Strong sales at the Hannaford and Food Lion banners helped to lift sales at Ahold Delhaize USA by 2% in the fiscal third quarter, though officials with the company’s Dutch parent expressed concern about sales slowness at its biggest U.S. banner, Stop & Shop.
For the period, U.S. sales totaled $11.4 billion, with nonfuel comparable store sales increasing by 1.8%. When adjusted for effects of hurricanes in this period and last year’s third quarter, comps improved by 2%. Online sales increased by 26.3% at constant exchange rates to $277 million, reflecting an expansion in click-and-collect points throughout the chain. About 600 such sites are to be available by year-end.
The results provide a further case for Ahold to proceed with its previously announced “Reimagine Stop & Shop” program, which over the coming years calls for investments of $1 million to $10 million per store to refit the 415-store Northeast banner with new food options, particularly around the fresh perimeter; lower prices; new technologies; and a new look and feel, one market at a time. A recently completed renovation program of 21 Stop & Shop stores on Long Island has produced an encouraging sales lift, officials said. Quarterly results also reflected benefits of a similar market-by-market rebranding at Food Lion, which is gaining share despite heavy competition from Walmart in its Southeast markets.
“Stop & Shop is clearly a key area of focus,” Ahold Delhaize CFO Jeff Carr said while reviewing results in a conference call. “We’re not happy with the trends. It’s not really a competitive issue so much in the New England market: There’s a lot of self-help that we can do. And with the Reimagine Stop & Shop program, we're confident we’ll continue to see improvements.”
Stop & Shop CEO Frans Muller said the company was learning from initial “Reimagine” markets as as it plots additional investment—although the next market for “Reimagine” has yet to be announced. In Long Island, for example, Stop & Shop incorporated changes to the center store aisles based on results from the initial Hartford, Conn., rollout. Food Lion, he said, made similar adjustments as it proceeded through its rebrand, known as the “Easy, Fresh & Affordable” initiative. That program has been a smashing success, Muller said, but it didn’t it start that way.
“Food Lion was not working from the very beginning,” he said. “So we learn, cycle by cycle.”
In an exchange with an analyst during the call, Muller insisted that Ahold USA brands would not increase prices to achieve better margins, saying local brands were set in their pricing strategies and would look to influence margin through areas such as private label and online volume.
“We will not allow that brands get off their pricing strategy to improve margins. So we also are very loyal to our existing pricing strategies, which we defined for a longer time. And all our brands are on pricing strategy and priced right,” he said.
Ahold USA underlying operating margin was 4.4% in the period, down slightly from 4.5% in last year’s third quarter.
Muller also said that Ahold didn’t feel pressed to match this week’s announcement that Kroger was waiving fees for its click-and-collect offering through the end of the year, pointing out that the companies have little competitive overlap but also making a seeming reference to the latter’s confessed struggles in executing the offering.
“I mean, if you pay $4 for a click-and-collect and the service is lousy, then no fees don't help,” Muller said. “In the end, people will look at, ‘What do I get for this in value and in quality?’ ”