BRUSSELS — A delicate touch in price investments and a strong performance of private brands helped Delhaize Group post a 24.4% increase in net income during the fiscal first quarter, the retailer here said last week.
Sales improved 3% at identical exchange rates as banners gained or protected market share on improved price perception, Pierre-Olivier Beckers, president and chief executive officer, said in a conference call.
“Our operating companies responded very well to a very competitive environment with price investments, targeted promotions and attractive assortments,” Beckers said. “Our price initiatives are paying off.”
Increasing sales of private brands at Delhaize's U.S. operating companies Hannaford Bros., Food Lion and Sweetbay helped support margins despite price investments being made at all three banners, officials said.
Although Food Lion was particularly price-competitive during the quarter, the retailer was tactful in reducing prices. That's because the prevailing economic conditions and cash-strapped shoppers are limiting the effectiveness of gaining volume through reduced prices, explained Rick Anicetti, CEO of Food Lion.
“I think we can't assume, given unemployment levels particularly in the U.S., that reduced pricing levels are necessarily going to drive consumption,” Anicetti said. “We're seeing consumers on a daily basis having to make choices in terms of trading down and in some cases trading out into private brand. We can't simply assume that driving price to some irrational level is going to necessarily respond in consumers [buying more].”
Although the figures vary by product and category, Delhaize's private brands generate profit margins 3% to 5% greater than comparable branded goods, Anicetti said. The organization is on “a best-in-class journey” in private label, he added, improving penetration to 19%, 21%, and 23% respectively at Food Lion, Hannaford and Sweetbay. He said sales in the range of 25% would be best in class.
For the quarter, which ended March 31, Delhaize reported net earnings of $169.2 million on overall sales of $6.8 billion — figures that were in line with analyst estimates and with the company's previous earnings guidance. In the U.S., sales grew by 2% to $4.7 billion, with comparable-store sales also increasing by 2%. U.S. operating profit was up 10.4% to $266 million, with profits as a percentage of sales improving 50 basis points to 5.7%.
Beckers maintained a cautious outlook for the second half of the year.