IRI's Weekly News Update - w/c 12th September 2016

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Weekly News update
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in Packaged Groceries
Stephen Hall
Friday 16th September

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• Retail footfall holding firm following Brexit vote
• Sainsbury’s to roll out 200 in-store digital collection points
• Morrisons agrees collection locker tie-up with Amazon
• One Stop boosts availability of single pick products
• Ocado reports strong rise in sales despite “very competitive” market
• Inflation holds steady as rising food prices are offset by clothing
• Warm weather and promotions drive strong growth at Waitrose
• Organic sector sees 5.6% annual growth
• Morrisons reports strengthening like-for-like trend in H1
• Trading improves at Booker
• Disappointing half for Waitrose amid “challenging” trading conditions
• Asda targets improved value for customers
Weekly News Summary – 12th September 2016

Retail Footfall Holding Firm Following Brexit Vote
UK retail footfall figures for August show that two months on from the Brexit referendum, the unexpected result has had little material
impact on how people are going about their day-to-day lives.
Often seen as an insignificant month in the retail calendar, this year August has been anything but, with a base rate cut, the usual ‘Back-
to-School’ campaigns, an all-consuming Pokémon Go phenomenon, Team GB’s spectacular success at the Rio Olympics and the end of an
era as BHS pulled down its store shutters for the final time.
Despite the perception, August is actually the third busiest month of the year, behind December and July in weekly footfall terms so it’s an
important one for retailers to keep the tills ringing.
In August, footfall entering non-food stores in the UK fell by 4.0% compared to August 2015, according to the Retail Traffic Index published
by Ipsos Retail Performance, matching the year-on-year gap in July, despite predictions for it to narrow. Two months prior to the vote,
retailers recorded a year-on-year deficit of -3.3%. The lack of any discernible impact on store footfall is evident, despite consumer
confidence levels falling and consumer concerns about the future state of the economy rising.
Dr Tim Denison, director of retail intelligence at Ipsos Retail Performance, said: “We hadn’t anticipated any discernible effect of the
outcome on store footfall until at least 6 months out and this is proving to be the case. We attribute the slight deterioration in store footfall
to an underlying softening in demand.”
Footfall in August fell -5.3% compared to July, worse than the 5-year trend of -2.6% but slightly better than in 2015, when it fell by -5.4%.
Whilst the success of Team GB in Brazil injected some much-needed life into the grocery sector, the ‘feel good’ lift was not demonstrable in
the non-food sector. The Bank Holiday weekend also proved to be disappointing for retailers, with footfall in non-food stores over the three
days down -12.6% on last year.
Dr Denison added: “Footfall was never likely to be stronger than last year, as some had predicted, but the size of the gap is unexpected,
but not inexplicable.
“Many people took advantage of the long weekend to go enjoy leisure pursuits, rather than stay at home. Store footfall levels in coastal
resorts and transport nodes benefitted, but elsewhere it was a disappointing end to the month.”
Around the regions, the outlook was very similar to July. For the fourth time in five months, the North of England suffered the worst year-
on-year decline with a deficit of -6.1% on August 2015. The Midlands saw the best result, with store footfall dropping by only -1.7% on last
year.
Dr Denison continued: “August was a bit of a ‘ground hog’ month on all accounts, but we don’t anticipate that remaining the case in
September. Conjecture will start to build on when retailers will begin raising prices and that may encourage some extra spending in the
coming month. Speculation will also kick off on how retailers will play out Black Friday and that could equally put the brakes on some
spending in September. It’s an important month ahead for retailing and it will be fascinating to see in which direction demand turns.”
Source: NamNews 12th September 2016

Sainsbury’s To Roll Out 200 In-Store Digital Collection Points
Following its recent acquisition of the Home Retail Group, Sainsbury’s has announced that it will launch up to 200 newly-
designed digital Click & Collect points in its stores across the country.
The new collection points for Argos’s Click & Collect partnership with eBay will launch in Sainsbury’s Click & Collect stores.
Customers will be able to pick up their Tu clothing, eBay and DPD parcel deliveries from their local Sainsbury’s store. 30
Sainsbury’s Click & Collect points will also offer Argos online collection.
Tablets will be available in all the new Click & Collect points which the retailer said will enable customers to ‘check in’
digitally, significantly speeding up the time it takes from arriving in store to receiving parcels for collection.
Mike Coupe, Chief Executive of Sainsbury’s, said: “Our vision in bringing these two successful retail businesses together is
to combine Sainsbury’s leadership in food retailing with Argos’s digital strength and non-food capability. We are excited
about the potential of this combination and today’s announcement is a clear demonstration of how this ambition will
benefit customers, bringing them a broader range of quality goods and services whenever and wherever they want.”
John Rogers, Chief Executive of Sainsbury’s Argos, added: “It’s an exciting time in retail. As customer shopping habits
change, people increasingly want flexibility, speed and choice both online and in-store. We are pleased to be bringing
Argos’s products and services to Sainsbury’s customers via the new digital collection points, which are a demonstration of
both businesses working closely together to bring benefits to customers at pace.”
Tanya Lawler, UK Vice President, eBay, said: “Building upon our exclusive Click and Collect partnership with Argos, by
establishing 200 further collection points in Sainsbury’s stores, means even greater choice and convenience for shoppers.”

Morrisons Agrees Collection Locker Tie-Up With Amazon
Morrisons is deepening its relationship with Amazon by agreeing to host order collection lockers for the online giant in its
stores.
Morrisons will install hundreds of Amazon Lockers at its supermarkets this year, enabling shoppers to pick up their online
orders without the need to wait in at home. Commenting on the deal, which could potentially drive signifcant extra
footfall to Morrisons’ stores, Trevor Strain, the supermarket’s Chief Financial Officer, said: “Many busy customers can’t
wait at home for their delivery, and we believe the option to pick it up from one of our hundreds of conveniently located
supermarkets will be attractive.”
The introduction of Amazon Lockers at Morrisons builds on the growing relationship between the two companies. In May,
Morrisons began to supply thousands of grocery items that are now available to Amazon customers through its
AmazonFresh service currently being rolled out in London, Amazon Pantry nationwide and Amazon Prime Now.
John Tagawa, Amazon’s Vice President of UK Operations, said: “We are delighted to introduce Amazon Lockers at
Morrisons supermarkets. Amazon Lockers are the delivery option of choice for many customers who want to pick up their
shopping at a time and place that suits them best. Morrisons supermarkets are ideal locations for Amazon Lockers which
allow people to pick up their parcels while on the move.”
The move is part of Morrisons’ strategy to add useful services to its stores, helping differentiate it from the discounters
and make its stores more attractive places to shop. Over the last 12 months, the chain’s in-store cafes have been
improved and it has also partnered with Timpson to expand its dry cleaning, key cutting and shoe repair business.
There are currently more than 1,000 Amazon Lockers nationwide in locations ranging from petrol forecourts, convenience
stores and shopping centres to universities, train stations, banks and airports.

One Stop boosts availability of single pick products
One Stop has increased the number of single pick products available to its franchisees to more than 280, saving stores as
much as £100 a week on markdown and waste.
One Stop said single pick lines account for 10% of sales across the business, with grocery, chilled, off-licence and non-
food all benefitting from improvements to on-shelf availability and product freshness.
One Stop head of operations John Miller said: “In franchise we focus on driving sales, reducing costs and creating
efficiencies that help franchisees’ margins. Single picked lines help with all of the above and more importantly, delivers a
better customer shopping experience through greater availability.”
Aleem Choudhry of One Stop Prestatyn said: “My customers already love the range and prices, so it’s great that the wider
choice of single pick products allows me to offer them even better availability and freshness.
“One of the key benefits to us is not having to worry about waste and markdown as much, when wanting to introduce
new products into the range. It’s also much simpler to manage with a reduced need to replenish from stock.”
Source: Talking Retail 12th September 2016

Ocado Reports Strong Rise In Sales Despite “Very Competitive”
Market
Ocado has posted another strong rise in quarterly sales despite a “very competitive” market.
For the 12 weeks to 7 August, the online grocer’s group sales (including its Morrisons arrangement) climbed by 15.4% to
£314m, whilst retail sales for its own operations rose 13.6% to £286.4m.
Average orders per week increased by 18.9% to 226,000, although amid deflationary pressure, average order size fell
3.4% to £107.94.
Whilst talking up the group’s online offer being increasingly popular with shoppers, Chief Executive Tim Steiner warned
the intensely competitive market was hitting its profits. “As the market remains very competitive, we are seeing sustained
and continuing margin pressure and there is nothing to suggest that this will change in the short term,” he said.
“However, Ocado’s combination of choice, competitive pricing, and industry-leading service has contributed to an increase
in average orders by nearly 19%, our best volume performance in more than five years.
“We are confident that our commitment to further improving the customer experience through constant innovation,
supported by our world-class proprietary technology, will allow us to continue to grow ahead of the online grocery market,
and substantially ahead of the market overall.”

Inflation holds steady as rising food prices are offset by clothing
UK inflation was unchanged in August after hitting a 20-month high in July, as rising food prices were tempered by alcohol
and clothing costs.
The Consumer Price Index (CPI) was up 0.6% for the second consecutive month in August, ONS figures revealed.
UK high street
The increased costs were triggered by rising food prices, which were up 0.6% month-on-month in comparison with a fall
of 0.2% during the same period a year ago.
Upward contributors in the category included bread, cereal and meat products.
Clothing and footwear prices rose 1% month-on-month in August, compared to a 1.5% rise during the same period last
year as children’s outwear items pulled down overall costs in the category.
Prices of alcoholic beverages were up 0.3% month-on-month, but down against a 2.4% rise during the same period in
2015, mainly driven by falling wine costs.
The cost of furniture and furnishing items were also down year-on-year.
Simon-Kucher & Partners partner James Brown said: ”We forecast continued growth in inflation in the coming months as
higher import costs from the devalued sterling find their way into consumer prices.”
However, the ONS pointed out that the rises are relatively minimal in the historic context.
Source: Retail Week 13th September 2016

Warm Weather And Promotions Drive Strong Growth At Waitrose
Total sales at Waitrose rose 7.1% to £125.88m in the week to 10 September, driven by promotions and the continuing
warm weather.
The chain’s Taste of Italy promotion saw sales of Italian wine rise by 25%. This was complemented by its half-price
promotion across a number of ranges which started slightly earlier this year. Waitrose said that meat, poultry, fish and
eggs as well as frozen and dairy grew strongly.
The warm temperatures drove sales of traditional summer products such as barbeque meat, which was up 9%, and ice
cream, up by 22%. Fruit was also popular with melon and frozen fruit seeing “significant” growth.
Meanwhile, at sister chain John Lewis, sales climbed 9.1% to £82.70m, boosted by ‘back to school’ demand.
Fashion sales rose 6.8%, whilst sales of electricals jumped 15.8% on the back of demand for computers and
tablets. Home sales increased 5.2%.

Organic sector sees 5.6% annual growth
According to new research by the Soil Association, growth in the organic sector has doubled in the 52 weeks to 13
August, rising 5.6%.
The Soil Association said the organic market is set to break the £2bn mark this year as it continues to outperform non
organic sales.
Clare McDermott, business development director at Soil Association Certification said: “The organic market is in the fourth
consecutive year of growth against continuing decline in non-organic food sales.
“There are clear opportunities across a variety of sectors, with growth driven by fresh produce and grocery, but also home
baking and store cupboard essentials. Shoppers are increasingly buying organic as it answers their need for a healthy,
sustainable and ethical choice.
“83% of households have bought organic in the last year. It is obvious that organic has a huge part to play in the future
retail landscape and more people than ever are aware of organic and seeking out organic purchases.”
The new research was presented by David Preston from brand consultancy firm The Crow Flies. He added: “People want
organic to be the everyday way of doing things – they want it normalised – but there are challenges. If we can
understand the range of segments and motivations of organic consumers we will be able to grow the organic market and
consistently communicate the rich tapestry of what organic is. But this has to be supported throughout the industry.”
Source: Talking Retail 14th September 2016

Morrisons reports strengthening L4L trend in H1
Though total sales (excluding fuel) fell, down 1.3%, figures reported by Morrisons for the 26 weeks to 31 July 2016, reveal like-for-like
sales up 1.4% (excluding fuel) over the period. Furthermore Q2 saw like-for-likes improving to +2.0%, showing clear forward momentum,
and making this the third successive quarter of positive growth. Like-for-like transaction numbers grew even more strongly over the half,
with an increase of 3.7%, indicating a significant improvement in footfall.
Online starting to offset shrinking store space
Total sales were notably impacted by the programme of planned disposals and underperforming store closures, which saw total selling
space down by 2.7% in the half. However, with online continuing to roll out, the home shopping service built around the partnership with
Ocado, contributed the largest part of like-for-like growth, accounting for 1.1 percentage points versus just 0.3 from physical
stores. Morrisons has now extended its agreement with Ocado, including the use of space in its Erith (Kent) depot and the development of
a store-pick fulfilment solution, which will now enable the reach of Morrisons.com to be significantly further expanded.
'Fresh Look' programme revitalising the store base
Morrisons continues to work to revitalise the performance of its store base and rolled out Fresh Look refits to 28 stores in the half. The
business is now on track to complete 100 refits by the end of 2016. Learnings from the programme are now being applied across the
estate nationally, and it is also helping Morrisons add new in-store services such as pancake griddles and simple juice bars, as well as
making more of the craft skills of staff at counters such as butchery.
Amazon supply arrangement making progress
The first half of 2016/17 saw Morrisons initiate its wholesale relationship with Amazon, with the first delivery of product made in June. The
company reports pleasing progress to date and also that the range included in the supply arrangement has already been expanded since
launch. Alongside this Morrisons is also exploring opportunities for wholesale supply with other customers.
Six priorities update
Morrisons has taken the opportunity of the results announcement to revisit its six strategic priorities: highlighting initiatives such as the
fourth wave of 'Price Crunch activity to make its offer more competitive and improvements in customer service especially with speed of
checkout and improved local sourcing. The company also reports good progress on simplifying, speeding up and improving dealings with
suppliers. Reining in the complexity around the number and types of commercial income is a key part of this, and these have now been
reduced from 37 to three in the last few months.
Andrew Higginson, Chairman, Wm Morrison Supermarkets Plc commented:
"The new team has made a real difference and delivered further good progress across the board in the first half. Prices are lower,
customers are being served better and quality is improving."
Source: IGD 15th September 2016

Trading Improves At Booker
Leading UK wholesaler Booker has reported its sales performance numbers for the 12 weeks to 9 September 2016,
showing total sales up 15.2%, boosted by the continuing first year impact of the acquisition of the Londis and Budgens
distribution business; which added 14.5% growth to tobacco sales and 15.5% to non-tobacco sales.
Like-for-likes improving
After several quarters of negative like-for-likes (-2.9% in Q1) Q2 saw the like-for-like trend returning towards positive,
with sales excluding Londis and Budgens declining by only 0.4%. The key drag on underlying sales remains tobacco,
where the impact of restrictions on retail display has seen Booker's sales in the category continue to fall, dropping 3.5%
in this latest period.
Non-tobacco sales positive
In contrast to tobacco, non tobacco categories actually returned to growth in the quarter with sales up 0.9%, like-for-
like. This reflects growth amongst both catering and retail customer bases, underpinned by the successful development
of new customers in the foodservice channel, as well as the ongoing expansion of key retail initiatives such the Premier
symbol group.
Charles Wilson, Chief Executive, Booker Group plc commented:
"Booker Group continues to make good progress with sales in the quarter up 15.2%. Budgens and Londis ... are making
a solid contribution. We continue to help our retail catering and small business customers prosper through improving our
choice, prices and service."

Disappointing Half For Waitrose Amid “Challenging” Trading
Conditions
Half year results from the John Lewis Partnership show Waitrose had a tough period, although sister chain John Lewis continued to
outperform its rivals.
In what the group described as a “challenging” market, like-for-like sales at Waitrose fell 1% in the six months to 30 July. However,
gross sales increased by 2.2% to £3.25bn with the chain making market share and customer number gains. Online grocery sales
grew by 4.3%.
Waitrose’s operating profit before exceptional items was down 10.5% to £121.3m. This was blamed not only on the impact of the
market conditions but also on increases in staff pay, investment in IT and higher supply chain costs following the transition to its new
National Distribution Centre operation.
Waitrose opened seven new stores in the first half of the year, five core supermarkets and two convenience outlets.
The group revealed that hospitality sales grew by 7.1% and it now has 121 cafes, 81 bakery grazing areas, seven wine bars and nine
juice bars in its stores. Meanwhile, its new Waitrose 1 range helped lift sales of premium products by 19.4% on last year.
At the John Lewis department stores, gross sales rose 4.5% to £2.02bn with strong like-for-like sales growth of 3.1%. However,
despite the growing sales, the chain’s operating profit fell by 31.2% to £32.4m, with more than half of this decline due to
transitioning costs in its distribution network as it temporarily maintained legacy sites to smooth the transition to its new Magna Park
DCs.
Overall group pre-tax profit plummeted 74.6% to £56.9m, mainly due to charges for the write-off of Waitrose sites it no longer
intends to develop, following a strategic review. Excluding exceptional items, profits were down 14.7% to £81.9m.
Meanwhile, the group said the EU referendum result had not had an real impact on sales so far, but it expected “trading pressures”
to continue into 2017 and that the structural changes in retail will not ease.
For the first six weeks of the second half, trading at Waitrose picked up with like-for-like sales growing 1.4%. However, like-for-like
growth at John Lewis slowed to 0.7%.
Sir Charlie Mayfield, Chairman of John Lewis Partnership, commented: “We have grown gross sales and market share across both
Waitrose and John Lewis, but our profits are down. This reflects market conditions and, in particular, steps we are taking to adapt
the Partnership for the future. These are not as a consequence of the EU referendum result, which has had little quantifiable impact
on sales so far. Instead there are far reaching changes taking place in society, in retail and in the workplace that have much greater
implications.”

Asda targets improved value for customers
Asda has launched a new value campaign called "That's Better".
Price cuts and quality improvements
Everyday favourite lines are seeing average price drops of 15%. This includes beef mince, whole chickens, bacon, prawns
and sausages. Lunchbox staples are also benefitting, with bread, cheese and cooked meats also being discounted. As part
of the "That's Better" campaign, Asda is also improving the quality of it's own label ranges.
Price cuts and range improvements are being supported with a significant media campaign which debuted during last
Saturday's X Factor.
Reverse continued decline
The move follows Asda's Q2 LFL decline of -7.5%; the supermarket's worst quarterly result on record and it's eighth
straight period of falling comparable sales. With 80% of this decline attributable to falling footfall, Asda's new campaign
will look to re-engage with lapsed customers and those who are shopping Asda less in favour of the remaining Big Four
and the discounters.
Sean Clarke, Asda CEO, stated "we're taking the next step in our journey to deliver better value for our customers and to
improve quality. We will continue to listen to our customers and take action, with better prices for products they buy week
in, week out."

IRI's Weekly News Update - w/c 12th September 2016

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