AMSTERDAM — Ahold here said it has changed its advertising tactic in its Stop & Shop/Giant-Landover segment to a compare-and-save approach rather than simply contrasting new lower prices with older, higher ones.
The change came in response to “the turbulent economic environment and its impact on consumer and competitor behavior,” John Rishton, chief executive officer, said. “We are still not where we need to be in terms of price perception, and we need to continue to drive that message, which is one of the reasons why we're changing our approach.”
Speaking with analysts during a conference call to discuss financial results for the first quarter that ended March 31, Rishton said a simple statement of lower prices is not always feasible in an inflationary environment.
“Previously, if we had a price of $10 and the new price was $8, customers could clearly see that we reduced prices and improved the value of our offering,” he explained. “But in an inflationary environment, a price that goes from $10 to $11 doesn't sound too impressive, even if our competitors have increased prices far more.
“So we're continuing to [present] the value message very loudly and very clearly, but because of the change in the environment, we've changed the tactics of our approach [to compare] our prices with competitors' prices, so if the price goes from $10 to $11 and our competitor's price goes up to $11.79 or $12, we are comparing the $11 to $11.79 or $12.”
Operating income in the U.S. fell 5.5% to $274 million during the quarter, with earnings at Giant-Carlisle up 16.1% to $72 million, while earnings in the Stop & Shop/Giant-Landover segment dropped 11.4% to $202 million.
U.S. sales during the quarter rose 2.9% to $6.6 billion, with sales at Giant-Carlisle up 9.2% to $1.4 billion and sales at Stop & Shop/Giant-Landover up 1.3% to $5.2 billion. Comparable-store sales rose 6.7% at Giant-Carlisle and 1.6% at Stop & Shop and fell 1.2% at Giant-Landover.
“The rollout of the Value Improvement Program at Stop & Shop/Giant-Landover remains on track,” Rishton said. “The price investments related to the rollout continue to impact sales and margins, with improvements expected later in the year.”
Rishton said the change in promotional tactics will not affect the company's previous guidance on gross margin investment of 30 basis points. “We will probably take more in promotions, but we will find additional cost savings somewhere else,” he explained.
As part of the VIP effort, Ahold will be rolling out a series of brand initiatives in the next few months, Rishton said. Asked for an example, he talked about a program the company tested at Stop & Shop — featuring a simple meal consumers can prepare in 20 minutes, including a main course and a vegetable — “that provides a simple solution at a great value.”
He said the chain is testing different price points and different layouts for the program.
Asked about the comparative strengths and weaknesses between Giant-Landover and Giant-Carlisle, Rishton noted that in addition to Giant-Carlisle being more rural and Giant-Landover serving a largely metropolitan customer base, they also have faced different competitive environments and have different histories.
“Carlisle has a long-established tradition for being an EDLP player with a very strong price perception, which is one reason it can compete so successfully and so strongly against Wal-Mart and Wegmans,” he said. “Landover has different competitors that have encroached into the market, with different price perceptions and different offerings. And that area has been more affected by the downturn in housing and high levels of changing populations.”
Asked about increasing competition for Giant-Landover from non-union operators, Rishton said the company will eventually address that issue.
“We recently negotiated a better position for the business, which will help give us a better cost base going forward,” he said. “But that's only one step. We need to continue that process to make sure we are competitive. So while we have some structural disadvantages that will take us time to address, we also have some structural advantages that we should be able to leverage favorably in that market.”
He said six Giant-Landover stores have been remodeled since the end of the first quarter under “Project Refresh,” the sweeping renovation plan the company unveiled late last year.
“We are happy with what we're seeing so far, but it's very, very early,” he said.
