Ahold Delhaize USA saw positive results in the third quarter boosted by synergy savings, volume growth at Food Lion, and increasing eCommerce sales driven by Peapod. The retailer’s overall sales increased 3.2% to US$11.1 billion, while comparable sales excluding gas increased 3.0% for the quarter. Hurricane Florence boosted comp sales by 50 basis points as shoppers went to Food Lion stores to stock-up before the storm, helping improve volume results for the quarter. Operating margins increased 20 basis points to 4.1% driven by one off synergy savings from centralized business operations. Beyond the results two core themes emerged in Q3 for how Ahold Delhaize USA is working to evolve its business:
Growing eCommerce platforms: eCommerce sales increased 11.8% in Q3, driven by Peapod. The retailer remains focused on improving backend operations for Peapod.com to help drive increased volume growth through the online banner. Some of these improvements are less apparent to the shopper or vendor community but will help make Peapod a more sustainable business in the future. Beyond Peapod, the Hannaford To Go business is slow but steady, while Food Lion continues to expand its click & collect and delivery services via Instacart. Going forward, Ahold Delhaize USA will need to figure out how to build a more omnichannel experience, to eliminate shopper friction and stay competitive in the changing market.
Creating more relevant store formats: In the balance between efficiency and effectiveness, Ahold Delhaize USA tends to lean more towards efficiency, prioritizing short term margins instead of long term investment. Slowly, the retailer is learning that to remain competitive it has to be a more effective retailer. Shoppers are becoming less willing to make tradeoffs and competition continues to differentiate in innovative ways. To address this, Ahold Delhaize USA has launched a rebrand for its Stop & Shop banner starting with 21 stores in the Hartford, CT area. The rebrand focuses on delivering “fast, fresh and healthy options” to its customers. Stop & Shop’s business has seen consecutive quarters of flat to declining comp sales so this rebrand will have its work cut out for it to help turn around Ahold Delhaize USA’s largest banner by sales.
While these results and updates are positive, they mask longer term competitive headwinds that Ahold Delhaize USA faces. The sense of urgency to address these issues continues to accelerate. Stay tuned for our coverage next week of Ahold Delhaize’s Capital Market’s Day to learn more about how the retailer plans to defend in 2019 and beyond. What we will be listening for:
- Clarification on specific strategies for decentralized banners and ways of working going forward
- Plans for further store format updates especially around small urban stores
- Guidance on how Ahold Delhaize USA will continue to build an omnichannel business across its portfolio