With recovery in the UK seemingly kicking in and the exodus of consumers to discount grocery retailers ebbing, Iceland Foods has witnessed a slowdown in sales growth of late. Nevertheless, chief executive Malcolm Walker remains confident in his firm’s prospects for growing revenues this year. Katy Humphries reports.
Under the leadership of Iceland Foods founder Malcolm Walker, the UK frozen food specialist has had a stellar few years of sales expansion. After a period of absence from the company – from 2001 to 2005 – Walker returned to head up the group. He adopted a ‘back to basics’ attitude that saw the company reverse previous managements’ attempts to reposition Iceland by expanding its product offering and converting stores to convenience-style outlets.
Walker’s strategy to deliver value through Iceland’s core offering of frozen food alongside a limited range of groceries and chilled products, coupled with an expanded store footprint, has proven highly successful in recent years. Iceland has also cashed in during the economic downturn, as cash-strapped consumers increasingly turned to value retailers to cut grocery bills. The company benefited from its low-price image and from the increasingly common conception among consumers that frozen foods were “better value” than fresh alternatives because they are cheaper and reduce food waste.
However, with the wavering return of consumer confidence and the resulting slowdown in the discount market, Iceland’s sales expansion has also become increasingly sluggish.
According to Verdict Research analyst Neil Saunders, one of the things Iceland has found “quite difficult” has been to “hold on to consumers” as the UK has moved into recovery. “Their customer share – as with the other deep discounters – has not seen the same growth last year as in the early part of the recession. If you aren’t adding footfall it is very difficult to grow sales in the double digits,” Saunders adds.
Indeed, the latest supermarket share figures from Kantar Worldpanel for the 12 weeks to 20 February, released on Tuesday (1 March), revealed that Iceland was able to grow sales by 3.4% year-on-year. However, the company’s market share remained a steady 2% as increased revenues trailed overall market growth of 3.9%.
This represents a considerable slowdown from the heady days of consistent double-digit growth and, according to Kantar analyst Fraser McKevitt, the comparison will get more difficult in the months to come.
“Iceland’s growth at the moment doesn’t look all that impressive when compared to some of the other retailers, but it must be remembered that they are up against difficult comparisons because they posted some very strong growth last year. And it is going to get tougher in the next few months because they saw some extremely strong sales expansion in the summer of last year,” he tells just-food.
Nevertheless, Walker remains philosophical in the face of weaker sales growth and more difficult comparisons. “We are seeing some strong same-store sales growth – not as fast as it was, but then you can’t expect to be in double digits forever,” he tells just-food. “We’ve got our own customer base and it is slowly growing.”
Walker insists that the company’s focus on every day value and the decision not to “do deals or buy-one-get-one-frees” resonates with consumers. In addition, Walker tells just-food that the company aims to increase its appeal with upcoming product launches in the frozen category.
Another tool that Iceland is employing to grow sales in the UK is the expansion of its store footprint, Walker says. “We are always looking at expansion in the UK. We opened 71 new stores last year. We’ll probably get 60 this year. But we are to ramp that up. And we’ve got another – easily – 300 locations to look at,” he reveals.
Walker is confident that the company is far from reaching saturation point and insists that there is “plenty of room” for it to grow in the country. When seeking out new store space, Iceland looks at “however we can get a store, wherever,” Walker says.
“Existing store, empty store, new build, it doesn’t matter. You have to look at every opportunity. We’ve got some out of town. The majority of our stores are town centre. But not city centre – city suburbs, market town centre, sometimes busy main road, sometimes out of town. You can’t tell until you visit the site and have a look at it. It’s done on a store-by-store basis,” he reveals.
Saunders concurs that growing Iceland’s UK store count is a “good” way of capturing market share. “If you can add new space – and you can add it in areas where you are under represented already – you will capture market share,” he observes.
Another possibility for Iceland is to look further afield to fuel growth. While the company has met with no success overseas to date, having withdrawn from its efforts to expand in France during the 1980s, Walker reveals that the group is currently “evaluating” expansion opportunities in Eastern Europe.
Walker says that the company has been evaluating the Polish, Czech and Hungarian markets. However, he plays down the possibility that the group could expand into new territory in the immediate future.
“We have been looking but I think its no further than that. We’ve been over there a few times. My son has worked in Poland for a while. I think we certainly have some opportunities there, but we have not actually done anything with them,” he says.
The company’s bid to continue to drive growth in the UK market – particularly through new store openings – coupled with the longer-term possibility of expansion into new and rapidly developing territories mean that Iceland is well placed to grow sales for some years to come. However, Iceland has a tough task ahead if it hopes to sustain the rapid expansion witnessed in recent years.