Dive Brief:
- Ahold Delhaize reported a net sales increase of 7.4% to €15.1 billion ($17.5 billion) in the third fiscal quarter of this year, according to a company release. Net income rose 54% to €362 million ($421 million), higher than the €331 million ($385 million) anticipated by Reuters.
- Delhaize America’s Hannaford and Food Lion brands grew net sales 2.2% to €3.78 billion ($4.4 billion), while Ahold USA, which encompasses the Stop & Shop, Giant-Carlisle and Giant-Landover brands saw net sales rise 0.8% to €5.43 billion ($6.3 billion). One of the top performers, Delhaize’s Food Lion, recorded its twentieth straight quarter of volume growth.
- Ahold Delhaize executives said they plan to increase spending on e-commerce by 50% in 2018 — from €100 million ($116 million) to €150 million ($174 million). This is driven in part by the underperformance of its Peapod division, which showed only single-digit sales growth compared to the company’s 20% overall e-commerce sales growth. CEO Dick Boer attributed this to rising competition from rival grocers along with the company’s failure to integrate Peapod’s merchandising with its physical store network. Ahold Delhaize still expects to hit its goal of €3 billion ($3.5 billion) in e-commerce sales worldwide this year and €5 billion ($5.8 billion) by 2020.
Dive Insight:
In addition to the cost savings, Ahold Delhaize continues to see through shared supply chains, leveraging its purchasing power and other measures, the retailer credited a return to price inflation as well as strategic price investments for its strong Q3 performance.
Ahold USA, for instance, invested around $3 million per week in pricing at the start of the quarter, and saw market share gains across its banners as a result. Price inflation, meanwhile, increased 0.9% across the Ahold USA division and 0.5% across Delhaize America’s banners, bringing improved sales performance, company officials noted.
Executives said they plan to continue to invest in pricing in the hyper-competitive U.S. market. At the same time, they said, the company will continue to seek out opportunities to streamline brands, services and operations. In its report, Ahold Delhaize announced it will combine its various natural and organic store brands, which see annual sales of $1 billion, under the Nature’s Promise label.
Ahold Delhaize is also seeing returns from its promotions and store updates. Ahold USA reported a 20% increase in web traffic over last year to go along with a 70% increase in monthly users of its store apps.
Food Lion, a chain many analysts have pegged as a poor competitor in the disruptive new retail environment, has performed admirably thanks to its store remodels focused on fresh products, improved store layouts and better customer service. Discounter Lidl, Ahold Delhaize pointed out, hasn't made an impact on Food Lion’s sales.
Despite these better-than-expected results, executives made it clear they weren’t satisfied with the performance of Peapod, the company’s online ordering and delivery service that operates in around 24 U.S. markets, mostly in the Northeast. Boer and chief financial officer Jeff Carr attributed the brand’s anemic single-digit sales growth to increasing competition, with more and more brick-and-mortar stores offering delivery through Instacart and Shipt. The executives also said Ahold Delhaize hasn’t done enough to integrate Peapod’s marketing and operations with its banner stores.
“We’re not happy with Peapod’s performance, but we feel confident we’ll be able to improve that performance and be able to maintain our market share of the online business,” Carr said during a conference call.
Ahold Delhaize hopes its 50% spending increase can improve Peapod’s results. The online grocer has years of experience under its belt, and has some new tricks up its sleeve, including voice-enabled ordering and its ever-evolving Podpass membership.
