Delhaize Set To Add 450 New Stores; Retailer Seeks 5-7% Annual Sales Growth

Delhaize Group said this month that it will look to add hundreds of Bottom Dollar discount stores in the U.S. over the next five years as it plans 450 new stores worldwide as part of its high growth operations plan.

Delhaize Group president and chief executive officer Pierre-Oliver Beckers told analysts at a meeting held in Raleigh, NC earlier this month that the international retailer believes the new stores will help the company achieve group annual revenue growth of five to seven percent within that same period of time.

The Brussels, Belgium based retailer said the results of Bottom Dollar Food in the Philadelphia market support plans for expansion in additional markets (including Pittsburgh and Northeast Ohio in 2012) that present the same growth profile, which will yield hundreds of new Bottom Dollar Food stores over the next five years.

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Delhaize said that, in addition to the Bottom Dollar Food stores in the U.S., most of the store growth would be concentrated in newer markets of southeastern Europe and Asia, as well as in lower cost formats like Bottom Dollar and Red Market, which it operates in Europe.

Currently, Delhaize operates 56 Bottom Dollar Food stores in the U.S. which are located in Virginia, New Jersey, Maryland, Pennsylvania and North Carolina.

The company reported that at the end of June, halfway through its three-year program to save 500 million euros, it had reached 60 percent of this target.  Delhaize Group said it expects to exceed the original target, mainly due to increased savings in cost of goods sold, which will enable it to invest more in sales-building initiatives.

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“Two years into the execution of the ‘New Game Plan,’ aimed at accelerating revenue and operating profit growth, we are making a lot of progress in a difficult environment. We are strengthening our brands, stepping up price investments at all our operating companies, further developing our formats and generating the means to fund these initiatives through structural changes in the way we operate,” said Beckers

Delhaize said its newer operations, the combination of its new markets (southeastern Europe and Asia) and new formats (Bottom Dollar Food in the U.S. and Red Market in Europe), have contributed significantly to the group’s revenue and operating profit during the first two years of its strategy, the “New Game Plan.”

With the recent addition of Delta Maxi operations in southeastern Europe, the group said it has further strengthened its base in countries that provide significant potential for growth.

Delhaize saw its revenue grow by 1.0 percent in 2010, by 2.6 percent in 2009 and by 5.6 percent in 2008.

In its third quarter earnings announced last month, Delhaize America, the U.S. division of Delhaize Group, said network growth and higher retail inflation prompted growth in both revenue and comparable-store sales for the period ended September 30.

Overall revenue grew by 3.5 percent to $4.9 billion, compared with the year-ago period, while comparable-store sales jumped 1.9 percent. Delhaize, however, acknowledged that due to the economic environment and the decrease of consumer confidence, particularly in the southeastern United States, volume trends were down from the previous quarter.

The company also noted that operations were disrupted by Hurricane Irene, which resulted in the closing of 350 Food Lion stores for several days. Additionally, Delhaize America also accrued $10 million in other operating expenses – mainly due to product losses and inventory write-offs – which were partially offset by impairment reversals (worth $5 million) at its Sweetbay bannered stores.

Despite these setbacks, the company forged ahead with its re-launch of 200 Food Lion stores in Raleigh, NC and Chattanooga, TN markets, reporting that comparable-store sales growth increasingly outpaced the rest of the network, despite the additional price investments in the stores. Delhaize America said the company “intends to have completed the rollout of this work to between 700 and 800 stores in total by the end of 2012.”

At its analysts meeting in Raleigh, Food Lion president Cathy Green Burns noted that the entire Food Lion fleet will be converted by 2013. She added that the store refurbishment plan is aimed at customer recognition of price improvements as well as having the best value in private label and providing fresh produce at all times.

At the same meeting, Beckers noted, “We are making a lot of progress in a difficult environment. While we continue to be focused on the disciplined execution of the many projects that are ongoing, we are ready to accelerate out store opening plans.”

Delhaize America also said that its Bottom Dollar Food stores in Philadelphia have garnered positive feedback (although our research indicates that sales have been lagging), while its northeast Hannaford stores also saw a good performance, which was in line with the trends seen in the previous quarter.

Commenting on the results, Beckers said, “We are pulling the right levers is evidenced by the momentum in the rebranded Food Lion markets that continue to deliver excellent results and outperform the rest of the network. At the same time, the economic environment, especially in the southeast of the U.S., continues to weigh on customer sentiment and their spending behavior.”