Delhaize America’s Sluggish Sales Threaten Rebound Effort

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As Delhaize tries to revamp many part of its organization, it continues to struggle with its bottom line and comp store sales performance. And in theU.S., which accounts for 65 percent of the Belgian retailers sales, Delhaize Group CEO Pierre-Olivier Beckers acknowledged that greater improvement is needed.

Corporately, fourth quarter profit dropped 48 percent to 272 million euros ($355 million) and operating margin decreased from 6.5 percent to 5.1 percent and comp store revenue at its U.S. units were negative 0.4 percent. Capital expenditure in 2012 would increase 11.5 percent to 800-850 million euros ($1.04-S1.11 billion), the company said.

Delhaize said it attempted to increase prices toU.S.consumers as food inflation accelerated in the second half of 2011 but sales slipped as competitors kept prices down.

“With the economy and the tough competition, we saw that the rest of the market was not following (the price increases) and it certainly hurt us in the quarter in the short term,” CEO Pierre-Olivier Beckers said, adding: “We remained focused on the execution of our ‘New Game Plan’ throughout 2011, launching a number of growth initiatives across the Group, designed to strengthen the foundation of our business and support its growth potential. At Food Lion, where repositioned stores in the Raleigh (and Chattanooga, TN) market(s) recorded positive volume growth since their launch in May 2011, we are determined to move faster with the repositioning of our brand and implement it in 600 to 700 additional stores in 2012. During the fourth quarter of 2011, the revenue growth in our otherU.S.markets was impacted by our decision to pass on cost inflation to retail prices in the face of a very competitive environment. While soft revenues and costs related to our growth initiatives in theU.S.negatively impacted our fourth quarter results, we are convinced that the projects we are focusing on are the right ones for our company. With Bottom Dollar Food, we have developed a growth vehicle for theU.S.The growing revenue momentum we have experienced in thePhiladelphiamarket during 2011 indicates to us that we will be able to significantly grow this format. Our recent successful entry in thePittsburghmarket further confirms our outlook. And with the strategic acquisition of Maxi, our Group now has a strong platform inSoutheastern Europewhere we intend to fully leverage our capabilities across the entire region to drive operating benefits and profitable growth in the region. Over the course of 2012 we will further improve our price competitiveness in theU.S.and inBelgium, leverage our strong private brands, open more stores, especially in our newer formats and geographies, accelerate our store remodelings in theU.S.andBelgiumand focus on delivering value to our customers. Each of these initiatives will support our plan to accelerate revenue growth as defined by our ‘New Game Plan.’ The previously announced EUR 500 million ($652 million) gross annual cost savings target, that we expect to exceed by the end of 2012, will in large part fund these initiatives. Finally, our decision earlier this year to close unprofitable stores will enable us to optimize our capital allocation.”

Beckers also said that its Food Lion unit would expand its “repositioning” effort to about 250 stores in theVirginiamarkets ofNorfolk,Richmond,RoanokeandLynchburg.

“The solid trends in both customer count and number of items purchased in the Food Lion ‘phase one’ stores in theRaleighmarket continued in the fourth quarter and early this year,” said the veteranBrusselsbased chief executive in the follow-up analysts’ conference call. “These stores had clearly benefited from the price investments made since they were launched in early May 2011 and from the other attributes of the Food Lion brand which we are strengthening in all of these stores.”

One banner that Delhaize has high hopes for is its expanding Bottom Dollar Foods (BDF) unit. About a month ago, the international retailer announced that it will add eight additional stores in Southern and CentralNew Jerseyover the next few months. Two of those stores –TrentonandCinnaminson- opened on March 2 and the six remaining stores will open in the near future. Those locations include: Bordentown (April 13),EdgewaterPark, Bellmawr, Woodbury, East Windsor, Glassboro andMt.Holly. In 2011, BDF opened South Jersey stores in Glassboro, Marlton,Cherry Hill, Turnersville and Clementon.

Earlier this year, BDF expanded into the Pittsburgh-Youngstown market with the opening of 14 new stores.

“Our Bottom Dollar Food stores inPhiladelphiarecorded excellent revenue growth and high comparable store sales growth, achieving real volume growth for the quarter, thereby accelerating the performance over previous quarters. This strengthens our confidence in the concept in this market. Bottom Dollar Food has entered thePittsburgh,Pennsylvaniamarket early 2012 with the first 14 stores opened there showing promising results,” Delhaize noted in its financial release.

The Delhaize Group also announced that it has hired Carrefour veteranPierreBouchut as chief financial officer and Matts Jansson as its new chairman of the board. Bouchut succeeds Stéfan Descheemaker, who was named CEO of Delhaize Europe on Jan. 1. Jannsson succeeds Count Georges Jacobs deHagen, who retired on January 1.