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Delhaize Expanding Bargain Supermarket It Says Beats Walmart Prices

Delhaize Group (DELB) is shifting gears, and an announcement made in Greece by the Belgian retailer will mean a competitive shift to take on Walmart in the United States.

Although it isn't a household name in the U.S., Delhaize is among the world's largest retailers and operates supermarket chains all along the East Coast from Sweetbay Markets in Florida, to Hannaford Bros. in New England. It's major property, however, operates in between. Based in Salisbury, N.C., Food Lion is a price-oriented supermarket that built its business on a limited assortment strategy, offering only four or five varieties in a product segment where a typical supermarket might offer seven or eight. Walmart (WMT) takes a similar approach in its supercenters.

Up until a couple of years ago, however, the supermarket industry in the United States looked enviously on the rapidly growing gourmet, natural foods-oriented Whole Foods Market (WFMI) chain rather than Walmart. Mid-decade, Delhaize, under Food Lion auspices, developed a new store concept, Bloom, that offered a full-service, exclusively Angus Choice meat department, a broad array of natural and organic products, and an abundant wine presentation as well as specialty deli meat and cheese, and artisan bread. It even provided personal shopper scanners that allowed customers to record their purchases as they shopped, avoiding the conventional checkout process. The company expanded Bloom to about 65 stores â€" the most recent opened Aug. 11 in Charlotte, N.C. â€" right into the teeth of the recession.

At an analyst meeting in Greece, Delhaize announced it is shifting gears worldwide, with one of its major initiatives an expansion of its discount supermarket concepts in Europe and the United States.

The U.S. bargain vehicle is Bottom Dollar, which the company characterizes as a "light-hearted" low-cost supermarket. In translation, that means is the stores are clean, bright and, even if they use industrial shelving to signal their less expensive approach, foster an environment where consumers looking to trade down from more middle-of-the-road supermarkets can shop comfortably

Bottom Dollar stores keep prices low, in part, by maintaining an even more limited product assortment than Food Lion ever did. At 6,500 to 8,000 manufacturer brand and private label items, the discount supermarket chain not only enjoys lower inventory costs but some additional supplier leverage, too. After all, if the same number of suppliers is competing to squeeze their products into a more limited number of slots, they're more inclined to cut a better deal.

Delhaize makes a particular claim for Bottom Dollar. It insists that prices available at its new American growth vehicle are lower than those at Walmart. Doing so demonstrates the intent of the company's strategy. Delhaize sees the U.S. consumer remaining frugal in the economic recovery and beyond, which means trading above Walmart, as Bloom does, has limited growth potential. Trading below has more. Hence, the Bottom Dollar expansion. Worldwide, Delhaize plans to add 250 stores in the next three years, parceled between Bottom Dollar, discount-oriented Red Market in existing European markets and three nations where it only recently started doing business, Indonesia, Romania and Greece. That's about triple the number Delhaize opened over the past three years. Right now, the Bottom Dollar chain operates 28 stores.

While the numbers aren't huge compared to Walmart store initiatives, consider that many supermarket operators have closed stores and sold off divisions over the past few years. Besides, it's not so much the number of stores as the emerging trend that counts. Supervalu (SVU) dumped its more reasonably priced version of Whole Foods, Sunflower Market, a couple of years ago and now is gung-ho to expand Save-A-Lot, its deep discount supermarket chain. A&P (GAP), which has been emphasizing fresh format stores with their expanded international, service-counter and perishable food, just opened up its first bargain Food Basics store in Connecticut. Even Walmart, which has celebrated the New Normal and the Frugal Consumer, has rebranded its Marketside stores -- in what looks like an attempt to convince consumers the neat little operations aren't pricey -- while declaring it won't be exanding them in the present economy.

Delhaize is going with the flow, but it all raises the question of how supermarkets such as Whole Foods that are more fixed in their upscale orientation are going to keep from being swept away with the economic tide. Given how competition and deflation doused results at middle-of-the road Kroger (KR) in the third quarter â€" and its sad and sodden guidance for the rest of the year â€" survival in food retailing seems a matter of firmly grasping bargain strategies, at least for the short term.

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