18 Dec, 2008 - The consolidation and restructuring of the Nordic retail food sector offers interesting opportunities for U.S. suppliers in terms of volume and variety of products in demand. Best prospects include processed fruits and vegetables, tree nuts, organic food products and products appealing to the health conscious. A major impediment to increased U.S. sales is consumer resistance to products containing genetically modified (GMO) ingredients.
Market Summary - Sweden and Finland
The Swedish and Finnish economies have been growing rapidly in the past few years, but in 2008 the growth has fallen off with weaker tendency in exports, consumption and investments. Although the demand for high-value, consumer-ready products remained strong in Sweden and Finland in 2007, the outlook for private consumption has become more negative and there are signs that the consumers are becoming more cautious.
The food retail sector in these markets is predominantly integrated and concentrated. In both Sweden and Finland, the three largest import/wholesale groups supply over 80% of the market. Restructuring of the Nordic retail food sector continues as pan-Nordic mergers and cooperative agreements seek to achieve greater efficiencies and economies of scale to fend off other European competitors. Swedish and Finnish retail chains are meeting the stiff competition through increased efficiency -- centralizing purchases, forming international alliances and expanding operations within the Nordic/Baltic region. In these concentrated markets where retailers have such large market share, growth at home becomes virtually impossible. Looking abroad, in the form of mergers and cooperation at the international level, has become the only possible path to growth.
The fastest growing "concept" in the food retail trade in Sweden and Finland is discount stores. While discount stores currently only account for about 10-13 percent of the retail trade in Sweden and Finland, volumes have tripled over the last ten years. Growth figures are showing no signs of leveling off, and this, of course, has stirred interest among foreign players to enter the domestically dominated Nordic food retail market. The German hard discounter Lidl has already established a presence both in Sweden and Finland. Other players are likely to follow. The entry of Lidl has undoubtedly changed the dynamics of food retailing and is putting pressure on the previously unthreatened Swedish and Finnish grocery conglomerates. Swedish and Finnish retailers are responding by refocusing their stores to a more price-oriented basis and introducing new private label items to match Lidl’s low prices. Also, many retailers have opened up their own discount stores.
The trend throughout Europe of fewer but larger players continues. In 2007, half of Swedish retail food sales of approximately USD 24 billion went through large supermarkets and hypermarkets. In Finland, large supermarkets and hypermarkets accounted for about 55% of retail food sales of USD 17 billion. There were about 6,800 food retail outlets in Sweden in 2007 compared to 13,000 in 1970. In Finland, the number of outlets dropped to 3,922 in 2007, slightly fewer than during the previous year.
Swedish and Finnish consumers are gravitating towards fresher, more convenient and more nutritious foods. High demands are made on food quality, origin and environmental concerns. The ongoing socio-demographic changes with busier life styles and increasing single-person households are affecting food retailing to a high degree. Retailers are shifting their product ranges towards an increasing share of healthier, ready-to-eat foods and home meal replacements. Eating out is growing faster than traditional retail sales. Both in Sweden and Finland, about 20 percent of meals are currently eaten out of the home. Fast food is the segment benefiting most from this trend. American-style fast food chains, sushi bars and coffee shops are extremely popular in these markets.
Organic and functional foods are gaining in popularity with significant consumer awareness in the area of food safety and healthy eating habits. This includes not only products with low-fat benefits, but also those with nutritional advantages, such as added fiber, vitamins and minerals, or ingredients with perceived disease-preventative qualities. There are many functional food products either on the shelves or under development, especially in Finland, which has become the “Silicon Valley” of the functional food industry for Europe. Consumers are willing and able to pay higher prices for food and drink products that fall into these categories. Also, through increased travel and a willingness to move away from their culinary traditions, Swedish and Finnish consumers are more open to ethnic foods.
Internet retail food sales have been limited despite the region’s high per capita ownership of computers and consumers’ expressed interest in online food purchasing. The positive outlook of major retailers towards this sales vehicle at the end of 1990’s changed rather quickly and the list of retailers terminating their websites grew long. Currently, there are only a few profitable internet operators in food distribution in Sweden and Finland. However, there are signs that customers have overcome earlier suspicions to online food purchases and some retailers have again started to offer food online in certain cities around Sweden.
Average exchange rate 2007 in Sweden: US$ 1 = SEK 6.76
Average exchange rate 2007 in Finland: US$ 1 = EUR 0.73