Ikea to move into speciality grocery market

The advent of another big retailer in a market characterised by small margins and fierce competition, will provide another opportunity to food processors who do not sell their own branded products. That is, if they can cope with the buying power the two companies have to bargain down their prices.

Industry analysis Datamonitor says while Ikea's plan to expand its food division is an attempt at diversification, it is the inverse of the strategy adopted by retail giants such as Tesco andWal-Mart, which have started to sell home furnishings to counter falling food revenues. The Swedish retailer plans to launch its own range of food products across its stores worldwide.

Datamonitor believes the Ikea food brand launch will be a successful stategy given the retailer's high profile among consumers. Although spending on mainstream food products is slowing, the samecannot be said of niche brands.

Ikea's plan to offer mainly Swedish delicacies, such as roll-mop herring and smoked elk sausage, will appeal to a body of consumers looking for more specialty offerings.

"While it is unlikely that Ikea's food offering will ever overtake its furniture in terms of sales, the addition of more Ikea-branded products will almost certainly reinforce the store'sstatus as a household name - albeit one with a cult following,"​ Datamonitor stated in an analysis of the announcement. "Similarly, it is unlikely that consumers will visit Ikea solelyto buy food, yet the same product diversification strategy has led Tesco to unveil its non-food Homeplus store concept in the UK."​

Polly Atherton, an Ikea spokesperson, confirmed the details of the planned expansion, which were first revealed by the Grocer, a UK trade magazine. She rejected a request for an interview byFoodProductionDaily.com.

Ikea has been selling food since the 1980s, when it launched in-store restaurants and began selling some food products, Datamonitor noted. The restaurants are successful and the company's foodmarkets division now stocks about 150 products, most of them from Sweden.

Most of the food products are not sold under the Ikea name. About ten per cent of the products are made according to Ikea's own recipes, but do not carry the Ikea name.

Ikea told the Grocer it plans for its branded products to make up 30 per cent of the groceries it sells by 2007. Ikea hopes to leverage its restaurants to highlight dishes it will sell at itsstores' food markets. Ikea has about 360 million customers annually at its stores worldwide, of which about 170 million visit the restaurants.

Kate Ison, a spokesperson for the British Retail Consortium said big food retailers have been expanding recently to keep up with the high competition and changing consumer demands.

"Big retailers must keep on their toes to take advantage of changing customer demands and to appeal to new customers,"​ she said.

Datamonitor said Ikea will need to convince consumers that it will retain the same care for product quality in food as it has for furniture. Ikea also needs to ensure that its strategy to sellspecialty food is not harmed by positioning the products as budget items.

Ikea's food markets division currently sells produce at between 30 per cent to 40 per cent below market price.

"Yet with the right marketing strategy, the chain is well placed to develop a lucrative add-on to its range by tapping into the vast consumer base that already swears by its affordabledesigner furniture,"​ Datamonitor stated.

Last month Wal-Mart's chief executive Lee Scott said the world's largest retailer was looking at expansion in central and eastern Europe, where companies such Metro, Tesco and Auchen are majorplayers. However he did not say when Wal-Mart might make a move in the markets it is targeting.

In the UK, Wal-Mart owns the Asda chain of stores, which made up 46 per cent of the group's international sales. In Germany Wal-Mart owns the Wertkauf chain and became Germany's fourth-largesthypermarket retailer with the acquisition of 74 Interspar stores.