BRUSSELS — Food Lion has begun to bolster its price competitiveness by reducing the volume of promotions in favor of more competitive everyday shelf pricing, officials said.
The program, meant to defend the price positioning achieved during the rebranding initiative at Food Lion stores, began recently in frozen and dairy categories at rebranded Food Lion stores. Officials said the company intends to expand the program to additional categories in coming months.
“We want to change the mix of how we present ourselves with prices, with a reduced mix of promotions to increase the more competitive everyday shelf prices across the whole assortment,” Pierre-Olivier Beckers, president and chief executive officer of Delhaize, told analysts in a conference call discussing third-quarter financial results last week.
Beckers said Food Lion would not abandon promotions, but said he believed the chain could reduce the number of them that it offers without losing its attractiveness. This, he said, is because of investments in everyday pricing achieved during the rebranding initiative.
“We want to continue being extremely competitive with promotional items, but we want to reduce the number of promotions. So the promotions that we’re going to offer are going to be absolutely at the top of the competition … but we are reducing the number, which we felt was being less and less effective. You know sometimes the more promotions you have, the less visible they become to your customers.”
Beckers said he was pleased overall with the effects of the repositioning at Food Lion, saying the stores that have received the pricing and service initiatives saw increases in items sold and comparable-store sales during the third quarter. Food Lion’s overall comps were flat, as the 424 stores yet to receive the new initiatives experienced a 3.4% decrease in comps during the quarter.
In the meantime, officials have begun making more investments in price and promotions at Hannaford Bros. stores, acknowledging that shoppers had lost confidence in its prices amid new competition and a slow economy in its Northeast markets.
“Hannaford is a very strong brand. It has a strong equity, and consumers continue to tell us that we are delivering on all of what we call the universal needs, except for price,” Beckers explained. “And it’s clear that in an environment where consumers are under pressure and where we also see the arrival of some price operators like Market Basket and ShopRite that have opened a few stores in our environment, we have to fight with every tool we have to maintain competitiveness, much more promotionally in this case.”
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Overall, U.S. sales declined 2.4% to $4.8 billion in the quarter, and comparable-store sales were down 1.6%, officials said. Mainly as a result of price investments, U.S. profit margins sunk by 50 basis points to 4.6% of sales, and U.S. operating profits tumbled 12.3% to $219 million in the quarter, Delhaize said.
The additional investments in price at Hannaford led officials to “significantly reduce” bonus accruals for U.S. officials, noting that the company was unlikely to meet profitability targets related to bonuses during the fiscal year. Beckers, however, reiterated the company remained on track to reach the low end of guidance toward an operating profit decrease of 15% to 20% in the fiscal year.
The fourth quarter, he added, is likely to be another difficult one for margins, as price investments continue. While he declined to provide margin guidance for 2013, asked by an analyst if he was willing to see margins fall further to keep sales growing, Beckers answered in the affirmative.
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