Amidst historically high inflation and changing consumer preferences, Axfood AB, the Swedish grocery giant, has finished 2023 in a stronger market position with an ambitious plan for the future. While attention has centered on the rapid growth of its discount chain Willys and its logistical changes with the new Bålsta distribution center, a quieter, possibly more significant event has been occurring within its portfolio. Hemköp, the company's traditional supermarket banner, has steadily and consistently outperformed not only its direct competitors in the supermarket sector but also the wider market, including the powerful discount sector. This notable achievement, sustained for five consecutive quarters, raises the question: Is Hemköp Axfood's secret weapon against persistent inflation in the grocery industry?

Hemköp's success, as highlighted in the Q4 2023 earnings call, is attributed to a multi-pronged strategy centered on enhancing its value proposition, updating its stores, and championing sustainability. However, the truly remarkable aspect of Hemköp's performance lies in its ability to thrive in an environment where its larger competitors, ICA and Coop, have faltered, particularly in the value arena. While these competitors have struggled to maintain margins and volume growth in the face of escalating costs and value-conscious consumers, Hemköp has not only weathered the storm but emerged stronger, prompting questions about its model's resilience.

Possible Explanations for Hemköp's Success

Several hypotheses emerge when trying to understand the Hemköp phenomenon. One compelling explanation is its strategic positioning. While ICA and Coop have historically offered a broader range of prices and products, Hemköp has intentionally focused on a more limited, carefully selected assortment, enabling it to streamline its operations and sourcing. This potentially gives it an advantage in managing inflation.

Another possible explanation is Hemköp's strong commitment to sustainability. While consumer interest in sustainability may have decreased during peak inflation, Hemköp's continued emphasis on organic and sustainable products, combined with loyalty programs that reward sustainable choices, could be paying off. As consumers become more selective and support retailers that align with their values, Hemköp's sustainability efforts may be translating into greater customer loyalty and market share gains.

Hemköp's Financial Performance

Hemköp's impressive numbers speak for themselves. The company reported a 10% net sales increase in Q4 2023, along with like-for-like retail sales growth of 8% (total) and 7% (like-for-like), demonstrating its ability to connect with consumers in a difficult economic environment. This outperformance, particularly when compared to its peers' struggles in the traditional supermarket segment, suggests that Hemköp has found a unique combination of factors enabling it to not only survive but flourish in the face of inflation.

Moreover, Hemköp's success has persisted for five consecutive quarters, a period characterized by exceptional instability in the grocery sector, which highlights the fundamental strength of its model. This sustained outperformance cannot be simply attributed to short-term market changes or favorable comparisons. It suggests that Hemköp has successfully adapted to the "new normal," establishing a solid platform for continued growth.

Will Hemköp Lead the Way?

It is uncertain whether Hemköp can maintain this impressive momentum. The competitive landscape remains intense, and the overall economic environment continues to be uncertain. Nonetheless, Hemköp's recent performance indicates that it may possess the key to unlocking a more resilient and sustainable model for the traditional supermarket sector, a model that embraces value and sustainability without sacrificing profitability.

As Axfood begins 2024 with a strong financial standing and ambitious growth strategies, it will be interesting to observe Hemköp's development. Will it remain the quiet champion, gaining ground while its larger competitors grapple with inflation? Or will it become Axfood's flagship banner, leading the movement toward a more sustainable and profitable future for the entire grocery industry? Time will tell, but the early indications are undoubtedly promising, implying that Hemköp's silent shift could be a sign of a larger transformation in the grocery landscape.

Hemköp vs. Willys: Like-for-Like Sales Growth

"Fun Fact: Axfood's commitment to sustainability extends beyond its stores. The company is building Sweden's largest onshore solar park in Hallstavik, further reducing its carbon footprint and supporting a transition to renewable energy."