IRI's Weekly FMCG News Update - w/c 11th July 2016

Macroview
Weekly News update
Your window on the latest trends
in Packaged Groceries
Stephen Hall
Friday 15th July

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 2
• McBride to post better-than-expected profits as restructuring project pays off
• Waitrose to slash payment terms for small food producers
• Aldi extends partnership with Team GB for another four years
• Tesco kicks off summer trading with double Clubcard points weekend
• Disappointing month for retail sales but too early to assess impact of Brexit
• No signs of Brexit blues at Waitrose and John Lewis
• Poundland agrees to £597m takeover offer from Steinhoff
• Ebay eyes possibility of pop-up stores in Sainsbury's outlets
• Iceland to open first dark store
• B&M making good progress in tough market
• Mothercare continues on path to recovery
• Co-op sells 298 stores to McColl’s for £117m
• Halfords like-for-likes slip as bad weather hits cycling sales
Weekly News Summary – 11th July 2016

McBride To Post Better-Than-Expected Profits As Restructuring
Project Pays Off
McBride said today that it expects its adjusted operating profit for the full year to 30 June to come in slightly ahead of its
previous expectations.
In a full trading update, Europe’s largest manufacturer of private label household and personal care products said its full
year performance had benefited from better than anticipated progress on cost saving initiatives, including the final year
impact of its UK business restructuring project. Purchasing-driven savings, in part a result of the decision to reduce the
group’s range of products and customers, also contributed to the result.
McBride added that a simplification programme to reduce the number of small customers served by the group remained
on track with full year sales lower by approximately £6m as a result of this action. Additionally, the group’s revenues
continued to be affected by ongoing price pressures in a number of key markets, especially in the UK. Consequently, on a
constant currency basis, McBride said that revenues for the year ended 30 June 2016 were 1.9% lower than the prior
year.
Meanwhile, the group stated that there had been no impact on its day-to-day operations from the outcome of the EU
referendum in the UK, adding that it remains too early to determine the longer-term effects on McBride’s activities, of
which approximately 70% are in subsidiaries based outside the UK.
The statement concluded: “The Board remains confident in the execution of the ‘Manufacturing our Future’ strategy,
through the three-stage ‘Repair, Prepare, Grow’ implementation plan”.
McBride will announce its preliminary results for the year ended 30 June 2016 on 7 September 2016.
Source: NamNews 11th July 2016

Waitrose To Slash Payment Terms For Small Food Producers
Waitrose has announced that it will reduce its payment terms for all small food producers to a maximum of just seven
days.
The retailer said the step, which will be phased in over the next two months, follows an internal review of payment terms
for smaller suppliers and will mean that the supermarket now offers industry leading terms.
Waitrose has pledged to pay all its small scale suppliers, whose business with the retailer is worth less than £100,000
annually, within seven days of receipt of a valid electronic invoice. It said that more than 600 UK food producers will
benefit from the change.
Mark Williamson, Waitrose Commercial Director, commented: “The internal review of how we pay our smallest suppliers
was initiated because we wanted to make our good relationships with small suppliers even better by simplifying the
payment process.
“We are passionate about supporting and nurturing British producers – and this step will help give smaller scale
businesses, including new start-ups, more financial stability by helping with cash flow.”
Waitrose has a dedicated buying team for local and regional suppliers and sells over 2,500 locally and regionally sourced
products from 600 suppliers, with plans for further growth.

Aldi Extends Partnership With Team GB For Another Four Years
Aldi has announced that it is extending its partnership with Team GB through to the Tokyo Olympic Games in 2020.
The discounter became the first official supermarket partner to Team GB in March last year and has been supporting the
nation’s athletes as they prepare for next month’s Rio Olympic Games.
To mark the extension of the partnership with the British Olympic Association (BOA) for another four years, Aldi launched
a new TV advertising campaign profiling its support of Team GB last night on ITV1.
Matthew Barnes, Chief Executive Officer for Aldi UK and Ireland, said: “We have built our business on making long-term
commitments to British products and suppliers, in order to offer our customers outstanding quality at unbeatable prices.
“As the athletes begin making their final preparations for Rio 2016, we want them to know that we will be supporting
them in the long-term too. All the way to Tokyo, in fact.”
Aldi first announced its sponsorship of Team GB as part of its 25th anniversary in the UK in 2015. Since then, it has
worked with the BOA on its youth engagement programme, Get Set to Eat Fresh, and Homegrown Heroes, an initiative to
connect athletes with their local communities.
The renewed partnership with Team GB will see Aldi continue to support athletes as they enter a new Olympic cycle, and
partner with the BOA on future key initiatives in the community.
Bill Sweeney, Chief Executive Officer of the British Olympic Association, said: “Aldi has been a great support for the
country’s athletes on the road to Rio 2016 and we look forward to extending that partnership over the coming years.
“Like us, Aldi has a strong track record of investing in Britain and has really captured the British imagination in recent
years. As this year’s athletes prepare themselves to do extraordinary things in Rio, we are looking forward to working
with Aldi again as we begin the journey to Tokyo 2020.”

Tesco Kicks Off Summer Trading With Double Clubcard Points
Weekend
Following the recent shake-up of its Clubcard loyalty scheme, Tesco has announced that card holders will be able to earn
double points this weekend on purchases in store and online.
Back in April, Tesco announced that it was ending its popular Clubcard Boost events as part of moves to make its loyalty
scheme simpler and more rewarding all-year round. The group said it planned to do more to help customers get the most
out of the scheme, such as double points events to help them grow their points balance faster and improving its Boost
Partners offer.
Ahead of the summer holiday season, this weekend’s promotion will see customers earn two points per £1 spent in store
and online, and two points per £2 spent on fuel. Tesco added that it was also working with a range of Clubcard Partners
this summer to provide its customers with a broader choice of offers.
Robin Terrell, Chief Customer officer, commented: “We know that our customers find Tesco Clubcard helpful – it’s one of
our unique ways of saying thank you, and is the leading loyalty scheme in retail.
“As part of our ongoing plans to serve Britain’s shoppers a little better every day, we want to help them get the most out
of Clubcard by making it more simple, straightforward and appealing, offering our customers even more value – and
helping us to say an even bigger thank you for shopping with us.”

Disappointing Month For Retail Sales But Too Early To Assess
Impact Of Brexit
The latest BRC-KPMG Retail Sales Monitor shows that sales were down 0.5% in June on a like-for-like basis, although the
poor weather rather than the result of EU referendum was blamed on the disappointing figures.
Total sales edged up 0.2% with weak clothing sales offset by demand for furniture and home accessories as consumers
attention shifted indoors to escape the wet weather. The BRC said that while sales slowed towards the end of the month
following the EU referendum, it was too early to define this as a trend.
BRC Chief Executive Helen Dickinson commented: “Britain’s retailers remain open for business. The EU referendum vote
has not changed their relentless pursuit of delivering for customers day in, day out or their investment in meeting the
needs of fundamental changes in the way people shop, driven by digital and technology. Despite the fall in the pound, the
time it takes for any input price increases to translate into higher shop prices will depend on a combination of factors
including further changes in the pound, commodity prices and the challenge for retailers to move pricing given the
intensity of competition. So, there won’t be any instant shocks as any changes would take time to feed through.”
David McCorquodale, head of retail at KPMG, added: “While the ramifications from the Brexit vote may well affect
consumer confidence, retailers will be hoping the long-promised heatwave and potential stay at home holidays will be
enough to drive shoppers back to the high-streets over the months ahead.”
Meanwhile, Euro 2016 gave the grocers a bit of a boost, with sales improving 0.8% in the three months April-June.
However, like-for-likes continued to decline, suggesting food and drink sales continue to be dragged down by the
deflationary tide in the sector.
Commenting on the performance of the food & drink sector, Joanne Denney-Finch, Chief Executive of IGD, said: “The
surprise result of the referendum appeared to trigger an immediate drop in food and drink spending, which more than
offset some modest sales growth earlier in the month. Hopefully, this will prove to be a short-lived shock and calmer
waters lie ahead.”

No Signs Of Brexit Blues At Waitrose And John Lewis
Waitrose and John Lewis have recovered from a lacklustre week following the EU referendum result, both reporting robust
sales growth in the seven days to 9 July.
At Waitrose, sales rose 2.1%, compared with the previous week’s fall of 2.8%. The group said trade was boosted by
sporting events with tennis and football fans helping drive sales of sparkling wine, which were up by 27%, and
champagne, which rose 19%. Shoppers also put more fresh fruit and vegetables in their baskets with total fresh produce
sales up by 4.6%.
Meanwhile, at sister chain John Lewis sales were up 4.7%, compared to a 2.1% rise the week before. Trade was boosted
by its ongoing clearance sale and good sales of warm weather products.

Poundland Agrees To £597m Takeover Offer From Steinhoff
Steinhoff International is set to acquire discount chain Poundland in £597m deal.
The South African retail conglomerate made its first official approach for Poundland on the 15 June after buying a 23%
stake in the single-price retailer. However, the board of Poundland subsequently snubbed Steinhoff’s proposal regarding a
possible cash offer for the rest of the business.
However, in a statement this morning Poundland’s board said it would recommend Steinhoff’s improved all-cash bid of
222p per share to its shareholders. The offer, which values the business at £597m, is a premium of 39% on Poundland
shares on 13 June, before Steinhoff made its interest known. Its share price has fallen from 418p in February 2015 to
below 200p in recent months amid slowing sales growth and disruption caused by its takeover of 99p Stores.
Commenting on the offer, Darren Shapland, Chairman of Poundland, said: “The Poundland Board believes that SEAG’s all-
cash offer presents Poundland shareholders with an opportunity to realise their shareholding at a certain and attractive
price, securing earlier delivery of the Poundland Group’s medium term value than could be expected from the ongoing
turnaround process against a background of increasing economic uncertainty in the UK and a more challenging trading
environment.”
He added: “Steinhoff is a well-capitalised, international business with a clear and proven commitment to value retailing.
They share our vision for the growth and expansion of Poundland and, as such, we believe they are a suitable and
appropriate partner for our colleagues, our suppliers and stakeholders.”
Markus Jooste, CEO of Steinhoff, commented: “The Board of Steinhoff and its management team are enthusiastic about
the opportunities that this transaction brings: we believe that there is significant merit in bringing Poundland into
Steinhoff’s global network. Steinhoff is developing a fast-growing, price-led retail business across the UK and the rest of
Europe. Poundland would be a complementary fit to this growth story.”
Steinhoff already owns Harveys, Pep, and Bensons for Beds in the UK as well as France-based furniture chain Conforama.
It lost out in the takeover battle for the Home Retail Group earlier this year to Sainsbury’s. Analysts think Steinhoff will
look to turn Poundland from a single-price retailer into a multi-price chain along the lines of B&M and Home Bargains.

Ebay eyes possibility of pop-up stores in Sainsbury's outlets
Ebay is reportedly looking the possibility of opening pop-up or click-and-collect points at some of Sainsbury's estates.
The news as the supermarket giant powers ahead with its £1.3 billion acquisition of the Home Retail Group, the parent
company of Argos, which could see some Argos outlets become concessions within Sainsbury's larger stores.
Ebay currently has a partnership with Argos in which it allows UK sellers to drop off sold products at the latter brand's
estates for buyers to collect or for Argos to deliver.
Ebay’s EU advertising strategy, product and operations director Phuong Nguyen told Marketing Week that the Sainsbury’s
deal could open a lot of doors, including the possibility of Ebay pop up stores or a click and collect set-up within
Sainsbury’s 1200 estates.
"We have to be wherever they are, and wherever they want to shop. If that means eBay being more present in locations
around the UK then that’s where we will be," Nguyen told Marketing Week.
“The retailers that will win can offer world class ecommerce and world class physical retail.
"You can be the best on digital but sometimes a consumer just wants to touch and feel a product – that’s the power of
pop-up locations.”
This would not be the first time online auction retailer launched pop-up stores, having done so in London back in 2012.
Source: Retail Gazette 13th July 2016

Iceland to open first dark store
Iceland is preparing to open its first online fulfilment centre as its ecommerce business continues to grow.
18,000 sq ft site in Tipton
Iceland is set to open its first dark store next month in the West Midlands town of Tipton. It's central UK location and
position just off the A41 in Link One Trading Estate give the new site strong access links, making it an ideal location for
Iceland to serve its deliveries which have grown to c.200,000 per week.
Relieving pressure on stores
The centre will enable Iceland to fulfil all online orders, in turn relieving current pressures on the 860+ store estate to
serve both online and offline customers. Iceland relaunched its online service in 2013 and it went national in 2014,
reflecting the growing trend of online shopping in the UK. Ever since, Iceland has seen this part of the business
strengthen to reach £100m in sales.
Key areas of focus: online and Food Warehouse format
Along with its larger Food Warehouse format, the new dark store will play a role in strengthening Iceland's struggling
sales performance which saw like-for-like sales in the year ending 26 March 2016 at -2.7%. Online and the new larger
stores helped to moderate decline so it is key for Iceland to maintain focus on these and drive them harder to deliver a
better performance this year. It is also important that Iceland improves its offer in-store to meet more shopper needs and
missions, as the competition continues to remain strong in the UK grocery industry.
Source: IGD 13th July 2016

B&M Making Good Progress In Tough Market
B&M said today that it remains on track to meet its full year profit expectations after it reported a strong rise in quarterly
sales, despite the “challenging trading conditions”.
During the 13 weeks to 25 June, total sales at the multi-price value retailer’s UK outlets jumped 21.3% to £508.1m,
boosted by new store openings. Like-for-like sales were flat, although excluding stores that are within a three mile radius
of a recent new B&M store opening, the group said underlying sales had risen 1.7%.
The group revealed that the quarter had a slow start to like-for-like sales due to the poor weather and the timing of
Easter compared to last year, but rebounded sharply in May. It added that current trading was stable despite the
changeable weather conditions impacting sales of outdoor and garden products.
B&M opened 12 net new stores during the quarter with 511 outlets trading in the UK at the end of the period. The group
reiterated its longer term target of 850 stores with 50 openings expected by the end of this financial year.
In Germany, the group’s Jawoll chain saw sales rise 23.5% to £46.7m. The business started the year with 56 stores with
the group saying it is on target to reach 75 stores by the year end.
Simon Arora, Chief Executive, commented: “Against a highly competitive backdrop, our robust and compelling retail
business model delivered 21% growth over this first quarter. We have a well-defined and clear strategy for further growth
and for B&M it remains ‘business as usual’ despite broader general economic uncertainty. Our outstanding value for
money proposition to customers leaves us well-placed to continue to win market share.”

Mothercare Continues On Path To Recovery
Mothercare has reported a 1.2% rise in UK like-for-like sales in its first quarter to 9 July, boosted by its decision to bring
its end-of-season sale forward by one week to clear stock following the adverse weather during the period.
Total UK sales were down 2.1%, reflecting its strategy of closing underperforming stores. The group ended the quarter
with 170 stores (162 Mothercare and eight ELC) and continued with its store refurbishment programme.
Moves to grow its online business continued to pay-off with sales up 6.4%. Online now accounts 35.5% of its total UK
sales compared to 32.7% last year.
However, Mothercare warned of “continued volatility” in its overseas business after reporting a 3.9% fall in sales during
the quarter, impacted by the earlier timing of Ramadan.
Looking ahead to the effects of the EU referendum result, Chief Executive Mark Newton-Jones said: “We have not seen
any immediate consumer reaction to the Brexit vote, but it is too early to call as we went into the end-of-season sale
early. We hedge both dollar purchases and royalty receipts and we expect limited impact on our financial results this
year.”

Co-op Sells 298 Stores To McColl’s For £117m
The Co-op Group has announced that it is selling 298 of its smaller food stores to McColl’s Retail in a deal worth £117m.
The society said the move was part of its turnaround strategy of refocusing its store estate on larger convenience outlets
that can accommodate a wider range, particularly its own brand products. The sale proceeds will be re-invested in the
business and fund its store opening programme. In the last two years the Co-op has opened nearly 200 new outlets with
it planning to make 100 new store acquisitions during 2016. It recently bought six outlets from My Local, the convenience
chain that went into administration last month.
The sale of the stores, which are 1,700 sq. ft. in size on average, is subject to approval from the CMA and McColl’s
shareholders. The stores will continue to trade immediately after handover (expected from November 2016) and all staff
will transfer to McColl’s.
Commenting on the sale, Steve Murrells, CEO of Co-op Food, said: “Today’s announcement is completely in line with our
strategy, as these stores did not allow us to provide a sufficiently compelling own-brand offer for our members going
forwards.”
The deal will significantly boost McColl’s existing portfolio of 933 convenience stores in line with its strategy to grow this
part of its business as its moves away from operating newsagent outlets.
Jonathan Miller, McColl’s Chief Executive, commented: “I am delighted to announce the acquisition of 298 quality
convenience stores in a transformational deal for McColl’s. This opportunity substantially accelerates our growth strategy
and expands our neighbourhood presence for the benefit of our customers.
“These stores are profitable, well invested, and the perfect size for our operating model. We expect the transaction to be
significantly earnings enhancing for our shareholders.”

Halfords like-for-likes slip as bad weather hits cycling sales
• Group like-for-likes slip 0.6%
• Retail like-for-likes fall 1.2%
• Motoring sales up 0.6%
Cycling LFLs slide 4% due to poor weather and timing of Easter. Halfords has posted a 0.6% drop in first-quarter group
like-for-likes as it blamed bad weather for a slide in sales in its cycling division.
The retailer said “poor” weather in April and late June and the timing of Easter led to a 4% drop in cycling like-for-likes in
the 13 weeks to July 1. However Halfords reported “good” sales growth for premium bikes, without offering more detail.
In its motoring division, like-for-likes rose 0.6%, led by the sales of bulbs, blades and batteries.
Halfords Autocentres business reported its 11th consecutive quarter of growth with like-for-likes up 3.1%, driven by tyre
sales and longer opening hours.
Halfords’ total group sales rose 2.1% in the quarter.
It comes after the retailer last month reported a drop in full-year profits.
Chief executive Jill McDonald branded the first-quarter a “solid” performance and said she looked forward to the “peak”
summer season for cycling.
On Brexit, she added: “While the recent decision to leave the EU does create uncertainty, we are well-positioned as a
business and focused on delivering sustainable long-term growth.”
Halfords has 75% of its purchases hedged, but warned there could be a “small” impact for the full-year if the sterling
exchange rate against the dollar stays below 1.45.
In May, the retailer acquired online cycling specialist Tredz. Today it said the business has “performed well” since the deal.
Source: Retail Week 14th July 2016

Channel forecast
Source: IGD Research, 2016 Channel Forecasts, years to April
2016 2021
Discount
channel value
£17.9bn £24.9bn
Share of UK
grocery market
10.0% 12.7%
UK Discount Snapshot, July 2016
Behind the headline numbers:
• By 2021 the channel will increase by £7.1bn
• Discounters will claim £1 in every £8 on grocery by 2021
• Online will be the fastest growing channel, and together with discount
will account for 80% of market growth in the five years to 2021
• Growth drivers include store openings and format development
1. Aldi online
• Aldi UK expanded its online offer to include its non-food Specialbuys, less than two months after the discounter
launched online with wine
2. New discounter GHM!
• GMH! (Guess How Much!) launched its first store in Hinckley, Leicestershire, aiming to be a 'one-stop shop for
mums', selling general merchandise, ambient grocery, and clothing from Pep & Co (also by parent company
Pepkor UK)
3. End of Netto UK
• Sainsbury's and Dansk Supermarked are ending their joint venture to bring the Netto fascia back to the UK.
The stores are expected to trade throughout July and close during August, incurring costs of £10m for
Sainsbury’s
4. Poundland takeover
• Poundland has reached an agreement with South African group Steinhoff International to accept a cash offer
of £597m. This move fits with Steinhoff's strategy as it aims to become a leading value and discount
retailer within the markets that it serves.
Source: IGD Research
What’s happening

IRI's Weekly FMCG News Update - w/c 11th July 2016

More Related Content

IRI's Weekly FMCG News Update - w/c 11th July 2016

Editor's Notes