As European retailers continue to expand northwards and eastwards in their quest for growth, the spotlight has fallen on Sweden, where the retail sector is currently the subject of a competition investigation.
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Some 90% of the Swedish food retail sector is currently controlled by just three players – Axfood, Coop and market leader ICA, a federation of retailers now owned 50% by Dutch giant Ahold, reports Reuters. Axfood is a key player in this virtual triarchy, and has seen its share price rocket nearly 150% in the last year, making it one of the strongest climbers on the Stockholm Stock Exchange.
With food prices among the highest in Europe, there is much scope for growth in the discount sector.
“The Swedish low-price segment is still very underdeveloped compared to the rest of Europe,” said Bodil Eriksson, senior vice president of corporate communications. Of the whole food-retailing sector, low-price food stands for 12-15%.
“There is still plenty of room to grow.”
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By GlobalDataIndeed, Axfood itself attributes much of its growth to its discount unit Axfood Lagpris, which increased turnover by 50% to SKr7.92bn (US$770.6m) in 2001. It is facing increased competition from foreign discounters, with Norway’s Reitan Narvesen planning to make a renewed attempt to launch its REMA 1000 chain in Sweden.
Prototype hard discounter Lidl of Germany has not yet declared its Swedish campaign underway, but it is known to have built a large warehouse in western Sweden. Closer to home, Denmark’s Netto is planning to open 20 shops in Sweden this year, and approximately 100 stores over the coming three to four years. As it is 50% owned by Swedish retail leader ICA, Netto should benefit from buying synergies and local know-how to ease the transition.
High volumes of trade are imperative to discount retailers, as operating margins are slim, by the very nature of the business. In Sweden margins are under particular pressure, as high distribution costs keep average operating margins as low as 3.5%, compared with a European average of 6%.
