Promotions Stanch Food Lion Sales Decline

ELLIOT ZWIEBACH

BRUSSELS — Sales trends at Food Lion are improving since the chain began strengthening its emphasis on EDLP in the second quarter, supplemented with traffic-building promotions late in the third quarter, executives of Delhaize Group, the chain's parent company, said here last week.

“Achieving greater price competitiveness is the key lever to accelerate revenue growth,” Pierre-Oliver Beckers, president and chief executive officer, Delhaize Group, told investors during a conference call. “We've narrowed the gap between our sales and the price leader in the marketplace not only at Food Lion but at all our banners, and we will use promotional activity from time to time as it seems appropriate.”

Ron Hodge, CEO of Delhaize America, said he agreed “absolutely” that an EDLP strategy is the right strategy for this business, “but we have to be aware of what's going on in other markets and adjust our pricing accordingly, and we did increase some promotional activity at the end of the third quarter and we are happy with the results.

“It's a tool we will continue to use from time to time, but it was certainly more of a tactical move than a change in strategy.”

For the quarter, which ended Sept. 30, U.S. sales fell 0.8% to $4.7 billion and comparable-store sales dropped 1.8% — results the company said represented “a meaningful improvement” over the negative 3.6% comps reported in the second quarter. For the year-to-date, U.S. sales declined 1.4% to $14.1 billion.

Hannaford posted strong results during the quarter and improved “on an already good trend, building strength on strength for that business,” said Becker, while Florida-based Sweetbay generated improving operating profits in each quarter of the year despite weak sales.

Beckers said Delhaize plans to add more wrinkles to its “new game plan” strategy at Food Lion, with a number of strategic sales-building initiatives scheduled to become more visible to customers beginning in the second quarter of 2011 — some of which will be based on consumer research about elements other than price that need to be changed or strengthened.

“Strengthening what is important to our customers is what we plan to do, starting in the second quarter of 2011, and we expect implementation of this work to be substantially complete by the end of 2012,” Beckers said.

Delhaize plans to continue its aggressive move into the Philadelphia market — which it entered with three Bottom Dollar Food stores in October — with 15 additional stores before the end of the year, Beckers noted.

He also said Delhaize expects to complete its single procurement organization for all U.S. businesses by early next year and to complete the rollout of computer-assisted ordering for Center Store departments at Food Lion and Bottom Dollar in the first half of 2012.

“We have been working for 2½ years on a massive supply-chain network that links all 12 U.S. distribution centers and our buying systems together, which gives us a different perspective on the business and creates better visibility and enables us to manage all of our inventory in a different way relative to our suppliers,” Beckers explained.

“We believe we're starting to get some leverage out of that, and it is the base for moving forward with our consolidated category management.”

Asked what impact inflation might have on U.S. operations, Hodge told analysts, “We're seeing some cost inflation, but it is very gradual. Though it is our intention to stay with our pricing strategy, we will pass cost increases along, as long as that is within our retail price strategy going forward.”

Hodge also said the company expects to use private label as a promotional tool. “If the U.S. consumer began to buy private label more heavily at the beginning of the [economic] crisis as a result of having to trade down, we now see private brands as a tool and an opportunity because of the value they bring and the quality associated with the products.

“So if the initial growth we saw in the last two years was more cyclically driven, we think the opportunity going forward is going to be more and more structural.”

Suppliers are talking about price increases, Hodge noted, “but with a better private-brand program, we have a defense mechanism and a negotiating point that is working in our favor today. And with a more consolidated supply chain, we're operating and negotiating from a position of strength.”