Market Overview

Euromonitor reports Swedish Real Gross Domestic Product (GDP) will grow by 3.1% in 2016, down from 3.4% in 2015. Domestic demand should continue to be the main driver, helped by gains in employment and a steady rise in investment. House price inflationis rising by nearly 20% per annum as urban population growth outpaces new housing construction. Household debt is about 175% of disposable income and rising as the growth of credit accelerates. The lack of affordable housing limits the degree of labormobility.

The real value of private final consumption rose by 4% in 2015 and growth of 3.6% is forecast for 2016. Rising disposable incomes combined with low-interest rates support private consumption. Annual rates of growth will gradually decelerate, falling toaround 2.1% by the end of the decade. An investment-led economic recovery in major trading-partner countries should provide the spark for an export rebound. Government consumption should also increase at a rate above its long-term average due to theaging population.

U.S. exports of agricultural products to Sweden remained steady at $US189.3 million in 2015. Exports of consumer-oriented products were US$166.4 million or over 88% of the agricultural total and increased 5%. Sweden is the 8th largest EU market for U.S.processed food exports, importing US$167.8 million in 2015, and growth of 4%. Top U.S. exports of processed foods included beer and wine; condiments and sauces; processed/prepared seafood; processed fruit; snack foods and processed vegetables; andpulses.

Retail Sector

The packaged food retail market in Sweden reached US$14.5 billion in 2015 according to Euromonitor. That represented growth of 7.6% or US$1 billion since 2011. In the forecast, Sweden is predicted to have packaged food retail salesof US$15.4 billion in 2020, a growth of 5.7% or US$825.9 million. High growth categories in the forecast include spreads; oils and fats; sauces; dressings and condiments; processed fruit and vegetables; sweet and savory snacks; baby food; and bakedgoods.

According to Euromonitor everyday luxury was an area within grocery retailing that increased during the review period (2010-2015), with more consumers indulging in home-cooked meals and fresh products. While the improvedoptimism regarding the economic outlook among consumers led to a small shift towards non-grocery shopping in 2014 and 2015, booming demand for organic and other premium alternatives underpinned value sales of groceries. According to Ekoweb, an independentwebsite that monitors the organic market in Sweden, the rise in sales of organic products in Sweden in 2014 was the highest in the world, with a 38% increase. The fact that all grocery players increased their assortments of organic and healthy private-labelranges helped to facilitate the rising demand for more premium products. In addition, while Swedish consumers are putting a higher premium on health and convenience, they continue to reward themselves with a treat now and then, contributing to groceryretailers’ continuing development in 2015.

Grocery retailers increased by 2% in current value terms in 2015, which was half a percentage point lower than the current value compound annual growth rate (CAGR) registered during the 2010-2015 review period. When consumer confidence and optimism increases, sales in the grocery channel tend to be less dynamic, and this was the case in 2015. After the economic turmoil, uncertainty about the economic prospects resulted in consumers forsaking capital-intense purchasesand instead of spending more on everyday luxury items and groceries. However, since consumer confidence rose towards the end of the review period, consumers started to make larger purchases once again, resulting in them being more cautious regardingtheir grocery spending.

The competitive landscape within grocery retailers in Sweden is highly consolidated, with one giant followed by two other large companies. ICA Sverige, the leader in grocery retailers in Swedenand the leading player in overall retailing, accounted for a 39% share of value sales within grocery retailers in 2015. The company experienced a strong performance throughout the review period, increasing its value share by half a percentage point.ICA was followed by two other strong companies within grocery retailers, Coop and Axfood, which accounted for 15% and 14% value shares respectively in 2015. Both players have a similar positioning to ICA, and also comprise a wide range of chains andretail formats. Similar to ICA, both players also increased their value shares during the review period, from 14% in 2010 to 15% in 2015 for Coop, and from 13% to 14% for Axfood.

Supermarkets are by far the largest grocery channel in value terms, accounting for a 50% share of overall value sales of modern grocery retailers in 2015. Supermarkets are a well-established and long-standing grocery retail channel in Sweden. Consumers appreciate the product assortment and the combination of non-grocery and grocery products, along with the sales area and the location of the outlets. Supermarketsare typically located in city centers or suburbs, where all consumers can easily access them, while hypermarkets and discounters are typically found outside city centers.

Hypermarkets exhibited a slower performance than supermarkets in 2015, which was two percentage points lower than the current value compound annual growth rate (CAGR) registered during the 2010-2015 review period. The popularity of hypermarkets can mainly be attributed to the one-stop-shopping possibilities, with most families appreciating the wide product assortment. In addition, hypermarkets are often located in the vicinity of other large-scale retail outletsor shopping malls, making it possible to combine grocery shopping with other shopping for the entire family.

The smaller grocery retail formats, such as convenience stores, forecourt retailers, and discounters, displayed different performances in 2015. Forecourt retailers continue to struggle due to the comparatively high prices charged. Convenience stores, which are a similar size and format to forecourt retailers, developed notably better. This channel increased by 2% in current value terms in2015. While sales in convenience stores are not driven on a value basis, unlike supermarkets, hypermarkets, and discounters, they benefit from Swedish consumers’ increasingly hectic lifestyles. Furthermore, convenience stores have successfullyintroduced a wide range of healthier on-the-go products appealing to exceedingly health-conscious consumers. In addition, convenience stores are often located in the center of cities and villages, making them a handy alternative for those not seekingto purchase large quantities of goods or those who shop for groceries on a daily basis.

Discounters, on the other hand, compete mainly with supermarkets and hypermarkets. The two major players in discounters, Lidl,and Netto, gained value share throughout the review period. Discounters increased by 2% in current value terms in 2015, which was two percentage points lower than the current value CAGR registered during the review period. The lower growth can beattributed to rising maturity following the rapid development of Lidl and Netto during the review period. As previously mentioned, increasingly price-sensitive consumers led to a surge in low-priced alternatives.

While internet retailing emerged as the most important trend within non-grocery retailing, it still constituted a very minor part of overall grocery retailing. Home delivery of groceries in Sweden is highly limited, with the major players ICA and Coop starting their online sales as late as near the end of the review period. Furthermore, only a selected number of stores from ICA and Coop offer online ordering,with some offering pick-up in-store, and others, mainly in larger cities, offering home delivery.

Best Product Prospects

Products in the market which have good sales potential include: processed fruits and vegetables; tree nuts; dried fruit; wine; beer; fish and seafood; fruit juice; sauces and seasonings; pancake and cake mixes; rice (most U.S. rice is currently packagedin other European countries); and confectionery. Products with good sales potential but not currently in the market in the significant volume include fresh fruits and vegetables; organic food; ethnic food; snack food; niche market and specialty foodproducts; frozen food; rice mixes; vegetarian food; ready-made and convenience meals; pet food; and non-hormone beef.

Food Service Sector

Euromonitor reports that the Swedish consumer foodservice market grew by 5% in current value in 2014, slightly stronger than the current value CAGR of 4% recorded over the entire review period (2009-2014). The relatively strong performanceof the national economy, record low interest rates and fairly positive consumer sentiment gave a boost to consumer foodservice in 2014 as the number of outlets increased by 1%, which further added impetus to value growth during the year.

One of the central trends in consumer foodservice in 2014 was the increasing focus on high quality, fresh, and healthy food alternatives prepared with a high level of craftsmanship. This was discernible in all channels in 2014,including street stalls/kiosks, where there was a huge boom in food trucks, as well as in full-service restaurants, where the focus on quality is spreading out from the niche of fine dining to a broader range of outlets. Furthermore, fast food sawa stronger focus on food prepared with high-quality fresh ingredients and craftsmanship, illustrated by the strongly growing interest in premium positioned burgers and pizzas.

Chained fast food brands continue to lead the Swedish consumer foodservice market in value terms. The two leading brands at the industry level are McDonald’s and Max, both present in burger fast food. These chains offer consumers fast meal options at very competitive prices. In addition, their outlet networks are wide and the brands are oftenadvertised on national television, adding further strength to their respective market positions. The next two players are O’Leary’s and Harry's, both positioned in full-service restaurants. However, these chains also offer consumers fastand affordable meal options in more of a pub environment. One of the most popular dishes served in these outlets in 2014 was indeed burgers.

The competitive environment in the Swedish consumer foodservice industry is very fragmented. A situation illustrated by the fact that the leading company at the NBO level, Max Hamburgerrestauranger AB, accounted for only 2% of total consumer foodservice value sales in 2014, while the next operator, Reitan Convenience Sweden AB, accounted for just 1%of total value sales. Chained players saw value sales developing at a slower pace than independent players both in 2014 as well as over the entire review period, illustrating that the market is perhaps becoming even more fragmented.

The growing value share of independent players is partly explained by the fact that chained players are typically far cheaper than independent players and because price competition is far more intense among chained brands. In fact, at US$24.63, the average spend per transaction is more than double in independent restaurants than in chained restaurants, with US$10.54. The number of transactions also grew faster in independent restaurants in 2014 as well as over the entirereview period. Swedish consumers are generally attracted to the growing diversity of consumer foodservice options offered by independent players, which often focus on quality and the very latest trends in terms of concepts and menu offerings.

Best Product Prospects

U.S. products most likely to make inroads to the Swedish market include high-quality, niche, natural (organic and non-organic) and specialty-type products with a high value-added component. The Swedish market offers many interestingniche segments in functional foods, e.g. for products that are lactose-free, wholegrain, gluten-free or rich in vegetable protein. Swedish consumers are prepared to pay a premium price for high-quality products with substantiated health benefits.Generally, products that are low in sugar, high in fiber, and low glycemic index have good potential on the Swedish market. Products that can be consumed on-the-go also present opportunities, as do products addressing the major health problems ofSwedish consumers; fatigue, stress and obesity.