Delhaize Group plans to cease operations at about 10 percent of its company-operated supermarkets in Belgium and cut as many as 2,500 jobs to reduce costs and improve efficiency.
The Brussels-based retailer is considering stopping activities in 14 stores that have an “unsustainable financial performance” out of its 147 company-operated food supermarkets, the company said today in a statement. Delhaize shares rose as much as 1.7 percent after the announcement.
Delhaize is faced with an increasing structural cost gap related to salary and working conditions of as much as 30 percent versus key competitors at the own-operated stores in its home market, the company said. Delhaize’s rivals in Belgium include Colruyt NV and Carrefour SA.
“The country is overstored, consumers have become more price sensitive and competition is heating up,” Pascale Weber, an analyst at KBC Securities in Brussels, wrote in a note today. “Delhaize faces a structural handicap due to its aging workforce. Automatic wage indexation and premiums that are linked to seniority have led to rising personnel costs.”
Transferring “loss-making stores to the affiliate network” might be a way of improving Delhaize Belgium’s profitability, said Weber, who recommends investors accumulate the stock.
The operating margin at Delhaize Belgium in the first quarter shrank 170 basis points to 3.14 percent compared with a year earlier and same-store sales fell 0.8 percent.
In an effort to improve efficiency and strengthen its position in Belgium, Delhaize will invest an additional 450 million euros ($609 million) over a three-year period starting in 2015 in its company-operated stores, including staff development and training, improving its product offering, pricing and logistics.
The reorganization doesn’t affect the company’s affiliated network AD Delhaize, Proxy Delhaize and Shop & Go, or the activities of Delhaize Luxembourg, Red Market, Tom & Co. and Caddy Home.
Delhaize shares rose as much as 90 cents to 53.12 euros, and traded at 53.04 euros, or 1.6 percent higher, at 10:50 a.m. local time.