City Gross Acquisition: Key Details, Impact, and What Comes Next

Axfood's acquisition of City Gross marks a significant shift in the Swedish grocery market. By securing full ownership, Axfood aims to bolster City Gross's competitiveness and growth in the hypermarket segment. This strategic move is expected to challenge market leaders and enhance competition, ultimately benefiting Swedish consumers and the industry at large.

What Is City Gross?

Founded in 1993, City Gross is a prominent player in the Swedish grocery market, offering a wide range of products including fresh produce, meat, and household essentials. Known for its commitment to quality and customer satisfaction, City Gross differentiates itself through its extensive selection of organic and locally sourced items. The chain's focus on providing a comprehensive shopping experience both in-store and online sets it apart in a competitive market.

Who Acquired City Gross?

Axfood is a leading player in the Swedish food market, known for developing and operating successful food retail concepts. The company manages several prominent retail brands, including Willys, Hemköp, and Tempo, and offers a range of own products that emphasize quality and affordability. Axfood is recognized for its strong market position and significant influence, particularly in sustainability initiatives like reducing food waste and promoting green transportation. The company's commitment to innovation and sustainability sets it apart in the industry.

When Was City Gross Acquired?

Axfood announced its acquisition of City Gross on 11 June 2024, with the transaction set to complete on 1 November 2024. This move came during a period marked by high inflation and significant internal changes at City Gross, including a new IT infrastructure and logistics improvements. The acquisition aligns with industry trends of consolidation and increased competition in the hypermarket segment, aiming to enhance efficiency and customer-centric improvements.

Why Was City Gross Acquired?

• Market Expansion: The acquisition of City Gross allows Axfood to expand its presence in the hypermarket segment, particularly in southern and central Sweden. This strategic move is expected to strengthen City Gross's competitiveness and challenge existing market leaders, thereby increasing competition in the hypermarket segment.
• Technology Integration: Axfood benefits from City Gross's recent implementation of new IT infrastructure. Additionally, Axfood's long-term cooperation with City Gross in areas such as logistics, assortment and purchasing, and IT will further enhance operational efficiency and customer offerings.
• Competitive Advantage: By acquiring City Gross, Axfood aims to strengthen its market position against competitors. The acquisition will enable Axfood to implement efficient operations, improve customer offerings, and challenge larger players in the market, thereby gaining a competitive edge.

Acquisition Terms

• Acquisition Price: SEK 2 billion on a cash and debt-free basis.
• Payment Method: The acquisition will be financed through a combination of existing cash and credit facilities.
• Key Conditions or Agreements:
  • Approval by the Swedish Competition Authority and the European Commission under the Foreign Subsidies Regulation.
  • Axfood will acquire shares corresponding to 90.1 percent of City Gross Sverige AB, increasing its shareholding from 9.9 percent to 100 percent.
  • The transaction is expected to be completed on 1 November 2024.
  • Axfood plans to implement improvement initiatives to strengthen City Gross's customer offering, chain management, and operational efficiency.
  • The acquisition is expected to positively impact Axfood’s earnings per share by 2026.
  • Transaction costs of SEK 26 million were incurred during the second quarter of 2024.

Impact on City Gross

The acquisition of City Gross by Axfood has led to significant changes in operations and management. Axfood has taken full ownership, transitioning City Gross into a separate operating segment within its financial reporting. This shift allows for more focused management and operational efficiency improvements. Axfood plans to implement chain management strategies and leverage its expertise in logistics, assortment, and purchasing to enhance City Gross's market position. These changes aim to streamline operations and improve overall performance, aligning with Axfood's broader strategic goals.

In terms of product offerings and services, the acquisition is expected to bring positive changes for City Gross customers. Axfood intends to strengthen City Gross's customer offering by investing in new IT infrastructure and expanding the range of private label products. These initiatives are designed to enhance the shopping experience and meet the evolving needs of consumers. Employee reactions have been generally positive, with management expressing optimism about the future. Customer reactions, while not explicitly detailed, are anticipated to be favorable due to the expected improvements in product variety and service quality.

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