Supermarket group Ahold Delhaize beat first-quarter core profit margin expectations and confirmed its guidance for 2024, as improvements in its European performance offset modest declines in the United States, the group's main market.
Supermarket firms, whose profits have been boosted in the last two years by a sharp rise in food prices, are struggling to maintain margins as food inflation has slowed, wages have jumped and shoppers have curbed their spending and opted more for private labels.
The group, which operates the Stop & Shop, Giant, Food Lion and Hannaford chains in the United States, and the Albert Heijn and Delhaize chains in the Netherlands and Belgium, saw margin improvement during the first quarter in Europe, with a 0.3 percentage-point (pp) rise to 3.2%, while it declined 0.2 pp to 4.6% in the United States, partly affected by cuts in benefits to low-income families that had helped them buy groceries.
Chief executive officer Frans Muller said in a call with Reuters that the reduction of the US Supplemental Nutrition Assistance Programme (SNAP) benefits for low-income families had a negative sales effect of 3.8% in the quarter.
"We also see in the US [that] private label shares growing, because people look for different options given the fact that here and there their household budgets are under pressure," he noted.
Price Negotiations
The CEO also said price conversations were still very intense between manufacturers and retailers, but that both sides were aiming to increase volumes.
"We come out of a period where we saw negative volumes or negative units. And that is not healthy for manufacturers and not for us. (...) Manufacturers support this now more with more promotions or lower prices," Muller said, adding the context was still very volatile with commodity prices going up and down.
The group has set a target of €1 billion in cost savings for the full year 2024 and, while not disclosing progress made in the last quarter, it told Reuters savings were "on track" and consistent with its full year guidance.
Ahold Delhaize reported an underlying operating income margin of 4% for the January to March period, above the 3.8% expected by analysts polled by the company.
The group's sales reached €21.72 billion in the quarter, slightly above a consensus of €21.53 billion.
