IRI's FMCG Weekly News Update - w/c 27th June 2016

Macroview
Weekly News update
Your window on the latest trends
in Packaged Groceries
Stephen Hall
Friday 1st July

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 2
• Brexit will mean more of the same for UK consumer trends in grocery
• Ocado continues to prosper in growing online grocery market
• Big Four squeezed as GB grocery market slips into decline
• John Lewis sales boosted by clearance last week
• 1,200 My Local employees out of work as 90 stores close
• Boots to exclusively stock new Childs Farm baby range
• 61% concerned about food price rises following Brexit vote
• Consumer confidence crashes following EU referendum result
• My Local officially enters administration
• AmazonFresh rapidly expands to more London postcodes
• Nisa reports improved full year performance
• Irish retail sales now up 8.1% in a year but warning Brexit could hit consumer
confidence
Weekly News Summary –27th June 2016

Brexit Will Mean More of the Same for UK Consumer Trends in
Grocery
The UK’s decision to leave the EU will cultivate a ‘doubling down’ on current consumer trends in the near-term, according to
Canadean.
The research group said: “Right now, financial market volatility means prospects for consumer packaged goods prices and market
growth in the UK look, at best, uncertain. Where the value of the pound will level out and how this will affect the worth of the money
in British consumers’ pockets is also unclear.
“What we can be clearer on is that within the sliding scale between, at best, consumer uncertainty and, at worst, recessionary forces
that Brexit will likely cultivate, in the near-term we should arrive at a place that looks pretty close to the post-recessionary
environment UK consumers have already adapted to.”
Canadean added: “The upshot of the above outcome will, in the short-term at least, be a reinforcement of the consumer trends
which have dominated over the past few years. Specifically, price consciousness and ‘smart shopping’ have been prevalent, but also
these have been countered by occasionally trading up to small indulgencies and luxuries. We can expect consumers to ‘double down’
on these behaviours, in particular ‘smart shopping’ by using vouchers, loyalty schemes and price comparison tools to get the best
deal. Clearly technology will play a key role in enabling this.
So where does this leave consumer packaged goods marketers seeking to adjust to the new post-Brexit marketing landscape?
Canadean’s view is that those retailers, brands and products which are already effectively targeting these consumer trends are now
best placed to deal with the fallout of Brexit. On the flipside, those who have failed to adjust effectively to prevailing consumer trends
are likely to fall further behind.
Canadean concluded: “For retail channels, discount retailers and price competition will be continue to be a key feature of UK retail
going forward. For brands, those effectively targeting the right consumption occasions – be they value of indulgence or otherwise
orientated – should be well set. However, any product simply hoping to benefit from the recent, generally improving economic
circumstances may find themselves out of line with consumer trends and economic headwinds as a result.
“Brexit may be a big change, and the impact on companies will be far-reaching as the process progresses, but the keys to targeting
consumers in the UK will remain fundamentally similar in the near-future”
Source: NamNews 27th June 2016

Ocado Continues To Prosper In Growing Online Grocery Market
Amid concerns on the group’s future prospects following the recent launch of AmazonFresh, Ocado has posted relatively
strong half year results.
During the 24 weeks ended 15 May, the online grocer’s pre-tax profits rose by 18% to £8.5m, while EBITDA increased by
5.7% to £40.4m. Revenues grew 15.1% to £584m, boosted in part by the group’s tie-up with Morrisons.
Ocado said it was continuing to gain share in the UK’s growing online grocery market. Order volumes grew by 17.8% to
an average of 225,000 per week, whilst the number of active customers rose by 14.9% to 541,000.
Tim Steiner, Ocado Chief Executive, said: “I am encouraged by the steady progress in our business, with volumes through
our operations, including the throughput for Morrisons, growing by 30%. The market remains competitive with ongoing
price deflation but our increasing scale and operational efficiencies meant that we still grew profits, albeit at a slower
rate.”
He added: “British shoppers are choosing the benefits of grocery shopping online and we believe that the momentum of
channel shift away from bricks and mortar stores will continue.”
However, the group disappointed investors after failing to announce a highly anticipated international tie-up. Ocado said
today: “Discussions with many potential international retailers to adopt the Ocado Smart Platform solution continue.”
Meanwhile, Steiner warned that Brexit could send supermarket prices higher as a result of the falling value of the
pound. He said the weaker pound may lead to “inflationary pressure”, but added that he did not believe the UK’s planned
exit from EU would spark a sudden crash in the retail market.

Big Four squeezed as GB grocery market slips into decline
As Britain continues to digest the fallout from the EU referendum, new figures from Kantar Worldpanel show the grocery
market shrinking in size for the first time since January. Sales growth fell to -0.2% from +0.1% last month as volume
growth decreased. Deflation was marginally softer at -1.4%, from -1.5% last month.
Discounters hit new high
After a slight drop in growth last month, the combined market share of Aldi and Lidl has hit a new high of 10.5% in the
latest numbers, demonstrating the still growing popularity of discount retailers. Both retailers continue to reap the
benefits of investments in their customer proposition and a growing reputation for quality, particularly in fresh produce.
The rollout of further store openings to new catchments against a backdrop of newly increased economic uncertainty
seems certain to propel their shares higher still.
Sales declines worsen across the Big Four
Across all Big Four players, sales declines were steeper than last month leaving the ranking by growth rates unchanged.
Tesco proved to be the most resilient with sales down by 1.3%, a fractionally better result than Sainsbury's -1.4%. Last
week Tesco revealed a solid Q1 result with UK like-for-likes up 0.3%, despite a deflationary drag caused by shoppers
switching to the newly launched 'farm' brands. Morrisons implied sales were also weaker, at -2.1%, while Asda was once
again the worst performer with sales falling by -5.9%. The Asda result is a significant deterioration from last month's -
5.1%, demonstrating the scale of the challenges facing incoming CEO Sean Clarke as he commences his role on July 11th.
Slight growth for smaller retailers
Of the smaller retailers, Iceland was the best performer with growth of 3.5%, with the retailer recently reporting
improving though still negative LFL sales in its annual results. For Waitrose growth was slightly weaker, but supported by
the launch of the Waitrose 1 premium private label range. Co-op's growth of 2% means it has now recorded a full year of
sales growth as it concentrates more on opportunities in the convenience sector.
Source: IGD 28th June 2016

John Lewis sales boosted by clearance last week
John Lewis saw its sales climb by 7.3% year-on-year last week as trade was boosted by the start of its clearance sale.
Fashion sales increased by 4.1% boosted by strong performances from the childrenswear, nursery and haberdashery
categories. Sales of menswear and womenswear rose by 10.7% and 4.4% respectively.
Home sales ended the week 9.5% up on the corresponding week last year. Despite the unpredictable weather seen in
parts of the country, sales in the outdoor living category climbed by 9.7%. Furniture also performed well with sales up
14.2%. This included a 19.7% uplift in the beds and bedroom category and a 19.4% increase in living and dining.
Electricals and home technology sales increased by 10.2% year-on-year. Communication technology the star performer
with sales rising by 19.3%. Televisions also sold well.
Source: Retail Bulletin 29th June 2016

1,200 My Local employees out of work as 90 stores close
Over 1200 My Local employees are out of work today as the company shut down almost 90 stores across the UK in the
past few days.
The closures include stores in Twickenham, Rochdale, Torquay, Maidstone and Cheltenham, where it is understood staff
were been laid off without redundancy pay.
The 35 remaining stores of My Local, which is expected to go into administration today are thought to have been sold,
with the mutual Co-op said to be among the buyers.
Last week, former My Local owner Morrisons offered to rescue 1658 jobs after the retailer announced its intention to put
the firm into administration.
My Local owner Greybull Capital had assigned KPMG to act as its administrator.
Morrisons stated that if a buyer for the chain was not found, it would offer its former staff jobs at the supermarket. It is
not yet known if the offers to My Local staff have been made yet.
Source: Retail Gazette 29th June 2016

Boots To Exclusively Stock New Childs Farm Baby Range
Childs Farm has announced the launch of its new baby range for newborns, which will be exclusively available in Boots
stores nationwide.
The new range contains natural, free-from and “delicious smelling” ingredients, with each product specially developed to
clean, nourish and care for the delicate skin and hair of newborns and babies.
The products include – fragrance free baby wash containing argan oil (250ml/ RRP £3.99); baby bedtime bubbles infused
with organic tangerine oil (250ml/ RRP £3.99), baby massage oil made with organic coconut oil (75ml/RRP £7.99), baby
moisturiser containing shea and cocoa butter (250ml/RRP £3.99), and nappy cream containing organic aloe vera
(100ml/RRP £3.85).
The baby range launches only in Boots and on the Childs Farm website from June 2016.

61% concerned about food price rises following Brexit vote
According to a new Brexit consumer attitudes survey by Retail Economics, 61% said they were worried that the price of
food would rise following the UK’s vote to leave the European Union.
The same number (61%) said they were concerned about the future of the UK economy and felt Brexit would have a
negative impact on their personal finances.
Commenting on the report, Retail Economics chief executive Richard Lim said: “The results from our Consumer Attitudes
Survey show concerns over the future of the economy, personal finances and rising costs of living are likely to choke-off
consumer confidence and spending.
“Our survey revealed three in five Britons are worried about the outlook for the UK economy and believe that Brexit will
have a negative impact on their personal finances.
“A further 58% said they would now hold back spending on non-essential items. With the consumer sector the driving
force behind the economic recovery so far, it is difficult to see what can compensate should a more widespread slowdown
materialise.”
Source: Talking Retail 29th June 2016

Consumer Confidence Crashes Following EU Referendum Result
Somewhat unsurprisingly, consumer confidence has slumped following the vote to leave the EU and the subsequent political fallout.
The YouGov/Cebr Consumer Confidence Index, which measures people’s economic sentiment on a daily basis, stood at 111.9 in the
first three weeks of June but in the days since the vote it has fallen to 104.3.
The researcher said that four days of uncertainty have wiped out the gains made over the last three years. The last time consumer
confidence was at this level was in May 2013. While it has not yet plumbed the depths of the financial crisis in 2008, when it fell to a
score of 67.4, it is only a week after the referendum and YouGov said it fully expected it to decline further as the consequences of
Brexit kick-in.
It added that its latest data shows just how spooked households are by recent developments. In the coming months this is likely to
filter through into a much weaker environment for retail sales and household spending – particularly on big ticket items.
Separate data from GfK, which covered the period running up to referendum, also showed that consumer was low. Its Consumer
Confidence Index remained the same in June at -1 after a weak result in May. While the index relating to the forecast for personal
finances over the next 12 months rose by one point to 8 this month, the index measuring expectations for the general economic
situation over the next 12 months fell by one point to -14. This is 18 points lower than in June 2015.
Joe Staton, Head of Market Dynamics at GfK, commented: “This month’s GfK Consumer Confidence Index is based on interviewing
carried out in the first two weeks of the month, as is the case every month. So our current data – using interviews from between
June 1st and June 15th – clearly does not yet provide insights into how the major impact of the EU Referendum result has changed
consumer sentiment.
“Nevertheless, one trend that continued in the run up to the referendum is a deepening pessimism over the general economic
situation. As we approached voting day, this was already 18 points lower than in June 2015 and it’s almost certain we’ll see this
worsening when next month’s results are in. Before the referendum there was an uptick in confidence about personal finances, and
as of mid-June this measure was more positive than 12 months ago. But once again it is difficult to see this holding up.
“In these extraordinary consumer circumstances, all bets are off until we all know more. We can expect plenty of volatility in
consumer confidence at least until Brexit negotiations are underway. The longer term mood will then depend on how smoothly those
negotiations go.”

My Local Officially Enters Administration
The My Local c-store chain has officially entered administration days after the majority of stores were closed.
Mark Orton and Blair Nimmo from KPMG Restructuring have been appointed joint administrators to the trading company
MLCG Limited. A total of 90 of the 125 stores have already been shut following closing down sales in recent days. A
further three are in the process of being closed, whilst the remaining 32 stores will remain open whilst talks with potential
buyers take place.
My Local employed 1,658 people, although last week the chain’s former owner Morrisons offered to hire staff that lose
their jobs if the business went under.
Commenting on the chain’s failure, Orton said: “Companies across the convenience store sector have faced significant
challenges in recent times, through increasing competition, pricing pressures, changes in customers’ buying habits and
general structural change within the sector. Since taking over the business in October last year, management have faced
tough trading conditions and despite their best efforts to improve performance, My Local was ultimately unable to return
to viability. Having explored a number of other options, the directors were unable to find a way forward and took the
difficult decision to place the company into administration.”
My Local’s Chief Executive Mike Greene commented: “This is the first time in 20 years that the convenience sector is not
growing strongly. Some long-established high street names have gone and many of the large chains are shrinking the size
of their networks. In addition, the supermarkets are cutting prices to compete with the discounters, piling further
pressure on prices and margins, making it harder to compete.
“Of course it is easy to blame market conditions. But the reality is that, while we more than halved the rate of losses, the
management team has been unable to return the business to profitability.”

AmazonFresh rapidly expands to more London postcodes
AmazonFresh has already expanded its online delivery footprint less than a month after launching from 69 to 128 London postcodes.
Greenwich, Haringey and Bexley are among the new 59 postcodes around London’s north, east and south that are now eligible to
order their grocery from a range of over 130,000 products from local food producers to shops based in world-famous locations like
Borough and Notting Hill.
“The initial response we have received from customers in the capital has been very positive with many calling out low prices, vast
selection and fast delivery as their reasons to shop on AmazonFresh,” AmazonFresh vice president Ajay Kavan said.
“We are honing and improving our offer based on customer feedback and will continue to do so as we open up the service to an even
greater number of Londoners.”
Since it was launched, AmazonFresh customers in E14, N1 and EC1 postcode areas have made the most orders with the most
popular delivery window being 5pm to 6pm.
When AmazonFresh was launched, the shares of its closest competitor Ocado dipped to a three-year low.
Source: Retail Gazette 30th June 2016

Nisa reports improved full year performance
Nisa Retail has reported full year adjusted earnings of £7.3 million compared to a loss of £2.9 million in the previous year.
The increase in the year ending 3 April was £0.1 million better than target and marked the biggest annual swing in profit
in the wholesaler and convenience retailer's 39 year history.
Meanwhile, underlying profit was £0.6 million following a loss of £5.4 million in the prior year.
Nisa said its overall sales performance was encouraging, with the business achieving sales of over £1.3 billion for the year.
In addition, it boosted its membership numbers by 476 stores to reach an overall total of 2,915, excluding export
accounts.
Nick Read, chief executive of Nisa Retail, said: "It has been a challenging, but ultimately pleasing year for Nisa. The
business experienced the biggest swing in profit in its 39 year history as we sought to stabilise the company, address
historical issues and lay the foundations to return to profitable growth and build for it a sustainable business model.
“Nisa is now very much back on an upward curve, with the business having already seen a 3.5% increase in weekly sales
in the first 12 weeks of FY17, and we are extremely positive about our future."
Source: Retail Bulletin 1st July 2016

Irish Retail Sales Now Up 8.1% In A Year But Warning Brexit
Could Hit Consumer Confidence
Ireland’s retail sector is continuing on the road to recovery with latest figures showing that retail sales were up 8.1% in
May when compared to the same month of 2015.
On a monthly basis, data from the Central Statistics Office (CSO) showed volumes were 0.7% higher in May when
compared to the previous month, and up 1.2% when Motor Trades are excluded. The strongest performing categories
were hardware, paints and glass category, where sales rose 14.3%, while sales of books, newspapers and stationery rose
by 10.1%. Bar sales increased by 1.3%, although sales of electrical goods were down 1.9%.
Analysts said the figures were a bit stronger than expected, and that the underlying trend was positive despite month-to-
month volatility. However, economists warned that last week’s Brexit vote and the uncertain economic impact could hit
consumer confidence and result in lower personal spending in the months ahead.
Retail Ireland director Thomas Burke commented: “The UK’s decision to leave the European Union will have both short
term and long term consequences for retail trade in Ireland,” adding that there is likely to be a return of cross border
trade with Northern Ireland, driven by the devaluation of sterling against the euro.
Source: NamNews 1st July 2016

June 2016 – Big Four squeezed as GB market slips into decline
+£31.3bn 43%
Impliedy-o-ysalesgrowth%
As Britain continues to digest the fallout from the EU referendum, new figures from Kantar Worldpanel show
the grocery market shrinking in size for the first time since January. Sales growth fell to -0.2% from +0.1%
last month as volume growth decreased. Deflation was marginally softer at -1.4%, from -1.5% last month.
GB market shares
Source: Kantar Worldpanel, 12 weeks to 19 June 2016
Tesco
28.2%
Sainsbury's
16.3%
Asda
15.6%
Morrisons
10.8%
Co-op
6.3%
Aldi
6.1%
Waitrose
5.2%
Lidl
4.4%
Iceland
2.1%
Others
5.0%
13.8%
11.5%
3.5%
2.0% 1.3%
-1.3% -1.4%
-2.4%
-5.9%
Lidl Aldi Iceland Co-op Waitrose Tesco Sainsbury'sMorrisons Asda
Market growth: -0.2%

IRI's FMCG Weekly News Update - w/c 27th June 2016

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