Delhaize to Sharpen Food Lion Pricing, Strategy

JON SPRINGER

BRUSSELS — Betting that price concerns will stay with shoppers long after the economy improves, Delhaize said last week that it would continue making price investments in its Food Lion chain during 2011.

More price investments were among a number of “concrete initiatives” slated for Food Lion this year, which officials said would capitalize on improving sales trends at the chain during the second half of the 2010 fiscal year. Although officials declined to provide specific details, they include “an even bigger focus on sharpening Food Lion's price position as well as improving other attributes of the brand,” according to Pierre Oliver Beckers, Delhaize's chief executive officer, speaking in a conference call reviewing Delhaize's fourth-quarter and fiscal year financial results.

Those initiatives would begin rolling out in select Food Lion markets during the second quarter.

“We're looking at our revised strategy for Food Lion and we believe that price is a very, very important element of this brand and we need to strengthen that price in those markets we are piloting,” said Ron Hodge, CEO of Delhaize America.

Delhaize revealed one new initiative last week, a private-label brand called My Essentials, scheduled to be introduced at all of Delhaize's U.S. banners beginning in the second quarter. The My Essentials line is priced to be competitive with value private labels at discounters, while touting healthy attributes, including putting nutritional information on the front of the package.

The line will replace the opening-price point Smart Options label, officials said, and offer 500 products. The former label offered around 100. It is the beginning of a strategy to grow U.S. revenues from private label to 35% of sales by the end of 2013, up from around 27% today, officials said.

“We felt that the value brand we had in the past was not recognized as a significant price brand by consumers,” Hodge said.

Beckers said the ambitious plan to grow private label revenues reflected a structural change in price perception by consumers and a need to grow revenues without surrendering profits. “We think that the consumer in the U.S. is obviously a lot more sensitive about value and price than they have been, and we are convinced the focus on price is structural and will not go away with the crisis going away. … We're making a bet that consumers are ready to buy a lot more private brands than in the past, especially from strong vendors.”

Delhaize highlighted improved performance at its U.S. operation in the second half of the fiscal year as benefits from the initiatives of its “new game plan” announced a year ago began to arrive. U.S. operating profits improved by 28.6% in the fourth quarter to $296 million and by 1.5% when adjusted for an impairment charge in the same period a year ago. U.S. operating margin of 6.3% of revenues was its best quarterly result in 10 years, attributable to cost savings. As previously reported, Delhaize posted quarterly sales of $4.7 billion, a 0.1% increase, with comp-store sales down 0.8%.

For the year, Delhaize posted $998 million in operating profits on $18.8 billion in sales. Sales were down 1% and profits fell by 1.8%.

Delhaize this month also said it would buy Serbian retailer Delta Maxi Group for around $1.38 billion. Delta Maxi operates 450 stores in five countries in Southeastern Europe.