Just two years ago, Iceland suffered plunging profits and sales as boss Malcolm Walker admitted his business was going through “exceptionally challenging” times.
EBITDA in the year to March 27, 2015, slumped 25.7% to £150.2m, while like-for-like sales nosedived 4.4%.
Fast forward 24 months and the tale is much rosier.
EBITDA is up 6.3% to £160m, like-for-likes have climbed 2% and total sales have risen 4.4% to a shade under £2.8bn.
Iceland says its upturn in fortunes was achieved after it “attracted new customers and re-energised dormant ones” during the year.
In such a hotly contested grocery market, that is no mean feat. So just how did Iceland grow sales and profitability so strongly?
New concept stores
Although Iceland had only opened three of its new-model stores by the end of its financial year, early results proved encouraging.
The grocer launched the first of its modern fit-outs in Clapham last October and sources close to the business told Retail Week that sales at the store rocketed 80% as it wooed new customers through its doors.
The shop, designed by creative agency Whippet, features more modern, colourful signage, while the retailer’s ‘Power of Frozen’ messaging is also given greater prominence.
“New format stores in Chester and Worcester Park have also enjoyed double-digit sales increases compared to the wider business”
It also houses a number of new products and services including craft beers, a revamped food-to-go proposition and a self-service Lavazza coffee station.
Boss Malcolm Walker says Iceland “put everything” into the Clapham branch and will take learnings about which features work in order to shape how it refits its wider 860-store portfolio.
While Clapham has proved the stand-out triumph to-date, it is understood that new format stores in Chester and Worcester Park have also enjoyed double-digit sales increases compared to the wider business.
If future conversions can deliver similar success in extending the Iceland appeal to a broader customer demographic, further sales gains should be expected.
Food Warehouse expansion
While Iceland is refitting existing eponymous stores, expansion is being driven by roll-out of The Food Warehouse fascia.
Iceland opened 24 The Food Warehouse branches during its financial year, taking the total to 36, and is targeting plenty more.
Trading on retail parks in stores measuring up to 15,000 sq ft – treble the size of the average Iceland – The Food Warehouse stocks more luxury and speciality lines, such as wild boar burgers and ostrich, venison and kangaroo steaks, attracting a new type of customer.
“Iceland has transferred a number of innovative product lines and operating initiatives to its broader business”
Although The Food Warehouse has grown sales quickly – and another 25 stores planned during the current financial year – the larger sheds have also proved a valuable test-bed if ideas for the core Iceland business.
Iceland has transferred a number of innovative product lines and operating initiatives to its broader business to drive both sales and efficiencies.
Iceland’s online business has been one of the grocery success stories of the past few years.
The frozen food specialist only made a return to ecommerce in May 2013, eight years after shelving its digital offer, but annual sales hit £100m within two years – and it has continued to grow.
Iceland has ploughed “significant” investment into its website and head office teams and opened its first dark store in Tipton last August to service surging online demand and free branches in the West Midlands to focus on its traditional home delivery business for products purchased in-store.
Following the success of Tipton, a second pick centre is poised to open this summer.
Although Iceland did not break out profit and sales figures for its online business, the grocer hailed “strong like-for-like growth” during the year, helping it claim the best online supermarket crown from Which? for the second year running.
As Iceland started to feel the heat, what did it do? Built a kitchen.
The grocer shelled out £2.5m on a new facility at its Deeside headquarters last year, equipped with a main development kitchen and five standard kitchens.
It is here where Iceland head chef, former Waitrose executive chef Neil Nugent, spearheads Walker’s renewed efforts to “innovate, improve and educate the public about the many huge advantages of frozen food.”
“Lobster thermidor tails, grilled sprout mash and turkeys with orange and thyme butter helped Iceland’s fourth quarter like-for-likes jump 4.9%”
That drive appeared to bear fruit over Christmas, when products including lobster thermidor tails, grilled sprout mash and turkeys with orange and thyme butter helped Iceland’s fourth quarter like-for-likes jump 4.9%.
And with sales “remaining positive” in the first quarter of its current financial year, evidence suggests that its innovative new products also attracted shoppers during the Easter period.
‘Power of Frozen’ messaging
Underpinning Iceland’s innovation within its core proposition has been a strong, joined up marketing campaign, entitled the ‘Power of Frozen’.
Iceland has ditched celebrity names such as Kerry Katona and Stacey Solomon in favour of adverts that capture “genuine reactions of real families” to its products and change the perceptions of frozen food.
The grocer has sought to dispel myths about frozen food and now actively promotes it as being “fresher than fresh” by preserving vitamins and nutrients that can degrade in the supply chain.
Indeed, Iceland now dubs the notion of freezing food as “nature’s way of preserving” groceries in its TV ads, social media communication and in-store signage.
During the year, Iceland admits it gave “additional weight” to its press, leaflet and door-drop advertising, but if sales and profits were anything to go by, its messaging and broader proposition is winning shoppers over.