IRI's Weekly News Update - w/c 20th February 2017

IRI Weekly News updateYour window on the latest trends in Packaged Groceries

Stephen Hall

Friday 24th February

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 2

• Amazon confirms commitment to UK with plans to hire 5,000 more staff• Kraft Heinz ends pursuit of Unilever• P&H launches new generation transactional website • One in six have switched grocery store in the last year• Revenues at Arla Foods UK slip but core brands performing well• Why the grocery market is like an oil tanker• Asda sales decline slows sharply in Q4 • SPAR launches loyalty app trial • Best-one unveils premium store concept • Higher LFL sales boost Whole Foods Market UK • P&G adjusts sampling strategy after admitting it was ‘too myopic’• Aldi, Primark, TK Maxx, Poundworld & TJ Hughes swoop in on former BHS sites

Weekly News Summary – 20th February 2017


Amazon Confirms Commitment To UK With Plans To Hire 5,000 More StaffAmazon has shrugged off Brexit concerns by announcing that it will create 5,000 new full-time jobs in the UK this year, taking the online giant’s total workforce in the country to over 24,000.The jobs will include roles at Amazon’s head office in London, as well as in its Edinburgh customer service centre and fulfilment Centres across the UK, including three new sites set to open in Tilbury, Doncaster and Daventry. More than 1,500 of the new staff will work on the group’s global innovations such as Alexa, Prime Air, Prime Video, and cloud computing.Doug Gurr, UK Country Manager for Amazon, commented: “We are creating thousands of new UK jobs including hundreds of apprenticeship opportunities as we continue to innovate for our customers and provide them with even faster delivery, more selection and better value.“We are hiring for all types of roles from flight test engineers, software engineers and corporate managers in our development centres and head office, to operations managers, supervisors, engineers, service technicians, HR roles and order fulfilment roles in our fulfilment centres.”

Source: NamNews 20th February 2017


Kraft Heinz Ends Pursuit Of UnileverJust 48 hours after proposing one of history’s biggest-ever corporate mergers, Kraft Heinz has abruptly called off its pursuit of Unilever.Kraft Heinz made a surprise $143bn (£115bn) offer for Unilever on Friday in a bid to build a global consumer goods giant that would have united some of the biggest brands in the industry. The proposal was flatly rejected by Unilever who said it “fundamentally undervalues” its business and that it saw “no merit, either financial or strategic” in such a deal. Kraft stated it was looking forward “to working to reach agreement on the terms of a transaction”, suggesting it could return with an improved proposal.

However, a joint statement was issued on Sunday which said: “Unilever and Kraft Heinz hereby announce that Kraft Heinz has amicably agreed to withdraw its proposal for a combination of the two companies.”

It added: “Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

Michael Mullen, a spokesman for the US-based company, added: “Kraft Heinz’s interest was made public at an extremely early stage. Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”

Kraft Heinz had said that its proposal aimed to create a leading consumer goods company with a mission of “long-term growth and sustainable living.” However, the government was reportedly uneasy about the possible deal amid fears that it could lead to jobs cuts in the UK, as well as in The Netherlands where Unilever also has significant operations.

Meanwhile, Paul Polman, Chief Executive of Unilever, had reportedly urged the company’s largest shareholders to reject Kraft Heinz’s advances, stressing that a takeover would destroy its long-term approach.

George Salmon, a Hargreaves Lansdown analyst, said: “It was always going to be a difficult pitch to convince shareholders to relinquish their grip on Unilever, given the expectations for the company to keep churning out resilient growth in the years to come.”

Meanwhile, the Financial Times suggested the early leaking of the US group’s interest in Unilever made it hard for it to negotiate an agreement. It quoted an insider who said Kraft Heinz was prepared to “substantially increase” its offer and was ready to make a lot of concessions, including taking on the Unilever name, to make the deal happen.

Unilever is headquartered in both London and Rotterdam and also has shares listed in The Netherlands. This means it is also governed by Dutch company laws and so Kraft Heinz would have had to overcome the complexities of laws in The Netherlands. These call for takeover bids to be judged on a range of tests, such as the impact on employees, creditors, suppliers, customers, and the environment.

Martin Deboo, a Jefferies International analyst, said: “It would appear that Kraft Heinz have underestimated both the intrinsic value of Unilever and the challenge of acquiring control of a Dutch company whose stakeholders would have opposed such a move vociferously.”The UK Takeover Panel had given Kraft Heinz until 17 March to table an official bid. However, by walking away, it is now prevented from making another approach for Unilever for six months.

Source: NamNews 20th February 2017


P&H launches new generation transactional website Leading UK delivered wholesaler, Palmer & Harvey has launched an updated version of its transactional website for independent retailers. This aims to provide their customers with a better online experience, by enabling them to place orders more quickly and easily any time and anywhere. The site is designed to be fully mobile responsive across all platforms including iOS and Android.

Seven months in developmentThe new website has been a significant investment for P&H and has undergone extensive live trials, with some 50 selected retailers helping to test the site over the last three months; and a further 200 having had access for the 10 days prior to launch. New features include better visual presentation of the 9,000 products listed, with large images enabling easy identification for customers, plus better supporting information such as POR (profit on return) data.

Building on best 'smart' practiceLearning lessons from consumer shopping sites, such as Amazon, Palmer & Harvey's new platform has 'smart' capabilities, enabling it to provide customers with 'intelligent' selections of products based on their ordering history, and a search function that is able to learn based on previous searches. It is also able to tailor promotions to fit the retailer's individual business, and make recommendations based on what other stores in the local area are buying.

Martyn Ward, Managing Director, Palmer & Harvey commented:"This will be the P&H shop window. It will free up retailers' time, enabling them to spend more time improving their retail offer, and less at the wholesalers. We know that 84% of retailers are now ordering online. If we can get our retailers to switch from telesales, the average online order is worth 25% more."

Source: IGD 20th February 2017


One in six have switched grocery store in the last yearThe research by TCC Global also found that on average, shoppers have 11 ‘reachable’ stores, 10 ‘easily reachable’ and five that are ‘very easily’ reachable, making it very easy for shoppers to switch between retailers.

The top reasons given for shoppers changing retailer included ‘low everyday prices’ and ‘better value for money’. Shoppers’ focus on price was shown to be largely irrespective of household income, with 51% of high income households, 60% of medium income households and 64% of low income households saying they shopped where they could find the cheapest prices.

The third was the offer of ‘better rewards for my loyalty’. However, just 22% of respondents said they would spend less at a shop if it no longer offered loyalty cards, and the research found that shoppers have an average of 3.3 cards, but use only 2.5.

Bryan Roberts, global insight director at TCC Global, said: “With so much choice and price competition, customers are more inclined to switch retailers more frequently. To help combat price-based defection, big supermarkets need to provide rewards to loyal customers that go beyond loyalty cards.”

The study concluded that retailers can influence shopper choice by linking loyalty to cooking and eating deals with 43% of shoppers admitting to being more encouraged to buy from a shop which inspired everyday simple healthy meals and cooking from scratch.

The report also ranks the Big Four retailers on perception of their loyalty offering. Sainsbury’s was recognised as the best for rewarding loyalty while Asda, Lidl and Aldi fared the worst.

Roberts added: “A quest for better value-for-money involves much more than just price. Value in a broader sense also involves issues like quality and service (or perceptions thereof), an observation that is illustrated by the fact that Asda, which has been the cheapest supermarket for a great many years, has been steadily losing market share as perceptions of quality, in-store experience and range have – rightly or wrongly – lagged behind those of competitors.”

Source: Retail Bulletin 21st February 2017


Revenues At Arla Foods UK Slip But Core Brands Performing WellArla Foods has revealed that its overall revenue in the UK decreased from €2.5bn in 2015 to €2.2bn in 2016, impacted by lower global market prices and unfavourable exchange rates. However, its branded portfolio performed strongly, boosted by recent product innovation of its core Arla, Lurpak and Castello lines, with it increasing its market share across most of its categories.

Overall, the group said Arla branded products achieved volume driven growth of 7.6% compared to 5.2% in 2015. Its Arla branded milk grew 12%, and added £95m to the milk category. This was supported by the launches of Arla B.O.B6, Arla Farmers Milk, Arla Organic Farm Milk and its ‘on the go’ line, Arla Cravendale 250ml.

The group’s Arla Lactofree product range achieved another year of double digit growth with volumes up 18% growth (23% in 2015). Meanwhile, the Arla yogurt category, which the business first entered in 2015, more than doubled year-on-year (+116%) due to the success of its Arla skyr and Arla Protein lines.

Meanwhile, Arla’s speciality cheese brand Castello accelerated its growth in 2016 to 18%, driven by the success of its Castello Tickler Cheddar. Arla also produces own label cheese for most of the major UK retailers with its overall cheese business growing 5.1% (2.8% in 2015).

The group stressed that Lurpak (+4.9%) and Anchor (-3%) continued to outperform the market in value and volume in a category that is in decline. It said that consumers were continuing to move towards more natural products, benefiting Lurpak and Anchor who maintain their number 1 and 3 positions.

Tomas Pietrangeli, Managing Director, Arla Foods UK, commented: “In a year of continuing changes in the grocery market as well as political uncertainty, we were able to deliver a strong set of results by driving growth in the UK through our portfolio of popular products, and delivering efficiencies and cost savings in our supply chain8.

“We maintained our commitment to innovation with a number of new and exciting product launches which achieved listings and consumer impact early on, and are performing well.

“Despite these exciting developments we are, however, conscious of the longer-term context and potential impact of Brexit. That’s why we’re working closely with the wider food and farming industry, and with Government, to try and maximise opportunities of Brexit, whilst mitigating potential risks.

“In 2017, we will focus on implementing our UK Strategy 2020 and continue to champion British dairy to help generate greater returns for our farmer owners.”

Source: NamNews 22nd February 2017


Why The Grocery Market Is Like An Oil TankerSpeaking at the NFU annual conference yesterday Nathan Ward, Business Unit Director at Kantar Worldpanel, looked at changes in shopping behaviour and argued that the grocery market is like an oil tanker, where there is lots happening beneath the surface but change in overall direction is slow.

Ward said that stories of the demise of the weekly shop, for example, very much overestimate the changes being seen in the market. He stressed that there has been little change in the number of trips made, how many stores being visited or markets bought.

However, in recent years, the discounters and premium retailers have eaten into the share of the major supermarkets and become a focus, with meat, fish and poultry a driver of their performance. Grocery has seen deflation over the last two years, but has recently moved back towards inflation which will drive a different performance in the market; people are unlikely to eat less and more likely to change what they buy, swapping proteins or trading down tiers.

Ward also covered how consumption is driving shopper behaviour as people seek different things from meals. He said consumers want the Masterchef experience in the home but need support and inspiration and are increasingly time poor. He added that solutions which help meet this dichotomy between a need for taste and quality and a lack of time are more likely to succeed.

Ward highlighted that health has also become more important to consumers, but it is not the health of old. Reduction and control are much less important, and the trend is about a longer-term move to natural, less processed foods that complement other healthier options. Aligned to this is the increase in “flexitarian” lifestyles, accompanied by rising sales of meat free products, which he said clearly presents a huge challenge for the market.

Source: NamNews 22nd February 2017


SPAR launches loyalty app trial A new SPAR loyalty app is set to go live next month. SPAR Go, which gives customers access to promotions and instant rewards on their purchases, will pilot in SPAR St Helens West Park Mews from early March.

Scope for home deliveryAccording to The Grocer magazine the app, developed by business technology group BizzleIt, has been created solely for SPAR UK and allows its stores to target their shoppers at a local level. Registered app users get 'member-only' pricing giving them discounts on everyday items like eggs or milk, and retailers can set up immediate discounts such as a free coffee or newspaper at the weekend with a purchase.

The report also said it understands that a SPAR distributor has already integrated hundreds of stores with the app and one of the biggest SPAR operators, Euro Garages, has registered multiple stores. The app is set up to offer click & collect and home delivery should a retailer choose to set it live. With other SPAR stores beginning a trail with Deliveroo that could herald another avenue for c-stores to overcome that tricky home delivery hurdle.

Source: IGD 23rd February 2017


Asda: Sales decline slows sharply in Q4 Asda has reported a significant improvement in trading for the fourth quarter of 2016. In the the three months to December 31st, like-for-like ex-fuel sales fell by 2.9%, with net sales 0.6% lower than a year earlier

Significant progress over last quarter The -2.9% result represents halving of the rate of sales decline from Q3's -5.8% and clear progress on the -7.8% reported for the three months to June. It also significantly closes the LFL gap on Asda's Big Four rivals, though it remains the only one of the group to remain in negative territory.

"Putting customers first"Commenting on the results Asda President and CEO, Sean Clarke, said: “We are encouraged by the early signs of our customers responding positively to the hard work that’s been happening in our stores throughout 2016, which saw us welcome over 140,000 customers back to Asda this last quarter. We are putting customers first and have sharpened our prices, improved our ranges and availability, all with friendly service. While we have a lot to do, it is great to see our colleagues, who really make the difference, engaged in this change in doing what’s right for customers.”

Upgrading the in-store experienceThese results reflect a major shift in emphasis at Asda since Sean Clarke's appointment as CEO last July. While Asda remains committed to being a price leader to ensure engagement with its core value seeking customer base, increasingly it is investing in other aspects of its proposition. Last year's tie-up with TV chef James Martin gave Asda a platform to support dialogue with customers about food quality, which it has followed up with improvements to the look and feel of its produce departments and relaunches of its own brand ranges. Asda is also taking action to make its stores easier to shop, with range reductions both simplifying choices for customers at the shelf edge and supporting improved availability. The inclusion of concessions such as McGee's butchers and sports specialist Decathlon increasingly provides shoppers with distinct reasons to choose Asda over competitors which it is further supporting with increased investment in its clothing brand George.

Source: IGD 22nd February 2017


Best-one unveils premium store concept Best-one has unveiled a new store concept, 'Best-one +', designed for retailers who want to keep up with changing shopper missions.

New look and feelThe new stores will feature a new look and design, with new window graphics and a new fascia sign. Retailers that want to adopt the premium store concept will need to meet Bestway's criteria which includes purchasing a minimum of 80% wholesale spend from Bestway Direct.

Based on 'shopping missions' In store, the layout will be designed around shopping missions rather than by category. The new Best-one + stores will reflect the growing shopper culture of 'little and often' by focusing on food-to-go, meal solutions and top-up categories. There will also be a bigger focus on chilled categories in the new premium concept.

James Hall, Bestway's Group Director of Symbol, said: "It's about delivering a truly shopper-led experience. Everything has been designed to incorporate what today's shoppers are looking for in a modern convenience store.“

Food-to-go focusIn an interview with trade publication Retail Newsagent, James Hall said that there will be a new trial store in Clapham, which will feature "more food-to-go and seating so consumers stay in-store for longer." Bestway is also currently developing its Best-one consumer facing website and an app, which will lead it "further away from competition."



Higher LFL sales boost Whole Foods Market UK Whole Foods Market has reported an upturn in sales through its UK stores, and profitability also improved.

Slight upturn in sales Newly filed accounts at Companies House reveal that Whole Foods Market's sales grew by 2.8% to £117.3m in 52 weeks to September 2016, a slowdown on the 12.5% achieved in the prior year. This growth was driven by a 3.0% increase (2015=8.7%) in same store sales through its nine UK stores as it focused more on in-store execution and delivering customer satisfaction. Whole Foods aims to be 'the finest food shop' in each locality it serves with its focus on natural foods, health and beauty products, and freshly made offerings. Locally sourced products are a key element of its offer and Whole Foods is committed to supporting regional producers.

Gross profits improveGross profit as a percentage of turnover increased 77 basis points from the previous year primarily as a result of reduced shrink. Operating costs were also reduced, reflecting a drive to reduce central staffing costs, though additional resources were added to stores. Excluding the impact of impairment charges, operational gains increased from £1.4m to £1.8m for the 2016 financial year.



P&G adjusts sampling strategy after admitting it was ‘too myopic’Procter & Gamble (P&G) is adjusting its sampling strategy after taking a view that was “too myopic” on its return on investment (ROI) and comparing it to other advertising activity, which it admits “was a mistake”.

Speaking at the Consumer Analyst Group of New York conference today (23 February), the company’s chief financial officer Jon Moeller said the FMCG giant was “careful” to look at how sampling affects the business and its ROI. But he admitted that the company had expected sampling to have an immediate impact on sales, much like TV advertising.

However, it found that instead it should be looking for longer term impacts. “We might have taken a too myopic view on sampling [in terms of ROI]. We looked at it in the same time horizon as advertising, which was probably a mistake,” he said.

P&G increased its focus on sampling three years ago as it began to see the practice as a “point of market entry”. It has focused in particular on efforts to increase sampling of products such as Pampers and Gillette.

Moeller also spoke about how P&G’s marketing has improved through efforts led by its chief brand officer Marc Pritchard and agency partners.

He said: “In terms of our overall marketing effort, all credit goes to the line leaders of our business and Marc Pritchard. It’s not an area I spend a lot of time on, but there has been a lot of improvement. It’s partly due to the agencies we’re using. We’ve been very clear on what we’re trying to achieve, which has helped a lot.”

So far, P&G has reduced the number of PR and advertising agencies it works with by around 50%, as it looks to make further efficiencies around its promotional spending.

The FMCG giant has been on a mission to become “simpler and more focused” over the past decade. In just over two years, it has divested, discontinued or consolidated 105 brands, reducing the number of categories it competes in by 60%.

It also reassigned several brands to “higher quality partners” and cut the workload to produce far fewer, but “much better”, advertising and marketing campaigns. So far, P&G claims to have saved $620m, which has been reinvested in media and sampling.

“We see more savings runway ahead using digital technology for production, pooling more production and also using open sourcing and creativity in our work to create advertising, both within and outside of existing agency networks,” Pritchard said during an analyst day in November last year.

Source: Marketing Week 24th February 2017

https://www.marketingweek.com/2016/11/21/pg-cut-agencies-optimise-marketing-spend/

https://www.marketingweek.com/focus/procter-gamble/


Aldi, Primark, TK Maxx, Poundworld & TJ Hughes swoop in on former BHS sitesDiscount and budget retailers are swooping in on a raft of former BHS department stores across the UK.

According to Property Week, Aldi has signed a 20-year lease on a former 20,000sq ft BHS site Cameron Toll Shopping Centre in Edinburgh, while Poundworld is close to confirming terms on a former BHS store in London on Wood Green High Road.

Meanwhile, Primark believed to be in talks to take over yet another empty BHS unit in St Ann’s Shopping Centre in Harrow, and if successful, it would be the fashion retailer’s fourth former BHS takeover.

In Bristol, BHS’ Broadmead store is poised to be split up and let to Metro Bank and discount clothing retailer TK Maxx.There is also speculation that discount department store TJ Hughes is eyeing another 10 former BHS stores across the country.

The news come as retailers including Next, The Range and the Edinburgh Woollen Mill Group took on former sites across BHS’s 164 stores across the UK in recent weeks.

Despite this, the chief executive of shopping centre owners Intu, Matthew Roberts, told Drapers yesterday that nine out of 10 former BHS stores in its estate have not yet found tenants.

However, said progress was being made, highlighting Next's decision to open a new store at the former BHS site at Intu Metrocentre next year.

Source: Retail Gazette 24th February 2017


LFL growth2016

LFL growth2015

Total growth2016

Total growth 2015 2016 period

Aldi – – 15.0 – 13 weeks to 31 Dec

Asda -2.9 -5.8 -0.6 – 13 weeks to 31 Dec

B&M (UK) 7.2 -0.7 20.7 24.4 13 weeks to 24 Dec

Booker 3.2 -3.1 2.9 10.5 16 weeks to 30 Dec

Booths 2.6 -1.4 1.8 5.9 3 weeks to 7 Jan

Co-op 3.5 – – – 3 weeks to 31 Dec

Greggs 6.4 2.3 – – 13 weeks to 31 Dec

Lidl – – 10.0 – "festive season"

Majestic Wine 7.5 7.3 6.2 7.5 10 weeks to 2 Jan

M&S Food 0.6 0.4 5.6 3.7 13 weeks to 31 Dec

Morrisons 2.9 0.2 2.0 -1.2 9 weeks to 1 Jan

Nisa 2.2 – 2.7 6.3 10 weeks to 1 Jan

Sainsbury's 0.1 -0.4 0.8 0.8 15 weeks to 7 Jan

Tesco (UK) 0.7 1.3 0.1 0.8 6 weeks to 7 Jan

Waitrose 2.8 -1.4 4.8 1.2 6 weeks to 31 Dec

Source: IGD Research.

Boosted by new stores, discounters again reported the fastest growth rates at Christmas 2016, but the period was most notable for further proof of a trading recovery at the major multiples. Among the Big Four, Morrisons grew fastest, delivering its best performance for seven years, while Tesco also deserves credit for a significant LFL uplift against a more demanding comparative. Premium players Waitrose, M&S and Booths also achieved significantly improved results.

• Christmas in summary

IRI Weekly News updateYour window on the latest trends in Packaged Groceries

Stephen Hall

Friday 24th February

IRI's Weekly News Update - w/c 20th February 2017

Food

Transcript of IRI's Weekly News Update - w/c 20th February 2017