Ica advertising is paid by suppliers – money is required

Very early, when suppliers negotiate prices with buyers in Ica, the question often arises: “How much can you spend on marketing?”

– If I say “sorry, I have no marketing budget”, then you are not relevant as a supplier, says a food producer to DN.

The person is not alone.

– I have been in several negotiations with Ica on behalf of a supplier. You are required to “put money on the table” for Ica marketing. I’d almost call it a bribe, you shop at the market, says another.

– It is as if the buyers of Ica had a budget of how much they have to milk us, says a third party.

Several have heard of him. DN after the articles on Ica’s business methods.

Ica’s market dominance means that the chain can control 50 to 60 percent of food companies’ revenue. If Ica turns on the tap, they go bad pretty quickly.

DN has previously described how Ica’s “ladder of sanctions” works and also how the chain has competed with local suppliers by copying products and turning them into EMV, its own brands.

But one task that has been repeated several times is that of Icas for marketing, which is described in a similar way by several different people.

Above all, these are the brochures, which are distributed to homes across the country as direct mail every week, and which are described as very lucrative for Ica.

According to a well-informed source says so:

● Ica has an annual budget for how much to draw on the flyers. It is distributed to suppliers.

● The suppliers’ money is linked through annual agreements to the different store concepts. You pay for Maxi promotions, Kvantum promotions, supermarket promotions and Nära promotions that all stores in each area follow. There is also a central agreement for television advertising. Ica has requirements on how many campaigns the provider must participate in and how much it must cost.

● For every product marketed in magazine advertising campaigns, suppliers pay hundreds of thousands of crowns.

● It can be said that Ica’s own advertising, for example for vegetables or own brands, EMV, is paid for with the money from other advertisements.

● For vendors, it is often a loss-making business, increased campaign sales do not offset advertising costs.

– It’s just counting the vendor ads in the brochures every week, it will be very large quantities and it’s a very lucrative deal for chain stores, says the source.

And not paying Ica punishes himself.

– If you do not meet the requirements of Ica, it will be a conflict situation. Then there are threats of retaliation in various ways, says the source.

The provider’s marketing budget will be restricted to Ica and it will be difficult to use alternative advertising initiatives, such as buying a separate television commercial of its own.

A problem in this context is that, since it is Ica that determines the price in the stores, the television commercial of the supplier itself can never contain price offers.

How do you see suppliers paying for Ica’s own campaigns?

– Yes, what to say about it. Is there competition on equal terms? Everyone pays for their ads, but when Ica advertises their coffee, it costs the coffee producer nothing. But then you also have to remember that many vendors want to be a part of the campaigns, as it often results in higher volumes and market shares, the source adds.

An example DN has seen from another company shows that the fixed cost of participating in ad campaigns in different types of stores alone is up to 700,000 per year.

Read more: Ica: We do not share that image

Business consultant Lennart Jönsson, who follows the competition in the grocery trade and guarded the area for a long time, he has made a compilation of how much the supermarket chains sell in the brochures.

According to Jönsson, there is a fixed and variable cost for campaigns. It is about 46,200 ads in total in a year, which gives an estimated value of 7,000 million SEK. Of the ads, 30 percent are owned by the chains, for which food companies pay around 5 billion SEK.

Ica had around 12,000 of those campaigns, the second was Axfood with just over 9,300.

Another informant, with experience working for various suppliers in various food categories, reinforces the information reported. He also wants to remain anonymous.

According to that source, an ad costs on a flywheel of Maxi 100,000-150,000 crowns. It also describes how Ica part of the budget of the previous year when negotiating, and requests at least the same amount.

– One of the problems is also that there is no consideration on the part of Ica when it comes to sales. Each store has its own owner, and in the store they can highlight completely different items from the brochures, because they can earn more from them. And what the vendor gets for the marketing money erodes year after year, as the EMV element increases all the time.

That Ica withdraws billions from the advertising brochures and that it pays for Ica’s own marketing, is clearly stated according to the informant.

Axfood is said to have another system, in which you pay a percentage of sales to marketing.

Lennart Jönsson confirms the image of how vendors are charged for marketing money. He himself has been involved in various negotiations when working in the supply chain in the grocery industry.

According to Jönsson, they often fell back on that investment, meaning what they gained from increased sales in advertising was less than what they paid Ica.

– They took advantage of that defeat to stay well with Ica. There are many who call it a “money relationship”, you pay to have a good relationship with Ica, he says.

The money requirements for marketing It applies not only to brochures, but also to the soap opera with Ica-Stig, the long-distance runner that started in 2001 and currently has Loa Falkman in the title role.

Ica is the largest advertising buyer in Sweden, in 2019 just over a billion was spent on advertising, of which around 200 million on trails in Ica.

That money also comes from the suppliers of Ica.

If you want Ica-Stig (Loa Falkman) to keep your product for viewers, it costs around SEK 800,000, according to Lennart Jönsson. Another source claims that the price level for 2021 is SEK 950,000.

Ica made 23 films in the first half of this year and its own brands accounted for 38 percent of the advertising.

DN informants consider the TV commercial to be less of a problem as it is applied nationwide and further increases sales volumes.

– Suppliers still often want to participate here. Even if you don’t get the money back, you see it as buying market share. Ica certainly goes the extra mile even in TV commercials, but it’s not as lucrative as flyers, where they charge high premiums. In the TV commercial, there are 5-6 products, but in the magazines it can be 50-70, says the insider.

In the new legislation on Unfair business practices, which will be incorporated into Swedish law next fall, there is a list of methods that are blacklisted and ‘gray’ listed. The latter may be allowed depending on the situation.

This includes, for example, methods like “Rapid Start” that Coop, among others, uses and that DN has described above. According to researcher Johan Hedelin, who is working to introduce EU rules against unfair business practices (UTP legislation) in Sweden, Rapid Start can be classified as “buying a shelf”.

Ica’s requirements for marketing money for advertising brochures also fall into the category, you pay to be delivered to Ica.

But for all negotiations there is a general rule: the prohibition of retaliation. No one should have to sign an agreement in a threat environment, where there is a risk that the company will be financially sanctioned if certain requirements are not met.

– During the time I negotiated with Ica, at least it was clear that they punished you in different ways if you didn’t want to pay for marketing. If the provider wants to give up, there may be a “threat” of retaliation if they don’t pay and run the campaign. That’s why it’s called “relationship money” – it’s paid to keep a good relationship, says Lennart Jönsson.