iri's weekly fmcg news update - w/c 5th december 2016

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

Stephen Hall

Friday 9th December

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

• Shop prices continue to fall but food deflation slows sharply• Fortnum & Mason profits surge as provenance pays off• Retail sales growth slows as shoppers hold out for Black Friday bargains• Amazon unveils ‘No Checkout’ grocery outlet in the US• Costco feels deflation impact • Ocado announces strong growth in Q4 • P&H extends van sales with Bakedirect• Aldi: Ireland expansion, UK buying MD retires • Waitrose touts strong sales for Prosecco lip balm• Co-op sells travel business to focus on core food proposition • Food prices to rise without EU workers, industry warns• Discounters set to close the gap for Christmas shop• Poundland moves away from £1 model

Weekly News Summary – 5th December 2016


Shop Prices Continue To Fall But Food Deflation Slows SharplyShop prices fell for the 43rd consecutive month in November, although food price deflation slowed sharply, suggesting the fall in the value of the pound was starting to take its toll.

The BRC–Nielsen Shop Price Index showed that overall shop prices were down 1.7% in November, unchanged from the previous month.

Non-food deflation accelerated to 2.3% after falling 2.1% in the previous two months, as retailer’s cut prices and extended promotions in the run up to Black Friday.

Meanwhile, with a host of grocery manufacturers and retailers having warned that prices will rise in the months ahead due the impact of a weaker pound, food deflation decelerated sharply to 0.8% in November from the 1.2% fall in October. Fresh Food deflation decelerated to 1.2% from a 2% fall in October, while ambient food decelerated in November to -0.1%.

Helen Dickinson, Chief Executive Of The British Retail Consortium, commented: “These figures once again point to retailers’ effectiveness in controlling the inflationary pressure that continues to build through the devaluation of the pound. We have still yet to see any visible impact from the weaker pound on shop prices, but we do expect to see a gradual slowing of the rate of deflation. Increasingly value-driven and informed customers mean retailers will have to remain highly competitive. So while we may start to see cost pressures beginning to feed through into prices next year, we don’t expect any sudden spikes or surges, and the timing and extent of increases will differ from one category and retailer to the next.”

Mike Watkins, Head of Retailer and Business Insight at Nielsen, added: “Shop prices are still falling and deflation will continue to at least the end of the year, as the result of the battle for the wallet of Christmas shoppers. Looking ahead, we can expect a slow return to shop price inflation during 2017 with fresh foods, some of which are also seasonal and weather dependent, likely to be impacted sooner when increased supply chain costs finally begin to filter through to retail prices. However, retailers will keep running promotions and campaigns to encourage retail spend and this will continue to help shoppers to save money next year.”

Source: NamNews 5th December 2016


Fortnum & Mason profits surge as provenance pays offFortnum & Mason has posted a jump in full-year profit as its iconic hampers and fast-growing online business drove sales.Fortnum and Mason

Fortnum & Mason’s net profits rose 27% to £6.2m

The luxury department store business said its British-made products were “at the heart of Fortnum’s success” as net profit surged 27% to £6.2m in the year ending July 10.

Net sales advanced 12% to £98.7m, as revenues from its hampers grew 17%, while the new beauty floor at its Piccadilly flagship sparked a 24% spike in sales of beauty products.

Fortnum’s also reported growth at its other stores, with sales at its St Pancras International and Heathrow Terminal 5 locations rising 19% and 32% respectively year-on-year.

Online revenues climbed 24% during the financial year, meaning its ecommerce proposition has doubled in size over the past three years.

Its digital platform allowed Fortnum’s to deliver to 128 different countries during the year as British products gained traction across the globe.

Hamper surgeFortnum & Mason boss Ewan Venters said the retailer was “anticipating a busy and successful Christmas period”, driven by its hampers and festive food ranges.

The 309-year-old business has also released its first-ever cookbook, written by Tom Parker-Bowles, which is expected to be “a big seller” during the festive season.

Fortnum’s, which works with more than 1,000 UK suppliers, said the amount of trade it engaged in with domestic companies increased 9% during the year.

The retailer’s chairman Kate Hobhouse said: “Knowing that our recent success impacts so positively on so many UK producers is one of the great pleasures of chairing the business.“Our UK suppliers have always been the backbone of our ranges, and we continually nurture new talent wherever it is found.”

Source: Retail Week 5th December 2016

https://www.retail-week.com/companies/fortnum-and-mason


Retail Sales Growth Slows As Shoppers Hold Out For Black Friday BargainsLatest figures from the BRC-KPMG Retail Sales Monitor show growth slowed in November as shoppers held out for Black Friday bargains at the end of the month.

Having risen 2.4% in October, the strongest performance since January, total sales growth slowed to 1.3% in November. This is slightly below the 3-month average of 1.6% but slightly faster than the 12-month average of 1.1%. On a like-for-like basis, sales increased by just 0.6%, compared to a 1.7% rise the month before.

Over the three-months to November, food sales were flat on a like-for-like basis and increased 1.5% on a total basis, well ahead of the 12-month total average growth of 0.7%.

Meanwhile, non-food retail sales rose 1.5% on a like-for-like basis and 1.7% on a total basis. This was faster than the 12-month total average growth of 1.4% and the highest non-food 3-month average total growth since March.

Helen Dickinson, Chief Executive of the British Retail Consortium, said that whilst November’s figures weren’t spectacular, it was a solid performance in what has been a challenging year for the industry.

She said: “November plays host to Black Friday, which over the past few years has become one of the biggest shopping days of the year. This year’s event was expected to be the biggest yet, and our figures confirm that the week including Black Friday saw non-food sales up around 40% compared with the other weeks of the month. However, compared to last year there was more of a shift of spending from earlier in the month, with sales down on last year in the weeks prior to the 25 November.

“It wasn’t the same story for everyone. Retailers of goods that don’t traditionally benefit from the event, such as clothing, saw weaker Black Friday week sales this year, but made the most of the increased online traffic in the weeks building up to the 25th November by offering promotions to capture shoppers browsing for early bargains.

“Overall, consumer spending remains stable, although very much value-driven with a focus towards products on promotion as shoppers take advantage of the deals of the moment and retailers strive to offer the best choice and value to their customers. With an extra weekend to shop for Christmas this year, nerves will be tested in December as retailers choose their strategies to attract the last minute gift shoppers.”



Amazon Unveils ‘No Checkout’ Grocery OutletAmazon has unveiled plans for a potentially revolutionary new type of grocery store – one which will have no checkout counter.

The ‘Amazon Go’ store makes use of what the company has termed the ‘Just Walk Out’ experience, which makes use of an app to follow a customer, detecting when items are taken from or returned to shelves, and charges their Amazon account for the taken items when they leave the store (with a receipt being sent to them).

Amazon said it is using the same types of technologies found in self-driving cars – “computer vision, sensor fusion, and deep learning algorithms.” It said it had spent four years in developing the format, with the first such shop expected to go live in Seattle in early 2017.

The 1,800 sq. ft. outlet will offer ready-to-eat food made fresh daily (either by in-store chefs or by local kitchens and bakeries), grocery essentials, ‘Amazon Meal Kits’, popular brands, and “special finds”.



Costco feels deflation impact We review Costco’s first quarter performance, including its latest ecommerce and market entry initiatives.

Growth led Mexico, the UK and South KoreaCostco’s first quarter net sales increased by 3.2% to $27.5bn, with comp store sales, excluding fuel and currency impacts, up 2%. The retailer continued to see the strongest comp sales growth in Canada, while Mexico, the UK and South Korea delivered the strongest net sales growth. The retailer’s growth was dampened by deflation, primarily in food and hardlines, a factor which has impacted most retailers across the US this year. Costco continues to see significant velocity in pricing, with major swings in several key commodities. It expects the trading environment to remain deflationary for a few more months. The retailer saw strong profit growth with net income increasing by 13.5% to $545m.

Improving the online experienceCostco saw solid growth in online sales, up 8% during the quarter, as the retailer continues to make several improvements to its offer, focused on three key areas. These include enhancing the merchandise offer through introducing more exciting and value-added products and improving the availability of high velocity items, improving the customer experience through improved functionality including a shortened checkout process, better search, and better order tracking, and optimising distribution and logistics through increasing the number of fulfilment locations, bringing it closer to the customer and reducing shipping costs.

Costco has lagged many of its US competitors in this space, and while it is investing in the channel, it remains focused on driving store traffic. However, it is not currently looking at introducing store pickup for online orders, partly due to lack of customer demand and also due to the lack of space within its clubs.

On track to open first stores in France and IcelandCostco plans on opening 31 new locations in the current financial year, with just over half opening in the US. The retailer continues to see significant opportunities within its domestic market particularly in medium sized markets. Eight new clubs were opened during the quarter, with plans on track for its first outlets in France and Iceland. These are expected to open in late spring and early summer respectively.

Source: IGD 7th December 2016


Ocado announces strong growth in Q4 In Q4, Ocado has delivered a 13.1% increase in gross sales and achieved a 13.6% increase over the last 12 months.

Strong sales and order growthIn the 16 weeks to 27th November, average orders per week grew 17.6% to 241,000 in Q4 (Q4 2015: 205,000). The growth in orders was being driven by both new and existing customers.

Declining basketThe average basket size decreased by 2.9% from continued industry-wide price deflation and the increased take up of Ocado's "Smart Pass" that reduces the cost of delivery and therefore helps customers shop more frequently.

Andover CFC openDuring Q4, Ocado have opened a new fulfilment centre in Andover. This will unlock more capacity and support further growth. CEO, Tim Steiner said, "this is the first of our CFCs to use our new proprietary infrastructure equipment solution and software".


http://supplychainanalysis.igd.com/Hub.aspx?id=32&tid=7&nid=3925


P&H extends van sales with Bakedirect Leading UK delivered wholesaler Palmer & Harvey (P&H) is to launch a new service for independent retailers as part of its van sales offer, adding Bakedirect to the existing Snacksdirect and Sweetdirect operations. Bakedirect, initially operating just within the M25, will provide a proactive sales operation for bread and morning goods, targeting business customers with a fleet of 25 vans.

Van sales provides P&H with flexibility to compete with cash & carryWhile its traditional delivered wholesale operation offers an effective solution for servicing the large scale needs of independent retailers, the need for minimum drop sizes and scheduled delivery slots, means it lacks flexibility to meet smaller and shorter term customer needs. Van sales, in contrast, allowing to customers to buy small quantities in key categories as and when needed, gives P&H a solution to target both the top-up requirements of larger retailers, as well as the requirements of a wider range of smaller customers too. P&H's van sales through its existing operations in the latest reported year (to April 2016) were £108m.

Effective route to independent market for suppliers in bakery categoryThe launch of Bakedirect will see P&H working with suppliers such as Warburtons, McVities, Premier Foods and Carrs Foods to create an effective category solution for the mobile sales service. In turn the P&H drivers/sales representatives will support retail customers with category information and expertise, as well as with in-store merchandising solutions.

Noel Robinson, Managing Director of Direct Van Sales at P&H commented:"Our expertise in this area, as the UK's number one direct-to-store van sales operation, ensures that retailers not only have unrivalled service, but also guaranteed profit when it comes to their impulse and baked ranges. We look forward to working closely with our suppliers on this new venture, with the view to expand the Bakedirect offer in the future."



Aldi: Ireland expansion, UK buying MD retires Aldi's UK & Ireland estate is set to grow with new plans to invest in Ireland. This news comes as Aldi UK announces its corporate buying MD will retire next year.

Ireland: 20 stores over next three yearsAldi plans to open 20 new stores in Ireland over the next three years, taking its store count to c.150, however the discounter has its sights set on another 50+ stores. The discounter will invest €100m in to the market and will create 400 new jobs as a result. Giles Hurley, MD of the Irish business, told the Sunday Independent: "Our business model is pretty simple. There’s not a hugely complex strategy. We want to make a store available to everybody in Ireland. Our belief is that by doing that we’ll continue to develop our sales and our market share." Aldi has identified opportunities in larger metropolitan areas such as Dublin, Limerick, Galway and Cork where store presence is currently limited.

Tony Baines to retire in 2017After more than 22 years with the business, UK managing director of corporate buying, Tony Baines, will retire next year. Baines joined the business shortly after it launched in the UK and has since played an integral part in growing Aldi's buying power and supplier relationships. His overall responsibility has been to source the retailer's food and non-food products which have grown and developed significantly over the last two decades. Baines will be replaced by Julie Ashfield who will be promoted from her current role as group buying director. She has been with Aldi since 1999 and will take over from Baines at the beginning of 2018.

Aldi's plans to win this ChristmasThis year, Aldi has increased its range over the festive period by 11%; its largest range to date. Talking about the range, Baines has said: "At Christmas we know that people want to treat their family and friends to luxury food and drink. Yet many shoppers are unaware they are spending more than they should for certain products sold by many retailers and supermarkets. At Aldi many of our Specially Selected products are sourced from exactly the same suppliers as more expensive food retailers." Sales of Aldi's premium private label range Specially Selected have increased by 25% this year to £600m, and the discounter expects sales to top £750m in 2017.



Waitrose Touts Strong Sales For Prosecco Lip BalmWaitrose has underlined the continued popularity of Prosecco amongst British shoppers, noting that its new Prosecco-inspired festive lip balm has sold out with still three weeks to go before Christmas.

Waitrose said it has had to double the amount originally ordered for the balm (£2.99), first launched in November. Made in the UK, the balm blends moisturising and smoothing ‘sweet almond oil’ with ‘gold of pleasure oil’ (derived from camelina seed oil) to closely match the flavour and aroma of Prosecco.

The new batch of the lip balm is now available in stores.



Co-op sells travel business to focus on core proposition In a move that will allow the Co-op to focus on its core Food and Funeral operations, it will exit the joint venture it has held with Thomas Cook since 2011.

Sites to become Thomas Cook branded in two yearsThomas Cook, which has been responsible for the operation of the joint venture, will buy the Co-op's 30% stake for £50m. The move will also see them buy Central England Co-op's 3.5% stake for £5.8m enabling them to take control of all 764 outlets. Speaking of the decision Rod Bulmer, Chief Executive of Consumer Services at the Co-op said: “We have enjoyed a successful partnership with Thomas Cook through the joint venture. Going forward, having a minority stake in a travel business does not fit with the strategy of the Co-op." He added tha tthe money raised will be reinvested in its core business.

Peter Fankhauser, chief executive of Thomas Cook, said: "Our relationship with the Co-op has given us a strong presence on the high street and fantastic colleagues across the UK, both of which are so important in attracting and inspiring our customers.This purchase gives us full control over our retail store network, enabling us to better integrate our stores with our online offering" he continues, "Over the next two years, we will bring all of our UK stores under the Thomas Cook banner so we can make full use of the best brand in travel."

Focus on foodThe focus on the core convenience offer certainly seems to be paying off. The H1 results released back in September showed how its c-store estate was well above the average with like-for-like sales up 4.3%.


http://retailanalysis.igd.com/Hub.aspx?id=13&tid=1&rid=8&nid=15787


Food prices to rise without EU workers, industry warnsFood prices are set to rise unless the government ensures EU citizens can work in the UK after Brexit, industry groups have warned.

An open letter signed by 30 food and drink industry bodies, including the British Retail Consortium, the Food and Drink Federation and the National Farmers Union, urged the government to recognise the “essential reservoir of skilled, semi-skilled and unskilled labour” EU workers provide for their industry.

The letter, published in The Guardian, said: “Workers from the European Union, some of whom are already leaving the UK, play a significant role in delivering affordable and high-quality food and drink.”

EU workers account for 90% of jobs in the food and drink supply chain.

It said that if a points-based permit system for immigrants is introduced, the food and drink industry should be put on a par with financial services and the automotive sector.

“All options should be explored, including a workable points-based system for shortage occupations, sector-based and seasonal/guest worker schemes and effective transitionary arrangements.

”If it is not, the UK will face less food choice and higher food prices.”

Labour shortageThe letter claims that some EU workers have already started leaving the UK in the wake of the Brexit vote and asked the government to “offer unambiguous reassurance” to EU workers about their right to remain in the country.

Meanwhile, employment agencies have warned that the UK’s food industry is facing the worst labour shortage for at least 12 years.

The Association of Labour Providers (ALP), whose employment agency members supply 70% of the temporary labour used by the food and drink industry, recently said job ad responses had slumped by up to 70%.

Source: Retail Week 9th December 2016


Discounters set to close the gap for Christmas shopAccording to new research by reward programmes provider Webloyalty, Aldi, Lidl and Marks & Spencer are set to post the highest growth in market share this Christmas among the major supermarkets.

The Christmas Trends Report found that Asda was likely to lose the greatest market share – a 2.4% decrease compared to Christmas 2015 – while Morrisons was expected to see a 1% increase in consumers planning to use the retailer for Christmas grocery shopping.

The report predicts Lidl will see the biggest gain with a 3.9% year-on-year increase to 22.4% of consumers planning to use the retailer for festive grocery shopping, while Aldi is expected to see an increase of 2.2% to 26.7%, closing the gap on Tesco and Sainsbury’s.

Guy Chiswick, managing director of Webloyalty, Northern Europe said: “Our research reflects the growing impact of Aldi and Lidl who are successfully appealing to a wider range of shoppers thanks to the upgrade in the quality of their food and drink.

“This is particularly noticeable at Christmas when they are no longer outperformed by the luxury offerings of the big four and are enjoying a surge in popularity.”

Source: Talking Retail 9th December 2016


Poundland moves away from £1 modelPoundland has announced that it will move away from its single price model and offer a broader range of products.The discount retailer was recently acquired by South African giant Steinhoff in an arduous take over process for £635 million.

Steinhoff has now announced that it will be adding footwear and apparel products from its Pep&Co chain to Poundland stores, adding a more varied price range to its product base.

Chief executive of the group Markus Jooste has stated that in the stores where these new products were offered “gross margins increased substantially”.

He added: "Management is quite confident that a multi-pricepoint and a different mix of product is definitely in store for the future for those brands in the UK.”

Rumours emerged last month that Poundland would be shutting 80 of its 900 nationwide stores in a move to prevent duplication in towns. Steinhoff failed to comment on the matter.

Source: Retail Gazette 9th December 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 16Source: IGD Research, Amazon.com and Google

INNOVATION OF THE WEEK

‘Amazon Go’ is a new digitally enabled convenience store, which is approximately 1,800 sq ft in size. Amazon claims to have created the world’s most advanced shopping technology within the store, allowing shoppers to have a ‘Just Walk Out’ shopping’ experience.

SHOP

AND

GO

AMAZON OPENS DIGITALLY ENABLED FOOD STORE

How it works The checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, sensor fusion, and deep learning. All the shopper needs is an Amazon account, a supported smartphone, and the free Amazon Go app.

Amazon’s new food store highlights its ambitions for the food and grocery market. Utilising its technological capabilities will make it an appealing proposition for shoppers that are looking to shop as quickly and conveniently as possible.

The ‘Just Walk Out’ technology automatically detects when products are taken from or returned to shelves and keeps track of them in a virtual cart. This enables shoppers to walk straight out of the store. Their Amazon account will then be charged, and they will be sent a receipt.

The store is located at 2131, 7th Avenue, Seattle, WA, on the corner of 7th Avenue and Blanchard Street

About the innovation

The Amazon Go store is currently only open to Amazon employees, for a testing period, but will be open to the public in early 2017.The store will offer ready-to-eat breakfast, lunch, dinner,

and snack options made on-site. The selection of grocery essentials range from staples like bread and milk to artisan cheeses and locally made chocolates. The store has well-known brands. Amazon Go offers meal kits, called Amazon Meal Kits, which will have all the ingredients needed to make a meal for two in about 30 minutes.

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

Stephen Hall

Friday 9th December