IRI's Weekly News Update - w/c 26th June 2017

IRI
Weekly News update
Your window on the latest trends
in Packaged Groceries
Stephen Hall
Friday 30th June

Copyright © 2017 Information Resources, Inc. (IRI). Confidential and Proprietary. 2
Retailer News:
• Tesco to give store staff a 10.5% pay rise
• Holland & Barrett sold to L1 Retail for £1.77bn
• Tesco rolling out one hour delivery service
• Debenhams warns of 'market volatility' as third-quarter sales fall
• Co-op the top-up shop destination of choice, survey finds
• Ocado trials autonomous delivery technology
• Tesco axing 1,200 jobs at HQ as part of cost-cutting drive
• Nisa posts robust year end results and confirms takeover offer
• Bunnings doubles scale of pilot store programme in the UK
Category News:
• UK prestige beauty retail sales hit highest ever rate
• Kallø secures contract to supply NHS food outlets
• Stella Artois serves for Wimbledon once again
Other News:
• Airports offer a $38bn bright spot for retailers
• Consumer confidence takes a hit after general election result
• British market growth hits five-year high
Weekly News Summary – 26th June 2017

Retailer News

Tesco To Give Store Staff A 10.5% Pay Rise
Tesco announced on Friday a new pay deal for its store staff which will see hourly rates increase by 10.5% over the next
two years, from the current rate of £7.62 to £8.42 an hour by November 2018.
The increases will put Tesco workers’ pay above the £7.90 level that the National Living Wage is expected to reach by
2018. However, Tesco will still be paying staff less than Aldi and Lidl, and overtime pay on Sundays and Bank Holidays is
being cut from time and a half to time and a quarter from July next year.
Under the new agreement, the supermarket said 97% of staff would be better off. Any staff negatively impacted by the
changes will be supported with a lump sum transition payment worth 18 months of the difference in pay, paid in July
2018.
Matt Davies, CEO of Tesco UK, said: “This reward package sees our biggest investment in store pay for a decade, and
gives colleagues a sustainable pay deal that rewards them for everything they do, while allowing us to also attract new
talent.”
Source: NamNews 26th June 2017

Holland & Barrett Sold To L1 Retail For £1.77bn
Holland & Barrett is being bought by L1 Retail, an investment fund backed by Russian billionaire Mikhail Fridman.
L1 Retail, which is the retail investment arm of the tycoon’s LetterOne holding company, is paying £1.77bn for the 1,150-
strong chain of health & wellness stores. It is being sold by private equity firm Carlyle which bought Holland & Barrett as
part of the purchase of its US parent company NBTY (Nature’s Bounty) back in 2010.
The transaction is expected to close by September this year, subject to regulatory approvals.
Commenting on the acquisition, L1 Retail’s Managing Partner Stephan DuCharme said: “Holland & Barrett is a clear
market leader in the UK health and wellness retail market, with attractive growth positions in other European and
international markets, and growing online presence, with a leading customer loyalty programme and 10 million active
cardholders. We look forward to working with Peter Aldis, CEO, Holland & Barrett and his strong management team. We
believe that the company is well positioned to benefit from structural growth in the growing £10bn health and wellness
market and has multiple levers for long term growth and value creation.”
Holland & Barrett’s annual revenues in 2016 exceeded £610m, with the business having recorded 32 consecutive quarters
of like-for-like growth. In recent years, the group has been investing in new store openings and its online platform. It also
continued its international growth across Scandinavia and has secured partnerships with Tesco in the UK, Apollo Hospital
Group in India, and A.S. Watsons in Hong Kong, helping increase the company’s international operations footprint to 16
countries.
The purchase is the first by L1 Retail, which was set up last year with the aim of investing $3bn in a small number of
retail businesses with strong growth potential. Its investment team is led by DuCharme, and supported by an Advisory
Board of internationally renowned retail executives – Karl-Heinz Holland (a former Chief Executive of Lidl), Clive Humby
(one of the founders of dunnhumby) and John Walden (the former Chief Executive of the Home Retail Group).
Peter Aldis, Holland & Barrett’s Chief Executive, will remain in his current role. He said: “We are delighted to now be in
partnership with the L1 Retail team and its advisory board of internationally-renowned retailers.”

Tesco Rolling Out One Hour Delivery Service
Following on from recent trials, Tesco has announced that it is rolling out its one hour grocery delivery service in central
London.
Customers across almost 40 London postcodes are now able to order, via the Tesco Now app, up to 20 items from a range
of 1,000 products, including fresh produce, meat, bakery goods and dairy, as well as baby, health and beauty items.
Orders are then picked in a local store and delivered via moped within 60 minutes by third party fulfilment specialist
Quiqup, who have partnered with Tesco.
Shoppers will also be able to track their order via the Tesco Now app, receiving live updates on its progress. The service is
priced at £7.99 with no minimum spend on each order.
Tesco is looking to capitalise on rising consumer demand for the rapid delivery of products. The likes of Amazon and
Deliveroo have led the way in offering such services with Sainsbury’s also launching its one-hour ‘Chop Chop’ delivery
service last year.
Adrian Letts, Online Managing Director at Tesco, said: “Shoppers’ needs are changing and we want to offer a range of
services that allow them to shop with us in a way that suits their needs. We look forward to hearing what they think of
the new service.”
Meanwhile, Hugh Fletcher, global head of consultancy and innovation at retail consultancy Salmon, commented: “The
move is clearly designed to counter Amazon’s Prime Now service, who, as well as buying Whole Foods earlier this month,
has threatened to seriously dent the popularity of the big grocery stores in the country.
“Retailers should take a leaf out of Tesco’s book here; with customers becoming more loyal to a service than a brand –
and convenience playing a huge part in how we, as consumers, shop – retailers can’t afford to remain paralysed.”

Debenhams warns of 'market volatility' as third-quarter sales fall
Debenhams has cautioned that full-year profits could be “towards the lower end” of market expectations as it grapples with turbulent
trading conditions.
The department store group said pre-tax profit could be hit if “current market volatility” continues following an “unpredictable”
Easter period.
Debenhams issued the warning as it suffered a 0.9% drop in group like-for-like sales during its third quarter.
In constant currencies, like-for-likes fell at the steeper rate of 2.4% in the 15 weeks to June 17. Debenhams said its gross
transaction values also fell 1% during the quarter, but online sales jumped 7.9%.
Across the wider year-to-date period, Debenhams said its like-for-likes were up 1.8%, but down 0.7% on a constant currency basis.
Gross group transaction values climbed 1.7% in the 41-week period, while online sales spiked 12.6% during the same timeframe.
Debenhams, which launched its Debenhams Redesigned strategy under new boss Sergio Bucher in April, said the UK trading
environment had been “more volatile” during the second half of the year.
But the retailer said the performance of its “targeted destination categories” of beauty, accessories, and food and drink had helped
offset the impact of a “weaker” clothing market.
Despite tough trading conditions, Debenhams hailed 1.7% growth in full-price sales and a 47% spike in m-commerce during the
quarter.
The department store business said it was making “good progress” with its new strategy, which aims to “fix the basics” and drive
growth through “social shopping” – making it a leisure activity centred around mobile interaction with customers.
“As industry data has confirmed, May was a tough month for retailers and we continue to see volatility in trading week to week. As a
result we are focused on delivering cost control and self‐help through our ‘Fix the Basics’ plan.
“We continue to build good foundations for longer-term growth at Debenhams by becoming a destination, digital and different.”
Source: Retail Week 27th June 2017

Co-op the top-up shop destination of choice, survey finds
The Co-op is the most popular destination for shoppers doing a top-up shop, according to a new study by market research
firm Clusters.
A third (33%) of those polled in the survey of more than 1,000 people named the Co-op as their destination of choice,
followed by Marks & Spencer (M&S) with 32%. Sainsbury’s, Tesco and Asda followed, chosen by 27%, 22% and 21%
respectively.
Clusters managing director Chris Cowan said: “This gives us a fascinating picture of the customer journey when it comes
to grocery shopping.
“It’s clear that nipping out to get extra groceries has become the norm, but the main top-up shops of choice may surprise
some, as Co-op and M&S are not seen as being amongst the biggest grocery retailers. However, they do offer both
convenience and luxury.
“We also uncovered a very distinct pattern between the primary supermarket and top-up destination. So, those doing the
‘big shop’ in Tesco, Asda and Morrisons are much more likely to visit Co-op for extra items, whilst those who shop in
Sainsbury’s tend to opt for M&S.”
Other key findings from the survey include:
• Customers doing their main grocery shop in Aldi were most likely to need a mid-week top-up shop for extra items, with
84% admitting this was the case
• The retailer least likely to require an additional grocery shop was M&S, with just 71% of respondents who shopped
there saying they bought extra items mid-week
Cowan continued: “The really interesting thing for a brand like M&S is that it is the retailer least likely to require a top-up
shop, yet is also one of the most popular destinations to pick up extra items. The team should be looking at the barriers
that are preventing those top-up shoppers from doing their main weekly shop with them.
“For any retailer, it’s vital they understand the motivations and barriers that trigger customer behaviours and target their
offer accordingly. That’s why research like this will hopefully prove incredibly useful to them.”
Source: Talking Retail 27th June 2017

Ocado trials autonomous delivery technology
Online grocer Ocado has begun trials of a new self-driving truck that aims to become the UK’s first autonomous delivery
system.
According to The Guardian Ocado has enlisted the help of Oxford tech company Oxbotica to develop an autonomous
vehicle that is being tested for 10 days in South-East London, delivering food to Ocado customers in the area.
This is part of Ocado’s “Smart Platform”, an online shopping business that it aims to sell to grocery retailers hoping to
compete with the likes of Amazon.
For the retailers Ocado outsources the technology to, an end-to-end service including placing technology in warehouses,
shops and vehicles will be included. An anonymous European retailer has already reportedly signed up to Smart Platform.
Its new vehicles can carry up to eight boxes and requires the customer to leave their house to get their groceries.
Although this compares unfavorably with staffed deliveries, Smart Platform’s David Sharp argues that it is quicker,
cheaper and possible to scale up much more quickly.
Ocado and Oxbotica reportedly aim to have the system prepared for launch by 2019.
Source: Retail Gazette 28th June 2017

Tesco Axing 1,200 Jobs At HQ As Part Of Cost-Cutting Drive
Tesco confirmed yesterday that it is planning to cut 1,200 jobs at its head office as part its turnaround plan that aims to
reduce costs by £1.5bn.
The cull amounts to a quarter of its workforce in Welwyn Garden City and Hatfield, along with a number jobs at the main
office of Tesco’s One Stop chain in Birmingham and the retailer’s IT support centre in Bangalore, India.
The move comes just a week after the group announced that it was closing a call centre in Cardiff, putting around 1,100
jobs at risk. Tesco has also been reducing roles in its distribution centres and stores in recent months as part of the cost-
cutting drive instigated by Chief Executive, Dave Lewis. In his first year in charge of Tesco, Lewis axed thousands of head
office and store management jobs.
A spokesperson for Tesco said the latest cuts at its HQ were a “significant next step” in the turnaround of the business.
“This new service model will simplify the way we organise ourselves, reduce duplication and cost but also, very
importantly, allow us to invest in serving shoppers better,” they added.
The jobs under threat at its head office span a number of departments including property, finance, buying and
marketing. Final decisions will be made once a consultation has been completed over the summer.
Commenting on the move, Philip Benton, analyst at Euromonitor, told The Telegraph: “Dave Lewis has been labelled
‘Drastic Dave’ since his appointment as chief executive in 2014 where cost-cutting and ‘improving the bottom line’ were
the priority from the outset. Cutting 1,200 jobs at HQ is more of a surprise than the closing of one of its call centres which
cost 1,100 jobs, but remains part of Lewis’ overall strategy of protecting profit above all else.”
Meanwhile, Steve Dresser, a retail analyst at Grocery Insight, was quoted by The Guardian as saying: “This is drastic but
that’s what Dave does. He has clearly been planning this for some time and Tesco is still saying its cost base is too high.
The market has changed beyond belief and Tesco needs to adapt. You can simplify operations a lot at head office but you
can get things wrong.”

Nisa Posts Robust Year End Results; Confirms Takeover Offer
Nisa Retail, the convenience store group currently subject to a takeover offer from Sainsbury’s, continued its recovery
over the last year with a strong rise in profits.
During the 52 weeks ended 2 April 2017, the group’s EBITDA come in above target, up 17.8% to £8.6m. Meanwhile, pre-
tax profit was £2.8m, recovering from a loss of £5.4m the previous year, helped by a reduction in exceptional costs.
However, total sales edged down 2.6% to £1.25bn with the group partly blaming the loss of business from the failed My
Local chain. Like-for-like sales were also down 1.5% as a result of “competitive pressure and price investment”.
However, some of the decrease was mitigated by an increase in sales to new businesses with Nisa recruiting 515 new
stores compared to 476 the year before. Much of this growth was driven by two large contract wins; namely the 298
stores McColl’s Retail acquired from the Co-op and the 47 stores acquired from the Bourne Leisure estate.
The group also pointed to strong performance of its Heritage own label range with produce sales up 4.9% overall, which
included a 45.1% jump in chilled vegetables and 62.4% increase in sales of loose salads.
Nick Read, CEO of Nisa Retail, commented: “The uplift in performance throughout FY17 continued to build on the
foundations laid in FY16, when Nisa returned to profitable growth. It has also helped us to convey a message of long
term sustainability, key to securing the confidence of our banking partners in our recent refinancing discussions. Nisa is
well placed to continue the execution of its three-year strategy, to grow profitably and create a sustainable business
model for the benefit of all its members.”
Meanwhile, commenting on the recent takeover rumours, Read confirmed that following a number of enquiries from
interested parties, the Nisa Board has been weighing up the merits of a possible offer for the company. Sainsbury’s is
believed to have seen off offers from the likes of the Co-op and Morrisons.
Read said: “The Board has determined that one such proposal is of sufficient merit to grant the party involved a period of
exclusivity in order to carry out due diligence. Should that party wish to make a formal offer for the company, the Board
will at that stage determine whether it is appropriate for this offer to be put to members. It will then be for the members
to determine whether or not they wish to accept the offer.”

Bunnings Doubles Scale Of Pilot Store Programme In The UK
Wesfarmers Bunnings unit has announced that it is to expand its pilot programme in the UK, and will have 20 stores
operating by the end of 2017 – twice as many as previously expected.
The announcement coincided with the opening a Bunnings Warehouse in Milton Keynes, its fourth since acquiring the
Homebase chain last year. The store, on the site of a former Homebase outlet, is its largest in the UK at over 90,000 sq.
ft.
The group said its decision to accelerate the store opening programme was in response to “positive” feedback from
customers to its first pilot stores in St Albans and Hemel Hempstead.
Bunnings recently announced two new additions to its UK and Ireland senior leadership team. Damian McGloughlin as
Chief Operating Officer and David Haydon as General Manager.
The company has said it plans to invest up to £500m rolling out the Bunnings Warehouse format in the UK and Ireland
over the next three to five years.
Managing Director PJ Davis commented: “Increasing the number of pilot stores to 20 will give us the opportunity to test
the concept in new geographies, with different demographics, across a range of store sizes.
“We are determined to combine the best of Bunnings Warehouse with what UK consumers want. The success of the pilots
still remains a precursor to additional investment.”
Bunnings next store will be in Folkestone, Kent in July. Following that, the Homebase stores in Thanet (Broadstairs),
Sittingbourne, Kent and Basildon Vange, Essex will be the next to be redeveloped.

Category News

UK prestige beauty retail sales hit highest ever rate
In-store UK prestige beauty sales have reached an all time high at £2.2bn, according to market research group NPD.
Despite the bricks-and-mortar sector growing by just 2% in 2016, the group says the figure demonstrates the continued
importance of the in-store shopping experience for customers.
The fragrance industry accounted for half of the sales last year, with reported figures of £1.1bn. But the largest growth in
premium beauty was online sales, which grew by 28% in 2016 to £379m.
Despite the impressive growth figure, online represents just 14% of the total prestige beauty market. “We are certainly
seeing that online is leading the way with regard to repeat purchases and interestingly skin care purchases and make-up,”
June Jensen, Director of NPD UK Beauty told Cosmetics Business.
“But for bricks-and-mortar businesses, the importance is for consumers to touch, feel and try, and for beauty advisors to
educate consumers.”
“There’s a continued love affair with the hands-on shopping experience and this looks set to continue,” Jensen said. “The
retail sector has responded to the threat from online beauty retailers by enhancing the in-store offering. So, we can
clearly see now how important it is to ensure you utilise these two channels to maximise the sales of the brand's
SKUs/portfolio.”
Source: Cosmetics Business 21st June 2017

Kallø Secures Contract To Supply NHS Food Outlets
Kallø, the natural food brand owned by Wessanen UK, has secured a major new deal that will see a selection of its single-
serve snacks made available to all NHS Trust cafés and shops.
With its focus natural ingredients, Kallø said its range had met the NHS Commissioning for Quality and Innovation
(CQUIN) guidelines which aim to help improve the health and wellbeing of staff and patients.
Across the country, outlets owned by the NHS Trusts will now be able to order select Kallø products from the NHS supply
chain. This includes Kallø’s Rice Cake Thins – both the milk and dark chocolate topped variants – Kallø’s sundried tomato
and herb rice cakes, sea salt and vinegar rice cakes, and caramel rice cakes.
Hayley Murgett, Kallø Brand Controller at Wessanen UK, commented: “This new deal with the NHS Trust presents a great
opportunity for us to increase brand awareness and offer patients, visitors and staff the chance to pick a healthier snack
choice. We were selected because we can tick many boxes for the NHS – our range is gluten-free, suitable for vegetarians
and low in calories – which means it suits a range of customer needs.
“We are delighted to have secured this deal and look forward to working with the NHS going forwards.”
In recent years, the NHS has been making a concerted effort to make the food offering in hospitals healthier as part of
the government’s wider drive to reduce obesity levels in the UK. Back in April, the NHS announced that retailers
operating in its hospitals will be banned from selling sugary drinks next year unless action is taken to drastically reduce
sales of such products.

Stella Artois Serves For Wimbledon Once Again
The Stella Artois brand has confirmed that it will being sponsoring Wimbledon 2017, the fourth time it will be partnering
with The Championships.
The new tie-up will be boosted by a 360 fully integrated marketing campaign in the run up to, and during, the
tournament. The marketing campaign will include TV, experiential, social media promotion, influencer collaborations, and
a strategic out-of-home advertising campaign urging consumers to “Serve One to Remember”.
Within the off trade, Stella Artois will be launching limited edition Wimbledon 2017 packaging across hero formats to drive
stand-out. A supporting Gift-with-Purchase initiative will see consumers receiving a limited edition Wimbledon 2017 Stella
Artois Chalice on buying packs of Stella Artois in participating retailers.
A wide range of POS activity will provide further support, and will be themed around key purchasing behaviours, front-of-
shop displays, branded gondola ends, shelf visibility materials and FSDUs.
Stella Artois has also teamed up with CheckoutSmart to launch a competition for UK consumers, offering four pairs of
tickets to Wimbledon.
Tatiana Stadukhina, Stella Artois Director Europe, commented: “We are really excited to bring back the bespoke The
Championships, Wimbledon 2017 bottle packs and Chalices, which help to drive sales uplift and are loved by consumers.
Stella Artois is a must-stock for all retailers, so we hope this partnership with the The Championships, Wimbledon 2017
will drum up even more excitement in the brand and further increase rate of sale throughout the country this summer.”

Other News

Airports Offer A $38bn Bright Spot For Retailers
Travel retail, particularly in airports, is currently a bright spot in the retail world. A new report from GlobalData shows that
spending in airports hit $38bn globally in 2016, and is set to grow by 27% to $49bn by 2021.
Maureen Hinton, Group Research Director at Global Data Retail, commented: “Apart from the growing number of air
travellers, increased security over recent years delivers a constantly changing captive audience for airside retailers, which
claim 83% of all spending in airports. This audience has time to kill and, especially when on holiday, is in the mood to
spend.”
This has given rise to the rapid development of retail space at airports as grateful retailers, who are seeing customers
forsake high street shops for online and leisure experiences, welcome the opportunity to get in front of willing customers
again.
Hinton added: “Airports appreciate the extra revenue and are willing to invest in creating a more inviting space for
travelers. For example, in Singapore’s Changi airport you can catch a movie, browse new art, play games, pamper
yourself in a spa and entertain your kids – the airport equivalent of a modern shopping center.”
Asia-Pacific airports generated the most spending in 2016, taking $14.8bn through their tills. Chinese travelers were a
particular boon to this market, as they seized the opportunity to buy duty free luxury goods.
Europe, meanwhile, ranks second on spending, hitting $10.7bn in 2016. Indeed, one benefit of the UK’s Brexit decision
was the subsequent increase in tourists to the country, who were attracted by the low value of the pound.
Even the US, which has traditionally offered a poor shopping experience at airports, is cashing in and developing new
retail spaces and offers. However, GlobalData said it was unfortunate that this coincides with President Trump’s attempts
to curb immigration, which is making regular travellers think twice about visiting the country.

Consumer Confidence Takes A Hit After General Election Result
UK consumer confidence fell sharply this month after the indecisive result of the general election, falling to levels
comparable to the immediate aftermath of last year’s vote to leave the EU, according data from YouGov.
In the first eight days of June – before the results were known – the YouGov/Cebr Consumer Confidence Index stood at
109.1, around the same level it was at the month before the snap election was declared. However, in the first twelve days
after the votes were counted, the Index fell to 105.2.
For June as a whole, consumer confidence dropped to 106.9, its second-lowest level since the summer of 2013.
Stephen Harmston, head of YouGov, said: “Consumer confidence has been generally ticking downward since last autumn
but the events of the past month have placed it under greater pressure.
“The hung parliament seems to have further dampened consumers’ spirits, which were already sinking following the
continued squeeze on household finances.”
Douglas McWilliams, deputy chairman at Cebr, added: “The data shows a sharp drop in consumers’ confidence about their
own financial situation and even more so about house prices.
“This will affect spending in the high street, in shopping centres and online.”

British market growth hits five-year high
The latest 12-week data from Kantar Worldpanel, for the period to 18 June 2017, shows that growth in the GB grocery
retail market accelerated to 5.0%, the biggest uplift in the measure seen since March 2012. As well as rising inflation,
with the Kantar index now up to 3.2%, the market has been boosted by a burst of hot weather, while weak performance
in 2016 has also flattered the figures to a degree.
Best Tesco performance since 2012
Though all still performing behind the market average, with each shedding market share, the largest four retailers all
benefited from the rising tide of growth. Morrisons achieved the highest rate of increase on +3.7%, though Tesco was
close behind on 3.5%. For Tesco this marks its biggest 12-week uplift since April 2012. Boosted by an additional 369,000
shoppers over the three months, Tesco is now growing across all its formats, and especially online and in its Extra
hypermarkets.
Discounters stay in the high teens
While growth at Aldi slowed slightly in this latest period, 18.7% remains far ahead of the mainstream players of scale,
driving its market share up to 6.9%. Meanwhile Lidl accelerated to +18.8%, slightly ahead of Aldi for the first time since
March this year. With Lidl's market share now up to 5.0%, if it sustains its current momentum, it is on course to overhaul
Waitrose in the share rankings by the end of 2017.
Hot weather drives convenience growth
The hot weather, arriving towards the end of the period, provided a significant boost to impulse purchasing, with shoppers
using convenience and local stores to meet needs in cold drinks, ice cream etc. Growth within Sainsbury's was especially
marked in its Local stores, and in its London locations particularly. Despite the increasing drag of its ongoing store
disposals to McColls (scheduled to complete in July), convenience specialist the Co-op was nevertheless able to accelerate
its growth to +2.2%.
Source: IGD 27th June 2017

IRI's Weekly News Update - w/c 26th June 2017

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