AMSTERDAM (Reuters) - Wal-Mart’s (WMT.N) determination to remain the cheapest U.S. food retailer in the face of competition from German discount stores has pressured Ahold-Delhaize’s (AD.AS) business in the U.S., the company’s CEO said in an interview on Thursday.
Ahold Delhaize, the Dutch-Belgian retailer that runs U.S. supermarket chains Stop & Shop, Giant, Hannaford and Food Lion, among others, earlier reported a 4.3 percent rise in third-quarter underlying operating income, to 513 million euros ($549 million) but missed analyst expectations due to its U.S. performance.
CEO Dick Boer said in an interview that the stores most feeling the pinch were its Food Lion shops, of which there are 1,100 situated in Southern U.S. states.
“During the second and third quarter, there was aggressive pricing from Wal-Mart, it’s well known in the market, and of course we had to follow to keep our competitive position,” he said.
For several years, Food Lion has been cutting prices, emphasizing fresh produce and remodeling stores to make them easier for customers to navigate and find on-sale items.
Boer noted that despite price deflation of nearly 1.5 percent in the areas where Food Lion, the core of Delhaize’s U.S. business, competes, the chain had grown sales by 1.3 percent in the past recent quarter, which he said was evidence of its resilience. The division’s growth on a like for like basis however was down from 1.6 percent in the same period a year ago, and operating margins fell to 3.5 percent from 3.8 percent.
Boer said Ahold Delhaize is keenly aware of the ongoing U.S. expansion of German retailer Aldi, and plans by another German discount chain, Lidl, to open stores on the U.S. East Coast.
“For sure, every competitor coming into a market is, for us, and for everyone I think, a signal to be more alert than before,” he said.
“Aldi is known in the markets, clearly we have seen them continue to grow in the markets where we operate.” He cited the Philadelphia area as an example.
“So that’s what drives also I think the actions of Wal-Mart in the Southern states, to be sure that with the discounters coming in that Wal-Mart still keeps its price leadership,” Boer said.
“I think that’s one of the promises they continue to want to make. This will have a continuing effect on our markets.”
Wal-Mart on Thursday reported third quarter earnings with worse than expected sales, also due to falling food prices. [L1N1DI0IN]
Boer said Ahold Delhaize is familiar with both German chains due to their growth in the Netherlands. Ahold Delhaize owns the dominant Dutch chain Albert Heijn, which has thrived despite a German onslaught.
“As a European retailer in the U.S...we are sharing a lot of our information about the work Lidl and Aldi are doing (in the Dutch market) to help our American colleagues to be well prepared.”
Boer also said he expects commodity price deflation, which has impacted meat and dairy prices, to ease next year. He said it was too early to say whether the election of Donald Trump as the next U.S. president would lead to higher inflation, as some investors are speculating.
Ahold Delhaize shares were down 3.5 percent at 19.92 euros at 1600 GMT in Amsterdam.
Reporting by Toby Sterling; Editing by Elaine Hardcastle