Dive Brief:
- Ahold Delhaize CEO Frans Muller said the "overperformance" of its other U.S. brands, particularly Food Lion, mitigated the profit loss the Stop & Shop strike caused earlier this year and boosted Q2 results. He also said the company does not expect the strike to materially impact sales in the second half of this year.
- The 11-day Stop & Shop strike in April had a direct sales impact of $224 million and an additional $121 million impact in the weeks that followed, the company estimated. It reiterated a $100 million total loss in operating income due to the event.
- For the second quarter, Ahold Delhaize's U.S. net sales were 9.78 billion euros ($10.9 billion), up 0.2% over the year-ago period. Comparable store sales excluding gasoline were up 0.2%, adjusted to 2.3% when excluding the impact of the strike and favorable Easter holiday timing. Underlying operating margin among U.S. stores was 3.6%, down 0.7% from last year's Q2, while online sales increased 14.4%.
Dive Insight:
Ahold Delhaize wants to turn the page on the Stop & Shop strike that disrupted operations earlier this year. In addition to a strong performance from its four other grocery brands, executives said Stop & Shop's store transactions are nearly to pre-strike levels after the chain stepped up its promotional activity this summer.
"[Transaction levels] are not quite there yet, but we expect them to get there in Q3," chief financial officer Jeff Carr said during Wednesday's earnings call. "It's getting that last 1% to 2% of customers into the store."
Officials said they're also seeing promising results from the Stop & Shop brand refresh that began last fall in Hartford, Connecticut and is now rolling out across Long Island. Muller said the updated stores, which feature enhanced foodservice and experiential offerings, are outperforming average Stop & Shop locations. The chain plans to adjust its approach as the expansion continues, with all 415 stores getting remodeled over the next four years.
Ahold Delhaize hopes these updates can produce results similar to what it's seeing at Food Lion — a historically underperforming chain that initiated a sweeping remodel campaign in 2014. Food Lion posted its 27th straight quarter of comparable sales growth, and by the end of this year will have 80% of its more than 1,000 stores updated.
E-commerce growth in Q2 was better than it's been in past quarters for Ahold Delhaize, but even with the strike adjustment it's still below the 20% growth target the company set for this year. On Wednesday's conference call, analysts questioned the company's ability to hit that goal. CEO Frans Muller pointed to the expansion of click-and-collect, estimated to touch more than 600 stores by the end of this year, as a sales driver.
Ahold Delhaize's online grocery strategy has been mostly reactive in recent years, but the company is hoping its e-commerce brand Peapod can be a difference maker down the road. That company is integrating its fulfillment services and expertise with brands like Giant and Stop & Shop on pickup services as well as standalone depots like one that opened earlier this year — called Giant Direct — in Lancaster, Pennsylvania.
During a presentation at the recent Digital Food & Beverage conference in Austin, Texas, Peapod Interactive senior director Linda Crowder said Ahold Delhaize plans to localize the branding of its e-commerce offerings. Whereas chains have emphasized the Peapod name in the past, going forward the company plans to play up the retailer brands instead. She cited "Stop & Shop Direct" and "Giant.com" as hypothetical examples, noting the company conducted research that found 96% of shoppers prefer to try online shopping with their local grocer.
"We decided to combine the expertise and the learnings we have at Peapod on a local basis and put those into an execution that uses the strength of our local brands," Crowder said.
Correction: An earlier version of this story mischaracterized Ahold Delhaize's e-commerce branding strategy. The company plans to focus on more localized branding that plays up the names of its grocery banners.