High pace of change in challenging times
The year we have left behind us has been turbulent and challenging in many ways. The hopes expressed at the beginning of 2022 that the two-year pandemic was coming to an end were soon replaced by war close to home, record-high energy prices, rising interest rates and inflation at a level not seen for decades. Combined, these developments brought significant challenges for both businesses and individuals. ICA Gruppen’s response has been a sharper focus on value for money, loyalty and costs.
Higher cost pressure in general in combination with tangible changes in customer behaviour in turn put significant pressure on ICA Gruppen’s grocery retail operations in 2022.
ICA Sweden increased its net sales during the year. This trend was, however, entirely price-driven. Underlying volume development was negative and this, combined with increased logistics and transport costs, contributed to slightly lower profits compared with the previous year. Rimi Baltic’s situation was even more challenging with sharply rising energy prices, high inflation and tough price competition putting significant pressure on the business. However, in the fourth quarter Rimi Baltic saw strong growth as a result of the price increases and cost saving measures it implemented. Both Rimi Baltic and the independent ICA stores lost market share during the year.
Apotek Hjärtat also noted higher price pressure, but delivered strong profits despite this and continued to take market share overall, driven by strong development in physical pharmacies. ICA Real Estate is still generating stable cash flows while also implementing important investments in areas such as warehouses and logistics. the announcement at the end of the year of a new joint venture set up with AMF (Delcore Fastigheter), will also help to reduce ICA Gruppen’s indebtness.
ICA Bank is continuing its transformation and delivering a strong performance in both growth and profitability, albeit with slightly higher credit losses towards the end of the year. The drivers included increased interest net driven by higher market rates as well as higher premium revenue. The new home mortgage company was launched during the year and is an important element of the forward-looking initiatives that are currently under way. ICA Insurance showed sustained positive development in terms of both growth and profitability.
Altogether ICA Gruppen’s net sales increased during the year by 6.5% to SEK 136,253 million. Operating profit excluding items affecting comparability was slightly higher than in the previous year, totalling SEK 5,883 million, which is equivalent to an operating margin of 4.3%.
Focus on three areas
To fend off negative developments in the economy and the market, reverse the negative market share trend and to ensure growth and good profitability for both ICA Gruppen and the independent ICA retailers, while also helping customers and suppliers out in a challenging time, numerous initiatives were launched during the year linked to three key areas: value for money, customer loyalty and costs. These will continue in 2023 along with additional planned initiatives to increase competitiveness.
High value for money and attractive prices
Rising food and energy prices combined with higher interest rates were factors in households having less disposable income during the year. As a result, our grocery customers became significantly more price conscious and we saw increased demand for low price and discounted products. ICA Gruppen's ambition is not to be a price leader but rather to always be perceived as providing the best value for money based on our assortment, offering and other added value. During the year efforts were intensified within both ICA Sweden and Rimi Baltic to ensure high value for money and attractive prices for the customers. This included lowering prices on basic goods and more discounts offered both in store and online. There has been a particular emphasis on offering attractive prices on fruit and vegetables.
Private label products play an important role in efforts to offer an assortment with high value for money. They create a broad and unique assortment while also promoting good profitability. The offering within ICA Sweden, Rimi Baltic and Apotek Hjärtat has been expanded and supplemented to include even more options. There has been a strong focus on the low price segment.
Stronger customer loyalty
Improving customer loyalty is a major priority as well. The overarching and shared goal is to make it more financially beneficial for customers to be loyal to ICA Gruppen’s various businesses. The Stammis Group-wide loyalty programme plays a key role in this, as does the development and launch of new types of Group-wide offerings to strengthen the full customer offering. Good examples of this are the home mortgage offering and interest on the ICA Bank card, launched during the year and at the beginning of 2023.
Increased focus on cost and resource reprioritisation
In order to invest in areas that strengthen the offering, drive growth and improve efficiency, it is necessary to lower costs and free up resources in other areas. We have worked on this for a long time but have now further intensified our efforts.
A decision was taken within ICA Sweden during the year to implement an efficiency improvement programme aimed at freeing up funds for joint investment by ICA Sweden and the ICA retailers in a more competitive customer offering. Altogether the programme is expected to reduce costs by up to SEK 1 billion on an annual basis. The investments that the programme is making possible are in areas such as offering lower prices to consumers, continued investment in ICA’s private label products and intensified development of Stammis – all for the purpose of making ICA more competitive and increasing customer loyalty.
Rimi Baltic also decided on a cost savings programme during the year which will involve, among other things, efficiency improvements in stores, logistics and administration.
Although reprioritising was most needed in the grocery segment, extensive work is being carried out throughout ICA Gruppen to identify possible areas for efficiency improvement. For Apotek Hjärtat the focus is on improving efficiency in areas such as logistics, warehouse management and staffing. ICA Real Estate launched a project during the year aimed at optimising ways of working and requirement specifications for new builds and renovations. The goal is to achieve greater cost efficiency and thereby be better equipped to handle higher cost levels. Multiple initiatives are taking place in all areas of the organisation aimed at reducing energy consumption by 20% by 2030.
Double social responsibility
Inflation and the high energy prices impact not only consumers and customers but farmers and food producers as well. Extensive initiatives have been under way for a long time within both ICA Sweden and Rimi Baltic aimed at supporting local food production and assisting local suppliers in various ways. This work was further intensified in 2022, including through continued investments in cooperation with the Federation of Swedish Farmers (LRF). This essentially involves standing up for and safeguarding a strong agricultural sector and stable domestic food production. ICA and Rimi Baltic, as major actors, have vital roles to play and an important responsibility in this regard.
10 years of constant development
It is now 10 years since ICA Gruppen was formed. It has been a decade characterised by rapid changes – both in the world around us and within ICA Gruppen. Fast digitalisation, new patterns of consumption, increased focus on sustainability and extensive blurring of industry lines have changed the markets fundamentally, and are continuing to do so. Although the trends have been the same for several years, they have gradually intensified – first as a result of the pandemic and now also due to the situation in the world around us.
For ICA Gruppen, this has been a decade of constant development based on our vision of making every day a little easier for our customers. Our starting point has been a strategy that has been continually developed and adapted, but which at the core has been relatively constant. The mainstays include cooperation within the Group, digitalisation, value for money, sustainability, health and ways of working.
The fact that this continuity, our long-term approach and our push for constant improvement have brought success is highly evident in ICA Gruppen’s financial development. Sales have increased by an average of 3 % per year. Average earnings growth during the same period is approximately 6%.
The strategy remains firmly in place
None of the things we are now putting extra efforts into are counter to our long-term goals and strategies, but in a changing world it is important to be agile and adapt. That is what we are doing now.
The long-term strategy remains firm and is more relevant than ever before. We intend to continue to grow within our core business of grocery retail, but also within our complementary operations of non-food, pharmacy, banking and insurance. We will do this through continued improvement in each of our business areas, but also through increased collaboration and stronger links between our physical and digital channels.
We will continue to invest in our online offering and in achieving our ambitions in health and sustainability as well. There is no doubt that the world is facing major climate, environmental and resource-related challenges. We have been a signatory to the UN Global Compact since 2004 and in the years ahead we will continue to work towards our 2030 targets of net zero emissions in our own operations and halving the climate impact of our customers’ food purchases.
We will also continue to develop our organisation and our ways of working to become more agile in both decision- making and implementation. Our new ownership structure will contribute to these efforts by facilitating increased internal transparency, and a higher level of involvement and retailer dialogue.
There are many challenges but there are even more opportunities. As a consequence of the operational improvements and structural changes we have made in recent years we have a stable structure to continue to build on. One of our biggest strengths is our strong culture, in which the retailer perspective, entrepreneurship and willingness to develop are all vital components. The ICA Idea – to combine individual drive with joint strength – has been the foundation of ICA’s business model and value creation right from the start in 1917. In close cooperation with the independent ICA retailers and with the whole ICA system to support us, we will now use the model to become even stronger – in both the short and the long term.
CEO until 31 December 2022
CEO as of 1 January 2023