Winn-Dixie Shoppers Looking for Value

JON SPRINGER

JACKSONVILLE, Fla. — An emphasis on expanding private label is turning out to be a timely strategy for Winn-Dixie Stores here.

Penetration of private-label items increased by 1.6% during the third quarter ended April 2, Peter Lynch, chief executive officer of Winn-Dixie, said in a conference call discussing financial results last week. Lynch said he considers greater private-label sales to be a signal that consumers have become more value-oriented as the economy has tightened. An overall reduction in store visits as well as an increase in sales of bone-in meats, and a shift from beef to poultry, also suggest shoppers have placed a greater emphasis on value.

This, Lynch told analysts, was not a bad thing for Winn-Dixie.

“I think overall the whole consumer thing today is about value, and we've got an opportunity to represent value in our circulars week in and week out,” Lynch said.

Winn-Dixie is in the midst of expanding and overhauling its private-label selection as part of a long-term turnaround strategy that also includes store renovations and store-specific merchandising programs.

Around 1,000 new private-label items have been introduced to Winn-Dixie stores by the end of its third quarter, with a total of 1,500 to be available by fiscal year-end — around 500 SKUs above the company's goals, Lynch said. Its overall penetration of items has grown from 19.1% in fiscal 2007 to 20.5% this year, a figure also above the company's expectations.

Lynch said the new products — reintroduced in a three-tier offering — are making a strong first impression on shoppers.

“I am out in the stores two times a week, and I am constantly stopping in my tracks to take a look at these products that are jumping out at me on the aisle,” Lynch said. “More importantly, they are doing the same thing for consumers.”

Winn-Dixie is also seeing better results than officials expected out of its store renovation program, particularly “offensive” store remodels, which are experiencing weighted-average sales gains of 12.3%. Winn-Dixie had completed 54 remodels by the end of the third quarter and has finished 11 so far in the fourth quarter, with 31 more under way, accounting for 10% of its store base overall.

A new merchandising program calls for these stores to be oriented to any of five formats: Hispanic, urban, affluent, kosher and resort, Lynch said.

Quarterly EBITDA of $51.2 million increased by 11%, and gross margins as a percentage of sales improved slightly to 28%, but net earnings were down 15.7% to $15 million, Winn-Dixie said. The company attributed the decrease in net earnings to higher tax expenses and lower interest income.

Net sales of $1.7 billion for the 12-week quarter illustrated the effects of food cost inflation and the shift of the Easter holiday from the fourth quarter last year to the first quarter this year. Sales increased by 2.3% overall and 2.2% on an identical-store basis as larger average shopping baskets accompanied fewer shopping trips. For the 40-week year-to-date, net sales of $5.6 billion were up 1.2%.