iri's weekly fmcg news update - w/c 6th march 2017

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

Stephen Hall

Friday 10th March

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

• Sainsbury’s cutting hundreds of store jobs as part of efficiency drive• Shoppers rein in their spending as prices rise• Ocado trials delivery by electric vehicles with low emissions • Inflation lifts GB grocery growth to 2½ year high • Tesco extends same-day click and collect service • Price of everyday grocery items still falling• Tesco becomes first UK retailer to offer fresh pet food range• Morrisons delivers strong full year 2016/17 results • Budgens operator to close 34 stores • 'Shrinkflation' study finds brands risk losing 35% of customers if they cut portion

size by 15%• Gross sales and profits climb in Waitrose full year results • High street retailers suffer worst February in eight years

Weekly News Summary – 6th March 2017


Sainsbury’s Cutting Hundreds Of Store Jobs As Part Of Efficiency DriveSainsbury’s has announced that it is cutting up to 400 roles as part of a shake-up of its store operations.

The group is removing 400 price controllers (staff that check prices are displayed correctly on shelves) from its operations with the task now set to be carried out by other staff. The affected workers will be offered jobs elsewhere in the business or redundancy.

Sainsbury’s also revealed that it was cutting night shifts in 140 stores, requiring around 4,000 staff to move to either early morning or late evening shifts. However, they are expected to lose their night-shift premium.A company spokesperson commented: “We regularly review our business to ensure we’re operating as efficiently and effectively as possible and our resources are in the right place, so that we can provide our customers with the best possible service.

“Following a recent review, we are making some changes to administrative roles and night shift patterns in a number of stores, subject to consultation.”

The move comes amid a swath of similar announcements across the retail sector as businesses look for ways to make their shops more efficient and cheaper to run amid rising costs and changes in shopping behaviour.

Source: NamNews 6th March 2017


Shoppers Rein In Their Spending As Prices RiseLatest data from the BRC – KPMG Retail Sales Monitor suggests that the consumer spending boom may be losing steam as shoppers adopt a more cautious approach as prices start to rise.

Overall, UK retail sales last month decreased by 0.4% year-on-year, impacted by weakening non-food sales. On a total basis, sales rose 0.4% in February, well below the 3-month average of 0.8% and the 12-month average of 0.9%.

Over the three-months to February, non-food retail sales declined 0.4% on a like-for-like basis and 0.2% on a total basis. This is the first 3-month decline since November 2011, dragging the 12-month total average growth to 0.6%, the lowest since May 2012.

Meanwhile, over the same period, food sales increased 0.6% on a like-for-like basis and 2.0% on a total basis. This is the third consecutive 3-month average total growth of 2% or above, taking the 12-month total average growth to 1.2%, the highest since May 2014.

Helen Dickinson, Chief Executive Of The British Retail Consortium, said the negative distortion created by the later timing of Mother’s Day this year had impacted some non-food categories. However, she added that looking beyond this distortion, the persistent weak sales performance of several non-food categories pointed to an “undeniable trend” of cautious spending on non-essential items.“Tougher times are expected ahead,” she said. “The impact of inflation on consumer spending will add further intensity to an already fiercely competitive environment in which the ability to adapt and innovate will be key to survival.”

Paul Martin, UK Head Of Retail at KPMG, added that with inflation starting to have an impact on retail performance, it was clear that consumer confidence is showing signs of deteriorating. “Retailers will be paying close attention to the upcoming Spring Budget in the hope of seeing some measures to ease the pressure being placed on margins. For some bricks and mortar retailers, a hike in business rates may well be the straw that breaks the camel’s back,” he said.

Meanwhile, commenting on the food sector, Joanne Denney-Finch, Chief Executive at IGD, said: “Food and grocery turned in a solid sales performance throughout February, with a particularly strong Valentine’s Day this year.

“The return of a little inflation to the aisles is also playing its part and shoppers are bracing themselves for more to come: 81% believe food prices will rise in the coming year, the highest level of anticipation since September 2016. This puts the emphasis back on hunting for value, with 63% of shoppers favouring everyday low prices over more special offers.”



Ocado trials delivery by electric vehicles with low emissions Ocado is testing grocery delivery by electric vehicles in London with benefits including reduced carbon footprint, reduced congestion and reduced noise levels.

About the vehicleAs reported by The Independent, the bike-like TRIPL vehicle, designed in Denmark, is small and manoeuvrable, which makes it easier to deliver to confined areas or busy roads. The vehicle is suited to short deliveries with a top speed of 45km per hour and a range of 100km on a single charge.

Low-emission alternativeThe vehicle will be used in urban areas for the benefit of the environment, as it has a low carbon footprint and is much quieter than a standard car. It will help to reduce air pollution and keep noise levels down in residential areas. The trial has started in London, which may introduce ultra-low emission zones over the next few years. This vehicle could be a good alternative and Ocado could introduce it at the end of the year, provided the trial is successful. Ocado ahead in technologyOcado is continually exploring new technology to make online grocery fulfilment and delivery more efficient. Our recent 'Innovation of the Week' explores the implications of Ocado's robot hand, currently in testing, which can pick and pack fruit and vegetables.

Source: IGD 7th March 2017

http://retailanalysis.igd.com/Hub.aspx?id=101&tid=9&trid=8


Inflation lifts GB grocery growth to 2½ year high New data from Kantar Worldpanel reveals that the GB grocery market is growing at its fastest rate for over 2½ years, as cost pressures feed through to higher shop prices.

Inflation doubles but not all categories impactedIn the 12 weeks to February 26th, sales were 2.3% higher than the same period last year, up from 1.7% in the previous period, lifted by a doubling of inflation from 0.7% to 1.4%. While inflation remains low by historic standards, certain categories experienced significant price rises. Kantar reports that staples such as butter, tea and fish saw price increases of over 5% in the last 12 weeks, while imported fruit and vegetable prices also saw an uptick in price. That said, some categories continue to buck the trend, with the crisps, eggs and bacon all cheaper than a year ago.

Trading improvements across the Big FourOf the Big Four, Morrisons achieved the strongest performance with its +2.6% growth a significant advance on last month's +1.9%, and an encouraging result ahead of the unveiling of its full year results on Thursday. Morrisons has been helped by store closures dropping out of the calculation, its new The Best premium own brand enabling it to benefit from higher ticket prices and expansion online. Sainsbury's achieved growth for the first time since March last year, with sales up 0.3%, raising its profile with the launch of its distinctive food dancing ad campaign. Tesco has now experienced growth for six consecutive periods, its best run since January 2014 while Asda will be heartened by the reduction in its rate of sales decline to -0.8% from -1.9% last month.

Discounter growth continues at paceDespite a 0.5% gain in the market share of the Big Four on a year earlier, there is no sign of a slowdown in discounters' rapid expansion. This month saw a surge in Lidl's growth to 13.0% this time from 8.6% with its performance strengthened by the rollout of its 'stores of the future' format, including new London locations such as Bermondsey. Aldi meanwhile extended its lead over Co-op and Iceland again delivered impressive sales gains.



Tesco extends same-day click and collect service Tesco has announced it is extending its same day click and collect service, by adding a new slot.

New two-hour slotTesco shoppers can now order before 9am and book a two-hour slot to collect the grocery order from midday onwards. The new slot adds to the existing same-day service, where shoppers can order by 1pm to pick up from 4pm. This gives shoppers more flexibility for collecting their grocery orders.The service is now available from over 300 locations in the UK and it now costs between £2 and £4, depending on the time of day and collection.

Shoppers turning to click and collectShoppers are increasingly turning to click and collect as a convenient way to do grocery shopping. The service provides shoppers with the flexibility of being able to pick up grocery orders when they please, rather than waiting in at home for a delivery. Tesco has said that it has had a 20% increase in the number of shoppers using the service, and the same-day option is proving popular with almost 10% of click and collect orders.Our ShopperVista monthly shopper update, shows an increase in openness to click and collect with 27% of shoppers saying that they like the idea of grocery click and collect in Jan 2017, compared with 24% in September 2016.

Building onlineUK retailers are increasing investments in the online channel and showing a more experimental ethos to unlock emerging opportunities.

The extension of Tesco's click and collect service is the latest development for Tesco's online strategy. Recently, the UK's largest retailer also launched same-day home delivery for shoppers in London and the south-east, for orders before 1pm. Sainsbury's is also building its online proposition by investing in click and collect, which is now available in over 200 stores and rapid delivery, with 30 stores now offering same-day delivery.



Price Of Everyday Grocery Items Still FallingWhilst yesterday’s data from Kantar Worldpanel showed that food inflation was starting to accelerate, separate figures from price comparison website mySupermarket shows that the competitive trading conditions are keeping the cost of everyday grocery items in check.

mySupermarket’s monthly Groceries Tracker found the price of a basket of 35 popular items came to £82.15 in February compared to £82.27 for the month previous (see table below). Shoppers paid less for items such as toilet paper (-5%), breakfast cereals (-2.5%), pasta (-6%), Broccoli (-16%) and fresh peppers (-7%) compared to January and 4% less in total compared to February 2016.

However, shoppers did see big rises for some fresh items due supply shortages in January and February, including Apples (+5%), Bananas (+10%) as well as fresh leaf salad (+4%).

Overall the cost of 14 items fell in February, whilst 17 increased.

mySupermarket’s CEO Gilad Simhony said that strong competition between supermarkets is continuing to help keep prices down despite effects of the the falling pound and vegetable shortages.


http://www.kamcity.com/namnews/uk-and-ireland/supermarkets/supermarket-sales-grow-at-fastest-rate-since-2014-asdas-performance-continues-to-improve/

http://www.kamcity.com/namnews/uk-and-ireland/supermarkets/supermarket-sales-grow-at-fastest-rate-since-2014-asdas-performance-continues-to-improve/


Tesco Becomes First UK Retailer To Offer Fresh Pet Food RangeTesco has introduced a full range of high quality fresh pet food at several hundred UK stores, following a successful trial last summer.

The ‘Freshpet’ range will now be available at 300 Tesco UK stores, and will include 10 products, ranging in price from between £3 to £13.50, depending on size of pack.

The launch follows growing demand for posh food treats for cats and dogs, particularly over the Christmas period, when Tesco saw a 100% increase in sales of luxury festive meals and foodie treats for cats and dogs. Tesco has also seen the demand for high quality dog and cat food from natural and organic pet food soar by more than 20%, with two million products sold.

Tesco pet food buyer Paul Jones said: “We are seeing a real shift with customers looking for similar high quality food credentials for their pets, as they have for themselves. Our Freshpet food range is about offering customers a high quality alternative to everyday pet food.”



Morrisons delivers strong full year 2016/17 results The UK's fourth largest grocer has reported a strong set of annual results for the year ending 29 January 2017, with its first year of positive LFL growth and growth in underlying profits since 2011/12.

Volume-led sales recoveryLFL sales through the year grew by 1.7% as Morrrisons made substantial progress against its the six priorities in its 'fix, rebuild and grow strategy. LFL has now been positive for five quarters with growth strengthening to 2.5% in Q4. Total sales also grew by 1.2% despite negative net new space, reflecting Morrisons planned programme of store closures. Underlying profit after allowing for last year's restructuring costs was up 11.6% to £337m, towards the upper end of guidance to investors.

Investment in price and quality Key to Morrisons stronger performance has been the retailer's improved competitive position. A focus on lower everyday prices through Price Crunch activity has broken its traditional reliance on promotions and helped to deliver volume growth on products that matter most to Morrisons customers. Besides strengthening the fresh food offer for which it is most famous, Morrisons has enjoyed much success with the relaunch of its premium own brad range under The Best label, helping to re-engage quality seeking customers and defend itself against popular premium private labels at Aldi and Lidl. Local sourcing is another area of opportunity following 20% sales growth over the year with Morrisons having just launched a nationwide programme to find new local suppliers to work with.

Serving customers betterMorrisons stores are functioning much more efficiently as a new automated ordering system is rolled out across categories, a programme that will continue through 2017. This is boosting availability and saving colleague time, freeing up colleagues to offer better service to customers. Customer satisfactions scores are improving in response and LFL transactions are up 4.0% over the year.

Investments in storesMorrisons has now completed 100 Fresh Look refits, introducing features such as wine chiller fridges, customer greeters and making its in-store specialist craft skills more visible to customers. Stores are also benefiting from the rollout of more 'useful' services such as Timpson dry cleaning and key cutting, Amazon lockers and upgraded cafes. More will follow, including a new tie-up with Doddle and car wash concessions.

Online to be boosted by store pickingMorrisons online sales are progressing well with the channel making a 0.9% contribution to full year sales. Morrisons is working with Ocado to improve the profitability of operations out of its Dordon fulfilment centre and will launch a store pick solution later this year, followed by operations from Ocado's Erith CFC in 2018.

Wholesale supply to grow through new deal with RontecFollowing on from the launch of its wholesale supply agreement with Amazon last June, Morrisons is developing other wholesale opportunities. It has now opened 10 Morrisons Daily stores with forecourt operator Rontec and plans to open a further 40 in coming months. However Morrisons will end its five store pilot with Motor Fuel Group. Morrisons is also reviving the Safeway brand for use by independent retailers in the wholesale channel.Source: IGD 9th March 2017


Budgens operator to close 34 stores More than 800 jobs have been lost after Food Retailer Operations Limited, the owner of 34 Budgens stores, collapsed into administration.

Hilco Capital, appoints PwC as administratorFood Retailer Operations Limited bought the stores from the Co-operative Group in July and said at the time "there are no planned redundancies" and stores will continue "trading as usual". But last month, Food Retailer Group, an arm of business restructuring specialists Hilco Capital, stated that the company had experienced tough trading conditions and had appointed PwC as administrator and the accountancy firm has failed to find a buyer. A total of 815 staff have begun the redundancy process.

Mike Denny, joint administrator at PwC, said: "Unfortunately, we have been unable to find a buyer and it is not commercially viable to continue trading the stores. We are working closely with the Co-op, Usdaw and the relevant government agencies to ensure that all employees receive the maximum levels of practical and financial support through the redundancy process."



How we would rather pay more than eat less: 'Shrinkflation' study finds brands risk losing 35% of customers if they cut portion size by 15%• Study finds firms risk losing customers if they shrink portion sizes• Half of consumers would rather pay more than see their favourites shrink• Toblerone made headlines when it was made lighter amid rising ingredient costs

Consumers would rather pay more than see their favourite products shrink as brands move to cut costs, a survey suggests.

Brands risk losing up to 35 per cent of their customers if they cut their portion sizes by 15 per cent, a YouGov poll found.The YouGov Portion Sizes and Health report suggests that 13 per cent of consumers would stop buying a product that had shrunk by 5 per cent and a further 22 per cent would do the same for a product cut by 10 per cent.

The study into food 'shrinkflation' - when a brand reduces the size of a product without cutting the price - found that companies risk losing customers as a result of the practice.According to the YouGov poll, almost half of consumers would rather pay more than see their favourite products shrink, while 36 per cent would favour the price to stay the same but the portion to decrease.

Although 38 per cent said they still bought a product when they knew it had been reduced in size, almost one in five stopped buying when the price went up and the size went down and 17 per cent stopped buying because the size went down and the price remained the same.

A number of brands have cut the size of products without alerting consumers while maintaining the price.

Toblerone made headlines late last year when its US producer Mondelez International changed its distinctive mountain peak shape and made bars lighter because of rising ingredient costs.

Stephen Harmston, head of YouGov Reports, said: 'The reaction to the news that Toblerone had shrunk the amount of chocolate in its product was met by a mixture of bemusement, confusion and frustration by consumers, but the brand is hardly alone in adopting this approach.

'Our data indicates that these companies are treading a fine line.

'Consumers will only accept a certain degree of downsizing before they look elsewhere, and would rather pay a bit more in order to preserve the portion sizes they have now.'

Source: Daily Mail 9th March 2017


Gross sales and profits climb in Waitrose full year results Waitrose has reported higher gross sales and improved profits in just released full year results. Gross sales grew by 2.7% to £6.63bn in the year to 28 January 2017 as it increased market share and customer numbers, and benefitted from 270,000 more customer transactions per week. LFL sales were however slightly negative (-0.2%) as strong Christmas trading failed to offset for a 1.0% decline in LFL sales in H1.

Strategy shift on new storesIn response to market challenges, Waitrose has shifted its strategic focus from building new stores to enhancing the customer experience at existing stores. Only five supermarkets and five convenience stores opened last year and less space will open in the year ahead. Waitrose plans to open two core supermarkets and five convenience stores and it also expects to close four underperforming supermarkets and two convenience stores in 2017. At the same time it will push ahead with a three year branch regeneration programme.

Building scale in foodserviceWaitrose has continued to build scale and innovate in hospitality sector. Across its estate it now has 121 cafes, 85 bakery grazing areas, nine juice bars and seven wine bars. In addition, 24 branches now host Sushi Daily concessions and a further 36 are planned. During 2016/17 foodservice sales grew by 4.7% (excluding Sushi Daily) and food-to-go sales advanced by 7.3% as Waitrose provided more solutions for seeking shoppers.

Success with Waitrose 1The new Waitrose 1 premium range has experienced impressive sales growth with Waitrose using the range to champion its focus on quality and provenance. The range now extends to 766 products and rebadged products have experienced 17.5% growth since the launch of the range in May. The range is highly rated by Waitrose customers with products gaining an average of 4.2 stars out of five in reviews left on Waitrose's website. Further expansion of the range is planned, particularly with innovative products.

Focus on productivityTo drive productivity and improve customer service Waitrose has been piloting a Working Flexibly model in a number of stores, with fewer but better trained and multi-skilled staff taking on a wider range of tasks. Following the successful trial in which productivity increased by 2.4%, this model will be rolled out to all core supermarkets by the end of July. Linked to this, Waitrose recently announced the removal of department manager roles from its stores and their replacement with a deputy store manager role.

Growing Waitrose internationallyWaitrose continues to develop opportunities for its brand outside the UK. Its export business has grew by 14.9% last year, helped by a new partnership with online retailer British Corner Shop. In addition, Waitrose has signed a new export deal with Alibaba, enabling it to sell products in China for the first time.


http://retailanalysis.igd.com/Hub.aspx?id=13&tid=1&rid=26&nid=16273

http://retailanalysis.igd.com/Hub.aspx?id=23&tid=3&nid=15483&app=10


High Street Retailers Suffer Worst February In Eight YearsAccording to BDO’s High Street Sales Tracker (HSST), UK retailers have just experienced their worst February since 2009, with like-for-like sales dropping 2.2%.

The decline, coming off an already negative base of -1.7% for February 2016, marks the third month in a row of negative growth and the fourth consecutive February with no growth.

Year-on-year fashion sales were down 3.4% in February – the poorest result for the sector since September 2016 (when they dipped 5.9%).

Sales of homewares also fell for the first time since June 2016 – down 1.4% year-on-year – as households tightened their belts against rising prices. Even online sales slowed, growing at just 19.9% in February.

Strong sales of Valentines goods helped the lifestyle sector register weak growth of 0.4% year-on-year for February, but this couldn’t counteract a fall in footfall as the harsh weather hit the UK at the end of the month.

Sophie Michael, Head of Retail and Wholesale at BDO LLP, said the figures laid bare the intense pressure on consumers’ discretionary spending.

“On Wednesday the Chancellor told us growth in the economy was expected to be higher – and borrowing lower – than forecast in November, but that hasn’t translated into consumer spending power,” she said.

“February saw a perfect storm – both figuratively and literally. Doris kept shoppers away from the high street, but the relatively poor growth of online sales in February shows that the economic headwinds significantly curbed spending.

“The majority of retailers’ price hedges ran out at the end of last year, and inflationary cost pressures have forced them to increase prices – sharply in some cases.”

She added: “Retailers, more than ever before, should focus on product, quality, range and service. They should provide a differentiation which encourages and enables their target customer to justify paying full price at a time when the consumer purse will begin to tighten.

“Whilst these cost headwinds are a cause for concern, retailers need to find ways to ride out the storm and look to opportunities relevant to their business, such as exports or international expansion.”



Retailer Quarterly LFLs

© IGD 2017

Q1 2013

Q2 Q3 Q4 Q1 2014

Q2 Q3 Q4 Q1 2015

Q2 Q3 Q4 Q1 2016

Q2 Q3 Q4-8

-6

-4

-2

0

2

4

Asda M&S Morrisons Sainsbury's Tesco

%

• Source: Retailers.

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

Stephen Hall

Friday 10th March