s to return with new prod- nal consumer panel es, on-site visits are store shelves.
purchasing guidelines. uct samples that have of 60 persons rates also made.
Product samples are also been modified according the products.
submitted. to Axfood’s preferences.
➔ ➔ ➔ ➔ ➔ ■
10 Axfood ANNUAL REPoRT 2010

15. Having a high share of private label Garant products belong to the mid-range approximately 50%. In Sweden the aver-
products is an important feature in segment, that is, in terms of quality they age private label share is approximately
Axfood’s strategic objective to be the meet at least the same standard of quality 15%. However, in contrast with the rest of
most profitable company in the Swedish as the leading name-brand products, but Europe, Swedish private label statistics do
with a price that is 10%–15% lower. not include fresh produce or meat, so they
food retail market. Moreover, private
Garant ekologiska varor, Axfood’s organic are not entirely comparable.
label products create value-added for
private label that was launched in 2008, To attain purchasing volumes that can
customers. Today Axfood has the largest
today includes more than 60 products that match those of the multinational retail
private label share in the Swedish food
all meet the criteria for KRAV or EU organic chains, midsize retailers can coordinate
retail market. certification. their purchasing through several interna-
Aware is a line of Fairtrade Certified prod- tional purchasing organizations. Axfood is a
Private label products account for a growing ucts that was launched in 2009 and includes member of two such organizations – Euro-
share of food retail sales, but not as fast in such products as coffee, tea, chocolate and pean Marketing Distribution (EMD) and
Sweden as in the rest of Europe. In Sweden, orange juice. United Nordic.
Axfood has the highest private label share, Through its membership in EMD, Axfood
at roughly 22%, and the goal is to further PRIVATE LABELS FROM A belongs to a network with sales potential of
increase this share. EUROPEAN PERSPECTIVE more than EUR 130 bn, which corresponds
For Axfood’s store chains, private label The European private label market contin- to a market share of 9% in Europe. This
products accounted for 16.8% of sales at ues to grow, and forecasts point to a near makes EMD the single largest purchaser in
Hemköp, 24.0% at Willys, and 28.7% at doubling in sales value from 2007 to 2012. the European food retail market.
Willys Hemma. In countries like Germany, Belgium and United Nordic’s combined sales are worth
For consumers, private label products Spain, private label products account for approximately EUR 9 bn, and the organi-
offer a wider diversity of products that offer roughly 40% of sales volume, while in zation has purchasing capacity of roughly
high value for money. For retailers, private the UK and Switzerland they account for EUR 0.6 bn for private label products.
label products offer better margins and a
stronger store brand.
Both Willys and Hemköp have long had
their own private labels in the mid-range seg-
ment. To these was added the Group-wide
Garant brand of products in 2009, which
are sold in all of Axfood’s store chains. The
brand started out with some 15 products.
In 2010 this number was expanded signifi-
cantly and reached 187 at year-end. Having
a Group-wide private label creates econo-
mies of scale through larger purchasing vol-
umes and more efficient handling. Garant is
a private label in the greatest sense, where
Axfood controls the entire value chain.
Axfood’s private labels
Brand Segment No. of items Chains
Mid-range food and non-food products. Quality comparable to the market leader.
10%–15% lower price 187 All
Value-added products that meet the criteria for KRAV or EU organic certification.
High quality flavour, prices that are 10%–15% lower than the market leader 63 All
Mid-range food and non-food products. Quality comparable to the market leader.
10%–15% lower price 516 Willys, Willys Hemma
Budget products 625 All
Mid-range food and non-food products. Quality comparable to the market leader.
10%–15% lower price 343 Hemköp
Fairtrade Certified products 12 All
Batteries, light bulbs, etc. (Func), and kitchen supplies (Fixa) 224 All
Axfood ANNUAL REPoRT 2010
11

16. MARKETS AND TRENDS
12 Axfood ANNUAL REPoRT 2010

17. Market and trends
Weak volume growth
despite stronger economy
Competition in the food retail market being driven in large part by increasingly
remained strong and also came from knowledgeable and aware consumers who
other sectors, such as restaurants, are well-informed about environmental
consumer durables and travel. concerns and are growing increasingly vigi-
lant about the contents of the food they eat.
Particularly in the wake of the recent
This trend is confirmed by numerous studies
recession, a pent-up need could be seen
and emerging social networks for conscious
among households for these types of
consumers.
consumption.
In a Sifo survey commissioned by KRAV
in 2010, nearly one-fourth of Swedish
The Swedish economy posted an unexpected respondents said that they buy organic
rapid recovery in 2010, with considerably products as often as they can. Half buy
stronger GDP growth than the EU as whole. organic products occasionally. Among the
Parallel with this, confidence in the future most important reasons cited for choosing
continued to improve among households organic foods are that they are free from
and the food retail sector alike. Accord- pesticides, good for the climate and are the
ing to the polling company Nielsen, Swedes result of better animal care. Other values
were the most optimistic in Europe regard- that consumers appreciate, according to the
ing their personal finances. Even though this survey, include higher quality, better taste,
consumer optimism was dampened some- and no additives.
what during the autumn, views on personal Virtually all grocery stores now include
and public finances were still considerably organic products in their offering, and most
more positive than the historical average, believe that sales of such products will rise.
according to the (Swedish) National Institute The largest organic product category is
of Economic Research’s confidence indicator. dairy, which accounts for approximately
40% of organic food sales. Organic meat, on
Trends that affect the food retail market the other hand, is still a niche market, but
Environmentally conscious and well growing.
informed consumers will continue to
demand organic, wholesome and locally Local, regional and seasonal
produced food to an ever-greater degree. In close conjunction with the organic trend
People in this segment want a broad selec- is strong growth in demand for locally and
tion also in discount stores and expect good regionally produced food. In the retail sector
service and an inspiring shopping experi- this need is addressed by the stores, where
ence at their local food store. Digital chan- often it is the store employees who hear
nels are also gaining growing significance first-hand what customers want. Demand in
in the relationship between customers and this segment is highest for fresh produce.
retailers. Seasonal products have also experienced a
renaissance. Hemköp’s “Seasonal blog” is a
Health, environment and well-being response to such consumer demand.
Rising demand for organic products – par- The local and regional trend can also be
ticularly food products – remains a mega- seen in growing interest for farm stores and
trend that will most likely gain momen- local markets. Farm stores have become
tum in the years ahead, even though the established at a fast pace in Sweden in
rate of growth tends to slow somewhat in recent years.
a weak economy. This rise in demand is
Axfood ANNUAL REPoRT 2010
13

18. MARKETS AND TRENDS
Convenience, service tate shoppers’ everyday. Examples of this Even mobile phones have become an impor-
and shopping experience include “Middagsfrid” and “Linas Matkasse”, tant contact interface. A growing number of
Today’s consumers continue to be both which work together with Axfood Snabb- chains in Europe are launching free apps,
price- and quality-conscious, and price gross to deliver ready-packed grocery bags primarily for smart phones, where custom-
consciousness is not only a matter of dis- to customers’ doors. ers can receive personal offers, recipes and
posable income. Having convenient access links, as well as collect bonus points. Cus-
to everything is also important. On week- Digital channels tomers can also use their smart phones to
days, when time is short, ready-made or Following a slow start, e-commerce has navigate their store visit and to obtain more
semi-prepared alternatives make life easier. made great advances in recent years and is information about individual products.
But savvy consumers also want premium, now growing faster overall than traditional
fresh and organic food alternatives. retail channels. Still, e-commerce accounts Challenges for retailers
This is increasingly reflected in the prod- for only 4% of total retail sales. Demand for organic and locally produced food
uct selection at stores. At the same time that For 2009 the Swedish Retail Institute is posing a challenge for retailers with respect
discount stores like Willys are making strides, (HUI) has estimated that e-commerce sales to keeping prices at a competitive level.
it is becoming more difficult to distinguish for the food retail sector were worth nearly a Changing demographics are also affect-
their product offering from traditional gro- billion kronor. This corresponds to 3%–5% ing retailing over time. Thus far the food
cery stores. Today, discount stores are also of total e-commerce sales and 0.5% of total retail sector has had sharp focus on fami-
offering premium, fresh and locally produced food retail volume. However, HUI has prog- lies with children; in the future they will have
products and better customer service. nosticated continued rapid growth in online to establish relationships with the growing
In a business with a large offering and food sales, and this forecast is supported by 55-and-over category, who have consider-
tough competition, it is important to be surveys that show greater consumer interest able purchasing power. Interest in global
responsive to customers’ preferences and in this channel and that 60% of companies products is also on the rise. This is putting
needs. As a result, a trend can also be seen expected to see an increase in their online pressure on grocers to meet shifting con-
of stores trying to provide a unique shopping sales in 2010. sumption patterns and preferences in their
experience and meeting place, with a higher Social media is regarded as an increas- product offering.
service offering and focus on interaction ingly important interface for retailers to
with customers. communicate with their customers. The International industry trends
Another growing trend is to offer ready- number of retailers that are adopting social Health and the environment are trends that
packed grocery bags with recipes to facili- media strategies is rising steadily. are also influencing the food retail market
The Swedish food retail market
Despite the economic recovery, the food retail market showed weak The demographic structure in Sweden is characterized by a steady
growth, in contrast to other retail sectors and the restaurant indus- concentration in major metropolitan areas, which is also where a
try. Recent months’ sales growth is mainly attributable to price large part of the purchasing power is concentrated. Growth in the
increases. Swedish market is still primarily in the hypermarket and discount
Measured in current prices, sales rose 2.2%. The price and segments.
calendar effect was 1.7%, entailing growth in sales volume of 0.5%. Since the mid-1990s, three players account for more than 80%
The total market for 2010 is estimated at approximately SEK 213 bn. of the market. Axfood is the second largest player in Sweden’s food
retail market, with a market share of approximately 20%.
Food retail sales growth Market shares, largest competitors in Sweden 2009 1)
6.7
Axfood 2) 19.3%
5.7
Axfood’s figures include own
6.2
ICA 45.9%
5.2
estimates of sales for the Tempo,
Coop 18.5% Handlar’n, Vi and other collabo-
3.9
rating stores.
Bergendahls 3) 5.3%
3.6
1)
Competitor sales figures for 2010
2.8
Lidl 3.2%
2.2
not available at the time the
calculations were performed.
Netto 2.1%
2)
Willys, Hemköp (Group-owned
0.5
Others 4) 5.7%
-0.6
& franchisestores), PrisXtra,
Tempo, Handlar’n, Vi and other
collaborating stores.
06 07 08 09 10
3)
AG’s, City Gross, Eko, Matöppet and
Current prices Fixed prices, calendar-adjusted Source: Sales figures for ICA, Coop, Bergendahls, Lidl and Netto have other stores.
Sources: Statistics Sweden and HUI Retail Trade Index been obtained from a compilation performed by the trade journal Fri 4)
Other convenience stores, mini-
Köpenskap. Axfood’s figures include own estimates of sales for the Tem- markets and service station stores.
po, Handlar’n, Vi and other collaborating stores as per December 2009.
14 Axfood ANNUAL REPoRT 2010

19. outside Sweden. Health labelling,
bans on genetically modified food,
Ekologiska varor and higher taxes on fatty foods are
a few examples. Various versions
är lite dyrare. Hos of digital selling and customer con-
tact channels are also being tested
våra konkurrenter throughout Europe.
alltså. Shifts between the various store
formats and the trend toward ever-
larger stores appear to be subsid-
ing. In their place, the trend is
moving toward more compact
metropolitan formats, and among
the largest chains in Europe, several
are now investing in convenience
stores – either through acquisitions
or by establishing their own, new
chains. The need to differentiate and
create new shopping experiences is
Sales of OTC medicines took off
prompting retailers not only to test
new channels – such as seasonal Following deregulation of the pharmacy
events – new services, convenience market in Sweden, surveys conducted by
and loyalty rewards, but also to offer Nielsen show that a major shift has taken
place in sales of over-the-counter medicines.
Vi har låtit ett oberoende undersökningsföretag samla in alternativ till bästa möjliga priser. Vi tycker helt enkelt inte
prisuppgifter i 174 butiker runt om i landet. Jämförelsen har
genomförts hos de allra största och mest väletablerade
att det ska kosta skjortan att handla ekologiskt. Mer om
undersökningen hittar du på willys.se. Välkommen! a greater share of innovative private
matkedjorna, förutom Coop, som tyvärr valde att inte delta Already in 2010, retail food stores, conven-
i undersökningen. Prisjämförelsen visade att det är hos oss PS. Förresten är vi inte bara billigast på ekologisk mat, våra
label products , fresh-product and
på Willys som du hittar Sveriges billigaste ekologiska
matkasse. För oss är det viktigt att det alltid finns ekologiska
butiker är även märkta med Bra Miljöval av Naturskydds-
föreningen. Bra va?
ience stores and service station stores took
quality initiatives, and continued over approximately 20% of the market,
Prisundersökningen genomfördes vecka 43 2010 på uppdrag av Willys. Undersökningen omfattade 67 ekologiska varor och genomfördes i 174 butiker.
price competition. worth an estimated SEK 3.5 bn.
The ad copy reads: Organic products cost a bit more.
At our competitors, that is.
Segmentation in Sweden
Hard discount Discount Hypermarkets Traditional grocers Service stations/
5% 11% 22% 45%
mini-markets
17%
1,100–1,800 items 7,500+ items 12,000+ items 10,000–15,000 items 1,000–3,000 items
Price index – 1) Price index 88–95 Price index 93–97 Price index 96–110 Price index 104–130
Residential and external Residential and external External City centres, residential Traffic- or residential
Netto, Lidl PrisXtra, Willys, Willys Ica Maxi, Coop Forum, Hemköp, Vi stores, Coop oriented
Hemma City Gross 2) Konsum, Coop Extra, Tempo, Handlar’n, Ica
Ica Supermarket, Ica Nära, 7-Eleven, service
Kvantum stations, Coop Nära
Market share/trend: Based on a total market in 2009 of Price index: Based on results of Axfood’s price surveys of 1)
Accurate price comparison not possible due
approx. SEK 210 bn incl. VAT. Trend pertains to overall Sweden’s main store concepts. to too little comparability in product range.
development for the profiles in the segment along with a 2)
City Gross has been moved from the discount
number of generic stores. to the hypermarkets segment compared with
a year earlier.
Source/interpretation: Axfood. Some data
are estimates in cases where statistics are
not available.
Axfood ANNUAL REPoRT 2010
15

20. GRoUP oVERVIEW
Group overview
Axfood has a concept
for every target group
Business concept: Willys aims to lead Business concept: Hemköp develops Business concept: PrisXtra strives
and develop the discount food retail Sweden’s best food stores. We promote to provide the most fulfilling and
segment by offering “Sweden’s cheapest our customers’ well-being by helping trend-inspiring grocery shopping
bag of groceries” and giving its custom- them find healthy foods experience in the Stockholm market,
ers an inspiring shopping experience. at the lowest price.
NET SALES NET SALES NET SALES
18,613 SEK m 4,978 SEK m 637 SEK m
OPERATING PROFIT OPERATING PROFIT OPERATING PROFIT
772 SEK m 45 SEK m -5 SEK m
EMPLOYEES EMPLOYEES EMPLOYEES
3,266 1,422 164
NUMBER OF STORES NUMBER OF STORES NUMBER OF STORES
WILLYS 119 WILLYS
HEMMA 41 GROUP-
OWNED 65 FRAN-
CHISES 82 5
16 Axfood ANNUAL REPoRT 2010

21. A high private label share is
an important part of Axfood’s
T H E STO R E I S T H E STA G E
strategic objective of being
the most profitable company
in the Swedish food retail
market. Today Axfood has the
highest private label share in
the Swedish food retail
market, 22%, and the goal is
to increase this further.
Other
Business concept: We make it easy for Business concept: Dagab helps enhance Includes joint-Group support functions
our customers to do good business. sales and profitability for stores through such as purchasing coordination, private
efficient, adapted logistics solutions. labels, IT and corporate offices.
NET SALES EXTERNAL NET SALES EXTERNAL NET SALES EXTERNAL
5,821 SEK m 4,007 SEK m 204 SEK m
NET SALES TOTAL NET SALES TOTAL NET SALES TOTAL
5,847 SEK m 25,701 SEK m 4,052 SEK m
OPERATING PROFIT OPERATING PROFIT OPERATING PROFIT
113 SEK m 189 SEK m 95 SEK m
EMPLOYEES EMPLOYEES EMPLOYEES
667 932 444
NUMBER OF STORES DISTRIBUTION DISTRIBUTION
AXFOOD SNABBGROSS CENTRES CENTRES
19 4 4
Axfood ANNUAL REPoRT 2010
17

22. WILLYS
Willys – ambitious year
of investment and store
establishment
Willys is the food store for price- During the year, the largest training pro- The price comparisons are provided by an
conscious customers, featuring a wide gramme in Willys’ history was begun with independent research company.
product selection and rich offering of a focus on customer service and consists Through Axfood’s partnership with Save
fresh products. As the leading discount both of instructor-led courses and e-learn- the Children, some 80 stores installed can
ing. The aim of the programme is to cre- and bottle recycling machines fitted with
chain, Willys offers its customers
ate a changed approach to interaction with a “donate” button. Over the course of the
“Sweden’s cheapest bag of groceries”.
customers and to look at how employees year, donations from the machines exceeded
Through environmental initiatives and
live up to customers’ demands for a pleas- SEK 1 m.
an attractively priced range of organic
ant shopping experience and treatment as
products, Willys adds further value by a customer. Forty-four per cent of Willys Future challenges
also offering “Sweden’s cheapest bag of employees began the training programme The constant challenge for Willys is to
organic groceries”. Large households and during the year. increase sales in existing stores. This has to
families with children are Willys’ priority To strengthen Willys’ discount profile, a be achieved in the face of fierce competi-
customer categories. food price comparison was launched during tion from hypermarkets. For Willys it will be
the year that enables shoppers to compare important to add new value without compro-
2010 review prices with other Swedish grocery chains. mising its business concept of offering Swe-
Willys continued to strengthen its brand
during the year and grew its market shares
with very strong sales performance. Oper-
ating profit rose 5.6%. The pace of establish-
ment has been high, and a total of ten stores
were established, while five stores were
converted from Hemköp.
The modernization of Willys stores con-
tinued and was very successful. In 2010,
an additional 17 stores were upgraded to
the next generation of Willys, and by year-
end 52 of the chain’s 119 stores had been
remodelled.
During the year, all Willys stores were
ecolabelled with the Swedish Society for
Nature Conservation’s “Good Environmen-
tal Choice”. This ecolabelling entails that the
stores have been approved to bear the label
after meeting a number of criteria pertaining
to their product offering and their environ-
mental work. The basic requirements are that
the store has a basic offering of organic foods,
a large selection of ecolabelled household
chemical products, and that the store con-
ducts its own, thorough environmental work.
Willys’ environmental work during the
year was focused on the continued installa-
tion of enclosed freezer displays and a large
waste handling project designed to increase
sorting. Willys is also working to increase the
share of organic food sales.
18 Axfood ANNUAL REPoRT 2010