Winn-Dixie Goes on the Offensive

JON SPRINGER

Jacksonville, Fla. — About 80% of the upcoming store renovations planned by Winn-Dixie Stores are considered “offensive” — reflecting a slowdown in competitive activity in Florida and setting the stage for top-line growth in fiscal 2009, the retailer said in an investor conference here last week.

In a presentation, Winn-Dixie detailed plans to remodel 75 stores at an average cost of $1.9 million per store during the fiscal year, an effort that began in late June. It said 80% of the remaining 51 remodels — or approximately 41 of the next 51 projects — would be “offensive” — defined as remodeled stores that face direct competition but expect no new competitive openings during the year.

Offensive remodels tend to generate sales increases of 15%, vs. 11.2% for defensive remodels, which primarily defend against sales loss in the face of a new competitor opening stores, officials said.

Karen Short, an analyst at Friedman Billings Ramsey, New York, estimated that on an absolute basis — when adjusted for the new competition — defensive remodels provide sales lifts of 3% to 5% overall.

Winn-Dixie said the remodels — which the company said “dramatically” improve store appearances with an emphasis on fresh products — are meeting expectations. The average performance of 24 stores already remodeled this year shows transaction count increases of 8.6% and basket size growth of 6.1%. (Twelve of the 24 completed remodels were offensive, and nine were defensive, officials said.)

The large percentage of offensive remodels in the months to come suggests Winn-Dixie sees a slowdown in competitive activity in the Southeast, Short said in a research note published last week. Company officials “emphatically” stated that Winn-Dixie was not engaging in price wars, and said that competitive openings would be down in fiscal 2008 compared with the prior year.

Assessing Winn-Dixie's competitors, Short wrote that Wal-Mart's recent pricing actions — including large holiday promotions — have accompanied less competitiveness in key categories such as dairy. Albertsons is similarly inconsistent, alternating weekly between strategies driving sales and gross profits. Publix is more clearly communicating its promotions, “giving the impression it is becoming less complacent,” Short added, “while Sweetbay continues to refine its price image, somewhat unsuccessfully.”

The additional detail on remodel performance — as well as clarification of charges Winn-Dixie expects to incur during the year — helped bring better focus to what analysts called a vague forecast described in Winn-Dixie's last quarterly conference call, in late August.