BRUSSELS — Against a backdrop of slowing inflation and heightened competition, Delhaize Group eked out increases in sales, margins and profits for the second quarter.
The company noted competition was especially rough in the Southeast, where the “borderline irrationality” of price promotions in the first quarter became “the new reality” in the second quarter, according to Rick Anicetti, chief executive officer of Food Lion, speaking in a conference call last week discussing results.
“It is a very promotional environment. I'm seeing some price points from a promotional standpoint that we've not seen in a dozen years,” Anicetti said.
“I think we're competing very effectively, but North Carolina and South Carolina have the second and fourth largest unemployment rates in the United States, and obviously customers are under pressure, and there is some question about whether or not the market has shrunk,” Anicetti added. “You've seen the numbers that others have posted, and I think there's a desire to try and gain some of that business back.”
At Food Lion, promotions including a recently launched “free milk” purchase program have been implemented with the goal of increasing basket size. Delhaize's Hannaford Bros. banner in the Northeast and Sweetbay in Florida also continued with price investment programs during the quarter, officials said.
These efforts helped Delhaize's U.S. banners to post sales of $4.8 billion in the quarter, an increase of 3.4%, and comparable-store sales of 0.2% when adjusted for the Easter and July Fourth holidays. Operating profits, sparked by lower expenses and improvements in shrink, increased 10.1% to $260 million.
Including Europe, Delhaize reported quarterly sales of $7.3 billion, an increase of 14.3% (3.6% at identical exchange rates) and operating profits of $182.5 million.
Company officials reiterated earnings guidance it provided while reviewing the first quarter in March, calling for profit growth to slow in the second half mainly due to lower inflation.
Anicetti said inflation has experienced a “steady decline” over the last six months but that price decreases more recently accelerated primarily in meat, dairy and produce categories. He also said inflation among some Center Store products have recently slowed.
Officials noted they anticipated that inflation would decrease more gradually than it has but that the current conditions could continue.
“We don't have a crystal ball, but we expect [deflation in fresh categories] to continue,” Delhaize CEO Pierre-Olivier Beckers said. “But it's very difficult to know where we will be at the end of the year. You would need to have significant deflation in the second half to have negative inflation for the whole year.”
Anicetti added that private-label penetration has stabilized at about 19% at Food Lion but that unit movement growth is still strong, indicating shoppers are finding extreme value in the category. At the same time, officials noted that national brands are sparking some of the intense promotional activity, allowing Delhaize to offer strong ad programs.
Cost-saving initiatives, including headcount reductions at Food Lion and Hannaford and store closures at Sweetbay earlier this year, are helping to support price investments at Delhaize, Beckers said. The company is making progress on other programs it believes can reduce costs, including a “master network” to support its supply chain in the U.S.
Food Lion completed a market renewal in Daytona Beach, Fla., during the quarter, relaunching five stores.