Specialist
Former Director at WM Morrison Supermarkets plc
Agenda
- Grocery retail and frozen food – consumer dynamics
- Iceland's like-for-like growth and frozen and fresh food share gain opportunities
- Competitive landscape and pricing ladder
- Mid-term growth outlook and store expansion opportunities
Questions
1.
What key trends played out in UK grocery retail amid the lockdown easing and the economy reopening?
2.
Why do you think Tesco and Sainsbury’s are holding onto market share fairly well while Asda and Morrisons are falling away?
3.
Are average basket sizes, average spend and shopping frequency trending similarly to pre-pandemic?
4.
What are the market implications of grocery delivery companies’ emergence, especially in big cities such as Manchester and London, appreciating these players are very small and perhaps not a threat to Iceland?
5.
How do you expect like-for-likes and top line to trend in UK grocery retail over the next 12 months? I’m sure inflation will be a big part of the discussion.
6.
What is your outlook for pricing power and strategies over the next 12 months? You forecast 3-4% inflation and we discussed the discounters’ renewed resurgence. Do you think price increases will be pushed through, or might the discounters perceive an opportunity to take a bit of pain and gain market share?
7.
How should we assess Iceland’s growth story relative to the broader UK retail market and the big four over the past five years and particularly throughout the pandemic?
8.
Iceland’s The Food Warehouse concept has grown to over 100 stores, as you noted. Do you expect the company to keep pushing this offering? Is there still a lot of white space to grow and lay down further stores?
9.
Is there much cannibalisation risk between The Food Warehouse and the traditional Iceland format?
10.
How should we frame basket size and shopping frequency for The Food Warehouse vs the traditional Iceland store? Would The Food Warehouse’s basket size be significantly bigger, given the breadth of range?
11.
Could you roughly quantify the typical average basket size for an Iceland customer within the traditional store vs The Food Warehouse?
12.
Iceland has lost a bit of market share as we’ve come out of the pandemic. Do you think this share is purely being lost to the discounters, given their resurgence and the middle-ground band the company plays in?
13.
Who are Iceland’s most direct competitors for customers and share of wallet?
14.
How would you characterise Iceland’s pricing position relative to the market?
15.
Could you broadly quantify the difference in basket size value between Iceland and the discounters, appreciating it’s difficult giving the variety of offerings? Is Iceland’s basket size roughly 10-15% more?
16.
Has Iceland adapted pricing or marketing to compete with Aldi and Lidl as they take market share, or is it just through targeting high promotions on small baskets but high-perception items such as milk and eggs?
17.
Has Iceland typically been successful in maintaining its pricing position vs competitors over the years?
18.
Would the 3-4% inflation you suggested over the next 12 months also ring true for Iceland? Are there frozen food dynamics that might change that rising inflationary cost coming through on raw materials?
19.
It sounds like Iceland is quite well-positioned to handle the inflation, given the strong relationships it has with over-indexing in frozen. Is there any risk the company will be squeezed in the middle from discounters below and Sainsbury’s on top, as we consider pricing and the read-through to margins?
20.
How do you rate the quality of Iceland’s core range, starting with frozen? The company has a lot of brands, especially in The Food Warehouse, which is something the discounters don’t have. Does the company compete against Tesco quite well in the frozen side and how do customers perceive it?
21.
What percentage of Iceland’s frozen range do you think would be private label? Would it be quite weighted towards the private label section within frozen?
22.
Would you expect more collaboration ranges from Iceland? There’s the partnership with Greggs and you mentioned Weight Watchers.
23.
How would you grade Iceland’s fresh and grocery range? One of the risks associated with pushing The Food Warehouses is food waste. Is this something we should be cognisant of as The Food Warehouse ramps up and takes share within that Iceland portfolio?
24.
Are there any opportunities you’d pinpoint for Iceland to expand or adapt its range?
25.
How do you expect Iceland’s store footprint to evolve? If we consider the company’s negatives, it’s likely there’s over-indexing towards high street stores. Do you think that’s something it will seek to change?
26.
What’s your margin outlook for Iceland and the broader industry, especially given the challenges with labour and pricing? Do you think margins will stay robust or should we expect some compression?
27.
Are there any unique margin dynamics for Iceland relative to the big four retailers, given the company has over-indexed in that frozen category and thus probably has a slightly more robust infrastructure?
28.
Do you anticipate a structural impact on Iceland’s margins from the continued roll-out of The Food Warehouse and the concept growing its share within the company’s portfolio? Does The Food Warehouse’s operating margin differ significantly from the traditional Iceland store?
29.
Are there any notable supply chain challenges for Iceland specifically? Do you think the company is more sheltered given its over-indexing on the frozen side?
30.
Are there any notable supply chain challenges for Iceland specifically? Do you think the company is more sheltered given its over-indexing on the frozen side?
31.
How do you expect Iceland to perform vs the wider market over the next 12-24 months? Do you expect the company to remain quite robust after this cooling-down period of market share loss?
32.
How should we assess the recent unsolicited PE takeover bid for Morrisons and the potential ripple effects for the wider grocery sector?
33.
You referenced Morrisons’ recent share price of GBX 230, and I think the offer was slightly higher than that. Do you think that’s a fair share price for what’s being offered? I’ve read some suggestions that GBX 280 might be the magic number. Do you think that’s potentially too bullish and overpaying?
34.
Let’s say the deal takes place and Morrisons and Asda are owned by essentially two PE players. How will this impact pricing in the markets in the long term? Asda has lost a lot of market share and it seems it’s taking some time to get its act together. We can potentially expect 500 more stores from the discounters, and we have PE players who want to get ROC. How will these factors influence pricing mechanics in the market?
35.
Do you think Iceland or any of its peers could be a potential takeover target? I guess no one is really off the table now, but would you expect any bids to come Iceland’s way?