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Delhaize Has Big U.S. Private-Brand Ambitions

Delhaize Has Big U.S. Private-Brand Ambitions

Delhaize America has made a strategic decision to embrace private brands in a much bigger way.

It hopes to grow total store private-brand sales penetration from about 27% to 35% by 2013.

That rapid pace of growth will impact all its banners, which include Food Lion and Hannaford. The Belgium-based parent company, Delhaize Group, believes its U.S. banners can benefit from its experience with private brands in Europe.

Let's take a look at one of the banners, Food Lion, to see how this will play out. It's part of a larger effort to improve Food Lion's reputation for price and quality, according to information outlined in a recent conference call with financial analysts.

This will also include the introduction of the My Essentials private brand (also for all Delhaize U.S banners), which has a broader assortment and places more focus on value to better position Food Lion against discounters.

This launch will be accompanied by “more attention to on-shelf merchandising plans and proportionate off-shelf space that will be allocated through endcaps, wings and other displays,” said Cathy Green Burns, president of Food Lion.

Delhaize's moves show how some retailers continue to push the envelope on private label to achieve their next levels of growth.

“Private label is the most proven tactic out there,” notes Andy Wolf, managing director for BB&T Capital Markets, Richmond, Va.

The case of Delhaize America is a bit unique, however, because its European-based parent company has a wide view of private label. Europe has long been a part of the world with greater acceptance of private label than the United States. So it's not surprising that in outlining Food Lion's plans, the company cited the European experience. Private-label penetration at Delhaize in Belgium is about 55%.

“We do have a model to follow,” noted Ron Hodge, CEO of Delhaize America, during the conference call. “We have a terrific private-brand organization and success in Europe, in Delhaize Belgium. And we are modeling what we're doing after what they've done in the past and expect similar types of success.”

Delhaize is setting the bar high, and there's a risk involved because U.S. consumers haven't been accustomed to European levels of private-label penetration.

“It takes longer than expected,” said Edouard Aubin, a Paris-based analyst with Morgan Stanley. “Acceptance of private label is greater across Europe, so it's an ambitious target based on habits of U.S. consumers. They may be overestimating the speed at which they can increase private-label penetration.”

Time will tell if years of economic challenges have changed the private-label mindset of American consumers. In the meantime, let's keep our eyes focused on Food Lion and the rest of Delhaize America to see how the early days of this strategy play out.