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.

Handels strike would affect many listed companies

Swedish Commercial Employees' Union Handels has issued a strike warning. It would start after Easter celebrations on April 13th. While strikes are rare in Sweden, Handels has used the threat on occasion in recent years.

Negotiations with employer’s organization Svensk Handel broke down several days ago. Naturally Svensk Handel is opposed of such a move and thinks it would be very damaging to the Swedish economy. The union demands 860 SEK wage increase to retail sector employees plus 100 SEK extra to narrow the gap in between male-female earnings.

The warning covers warehouses and stores with some 5600 employees and 65 workplaces. Since certain big wholesalers are involved, it could also have a trickle down effect on other smaller companies. Among listed companies affected would be

Clas Ohlson (OMX: CLAS B)
Lindex fashion chain, a subsidiary of Finnish Stockmann (OMX: STCAS, STCBV)
Hemköpskedjan AB and WiLLY:S AB, subsidiaries of food retailer Axfood AB (OMX: AXFO)

Building, contracting and industrial sectors retailer Swedol AB (STO: SWOL B)
Steel trading and services firm BE Group Sverige (STO: BEGR)
Industrial consumables and components provicer B&B TOOLS (STO: BBTO B)

H&M Hennes & Mauritz (OMX: HM B)
Large retailer ICA AB, which is 40% owned by Hakon Invest AB (STO: HAKN)
KappAhl (STO: KAHL)
Car spare-parts chain Mekonomen (STO: MEKO)