Giant grocery chain is doing better, but fails to add to parent's profit gain

November 22, 2007|By Lorraine Mirabella | Lorraine Mirabella,SUN REPORTER

Giant Food's price-cutting strategy is slowly helping to attract shoppers faced with a growing array of grocery choices, and the program would be expanded by the end of the year, the chain's parent company said yesterday.

But the results haven't shown up yet in net income or same-store sales, partly because product prices have been cut and because Giant has not yet embarked on a planned remodeling or replacement of 100 stores, said executives of Royal Ahold NV, Giant's Dutch owner.

Giant, the dominant chain in the Baltimore-Washington region, is ahead of schedule in reducing prices across three-quarters of its merchandise and getting positive feedback from customers based on information tracked by customer loyalty cards. The chain is moving ahead sooner than expected with price cuts in dairy, coffee and frozen foods categories, which represent 20 percent of the chain's sales.

"We felt it was important to get these price reductions out to customers during the holiday season," said Lawrence S. Benjamin, chief operating officer of Ahold USA. "We are pleased with the program and remain committed to the stated course."

The comments came during a conference call for reporters to announce Ahold's third-quarter earnings. Results showed that growth in the Netherlands offset a 9.1 percent operating profit decline at grocery chains in the United States.

Ahold's third-quarter net income rose to $317 million from $311 million. Revenue rose 1.1 percent to $9.4 billion compared with the third quarter of 2006. Operating profit rose 21 percent to $378 million.

At Ahold's U.S. chains, Landover-based Giant and Massachusetts-based Stop & Shop, net sales rose .03 percent to $3.7 billion. But operating income fell $15 million to $150 million, a decline the company attributed to the price-cutting strategy. And same-store sales, or sales at stores open at least a year, were down 1.8 percent at Giant.

John Rishton, who stepped in less than a week ago as Ahold's president and chief executive officer, said yesterday the company is counting on a previously announced overhaul of a majority of Giant Food stores to combat the competition.

Giant has seen its local market share slip for several years as newer competitors have entered the market, including Wegmans Food Markets Inc., the Fresh Market, Trader Joe's and Harris Teeter, and as more entrenched chains Super Fresh and Safeway began renovating stores.

Adding to the competition, Wal-Mart Stores Inc. opened a supercenter with a grocery store in Cockeysville and plans three more in the Baltimore area.

"Giant-Landover had a mixed performance" in the third quarter, Rishton said during the conference call. "It was more impacted by the competition, but the major remodeling will address this issue."

Under the price-cutting program, known as the value improvement program, or VIP, the company has been reviewing merchandise by category and making changes to assortment, placement, pricing and promotions of various products, Benjamin said.

"We have simplified the product offerings and made more space for the products customers want to buy," he said.

Benjamin said the response has been mixed, with the most consistent improvements at Stop & Shop, New England's largest supermarket chain.

The chain is seeing a boost in the number of trips per household by Giant customers, he said.

Mark Hamstra, retail editor of trade journal Supermarket News, said grocers typically look at indicators other than sales or net income to measure success of various strategies.

"Just because the numbers may not be showing up yet in terms of sales volume, they may be seeing some underlying trends in shopping behavior that they find encouraging," such as average basket size or customer counts, Hamstra said.

lorraine.mirabella@baltsun.com

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