Delhaize Revamps Pricing

Food Lion will double the number of its Bottom Dollar discount stores and push pricing at its flagship banner closer to that of Wal-Mart in 2010 as part of a New Game Plan unveiled last week by officials of its Belgium-based parent, Delhaize Group. Pierre-Olivier Beckers, president and chief executive officer of Delhaize, said the new strategic plan would accelerate growth by narrowing

SALISBURY, N.C. — Food Lion will double the number of its Bottom Dollar discount stores and push pricing at its flagship banner closer to that of Wal-Mart in 2010 as part of a “New Game Plan” unveiled last week by officials of its Belgium-based parent, Delhaize Group.

Pierre-Olivier Beckers, president and chief executive officer of Delhaize, said the new strategic plan would accelerate growth by narrowing the pricing gap with leading price operators in all of its markets; using discount banners to grow organically; further emphasizing health and wellness; and revamping product assortments around consumer demands. The plan also calls for internal cost reductions of about $450 million during the next three years.

The new plan was guided by changes to consumer behavior brought about by the economic downturn, and emboldened by the company's resilient performance within the last year, Beckers said at Delhaize's annual investor conference in Greece last week.

“We're talking about a new game plan, not a new game,” he said. “We are going to put in place a new plan to play our game, which has been food retailing for more than 140 years. This is the right time for companies that are strong to accelerate their growth.”

Rick Anicetti, CEO of Delhaize's Food Lion chain, said the retailer would focus on increasing its “share of wallet” with a multi-year investment in pricing designed to narrow the gap with Wal-Mart, rather than position itself between conventional competitors and discounters as Food Lion has traditionally done. This investment, which would begin in the fiscal first quarter of 2010, is to be funded almost entirely by internal cost reductions, he said.

Food Lion will also work to further develop a “customer-centric” offering by extending its customer relationships through technology and social media, and by utilizing its consumer research to revamp its approach to category management. The latter plan involves applying various “cluster merchandising” strategies in 72 product categories that comprise about 64% of Food Lion's overall sales. Some 275 categories comprising the remainder of sales would see standardized merchandising across stores, Anicetti said.

“We believe we have to take category management to the next level with very focused, strategic, long-range planning,” he said. “This will be category management driven by data and pulled by the consumer, rather than being pushed to the consumer as was used by Food Lion in the 1980s and 1990s — and quite successfully. But that's not how we're going to do that anymore.”

Bottom Dollar, the discount banner founded by Food Lion in 2006 and currently operating 28 stores, plans to nearly double its size in fiscal 2010 and expand to new markets, Anicetti said. (Bottom Dollar currently operates stores in Maryland, Virginia and North Carolina). The expansion is part of a companywide plan to use discount banners to accelerate Delhaize's organic store growth. Beckers said Delhaize plans to open 250 new discount stores in three years between its Bottom Dollar banner in the U.S. and Red Market discount chain in Europe.

Positioning the Hannaford Bros. and Sweetbay banners around health and wellness has proven adaptable even in difficult economic conditions, said Ron Hodge, CEO of Delhaize's Hannaford and Sweetbay chains. Hodge noted that programs at those chains — offering affordable prescriptions in pharmacy and making private-label goods equal or better than national-brand counterparts in nutrition and price — have boosted loyalty.

“One of the tests for us this year was how well this [health and wellness] strategy would work in a down economy,” Hodge said. “We found it has a fair amount of elasticity and it does work. Do we have to change tactics? Absolutely. But we've done that and had great success doing so.”