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.
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.
Despite its many advantages—good locations in dense and wealthy Northeast markets where it possesses leading share and has long been ahead of industry trends such as e-commerce, fresh and private label—it’s been a bit of puzzle that Stop & Shop has been a relative laggard in the Ahold Delhaize portfolio.
That, however, could change if the company’s new branding initiative succeeds as executives hope it will.
The strategy, rolled out last month in 21 stores in the Hartford, Conn., market, is rooted in a comprehensive response to its customers' changing needs—primarily a need for convenience, health, personalization and value along every step of the shopping journey—and is reflected in a radical new look and feel for the Hartford stores.
Mark McGowan, Stop & Shop’s president, says customers are responding strongly to the changes, and that interpretations of it would roll through all of Stop & Shop’s 416 stores over the next five years, starting with a new batch in Long Island, N.Y., next spring.
As part of the retailer’s Capital Market Day events, WGB visited newly renovated units in South Windsor and Windsor, Conn.
“The customer absolutely associates us with fresh food, but we were well undeveloped in prepared foods,” McGowan told WGB during a store tour. “When we did our research, we saw our customers were asking for this, and we didn’t just ask our customers—we talked to customers across our trade area to really understand why the people who weren’t shopping with us weren't shopping with us. Why were they going someplace else?”
In the beer aisle, this large touchscreen helps customers find a beer to match the meal they have in mind, or perhaps the other way around. Mark Messier, Stop & Shop's EVP of merchandising, demonstrates the screen here. He said both merchants and vendors contributed input to its suggestions, which are designed around a wider variety of brands than were previously available. Craft enthusiasts can also find beer brewing equipment now.
“We made price investments and departmental changes in the past,” McGowan said, “but it’s been a long time that we’ve done something new in center store. But that’s a real journey between the assortment and the layout and everything we need to do.”
Among the new twists in South Windsor was this refrigerated case in the pasta aisle containing all the ingredients for making a pizza at home. This provides ease and shopping and inspiration for shoppers whose busy lives leave them little time to plan meals. Similar displays highlight tacos and snacks.
In Windsor, about 12,000 square feet of what used to be a 60,000-square-foot store has been given over to Takeoff Technologies, which placed a mini fulfillment center to serve online orders through Peapod. Using robotic equipment licensed from Knapp, the unit autonomously stocks, receives and assembles products for online orders. It is expected to go online in January.
Takeoff CEO Jose Aguerrevere gave a demonstration of the unit, saying items could be picked every six seconds—a rate about 20 times faster than the alternative of a store employee shopping the store. That could greatly reduce pick costs that come along with click-and-collect and delivery orders, while providing a local base for staging local deliveries, saving on the last mile.