Omnichannel Powers U.S. Q4 Sales Momentum at Ahold Delhaize

An expansion of omnichannel offerings such as click-and-collect helped Ahold Delhaize’s U.S. supermarkets to post strong gains in sales and market share during its fiscal fourth quarter—a performance that officials said justifies their decision earlier this week to abandon “pure-play” e-commerce in the Midwest.

“We always support the strategy of omnichannel food retailing, the combination of bricks and clicks,” Ahold Delhaize CEO Frans Muller said while reviewing the company’s financial results in a conference call with analysts this week. “And as you know, in the Midwest, we don't have the bricks.”

Hours before releasing its quarterly results, which showed U.S. e-commerce growth of 42.7% in the quarter powering the addition of hundreds of click-and-collect points for shoppers buying groceries online through its supermarket brands, Ahold Delhaize said it was shutting down its long-running Peapod serving shoppers in Chicago, Milwaukee and Indianapolis, where it does not have stores. Peapod will continue as part of the retailer’s omnichannel offer where it operates stores on the East Coast.

The Peapod operation in the Midwest represented approximately $97 million in annual sales—or about the same amount of Ahold Delhaize’s overall online sales gain in the fourth quarter, which jumped from $232 million to $330 million on the strength of click-and-collect expansion.

Related:Inside the 'Reimagined' Stop & Shop

The company more than doubled the number of stores offering click-and-collect last year, ending the year with 692, and said it expects to expand to 1,000 locations this year, or about half of all its U.S. stores. The company projects online sales in 2020 to improve by 30%.

For the fourth quarter, Ahold Delhaize’s net sales in the U.S. increased by 2.7% to $11.5 billion. Particularly strong performances at its Hannaford and Food Lion banners led the way as same-store sales increased by 2.3% overall and 2.6% when adjusted for the effect of weather events in the prior year period.

Ahold Delhaize’s largest U.S. banner, Stop & Shop, showed negative comps in the quarter but a sequential improvement from the third quarter. Officials also said the handfuls of Stop & Shop stores to have received the company’s “reimagine” branding and remodeling effort were showing sales gains in line with expectations, and added that another 65 Stop & Shop stores are set to receive similar investments this year.

The “reimagine Stop & Shop” campaign, which includes investments in pricing, a revamping of fresh and prepared foods, addition of in-store technologies and new center-store assortments, rolled out first to stores in Hartford, Conn., in 2018 and last year to select stores on Long Island, N.Y.

Muller noted that Hartford stores were within previously announced projections calling comp-store improvements of 4% to 6% in the first year, 2% to 4% in the second year and 2% in their third year.

“We’re quite happy with the sales development and the sales uplift” of those stores, Muller said.

Stop & Shop, however, is still overcoming lingering impacts of last year’s strike in New England. Although the company largely contained the considerable hits to sales and profits in the second quarter of last year, the event slowed the “reimagine” rollout, and stores are still experiencing higher shrink levels as they win back shoppers.

“I think there’s a lot of basic retail operational improvements and performance that we need to improve at Stop & Shop,” Jeff Carr, Ahold Delhaize’s chief financial officer, said during the call, citing “shrink, labor costs, day-to-day operational execution, which … has been improving. We have started seeing margins go back to that prestrike level. And I’m sure we'll continue to see that as we go through 2020.”

Muller said he was hopeful that Stop & Shop’s the acquisition of Long Island rival King Kullen—announced more than a year ago—would close “in a couple of weeks,” following lengthy Federal Trade Commission scrutiny. Those stores will be remodeled into Stop & Shop locations, he added.

A more recently announced deal to acquire a series of warehouses and distribution centers from C&S Wholesale Grocers to support the company’s move to self-distribution closed this week.