Dollar decline masks solid Delhaize performance

The effect of the dollar's weakness against the euro masked an otherwise good performance at the company's operations in the US. In local currency terms, sales of $15.5 billion were 3.5 per cent higher than in 2002, lifted by the acquisition of 43 stores previously owned by the Harvey's chain, offset by the closure of 42 stores.

Delhaize's operations in the US have been a cause for concern for some time, with a number of its Food Lion and Kash n' Karry stores in particular suffering from the downturn in consumer spending there. But Delhaize has acted quickly to address this problem through store closures and refits, a programme which will continue in 2004 with 58 openings, 45 closures and 111 refits.

But the US business in 2004 will be influenced by a major overhaul of Kash n' Karry, the Florida-based business, designed to focus its resources on core markets on the West Coast of Florida. This will include opening or remodelling 20 stores during 2004, closing a further 34 outlets, and a rebranding of the chain "to communicate the changes more dynamically to Florida consumers"​.

"Kash n' Karry will grow its business best by focusing on its core markets,"​ said Shelley Broader, president and chief operating officer of Kash n' Karry. "We are dedicated to providing a distinctive market positioning at all stores supported by an unsurpassed meat and produce offering to capitalise upon the opportunities in this rapidly growing market. Capital expenditures will increase by more than 50 per cent in 2004 to accelerate the rollout of the successful changes that we implemented during 2003 and that resulted in accelerating sales momentum in the past year."​

Outside the US, Delhaize Belgium posted sales of €3.7 billion in 2003, an increase of 7.1 per cent over 2002, helping the group lift its share of the domestic market from 24.8 per cent to approximately 25.2 per cent. The Belgian sales network was extended by 21 stores to 728 at the end of 2003, including 22 in Luxemburg and its first two stores in Germany, with a further 25 stores expected to be added this year.

Sales at the southern and central European operations of Delhaize (Greece, Czech Republic, Slovakia and Romania) increased by 2.9 per cent to €1.2 billion during 2003, driven by strong sales momentum at the Alfa-Beta chain in Greece.

The fourth quarter of 2003 also saw Delhaize open the first European City concept stores in Greece and the Czech Republic, while in 2003 as a whole a total of 10 new stores were added in this region. Delhaize now has 242 stores there in total, of which 119 are in Greece, 94 in the Czech Republic, 14 in Slovakia and 15 in Romania. A further 25 will be added this year.

2003 was a year of major change for Delhaize's Asian operations due to the disposal of the Stop N Save chain in Singapore in September. Total Asian sales were down 7.3 per cent as a result to €202.2 million, but excluding the impact of the disposal, sales would have been 4.6 per cent higher.

The group now has 36 stores in Thailand and 38 in Indonesia, and plans to add a further five in 2004.

"In 2003, all banners of the Delhaize group focused on sustainable sales growth initiatives, resulting in an improving sales trend throughout the year,"​ said Pierre-Olivier Beckers, president and CEO of Delhaize. "We are particularly pleased with the marked sales improvement at Food Lion and the stronger sales momentum at Kash n' Karry in the second half of 2003, while Hannaford, Delhaize Belgium and Alfa-Beta continued their strong performance.​

"In 2004, Delhaize Group remains dedicated to reinforcing the differentiation of its store concepts and to focusing on operational execution. Building on our sales momentum of 2003 is our number one priority."​Delhaize has reacted rapidly to the problems at its US businesses, turning them around in a little over 18 months by focusing on the strengths of each of its subsidiaries there in their local markets, a peculiarity of the US retail market which it has exploited well.

The decision to offload the Singapore business following an unsolicited offer also shows a willingness on the part of the company's management to take its opportunities when they present themselves, and an understanding of the need to continue to reduce an increasingly large debt burden.

Delhaize is rare among European retailers in that it has a relatively large US business - Ahold, Sainsbury, Tengelmann and Aldi are the only other European groups to make the top 30 listing, according to M+M Planet Retail - and the restructuring of its business there while the dollar remains weak should leave it in a very good position to benefit once the dollar strengthens against the European currency.

A diversification of store formats in Europe - the City banner is Delhaize's first move into town centre convenience stores there - should also prove successful, given the rapid development of this sector by larger players such as Carrefour, but the company will have to be careful about the increasing cost of its acquisition, expansion and refit programme - especially if it is tempted by possible disposals by Ahold, the troubled Dutch group, which has operations in the US and central Europe which could be of interest.