Delhaize To Increase Private Label, Revamp Assortment

Five months after taking the helm as chief executive, Delhaize Group’s Frans Muller told analysts and shareholders that many of the retailer’s problems at its U.S. stores (Food Lion and Hannaford) have been “self inflicted.”

Muller made those comments shortly after the Brussels-based retailer announced its fourth quarter earnings on March 13. At its U.S. stores, underlying operating margin dipped slightly from 3.6 percent to 3.4 percent in the fourth quarter, which Muller said was caused by previously announced price investments. A month earlier, Delhaize announced that its overall U.S. fourth quarter sales rose 2.6 percent to $4.3 billion and comps increased by 2.8 percent.

In his conference call to financial analysts, the Dutch born Muller said that continuing to rebuild market share and increase profitability were priorities, adding that greater emphasis would be placed on growing private label sales at both of its U.S. banners

Advertisement

The former Metro AG executive stated that efficiency and speed were important components in delivering market share increases and that the company would focus on core properties that have the greatest profit potential. That would seem to indicate that its fledgling Bottom Dollar Foods extreme value unit would be receiving a more minor corporate commitment.

“It’s obvious that Delhaize Group has to address a couple of real issues,” Muller said. “Our profitability at Delhaize America and Delhaize Belgium has eroded in recent years. It’s to a high degree self-inflicted as we had to step up our price investment and promotional activities in order to maintain our market share and improve our revenue performance.”

Muller acknowledged that Food Lion’s “repositioning” effort over the past three years has resulted in new sales momentum, but the “overall improvement in customer perception has not been enough.”

Advertisement

He added that, despite Food Lion’s improvements which has stabilized some of the problems at the Salisbury, NC-based chain, the large regional chain still trails its competitors in sales per square foot comparisons and total spend at its stores. Muller also noted that Food Lion will transition from “vendor-driven to customer-driven assortments in center store” that will result in a 50 percent turnover in assortments at its stores.

At its more profitable Hannaford unit, Delhaize is committed to maintaining price investments and said that its “Hannaford To Go’ web-driven shopping alternative will be increased with 10 new “click-and-collect” points to be added in 2014.

As part of the revamped center store plan at Food Lion, Muller noted that of the19,000 SKUs that have been reviewed in center store departments, 6,700 items will be discontinued and 3,330 new items will be added, resulting in an 18 percent reduction overall. The project should be completed by the end of the year. He added that the assortment changes would not hurt profit, as more relevant consumer selection and the increase in higher margin from private label offerings would offset national brand reduction.

As part of its ongoing plan, 77 Food Lion stores will be testing and refining its “easy, fresh and affordable” brand and store format. Muller also stated that Food Lion currently captures only 18 percent of its shoppers’ total food spend, compared to around 26 percent for a selected group of its peers including Bi-Lo, Harris Teeter, Publix, and Giant/Carlisle. “We are very optimistic we can narrow this gap,” he said.

According to the 52 year-old industry veteran, whose entire career has been spent in Europe and Asia, Food Lion maintains the number one or number two rank in 72 percent of its stores. The remaining 28 percent of its supermarkets would be reviewed this year to determine “can win or cannot win” status.

At Hannaford, Muller explained that while that division has maintained its market share, sales and profitability are threatened as competitors like Wal-Mart, Market Basket, Whole Foods and Wal-Mart are adding stores in New England. Delhaize is attempting to defend itself by continuing its price investment program, expanding the “Hannaford to Go” web-driven option and by also differentiating its brand, including its current ongoing assortment review. Those assortment changes will be less intensive than the comparable program at Food Lion.

As for Bottom Dollar Food, Delhaize’s price-impact stores whose go to market plan was restructured in 2010, it appears that format is now a secondary initiative. No cap-ex plan was discussed during the conference call and no new store openings were mentioned. Muller’s only comments about the struggling discount division was that Bottom Dollar “made tremendous progress in 2013, and the team is completely engaged to make sure that they make the next steps in making this business model more profitable. That’s the task at Bottom Dollar Food.”