AMSTERDAM — Lower everyday prices at Stop & Shop and Giant-Landover are beginning to work just as officials had hoped they would.
Consumers seeking value amid deteriorating economic conditions helped Ahold here post increases in sales and net income for the recently ended fourth quarter and fiscal year, with its largest U.S. chains, Stop & Shop and Giant-Landover, each posting their best quarterly identical-store sales in five years.
What's more, the strong traffic allowed Ahold to back off on promotions and begin to leverage fixed costs during the quarter, leading to what one analyst called “blowout” earnings results that surpassed analyst expectations.
Larry Benjamin, chief operating officer of Ahold USA, in an interview with SN last week said that the chain had not seen notable changes in consumer behavior attributable to the economy beyond an uptick in private-label sales, particularly among its lower- and middle-tier products.
He credited a “smart” mix of promotions and everyday pricing, along with positive response to new branding programs around the everyday lower pricing programs, as key factors in the resurgent banners.
“Given the remarkable changes in the economy, we really haven't seen anything particularly striking or off-trend other than a shift toward value and private label — but that's a trend we've seen for a long time,” Benjamin said. “We've had good numbers on trips and good responsiveness to our everyday prices, and we were able to reduce promotional spending, which was counterintuitive. But we were able to drive IDs off our everyday pricing.”
Promotions at Ahold, he said, are becoming more targeted to particular markets and customers, which has “improved the quality of our ID sales.” For example, he said a recent mailing containing a series of weekly coupons offering 5% off a shopper's total bill was for certain New York-area stores only.
“There are tremendous differences between what's happening in the 12 states in which we operate,” Benjamin said. “Rhode Island, for instance, has fallen off the edge of the earth — it has the second-highest unemployment after Michigan, has a huge budget deficit and a huge decline in real estate value. We have stores in other areas that aren't nearly that extreme. Overall, what the numbers show is not a sea change, but a remarkably steady performance in the face of extraordinary circumstances in the economy.”
An ongoing program of store rebranding, renovations and advertising is also contributing to better results, Benjamin said. Ahold formally began supporting its VIP pricing program last year with a branding effort that includes new corporate logos, employee uniforms, in-store technologies like Easy Scan and new advertising. Benjamin said that activity will pick up this year.
“You will see more of the brand become apparent to consumers — whether on the front of the store, inside the store, on the packages or in the circulars,” Benjamin said. “I think you'll also see us continue to advertise: Relative to our competitors, we have been very active advertisers. You'll also see us continuing to roll out the technologies that you've seen. We're trying to shave minutes off of every customer visit.
“We're continuing to be focused on the basics: Sharper pricing, smarter promotions, good customer service,” Benjamin added. “This is not a year to be dabbling. This is a year to be very reliable, very consistent and continue to fortify our position.”
Patrick Roquas, an analyst at Rabo Securities, Amsterdam, in a research report last week said the quarterly results “showed clear evidence that VIP is delivering in terms of accelerating volume growth and operational leverage,” and said that if Ahold's experience in its home country with Albert Heijn is any indication, more benefits from the program are still to come, although results could be erratic along the way.
Albert Heijn tripled its profit margins as it pulled off its turnaround, Roquas noted. “The key variables to the pace and degree of recovery [in the U.S.] relate to the response of local competitors and to a lesser degree the deepness of the U.S. recession,” Roquas added.
Ahold said its Stop & Shop/Giant-Landover division posted a 68.3% gain in operating profit for the quarter, which ended Dec. 28, to $207 million, while the Giant-Carlisle division saw its operating income rise 56.1%, to $60 million. For the year, operating income at Stop & Shop/Giant-Landover rose 5.9%, to $701 million, while Giant-Carlisle saw operating income rise 9.4%, to $233 million.