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May 9, 2013

On the move: Beckers departure could herald Delhaize shake-up

Delhaize Group is on the look-out for a new chief executive. The Belgium-based retail giant yesterday (8 May) issued a shock announcement revealing that CEO Pierre-Olivier Beckers plans to retire after 15 years at the helm. Michelle Russell takes a look at the shape Beckers will leave Delhaize in and the impact his departure could have on the grocer.

Delhaize Group is on the look-out for a new chief executive. The Belgium-based retail giant yesterday (8 May) issued a shock announcement revealing CEO Pierre-Olivier Beckers plans to retire after 15 years at the top. Michelle Russell takes a look the changes at Delhaize under Beckers and why analysts think a new chief could lead to a shake-up at the business. 

The departure of 53-year-old Delhaize Group CEO Pierre-Oliver Beckers will undoubtedly have come as a surprise to many in the industry. It is not a move that had attracted reams of speculation. And, significantly, with the Belgium-based retailer seemingly turning a corner in the US, the timing of Beckers’ resignation is all the more interesting.

Beckers, who joined Delhaize in 1983, has said he will stay on until a successor has been found to ensure a smooth transition. When he stands down as chief executive, he will take on a role as non-executive board member.

However, his decision is sure to be a blow of sorts to Delhaize. Beckers has spent 30 years with the retailer and has been a director since 1995. He was appointed president and CEO in 1999. Under his leadership, Delhaize has transformed itself from a Belgian company with an international presence to a more integrated company. He has brought together a loose grouping of businesses and built them up in the US and Eastern Europe.

The chief executive struck his biggest deal within months of taking charge at Delhaize with the acquisition of upmarket US chain Hannaford in a deal worth US$3.6bn. It cemented the group’s position as a force to be reckoned with in food retailing on the east cost of the US.

On paper, Delhaize’s strength is its US business, which accounts for around 65% of revenues. However, operating in the US has not been an easy ride for Delhaize in recent years. Like most other retailers, the company has faced a period of tough trading conditions in the country as consumers tightened their belts amid rising unemployment and economic uncertainty.

While some analysts have credited Beckers with a solid track record through sometimes difficult times, others believe he may have responded too slowly to the changing economic landscape.

It was not until 2012 that the retailer started repositioning its 1,100 Food Lion stores, which involved updating its store network, closing stores and investing in price cuts. The company has revamepd around 500 outlets to date and shut 126 down.

Nevertheless, under Beckers’ leadership, the retailer also launched the discount Bottom Dollar banner in the US in a bid to appeal to shoppers seeking value. Delhaize had 56 Bottom Dollar stores in the US at the end of 2012.

But it is not only in the US where Beckers has made his mark. While riding the choppy and uncertain waters of the States, the chief executive also moved to expand Delhaize’s presence in eastern Europe. Two years ago the group bought Serbian retailer Delta Maxi, which has operations across south-eastern Europe and the Balkans, in a deal worth EUR930m.

There are signs his strategies are starting to bear fruit.

The news of Beckers’ impending departure coincided with the release of Delhaize’s first-quarter results, with the retailer moving into profit, recording earnings of EUR60m from a loss of EUR2m. Operating profit reached EUR115m from EUR32m, while revenues edged up 0.9% to EUR8.74bn.

A stronger financial performance and signs the group is beginning to gain real momentum in the US could be precisely the reasons why Beckers believes it is the right time for him to step down.

The chief executive has insisted the retailer will benefit from “new thinking” to move to the next phase of the group’s development. After a couple of challenging years, the company will benefit from moving forward under a new leader with a “fresh pair of eyes”, he suggested. 

“It is healthy for a company to install a new person,” he said yesterday, not specifying his reasons for leaving or his long-term plans.

Rabobank analyst Patrick Roquas believes the upcoming change of CEO confirms the “determination” of the Delhaize board regarding the structure of the company, opening up the possibility that the company could be split in two: a US and a European group.

“The departure of Mr Beckers might therefore fuel speculation about a potential split between the US and Europe in the future, especially in case the US business does not show a complete turnaround/recovery.”

Citi analyst Alastair Johnston concurs that Beckers departure could herald a radical shake-up of strategy. “Clearly the incremental news today concerns the CEO succession as this brings with it the risk that operational strategy will shift over the coming two years.”

In this context, it will be telling whether Delhaize opts for an internal candidate – one arguably less likely to significantly divert from the group’s current strategic direction – or an external candidate.

The retailer has said it is looking both internally and externally for candidates and expects to have a new chief executive in place by the end of the year. 

Analyst expectations have been divided on this point. 

Roquas believes there is a “substantial” chance Beckers will be succeeded by an internal candidate. He suggests current CFO Pierre Bouchut.

Meanwhile, Petercam analyst Fernand de Boer says the announcement is a “logical next step in the reshape of the company”. He expects Delhaize to hand the baton to an outsider with “a broad continental experience” in order to bring Delhaize to the “next level”.

Whoever is chosen, Beckers’ successor will ultimately be faced with the task of growing organic sales further and restoring margins in the longer term. Its battle to win consumers back has seen the retailer sacrifice a lot of margin.

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