IRI's Weekly FMCG News Update - w/c 6th February 2017

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

Stephen Hall

Friday 10th February

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

• Retail sales slowed in January amid signs consumers are becoming more cautious• Aldi takes the number five spot in UK grocery • Mondelēz misses estimates with Q4 results• John Lewis sales up 5.4% last week• L’Oréal mulls selling off The Body Shop• Poundland to close online shop • AmazonFresh expands to selected postcodes in Surrey and Hampshire • Sporting goods performed well in December• Reckitt Benckiser agrees deal to buy Mead Johnson• UK struggling to keep up with "fundamental change" in online retail• Supermarkets and forecourts see sharp spending growth in January according to

Barclaycard

Weekly News Summary – 6th February 2017


Retail Sales Slowed In January Amid Signs Consumers Are Becoming More CautiousData released today by the British Retail Consortium (BRC) and KPMG shows consumers reined in their spending last month, adding to signs that they are becoming more cautious amid concerns about higher prices due to the fall in the value of sterling.

Over the three-months to January, food sales increased 0.6% on a like-for-like basis and 2% on a total basis, well ahead of the 12-month total average growth of 1.0%. Meanwhile, non-food retail sales rose 0.2% on a like-for-like basis and 0.3% on a total basis. This is below the 12-month total average growth of 0.8%, which is the lowest since July 2012.

Online sales grew 8.6%, while in-store sales declined 2.2% on a total basis and 2.4% on a like-for-like basis.

Helen Dickinson, Chief Executive of the BRC, commented: “After a strong end to the Christmas trading, year on year sales growth ground to a halt, compensated only by stronger furniture sales and a boost for some retailers from Chinese New Year. While this may appear disappointing overall, retailers were up against a strong January last year to try and deliver a repeat performance and many reported an increase in the number of returns received in January.

“Looking across the last three months, we’ve seen the slowest growth of the festive period since 2009. Closer inspection reveals that this was driven by slowing sales in non-food sectors.

“These figures suggest that ‘caution’ was top of new year shopping lists and the uptick in credit card lending at the end of the last year may be short lived. With the signs pointing to upward pressures on shop prices given rising import costs, all eyes will be on the impact of inflation on consumer spending. That said, retailers are a resilient and innovative bunch. They have become increasingly adept at responding to the challenging environment, and as a result the industry has been a key driver of recent UK productivity growth.”

Commenting on the food sector, Joanne Denney-Finch, Chief Executive at IGD, said: “After strong Christmas sales, grocery retailers were relieved to see solid, if unspectacular, sales in January. The first week was dampened by an extra Bank Holiday Monday but the rest of the month was positive, helped along by a small amount of inflation.

“Shoppers will be watching food prices closely. Two-thirds (65%) believe food prices will have the biggest impact on their personal finances this year, ahead of energy bills (58%), petrol prices (53%) and interest rates (28%). Some recent cost increases for producers have begun to take effect but with currencies in such a state of flux, the picture for later in the year is very hard to predict.”

Source: NamNews 7th February 2017


Aldi takes the number five spot in UK grocery The latest figures from Kantar Worldpanel, for the 12 week to 29 January, show that the UK food and grocery sector sustained a solid rate of growth into the first month of 2017, with overall sales up 1.7% in the period. However, with the Kantar measure of inflation accelerating to +0.7%, it is now clear that rising prices are once again contributing to sector growth. Along with the upward pressure caused by weak Sterling, in the short term inflation is also being compounded by factors such as the weather-related disruption to fresh produce supply.

Aldi overtakes Co-op in share rankingsHaving sustained growth in double digits consistently over the last three years, Aldi has been progressively gaining market share. Having surpassed Waitrose in early 2015, the discounter's 12.4% uplift over this latest period has pushed its share to a record 6.2%, ahead of the Co-op on 6.0%. This now establishes Aldi as the fifth largest grocery retailer in the UK market, and given its ongoing rate of growth versus that of the Co-op, it seems unlikely to relinquish this position going forward.

Tesco's growth falters and Asda heads towards recoveryFollowing an improved showing in the period up to, and over, Christmas, the performance of Tesco has clearly taken a backward step in January, with its growth slipping once more behind the market average to just +0.3%. Allowing for the impact of inflation could mean that volume-wise Tesco was again running negative. Meanwhile, though clearly still in negative territory, the decline at Asda has once more slowed in this latest period, improving from -2.4% in the 12 weeks to 1 January to -1.9% in the 12 weeks to 29 January. Though its market share is still falling, Kantar data shows that Asda shopper numbers have increased over 2016, offering promise for further improvement in the coming months.

Morrisons leads the 'big four'Successfully sustaining its Christmas growth into January, Morrisons was the only one of the leading four supermarkets to beat the market average for the period, pushing it ahead of all of its three key competitors for the first time in some while. Amongst the other players Lidl in particular seems to have enjoyed a pick-up in growth once more, accelerating to +9.4%, after successive months when its progress moderated sharply.

Source: IGD 7th February 2017


Mondelēz Misses Estimates With Q4 ResultsMondelēz International has reported weaker-than-expected profit and sales figures for its fiscal fourth quarter, hurt by the strength of the US dollar.

For the quarter, revenues fell by 8.1% to $6.77bn, while volumes declined by 0.5%. However, on an organic basis, revenue edged up 0.6%, as modest growth in Latin America (+3.7%), Europe (+0.7%) and North America (+0.4%) helped offset a decline in Asia, Middle East and Africa (-1.2%).

The results meant the group’s full-year revenues fell by 12.5% to $25.9bn, with volumes edging down 0.3%. On an organic basis, sales rose by 1.3%, with growth in all its markets – Latin America up 4.8%, North America up 1.2%, Europe up 0.7%, and the Asia, Middle East and Africa unit up 0.5%.

Irene Rosenfeld, Chairman and CEO, noted: “We continue to make solid progress toward our near-term margin targets, while investing for long-term growth. Despite significant economic disruptions, political uncertainties and slower global category growth, we remain confident in and committed to our balanced strategy for both top- and bottom-line growth.”For 2017, the group expects revenue to grow by at least 1% on an organic basis, with adjusted operating margin in the mid-16% range, and adjusted earnings per share to grow by double digits (constant-currency basis).

Source: NamNews 8th February 2017


John Lewis sales up 5.4% last weekHome posted the strongest sales uplift with sales rising by 8.8%. Trade was driven by 'big ticket' items such as furniture and beds.

Electricals and home technology sales climbed by 7.2% with audio products putting in a particularly strong performance. The communications technology category saw growth from tablets and computers as well as mobile phones.

Fashion sales edged up 1.6% driven by buoyant sales in the beauty category. Shops where the retailer invested in new beauty halls last year performed particularly well. John Lewis said the arrival of its Modern Rarity Spring/Summer collection helped womenswear to post a 3.4% increase.

Source: Retail Bulletin 8th February 2017


L’Oréal mulls selling off The Body ShopFrench cosmetics giant L’Oréal is considering a €1bn sale of The Body Shop, according to reports. The Body Shop was bought by L’Oréal 11 years ago

L’Oréal is looking at options for the business as part of a review process being run with bankers at Lazard, the Financial Times reported.

An outright sale is reportedly the most likely outcome, with private-equity firms already circling.The French group acquired The Body Shop 11 years ago in a £652m deal.

The retailer, which was founded in 1976 by Anita Roddick, has around 3,000 stores across 66 countries. Around 2,000 of the stores are franchisees, while the rest are company-owned.

In its most recent half-year to June 30, operating losses at The Body Shop widened to €22.2m as it faced difficulties in markets such as Hong Kong and Saudi Arabia. Like-for-likes slipped 0.6%.

Last month, L’Oréal announced a shake-up of its UK business, with Linda Campbell promoted to run The Body Shop’s UK operations.

Her predecessor, Simon Cable, has taken on the role of deputy zone director for North America and EMEA.A Body Shop spokeswoman declined to comment on the reports.

Source: Retail Week 8th February 2017

https://www.retail-week.com/sectors/health-and-beauty/the-body-shop-names-new-uk-boss-amid-shake-up/7017858.article


Poundland to close online shop Poundland's has decided to focus on its core estate and close its online transactional business as the trial failed to live up to expectations.

Unsuccessful online trialPoundland launched its online offer in September 2015. Since then, there has been little information on the trial's performance, with Poundland instead focusing on the 99p Stores acquisition. Now, however, new trading director Barry Williams has revealed that online customer numbers were not what they were hoping, nor were the number of repeat customers. This has led to Poundland's decision to maintain focus on its core estate, while the poundland.co.uk website will continue to be a window to the Poundland store offer.

PEP&CO expands in Poundland storesIt is clear that Poundland and Pepkor's new relation under the Steinhoff umbrella is having an influence on Poundland's direction in the UK. Value clothing brand PEP&CO is moving in to 50 Poundland stores, while all six GHM! stores are converting to Poundland; a move which will consolidate the group's UK variety discount offer and further boost the Poundland estate - currently the largest UK variety discounter in terms of store numbers.

'Pound is heartbeat of the business'The introduction of clothing is a sensible move as it has already proven to work alongside food and other non-food categories in the UK grocery market. This move also allows Poundland to further explore price points over £1, which it has been doing for a while with its conditional spend promotional strategy. While this can pave the way for higher sales, trading director Barry Williams has assured that the £1 price point remains the heartbeat of the business, with 90-95% of sales going through at this price point.

Will Poundland's strategy resonate with variety discount shoppers? 60% of online shoppers are likely to complete a main shop online, whereas variety discount shoppers are more likely to shop for non-food items such as clothing, toys and electricals (64%). The introduction of the PEP&CO clothing into Poundland stores should therefore appeal to these shoppers. Choice and availability are important drivers of store choice for variety discount shoppers, and so expanded ranges should be welcomed. High street discount shoppers are also more likely (59% vs 53% all shoppers) to be on the look-out for in-store offers and enjoy browsing.


http://retailanalysis.igd.com/Hub.aspx?id=13&tid=1&rid=444&nid=14266




AmazonFresh expands to selected postcodes in Surrey and Hampshire AmazonFresh has expanded from 190 Greater London and Surrey postcodes to 260, with the service now available in Hampshire.

AmazonFreshIt offers one-hour delivery slots, seven days a week and the option of same day delivery. Customers can choose grocery items from major brands and also buy a selection of premium products from specialist London shops and markets, such as Gail's Artisan Bakery. AmazonFresh is available to Amazon Prime members for £6.99/ month with unlimited delivery for orders over £40.

Competition outside LondonIn November, Ocado opened a new customer fulfilment centre in Andover, Hampshire. With AmazonFresh expanding we can see increasing competition for online groceries outside of London.



Sporting goods performed well in DecemberThe next best performer was the grocery sector with a rise of 8.4%, followed by electricals at 7.4%, health and beauty at 5.8% and accessories at 5.5%.

Across 2016, Savills found that the grocery sector showed the highest year-on-year sales growth at 7.9%. In contrast, menswear sales declined by circa 10% in December and by 9.1% across the full year. Other categories to experience negative growth in December were restaurants, homewares and stationery. After menswear, the sectors showing the highest declines in 2016 were confectionery and value retail.

Stephen Toal, head of property management research at Savills, said: “The fusion of sport and fashion to create the ‘athleisure’ trend was particularly beneficial for the sporting goods sector last year, while grocery is experiencing a turnaround in fortunes helped no doubt by price inflation.

“However, clothing experienced its worst sales of recent years and continues to face headwinds from the National Living Wage, Apprenticeship Levy, business rates review, currency pressures and Brexit. Therefore managing costs, understanding the customer journey, investing in technology and providing exceptional value will be crucial.”

Source: Retail Bulletin 10th February 2017

https://www.theretailbulletin.com/section/electricals/

https://www.theretailbulletin.com/section/fashion/


Reckitt Benckiser Agrees Deal To Buy Mead JohnsonReckitt Benckiser (RB) announced today that it has to agreed to buy US baby formula maker Mead Johnson Nutrition in a deal worth $16.6bn (£13.3bn).

The UK-based group said the purchase would strengthen its presence in fast-growing developing markets, particularly China, and provide “a significant step forward” in its efforts to become a “leader in consumer health”.

RB will pay $90 a share for Mead Johnson, a 30% premium to the stock’s closing price the day before news of talks between the two companies was reported earlier this month. In total, the deal is worth $17.9bn once the US group’s debt is taken into account.

RB said the goal for Mead Johnson was to perform at the upper end of estimated category growth of 3‐5% per annum in the medium to long term. It estimates that it will generate annual cost savings of £200m by the end of the third full year.Mead Johnson, best known for its Enfamil brand, is the world’s third-biggest baby food maker, behind Nestlé and Danone. The deal will boost RB’s consumer health division and expand its operations in fast-growing countries in Asia, where Mead Johnson already holds a large share of the market, as well as in the US. In 2016, the company generated annual sales of $3.74bn, about half of which comes from Asia.

Rakesh Kapoor, Chief Executive Officer of RB, commented: “The acquisition of Mead Johnson is a significant step forward in RB’s journey as a leader in consumer health.

“Mead Johnson’s geographic footprint significantly strengthens our position in developing markets, which will account for approximately 40% of the combined group’s sales, with China becoming our second largest Powermarket.”

He added: “We are confident that our culture of consumer centric innovation and our expertise in scaling global brands will deliver significant growth for the Mead Johnson portfolio.”

Source: NamNews10th February 2017

http://www.kamcity.com/namnews/uk-and-ireland/manufacturers/reckitt-benckiser-in-talks-to-acquire-mead-johnson/


UK struggling to keep up with "fundamental change" in online retailSmart phone shopping is predicted to account for two thirds of all purchases as it triples in value to £43 million over the next four years.

New research conducted by Paypal UK, OC&C Strategy Consultants and Google suggests that the UK is far behind overseas rivals in keeping up with the trend, with websites loading up to 25 per cent slower than US comparisons.Data from Google has suggested that even a one second reduction in loading time can improve conversion rates by over a quarter.

"Speed is an important factor in any shopping experience, but when it comes to mobile shopping it's vital,” PayPal UK mobile commerce director Rob Harper said.

"Retailers can reduce the time it takes to browse and select a purchase but if it takes too long to pay, they may lose that sale. It's a problem that retailers can easily address.“

Furthermore, although 250 million Chinese consumers made purchases through a popular messaging app, UK companies have been slow to utilise the platform for sales.

By 2020, the report states that 80 per cent of online retail will involve transactions, research and price comparisons with the use of a smartphone.

"The next evolution of mobile shopping will reduce the consumer journey even further,” Harper said.“Contextual commerce will enable consumers to buy things at the point of discovery - whether that's in an email, on a Pinterest page or in a messenger app - rather than needing to click through to an online shop.“

"Mobile technology is determining the future of e-commerce, and retailers need to act now to prepare themselves accordingly."

Source: Retail Gazette 10th February 2017


Supermarkets and forecourts see sharp spending growth in JanuaryJanuary saw a sharp growth in petrol spending and the highest growth in supermarket spending in two years, new data from Barclaycard has shown.

The global payment business said a 15.3% rise in petrol spending, coupled with a 2.9% rise in supermarket spending helped to drive up spend on ‘essential’ items by 5.8%, the highest level since Barclaycard started reporting on consumer spending in 2012.

Barclaycard’s consumer confidence survey also found that two thirds of consumers say they are now more careful to seek out value for money when making purchasing decisions, while the same number said they think rising prices will increase their spending on essentials items when compared to 2016.

Barclaycard managing director Paul Lockstone said: “January’s uplift in spending represents a strong start to the year. Big increases in the amount spent at supermarkets and on petrol, coupled with careful spending across a number of non-essential categories, does however suggest that consumers are starting to feel the impact of inflation on their everyday lives.

“A sharp fall in consumer confidence compared to January 2016 and an increase in the proportion going to greater lengths to seek out value, is also quite telling. It suggests consumers are having to reshuffle their spending priorities for the year ahead.”

Source: Talking Retail 10th February 2017


GB market shares – Jan 2017

© IGD 2017 Source: Kantar Worldpanel, 12 weeks to 29 Jan 2017

• Kantar Worldpanel data indicates the GB grocery market grew by 1.7% over the 12 week period from November to the end of January. • The market was boosted by returning inflation, with prices up 0.7% year-on-

year, indicating that the prolonged period of deflation is at an end. As well as inflationary pressure from weaker Sterling, January prices have also been affected weather-related disruption of fresh produce supply.• For the first time Aldi has now overtaken the Co-op in market share.

Aldi Lidl Iceland Waitrose Co-op Morrisons Tesco Sainsbury's Asda-4-202468

101214 12.4

9.4 8.6

3.42.0 1.9

0.3 0.0

-1.9

Implied y-o-y sales growth and share of market 28.1

16.5

15.6

10.9

6.2

6.0

5.34.5

2.3 4.7

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

Stephen Hall

Friday 10th February

Food

IRI's Weekly FMCG News Update - w/c 6th February 2017