SALISBURY, N.C. — A comprehensive effort at reducing everyday prices has not been enough to drive significant sales gains at Food Lion, executives said, indicating that more promotions are needed to reach consumers in the competitive Southeast.
“It's a noisy marketplace, and we need to be heard,” said Ron Hodge, chief executive officer of operations at Food Lion parent Delhaize America, part of Brussels-based Delhaize Group. “We really believe that an increase in promotional spending in the second half will indeed get more customers in our stores to see the lower prices. We're going to do that, and we are not going to do it at the expense of a base pricing.”
Hodge made his remarks in a conference call discussing results for the company's fiscal second quarter, in which Delhaize surprised analysts with a 3.6% decline in U.S. comparable-store sales.
The company, which also operates the Hannaford Bros. chain in the Northeast and the Sweetbay banner in Florida, said the weak economy continued to put pressure on consumer spending in the Southeast during the second quarter, and that the structural price reductions it rolled out earlier this year have not yet gained traction.
“I think eventually we might see these pricing initiatives take hold,” Michelle Chang, an analyst with Chicago-based Morningstar, told SN last week. “It is going to take some time — they said it will take longer than what they had originally anticipated. But I think eventually it is possible, it will just take a lot of advertising and increasing consumer awareness about their positioning.”
Although she said she was surprised to see the comp-store sales number down as much as it was in the U.S., she pointed out that the lack of food inflation operators had been expecting, the shoppers' ongoing economic anxiety, and investments in pricing all are taking a toll on comps.
“I think that's reflective of the competitive price environment and the pressures on the consumer,” she said.
Although Delhaize did not provide details, it said its Hannaford Bros. chain in New England performed well, while high unemployment in the Southeast where Food Lion operates caused consumers there to curtail spending.
U.S. operating profits fell 18.8% in the quarter, to $211 million, while U.S. sales were down 2.8%, to $4.68 billion. Through the first half, the operating profit fell 12.8%, to $459 million, and sales were down 1.6%, to $9.35 billion.
Delhaize also trimmed its operating profit guidance for the year and cut capital expenditures, and added another 200 million euros (about $256 million U.S.) to its previously announced cost-cutting plan. Sources of cost-cutting include in-store efficiencies and coordinated procurement.
Elsewhere in the world, Delhaize posted stronger results for the second quarter, with sales gains of 5.8% in its core market of Belgium.