At the heart of ICA Gruppen’s operations is grocery retail, where the hub consists of some 1,550 grocery stores in Sweden, Estonia, Latvia and Lithuania. Around these a number of operations have been built up which, individually or in combination, help maintain the Group’s strong market position.
In Sweden grocery retail is operated in co-operation with independent ICA retailers, who own their 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.
Apotek Hjärtat, which has around 390 pharmacies in Sweden, is playing an important role in ICA Gruppen’s efforts to achieve a leading position in health. Sourcing, customer offering, organisational matters and loyalty programmes are coordinated with ICA Sweden. ICA Bank fulfils 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 costs 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 pay-able to other card issuers.
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 is achieved by a combination of owning, leasing and developing marketplaces. The property portfolio is actively managed and fully developed properties are sold on an ongoing basis.
The Group also includes the home furnishing chain Hemtex. Extensive changes have been made since Hemtex became a wholly owned subsidiary of ICA Gruppen at the end of 2015, among other things resulting in greater collaboration with ICA Sweden.
ICA Sweden’s business and earnings model
In Sweden ICA Gruppen’s business within grocery retail is largely based on the so-called ICA Idea, which combines the local retailer’s commitment, market knowledge and entrepreneurship with the central economies of scale and efficiency provided by ICA Sweden. In brief, the idea is that ICA Sweden owns the rights to the store location and the brand, while the retailer owns and operates the store.
Clear division of responsibility
The relationship between ICA Sweden and the individual ICA retailers is regulated by an agreement, which details – among other things – how the store network is to be run and how the establishment of new stores is to 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 as well as ICA Sweden’s right to compensation in the form of royalties and, in some cases, profit sharing. It also contains a preemption clause in the event that the ICA retailers want to sell their company or its operations.
In addition to the agreements between ICA Sweden and the individual retailers, there is also an overarching agreement between ICA Sweden and ICA-handlarnas Förbund regulating how goods and services 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. ICA-handlarnas Förbund is a non-profit association and members’ organisation for Sweden’s ICA retailers, and is also the principal shareholder in ICA Gruppen.
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, with ICA Sweden providing 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. Thereafter the retailer holds 99% of the shares in the company that operates the store. ICA Sweden remains a minority shareholder with 1% of the shares.
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.