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Bottom Dollar Food Meg Ham – December 2, 2011
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• Historic overview of our journey • Strategic rationale • Growing Bottom Dollar Food • Elements of the brand • Early results of Philadelphia expansion • Learning & evolving • LkihdLooking ahead • Conclusion
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Historic overview of our journey
Fall 2010 2011 2012 2008
Mooresville NC
Philadelphia 17 stores
Philadelphia 13 stores
Entry into Pittsburgh & continued Philadelphia openings
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Strategic rationale Fastest growing segment of grocery retail
CAGR Percent U.S. grocery sales 2009- $ Billions, % 14E Examples of players
751 984 1,107 2.0 Total =
Value 28 33 37 3.9
Other 72 67 63 1.2
2003 2009 2014E
SOURCE: McKinsey retail practice; Willard Bishop
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Strategic rationale Bottom Dollar Food: key part of New Game Plan
“Delhaize Group plans to use its new low cost supermarket formats Bottom Dollar Food (U.S.) and Red Market (Europe) and its newer markets (Greece, Romania and Indonesia) as additional drivers to accelerate organic store growth. Over the next three years, Delhaize Group will triple the store openings generated by these newer operations to 250 (compared to 85 new stores in 2007-2009)”
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Strategic rationale What do we stand for ?
Our Distinguishing Features • Unbelievable prices that “wow” our customers! • Walk-in produce cooler keeps fruits and vegetables fresh • Redefining the look of a discount grocery store through bright, clean stores and inviting décor • Enthusiastic associates offer customers a lighthearted and energetic shopping atmosphere • Free membership card guarantees additional savings on “special buy” and “while supplies last” items • Customers are offered free boxes and can buy recyclable bags or bring their own bags
Our Products • Offers include private brands and the best-selling national brand products • Emphasis on fresh produce and quality meats with a double-back guarantee that we will replace the product and refund the cost • Double-money back guarantee for private brand products under a variety of labels • Each store carries nearly 100 of the most popular deli/bakery products
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Growing Bottom Dollar Food Why Philadelphia?
• Significant source of sales due to high Strong source of sales & population density (4th largest DMA in market fragmentation in U.S.) 8 million vs 3 million in Charlotte Philadelphia creates • Market is highly fragmented – top 5 opportunity for Bottom Dollar retailers combined have a 60% share. In Food Charlotte, the top 5 have a 86% share. • Discounters have a limited presence • WMT Supercenter: 5.6% share • Save-A-Lot: 2.5% share • Aldi 1.0%: share • Philadelphia is within our current supply chain network • The market has limited interaction with other Delhaize America banners
Source: Nielsen Retail ACview 2009 29/11/2011 | 7
Growing Bottom Dollar Food Why Pittsburgh?
• Significant source of sales due to population density (25th largest DMA in Pittsburgh market shares U.S.) 3 million about the size of Charlotte Gian t E agl e • Top 5 retailers combined have more Other/Indep than 80% share 19.6% • Single retailer (Giant Eagle) has 45% of market share and has a primary focus Aldi 2.3% on quality – this creates a great Save-A-Lot 2.9% 44.5% opportunity for Bottom Dollar Food entry and differentiation 12.4% Shop n Save • Pitts burg h iswihiithinour current supply chain network 18.3% • The market has limited interaction with WMT Supercenter other Delhaize America banners
Source: Nielsen Retail ACview 2009 29/11/2011 | 8
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Growing Bottom Dollar Food Store model supports greater emphasis on price
Difference with Food Lion
Bottom Dollar Food Indexed vs. Food Lion1 Lower operating costs support Food Lion greater emphasis on price SKU count 21 Operating costs are kept low due to Store size 51 labor efficiencies and lower capex
Sales 97 Ability to leverage smaller sites for Gross profit 70 store development (requires 50% less land than typical grocer) SG&A 65
CapEx 70 Ability to leverage 2nd generation sites (improves permitting/building PFO 74 times and leverages customer knowledge of existing retail space) ROIC 97
1 Indexed relative to Food Lion 29/11/2011 | 9 Data represents performance at maturity after 5 years
Elements of the brand Engaged associates & bright, clean stores
Our associates truly live the brand – Clean, bright stores that reinforce lighthearted, candid, energetic & aggressive price position pragmatic
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Elements of the brand Full-shop opportunity in discount format
Our walk-in produce cooler delivers Meaningful variety & selection in tremendous fresh perception to our meat department customers
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Elements of the brand Maximize efficiencies throughout the store
Limited assortment that leverages Doors on dairy cases leverage case-stocking and keeps residual energy savings opportunties stock stored on sales floor
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Early results in Philadelphia Average weekly sales increase since January
2011 Philadelphia average weekly sales
+74%
Key drivers of sales growth: 1. Invested marketing to drive trial and awareness 2. Refined pricing approach on My Essentials brand items 3. Increased customer count
Jan Feb Mar Apr MayJun Jul Aug Sept Oct
Data reflects 2011 Philadelphia results 29/11/2011 | 13
Early results in Philadelphia Favorable customer response to the brand
• Strong results vs. traditional grocers & WMT Supercenter Pricing • At parity vs. Aldi
• Strong positive produce perception Produce • Perception above traditional grocers (excluding Wegmans)
• At parity with traditional grocers Variety • Assortment perception is consistent with other discounters
• At parity with other discounters Private brand • Relative strong perception vs. traditional grocers
Service & layout • Service aligns with brand positioning • Strong impression for items ‘easy to reach’
Meat • Opportunity to improve quality perceptions as discount player
Source: July 2011 – Mini Consumer Dynamic Study 29/11/2011 | 14
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Learning & Evolving Learnings have impacted the model over time
2008-09: Mooresville 2010-12:Planned 2005-08: Learnings prototype design evolution of prototype from converted stores outcome with entry in PHL
Site selection Right location Learnings from new market entry • Placed in lower median • Prototype placed in trade area (2010) income area, adjacent to with WMT & Aldi • Understand dynamics of real more affluent area estate of different stores in • Positioned within 6 miles of Right-sized Philadelphia WMT or other source of • Prototype at 19,600 sq/ft • Fully understand needs of building consumer traffic new brand in a new market Optimized assortment • Enhance supporting processes, Store operations • Assortment optimized to capabilities, and frontline • Take over site, not ~6,500 SKUs execution converted from a Food Lion Right l ab or mod el Simplify ops, design (2010-2012) Patience • Underwent redesign to • Improve SG&A • Allowed time to switch maximize efficiency • Augment store design consumers to the Bottom • Optimize supply chain Dollar Food brand Improved messaging • Continue to focus on delivering • Strengthened value-oriented the value proposition communications
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Learning & Evolving Continued optimization of the format
Reducinggp operatin g & Loweringgp capital labor costs expenditures
Creates opportunity to offer even lower prices & fund greater marketing to support launch
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Current status Philadelphia openings
Opened 16 in 2010 and...
... 13 more in 2011 to end the year with 29 stores
Stores opened in 2010
Stores opened/planned to open in 2011
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Looking ahead Bottom Dollar Food in 2012 and beyond
• Continue development of an optimized operational model
• Entry into new Delhaize America market – Pittsburgh with 14 stores in Q1 2012
• Increase density in the Philadelphia market through another 10-15 openings in 2012
• We plan to open hundreds of Bottom Dollar Food stores over the next 5 years
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Looking ahead Elements creating confidence in the format
• Discount format is the fastest growing segment These elements
• Continued growth of average weekly sales in give us confidence new Philadelphia stores in the continued focus on the • Strong positive consumer impression • Favorable results in price position discount concept • Strong produce quality perception and the ability to • Appropriate perception of service, quality & assortment successfully dlideliver the • Continued optimization of operational model expansion of Bottom • Ongoing improvements in labor productivity and capital expenditures support current price level in Dollar Food. the market
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Conclusion
• Bottom Dollar Food is an innovative answer to a growing need in the U.S. grocery landscape • Bottom Dollar Food delivers growth potential where another of our banners would not be sustainable • Customer response and financials in the Philadelphia market support further expansion andtitPittbhd entry into Pittsburgh • Continuing to fine-tune the model and prepare for growth
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