An unusually warm spring and early summer in Sweden helped lift sales at retailer ICA Gruppen's stores in the countryside as people escaped the city, but also pushed transport costs up sharply.
ICA Gruppen, owner of the country's biggest grocery retailer ICA Sweden, reported a drop in second-quarter profit as higher costs overshadowed sales growth, sending its shares down 6% to a near two-year low.
More Sales In Countryside Stores
Its ICA Nara brand of small stores, mostly in the countryside, outperformed with sales growth of 6% in April-June, up to six times higher than at the group's three other store concepts, but the group faced more cost pressure as a consequence.
ICA Nara is ICA Sweden's biggest unit by number of stores but the smallest by sales, limiting economies of scale.
"When we start to see volume growth of say 8% to the smaller stores, that has a negative impact on logistics," CEO Per Stromberg told analysts in a conference call.
"Doing a lot of orders to small stores in the countryside is much more costly for us than doing large orders to large stores," he said.
Like much of Europe, Sweden has seen unusually high temperatures in recent months. In many places around the country, the month of May was the warmest on record.
Warm Weather Boosts Sales
Stromberg attributed half of the volume growth at ICA Nara to the weather, prompting many Swedes to escape the cities and shy away from bulk shopping.
"When the weather is nice you don't want to go to a shopping mall," he told Reuters, noting that the weather effect was temporary.
Unforeseen demand swings due to the weather, such as higher demand for bottled water, soft drinks and ice cream, also pushed up logistics costs.
July was the warmest month on record in Sweden and Stromberg said volumes to ICA's smaller stores had been very high so far in the third quarter.
Group second-quarter operating profit lagged analysts expectations at 951 million crowns (€91 million), and its shares were down 6% at 268.60 crowns (€25.7) at 12:14 GMT.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
