Dive Brief:

• Ahold Delhaize reported higher-than-anticipated first-quarter profits as consumers stocked up in March and increased their use of the company’s online shopping platforms. Operating income rose to $1.04 billion while comparable-store sales, excluding gas, in the U.S. rose 13.8%, according to a news release. The grocer’s U.S. net sales rose 13.7% to $12.2 billion.
• U.S. online sales increased 42% in Q1, prompting the company to raise its 2020 growth rate for the channel from 30% to more than 50%. Ahold Delhaize plans to accelerate its e-commerce investments, including faster build-outs of click-and-collect points and home delivery fulfillment centers.
• The company maintained its profit outlook for 2020, noting that better-than-expected sales in Q1 will be tempered by higher costs in Q2. “While it is still too early to know which paradigm shifts will emerge from the COVID-19 crisis, we continue to prioritize investments in accelerating our digital and omnichannel capabilities, as well as improving our store fleet, in order to grow our share of wallet,” President and CEO Frans Muller said in a statement.

Dive Insight:

As the COVID-19 pandemic continues to disrupt business as usual, Ahold Delhaize said it will focus on keeping day-to-day operations running smoothly and delay some long-term projects while accelerating investments in e-commerce to keep pace with surging demand.

In a presentation to analysts Thursday morning, the company noted it will continue to focus on improving stock levels by working closely with suppliers and channeling products from non-traditional suppliers like foodservice distributors into its warehouses. Muller said supplies have mostly returned to normal following March stock-up shopping, with some shortages still remaining in baking supplies, paper products and, due to recent outbreaks at large production facilities, meat and poultry. Ahold Delhaize has also beefed up staffing across its U.S. banners and adjusted labor and inventory forecasting in line with shifting consumer behaviors due to stay-at-home restrictions.

Operating costs have risen as a result of these measures and will be higher in Q2 as the company continues to adjust its supply chain and store safety procedures. Last month, Ahold Delhaize outlined the $185 million it had spent in just over a month in response to the global pandemic, including safety measures and hiring more than 40,000 workers. The company has boosted wages, provided paid sick leave and made numerous safety adjustments in stores, from doling out protective gear to implementing one-way aisles.

As consumer traffic continues to shift online, Ahold Delhaize is spending more on its e-commerce infrastructure. It plans to open new home delivery warehouses sooner and make more click-and-collect operational than previously planned. Currently, it has 707 pickup spots, including stores as well as dedicated e-commerce hubs it recently began building, and plans to have more than 1,000 up and running by the end of 2020. Previously, the grocer planned to open around 1,000 click-and-collect points this year.

Peapod, the company's online grocery provider, has struggled with service outages and long waits for delivery and pickup service. It has beefed up infrastructure by adding more servers, and Muller said it will continue to add workers to pick, pack and deliver orders as demand grows. Online sales in April surged to more than $5 billion in March, according to Brick Meets Click, a 37% increase over March sales.

“Our near term and long term plans always included investing in online and omnichannel capabilities, even prior to COVID-19," Muller said during the company's presentation. "We know we need to invest in accelerating these capabilities even further this year."

Muller said Ahold Delhaize still plans to transition to a self-distribution supply model over the next three years. That plan, announced late last year, kicked off with a $480 million investment that included the acquisition of three warehouses from C&S Wholesale Grocers and plans to build two fully automated frozen facilities.

Other initiatives will slow as a result of the pandemic, however, including the company’s Stop & Shop banner refresh. Muller said the company will remodel fewer than the 65 stores it planned to this year, and said future timelines for the project may be pushed back.

For the fiscal year, Ahold Delhaize expects underlying operating margins in line with 2019 results and earnings per share growth in the mid single digits. The company’s capital expenditures are estimated at 3% of sales, or around $2.5 billion.