Dive Brief:

• Stop & Shop will open “several” additional automated micro-fulfillment facilities following the deployment of one earlier this year in Hartford, Connecticut, Ahold Delhaize announced during its latest earnings presentation Wednesday morning. Next year the company plans to accelerate deployment of the micro facilities, which handle the picking and packing of online grocery orders. Officials declined to be more specific on the number of facilities or timeframe for the rollout.
• In an interview with Reuters, Ahold Delhaize CEO Frans Muller said the company is “on track” to meet its goal of 20% e-commerce growth in the U.S. this year and is optimistic about achieving 30% growth next year.
• In the company's Q4 2018 earnings results, which were released last month, Ahold Delhaize reported U.S. net sales grew 2.6% to 9.8 billion euros ($11.2 billion) while comparable store sales grew 2.7%. Underlying margins rose 4.2%, up .2% from the year-ago period. Company-wide, fourth quarter net sales were up 3% to 16.5 billion euros ($18.8 billion) while operating income grew 9.1% to 627 million euros ($714 million), in line with analyst estimates. Fiscal 2018 sales reached 63 billion euros ($71 billion), up 2.1% over 2017, while underlying earnings per share rose 29.6% to 1.60 euros ($1.80).

Dive Insight:

Ahold Delhaize’s planned deployment of additional micro-fulfillment centers (MFCs) comes on the heels of Kroger’s announcement that it would open an Ocado facility in the mid-Atlantic — one of the most competitive regions in the country, and right in the heart of Ahold Delhaize’s operating area. Walmart, Amazon and Albertsons are also tinkering with automated fulfillment technology, raising the stakes for e-commerce fulfillment speed and efficiency.

Stop & Shop opened its first MFC in January in Hartford, Connecticut, as part of the chain’s first round of store updates. Built by Takeoff Technologies, the center integrated with Peapod, allowing for fulfillment of online orders under both brands. This dual capability is a point of distinction for Ahold Delhaize and comes as the grocer tries to boost Peapod’s performance. If the MFCs prove beneficial from a cost and customer service standpoint, Ahold Delhaize would presumably expand the centers to additional banners like Food Lion and Giant.  

In contrast to Ocado’s sprawling facilities, which take two to three years to build, MFCs can go up in a matter of weeks and fit into densely populated urban and suburban markets, closer to stores and consumers’ homes.

“The beauty of those centers is they can be added much more quickly than an Ocado type of large scale capital investment,” Ahold Delhaize CFO Jeff Carr said in a question-and-answer session with analysts Wednesday morning.

The broader impact of these fulfillment sites, however — including whether or not the pricey technology can sufficiently boost online sales — is still up in the air.

In addition, Ahold Delhaize is adding more store pickup options, with 53 Food Lion stores now offering the service and more expected to come online this year. The company also added a fifth Peapod "wareroom" on Long Island, expanding its delivery capacity in the increasingly competitive market by 10%.

Analysts have told Grocery Dive that Ahold Delhaize’s e-commerce strategy so far has been more reactive than proactive. The company is clearly hoping to make up lost ground as the race with Kroger, Amazon, Walmart and Target intensifies, though finding an edge against those competitors will be difficult.

Elley Symmes, a senior analyst with Kantar Consulting who closely follows Ahold Delhaize, said the company’s Stop & Shop refresh is also a defensive move. Still, it was a necessary one given the chain’s struggles, and early results are promising, Ahold Delhaize officials said Wednesday.

Combined with Ahold Delhaize’s strength in operating efficiently, with post-merger cost synergies estimated to reach $615 million this year, the updates appear to be moving the needle for Ahold Delhaize. Morningstar analyst Ioannis Pontikis wrote in a research note Wednesday morning that the 2.7% U.S. comps lift is promising.

“Remodeling across main brands Food Lion and Stop & Shop is bearing fruit,” he wrote.

In January, Stop & Shop announced it would acquire Long Island's King Kullen chain, including 32 branded stores and five Wild by Nature locations. This opens up new horizons for Stop & Shop's in-store and online refresh strategy. There's also a good chance it won't be the only acquisition Ahold Delhaize makes this year, with Muller indicating the company's aim to further strengthen its hold on key markets by acquiring stores that are first or second place in local market share.

“Not every player can afford these investments,” Muller told reporters during Ahold Delhaize's Capital Markets Day in New York late last year. "There will be more consolidation for smaller and mid-size companies and it gives us a nice opportunity to be a part of the consolidation, to be a consolidator of choice, to gain share, to deepen our footprints and make our brands along the East Coast even bigger."