Axfood: the discounter becomes the drag

Willys grows two points slower than a 4% market while Hemköp and City Gross carry the quarter — and management quietly retires the phrase 'tactical measures'

AXFO.ST · Earnings Call · 2026-10-22

The engine stops pulling

For a company whose entire identity is Swedish discount, Axfood's third quarter had an odd shape. The food retail market grew 4% — but the drivers have rotated: growth is now volume- and mix-led, because the April halving of food VAT (12% to 6%) pushed consumer prices down almost 2% year-on-year. Against that backdrop Axfood's retail sales rose just under 3%, roughly two points behind the market. The culprit is the crown jewel. Willys grew "just over 2%" on a modest like-for-like, with operating profit down slightly and the margin at 4.7%. Hemköp, the traditional supermarket, grew 7% and lifted its margin to 5.8%. That inversion is the quarter's real content. Management has spent years explaining that discount outgrows every other format, with hypermarkets second. This quarter the premium-ish banner beat the discounter by five points of sales growth and over a point of margin. Simone Margulies' framing of the consumer is doing the work: “Value for money remains a key priority for consumers. At the same time, we're seeing some signs that quality and convenience are becoming more important.” — Simone Margulies, CEO · 2026-10-22 That is a polite way of saying the customer with restored purchasing power is trading up at the margin — and the convenience and food inspiration offer is where the incremental spend is landing. More than 150 Hemköp stores now sell store-made sandwiches, salads or hot buffets, roughly 15,000 items a day. Three separate analysts — ABG, SB1 and Danske — opened on the same topic: why is Willys losing share, and what fixes it. That is a consensus of concern, not a single bear.

The vocabulary changed, and that is the tell

Last quarter the company's single highest-ranked theme was tactical measures — short-term, insight-driven actions to rebuild Willys traffic. The CEO introduced them herself: “that's why we're also taking some tactical measures now, so in the short term, improve the growth also for Willys.” — Simone Margulies, President and Chief Executive Officer (CEO) · 2026-07-15 One quarter later the phrase is gone from the prepared remarks and has decayed into the decliner column of the company's own keyword history, replaced by a softer word: calibrate. “It's about calibrating the customer offering towards a somewhat different customer behavior.” — Simone Margulies, CEO · 2026-10-22 Read that shift alongside the earlier admission. In April, after cutting prices two days ahead of the VAT change, the message was: “we didn't really -- we didn't get the volumes as we had hoped for.” — Simone Margulies, President and CEO · 2026-04-23 The tactical push has now been running through two quarters without closing the gap — Willys remains roughly two points behind the market — so 'tactical' has been retired in favour of 'calibrating', which implies continuity rather than a fix with an end date.

The price position that Willys has to be Sweden's cheapest by a grocery is like a hygiene factor... It's about calibrating with the market. So it's about calibrating the entire offering... Small changes. It's not about changing what Willys are.
Simone Margulies, CEO · 2026-10-22

That is a defensible strategy, but it is not the story told in Q2. The strategic answer is now capital: 70 Willys stores upgraded to the 5.0 concept by year-end (about 25 modernizations this year) and 10 new stores a year through 2030. Willys 5.0 and modernization are the new framing; price tactics are the old one.

City Gross delivers — and the CapEx line slips

Buried under the Willys noise is a genuine win. “In less than 2 years since the acquisition, we have taken City Gross from losses to profitability” — Simone Margulies, CEO · 2026-10-22 — profitable in Q3, breakeven on a rolling 12 months, with a fifth store (Helsingborg) closed and being converted to Willys. The hypermarket segment is no longer the group's funding hole. But the same outlook contained two timing concessions that flatter the near term. Structural costs in City Gross are being postponed, which affects comparability, and capital expenditure guidance was trimmed to SEK 2.0–2.1bn. The reason matters: “There have been some delays in the detailed planning for our new logistics center in Kungsbacka. As a result, we are moving the remaining automation investment plan for this year into next year... we cannot rule out some delay.” — Anders Lexmon, CFO · 2026-10-22 The Kungsbacka project is the sequel to the Bålsta automation programme that produced the group's efficiency story — SEK 200–300m of annual savings, now described as being at the higher end of that span, with Bålsta cases per hour up about 25% in under two years. When asked whether Bålsta is at peak efficiency, the CFO offered only “we are on a journey there” — Anders Lexmon, CFO · 2026-10-22. The current efficiency engine is maturing just as the next one slides to 2030.

Deflation versus cost: the next turn

Food price deflation has been the dominant Swedish grocery theme for three quarters and is now fading in salience — but the cost side has not. Fuel was a SEK 40m headwind in the quarter, in line with Q2, offset in part by roughly SEK 40m of relief from the young-worker payroll tax cut. Salaries and store investment run against a top line falling in nominal terms. Magnus Raman asked directly whether negative price development is sustainable for the market as a whole, and got a hint of the next phase: “We are a low-margin industry. So as you say, of course, in a long-term, we have to recover also the costs.” — Simone Margulies, CEO · 2026-10-22 A quarter earlier she had been blunter — continued cost inflation would eventually be seen “in the stores also” — Simone Margulies, President and CEO · 2026-04-23. The deflation cycle is closer to its end than its start. Worth noting what this is not: global market themes for the quarter are dominated by rate and bank concepts — IRB models, Fed hiking cycles, mortgage spreads — and the grocery cost/price dynamic shows up only in scattered peers (Procter & Gamble flagging cost pressure, Tractor Supply citing pricing actions). Nothing in the market's curated top-75 reads like Swedish food deflation. Sweden's VAT experiment is a local phenomenon, and Axfood's value for money war is being fought inside it. One last detail with diagnostic value: private-label share fell 60bp at Willys year-on-year while rising at Hemköp and City Gross, leaving the group stable. Margulies called it behavioural, not a trend, and declined to disclose the brand-versus-own-brand margin spread. If a Swedish consumer is genuinely trading up, private label is where that shows up next — and Willys is where it will cost the most. The bottom line: a stable 4.9% group margin in a deflationary, highly competitive market is a defensible result. But the group's profit engine is now the laggard, the fix has been re-labelled from tactic to calibration, and the next wave of logistics savings has slipped into the next decade. Watch Willys' like-for-like against the 4% market — and whether 'calibrate' eventually becomes a price increase rather than a price investment.