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Delhaize Expects Payoff in Second Half from Revamps

BRUSSELS -- Following a challenging second quarter, the Delhaize Group's management said yesterday it is optimistic about the remainder of the year for its retail banners, including U.S. grocers Food Lion, Hannaford, and Kash 'n Karry.

Delhaize's president and c.e.o., Pierre-Olivier Beckers, said the company anticipates that several of its long-term efforts, including accelerated network expansion, further concept differentiation, continued market renewals, and reinforced price competitiveness, will begin to bear fruit.

Beckers said Delhaize has continued to work on concept leadership, particularly in the area of assortment. "After the introduction of Food Lion's Butchers' Brand, an exclusive private label line of fresh beef, beef increased 4 to 5 percentage points in Food Lion's total meat sales," he noted. "Food Lion rolled out a new meat program to more than 100 stores in rural markets, better aligning our meat offering with customers' preferences in rural markets. In the first eight weeks after the rollout, meat department sales in these stores rose more than 10 percent."

Meanwhile, Braidenwood Estates, Food Lion's exclusive brand of quality wine, has become a top-10 seller in Food Lion's wine department within four months, he added.

"Inspirations," a new line of premium quality private label items at Hannaford, has also been well received, according to Beckers.

In Europe, the company continues to extend "365," a private label line of basic products with more than 300 items. Delhaize Belgium, in particular, has developed a specific assortment of specialty food products for athletes and people with special dietary needs (gluten-free, diabetic, protein diets). To help customers identify the products they need, Delhaize Belgium has created a separate store section regrouping all these products. This section is rolled out in 73 supermarkets, and by the end of 2006, all Belgian company-operated and affiliated supermarkets will have it installed, Beckers said.

Beckers also noted that Food Lion is seeing significant improvements from its Labor Projection Guide (LPG), a tool launched 18 months ago. "LPG enables store managers to project their labor requirements one month at a time, instead of one week at a time previously, helping them to ensure a beneficial balance between sales and labor expenses." At Hannaford, a new labor scheduling system, which was already successfully installed for the front-end and checkouts, is being extended to the deli department.

Beckers also gave an update on the performance of PRISM (Profitability Reporting of Inventory Sales and Margin), which was fully implemented a year ago at Food Lion and Kash 'n Karry. (It was developed by Hannaford in 1997.) The management tool allows a detailed look at inventory data, and enables associates to make decisions more easily in category management, merchandising, and marketing.

Thanks to PRISM, "Food Lion's average inventory by store has decreased approximately 12 percent, freeing up working capital," Beckers noted. "Baby formula shrink, once one of the highest shrink categories, has been reduced nearly 14 percent. Other areas where the system has generated important inventory reductions include razors, diet pills, books, and newspapers. Other learnings have led to distinguishing high theft items from errors in counting procedures."

Beckers said the positive results of PRISM at Hannaford, Food Lion, and Kash n' Karry have encouraged Delhaize Group to roll out the system in Belgium and Greece. The rollout in Belgium is expected to be finalized by mid 2006.
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