Market Basket crisis boosts Delhaize Q3 results

This summer’s employee walkout at Demoulas Super Markets resulted in around $100 million in new sales during the fiscal third quarter for rival Hannaford Bros., officials of Hannaford parent Delhaize Group said Thursday.

The extra sales were concentrated mainly in the 30 Hannaford stores located closest to Market Basket locations run by Demoulas, Delhaize officials said. Market Basket was beset by a six-week employee walkout that ended in late August.

The sales boost — described as “temporary” — contributed to overall U.S. comparable-store sales growth of 5.3% during the quarter for Delhaize, which also operates the Food Lion chain. Sales momentum at both banners contributed to a 10.2% increase in operating profit. Total U.S. revenues were up 5.9% to $4.66 billion in the quarter, gross profit margins increased to 4.2% from 4.1% in the same period last year, and underlying profits totaled $197 million.

The U.S. performance contrasted declines in sales and profits at Delhaize’s home Belgium market, which has been beset by deflation and uncertainly around plans to transform that business. Delhaize also struggled in Southeastern Europe, seeing deflation in Serbia and continued economic troubles in Greece.

Delhaize late Wednesday announced the sale of its 66 Bottom Dollar discount store locations to Aldi, saying the sale would signal the end of that banner and Delhaize’s experiment in the discount business. Officials once looked to the expansion of the brand as a source of longterm revenue growth for Delhaize but new CEO Frans Muller was cool to the concept, saying Thursday that the banner would require additional investment before it could be profitable. All of its stores will close at the end of the year.

“We have been clear that we have to become more focused on those activities where we can make a difference. Bottom Dollar Food was an unproven concept, which required time and capital to make further progress,” Muller said. “We believe that these resources can be better used elsewhere, hence, the decision to divest.”

Aldi confirmed that it was purchasing Bottom Dollar’s real estate sites as part of its previously announced growth plans, but said it would not comment on plans for specific locations until after the deal closes early next year. The deal was for the real estate and future lease obligations only, and not inventory or store equipment, a Delhaize spokeswoman confirmed.

Kevin Holt, who joined Delhaize as president of its U.S. operations in July, in his first comments to the investment community Thursday said that both U.S. banners had strong sales momentum but different growth strategies.

Food Lion will continue to rollout store revamps as part of the “Fresh Easy and Affordable” strategy, with 45 stores in the Greenville, N.C. market to launch next week. That strategy is aimed at growing comparable store sales, sales productivity and its share of the total food spend in its markets.

Hannaford’s focus is on driving sales through new stores and small acquisitions, Holt added, as well as by expanding e-commerce and further differentiating its offering to build on strengths, Holt said. Plans for the banner include expanding the Hannaford to Go click-and-collect model to an additional 10 to 15 stores next year and building new units including a new prototype store set to open in about a year.

Asked about the potential for new store growth for Hannaford, Muller said “you should count on 10 to 20 stores a year expansion speed,” although he said that pace wasn’t likely in 2015.

The Market Basket crisis resulted in sizeable sales increases as well as added expenses for labor at affected stores, Holt said.

“The teams did a great job of coming in and really filling in to take care of those customers. We saw a substantial increase in transaction count during that time. And at the same time, we also worked very hard on trying to improve our store operation and present ourselves better as well as making some strategic price investments as well during this.

“Our intent is to hold on to all of the customers that we can,” he added. “Market Basket did come back in the business very quickly. I think it's a little early for us to tell right now how many customers it will actually hold on to. But we're really focused on trying to do the best we can to hold on every customer we can and keep them with Hannaford.”

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