The heart of ICA Gruppen’s operations consists of grocery retail, where the hub consists of some 1,550 grocery stores in Sweden, Estonia, Latvia and Lithuania.
In Sweden grocery retail is operated in cooperation with independent ICA retailers, who own their own stores. Among other things, ICA Sweden is responsible for coordinated sourcing, logistics, central marketing communication and overall development of the store network. In Estonia, Latvia and Lithuania all stores are owned and operated by the wholly-owned subsidiary Rimi Baltic. The Group also includes the home furnishing chain Hemtex.
Leader in health
Apotek Hjärtat, which has around 390 pharmacies in Sweden, is a key element in ICA Gruppen’s strategy of achieving a leading position in health. Around a quarter of the pharmacies are at the same location as ICA stores and sourcing, customer offerings, organisation and loyalty programmes are all coordinated with ICA Sweden.
Full range of banking services
ICA Bank fulfills a number of important functions within ICA Gruppen. In addition to providing a growing range of user-friendly banking services, ICA Bank helps strengthen loyalty to the ICA stores while also reducing the cost of the financial flows in the ICA system. Commission, net interest and other income contribute to ICA Gruppen’s earnings, and the use of ICA Bank’s own bank cards reduces the fees payable to other card issuers.
Active property development
ICA Real Estate is one of the largest retail real estate firms in the Nordic region. Its overall mission is to meet ICA Gruppen’s long-term need for appropriate properties in the right locations. This consists of acquiring, developing and managing marketplaces adjacent to existing or planned ICA stores, and selling fully developed properties on an ongoing basis.
ICA Sweden’s business model
ICA Gruppen’s single largest segment is ICA Sweden, which in 2018 accounted for 71% of total net sales and 72% of operating profit. ICA Sweden’s grocery retail business is based on a unique business model where the local retailers’ commitment, market knowledge and entrepreneurial skills are combined with economies of scale within ICA Sweden.
Essentially, the idea behind the business model is that ICA Sweden owns the rights to the store location and the brand, while the retailer owns and operates the store. The model, which is often called the ICA Idea, was born in 1917. Although it has been expanded and developed since then, entrepreneurship, the local retailer’s perspective, a long-term approach and community engagement are still central pillars of ICA Gruppen’s operations. They are some of the most critical success factors behind ICA’s strong performance.
Clear division of responsibility
The relationship between ICA Sweden and the individual ICA retailers is regulated in an agreement. The agreement sets out, among other things, how the store network will be developed and how new stores will be financed. Key elements of the agreement include the overall division of responsibility between ICA Sweden and the retailer, the principles governing the rights to the ICA brand and ICA Sweden’s right to compensation in the form of royalties and, in some cases, profit sharing. It also contains a pre-emption clause in the event that ICA retailers want to sell their company or its operations.
In addition to the agreement between ICA Sweden and the individual retailers, there is also an overarching agreement between ICA Sweden and ICA-handlarnas Förbund (ICA Retailers’ Association) regulating how goods and services passing from ICA Sweden to the stores are to be priced and how the joint operations are to be financed.
The retailers are not obliged to purchase goods or services from ICA Sweden, but sourcing loyalty is generally high. In 2018 an average of 80% of the product range in the stores was sourced from ICA Sweden.
ICA-handlarnas Förbund is a nonprofit association and members’ organisation for Sweden’s ICA retailers and is also ICA Gruppen’s principle shareholder.
From centralised establishment to retailer-owned stores
The decision to establish a new store is taken by ICA Sweden, which is also responsible for recruiting retailers for new or vacant store locations. New stores are usually established through a company that is majority-owned by ICA Sweden, which also provides the initial financing. Once the store has repaid the investment and the cost of opening the store by generating its own profits, the retailer can buy and then own the business. On average, this takes place after around five years. ICA Sweden subsequently remains a minority shareholder with 1% of the shares in the company operating the store.
The ICA business model in the digital era
The ICA business model was developed for physical stores, but is still strong in an increasingly digital world. At the end of 2018 more than 280 stores were connected to ICA Gruppen’s joint e-commerce solution. In the same way as in physical retail operations, the independent retailer owns and is responsible for the relationship with the end customer. ICA Sweden provides the technical platform, while the retailer decides on and is responsible for the offering, pricing picking and direct distribution. Since spring of 2018 ICA retailers in the Stockholm region have been offered an add-on service of direct delivery from a central e-commerce warehouse. To use these services the retailer pays a fixed fee and a variable amount depending on the number of orders and items.
ICA Sweden’s revenue
- Wholesale sales of external and private label products within food and non-food (incl. fees for logistics and infrastructure)
- Sales in store subsidiaries
- Wholly owned non-food sales in Maxi ICA Stormarknad
- Additional services to ICA retailers at market prices in areas such as accounting and advertising
- Fees from ICA retailers to finance the joint organisation (also known as ICA Subscription)
- Royalties based on sales at the store concerned
- Profit sharing based on results, for larger stores – mainly Maxi ICA Stormarknad
Factors influencing ICA Sweden’s results
ICA Sweden’s revenues come largely from wholesale sales of products to the stores. The mark-up percentage is set out in agreements with ICA-handlarnas Förbund and varies depending on the type of goods. Other remuneration with a direct impact on results includes royalties and profit sharing from the stores. In addition, results from the non food business and store subsidiaries affect total results.