Axfood: Nearly quarter of sales from private label products

Swedish food retailer and wholesaler Axfood (OMX: AXFO) was among the many companies reporting Q1 2012 quarterly earnings on Friday. Consolidated sales topped 8.7 billion SEK, most of which was from new stores. Operating profit for the period was 248 million and after tax profit 177, both of which were marginally better than in Q1 2011. The report was without great surprises and the defensive stock did not react much.

Private label products The revenue share of those products (such as Axfood, Eldorado, Hemköp, Garant and Willys) has now reached 24.7%. This is very near the target of 25%. Much of the increase is due to the growth of the Garant brand, which the company is pushing as the most responsive brand. A private label product is manufactured by another company under the company brand. Often food retailers order those products from the same manufacturers, which also sell products in their shops under their own brands. Retailers negotiating power tends to be pretty strong (sometimes even so strong, that new entrants need to pay to get their products onto the shelves) and in this manner they also gain more information on the true manufacturer costs.

Axfood now commands around a fifth of the food retail market in Sweden. It is majority owned by an investment company of Antonia Ax:son Johnson and family called Axel Johnson AB. Axfood is still quite cautious in its predictions for the food retail market development in Sweden this year, but thinks that food inflation is likely to remain below one percent. The recent now collective bargaining agreement for the next 12 months will increase those costs by 2.6%. Axfood aims to match 2011 profit for the year.