Food Lion 2008 Annual Report Download - page 64
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Risk Related to Competitive
Activity
The food retail industry is competitive and
characterized by narrow profit margins.
Delhaize Group faces heavy competition from
many store chains. The Group’s profitability
could be impacted by the pricing, purchasing,
financing, advertising or promotional decisions
made by these competitors. To the extent
Delhaize Group reduces prices or increases
expenses to support sales in the face of
competition, net income and cash generated
from operations could be affected.
Risk Related to Social Actions
At the end of 2008, Delhaize Group had
union representation in its operations in
Belgium, the Grand-Duchy of Luxembourg,
Romania and Greece. In its U.S. operations,
the Group had union representation in one
of Hannaford’s three distribution centers, for
which a collective bargaining agreement
with the union is in effect until February 2012.
Delhaize Group’s operations and results
could be negatively affected by social actions
initiated by trade unions or other parts of its
workforce, in which event the Group cannot
ensure that it would be able to adequately
meet the needs of its customers.
Risk Related to Information
Technology Systems
Delhaize Group’s operations are dependent on
IT systems for many functions and processes,
which systems have been developed and are
maintained by internal experts or external
suppliers. Failure of these systems could
possibly cause disruptions in Delhaize Group’s
operations, affecting sales and profitability.
Delhaize Group has business continuity plans
in place to take the necessary measures to
reduce the negative impact from IT failures on
its operations.
If third parties or our associates are able to
penetrate our network security or otherwise
misappropriate our customers’ personal
information or credit or debit card information,
or if we give third parties or our associates
improper access to our customers’ personal
information or credit card information, we would
be subject to liability. This liability could, for
instance, include claims related to unauthorized
purchases with credit card information, identify
theft or other similar fraud-related claims.
Any such liability for misappropriation of this
information could decrease our profitability.
Our security measures are designed to protect
against security breaches, but our failure to
prevent such security breaches could subject us
to liability, damage our reputation and diminish
the value of our brand-names. For information
on an unauthorized intrusion into portions of
the computer system of our Hannaford and
Sweetbay banners that process information
related to customer credit and debit card
transactions, see Note 40 “Contingencies” to
the Financial Statements.
Expansion Risk
Delhaize Group’s ability to open new stores
is dependent on purchasing or entering into
leases on commercially reasonable terms
for properties that are suitable for its needs. If
the Group fails to secure property on a timely
basis, its growth may be impaired. Similarly,
its business may be harmed if it is unable
to renew the leases on its existing stores on
commercially acceptable terms.
Acquisition and Integration Risk
As part of its strategy, Delhaize Group
continues to reinforce its operations by
pursuing acquisition opportunities in the food
retail industry. Delhaize Group looks for the
acquisition of businesses operating the same
or similar store formats in geographical areas
where it currently operates or in adjacent
areas. By acquiring other businesses, the
Group faces risks related to the integration
of these businesses. The lack of suitable
acquisition targets at acceptable prices may
limit the Group’s growth.
Risk Related to Events
of Exceptional Nature
Delhaize Group’s operations, assets and staff
can be exposed to risks related to events of
an exceptional nature such as, but not limited
to, severe weather, natural disasters, terrorist
attacks, hostage taking, political unrest, fire,
power outages, information technology
failures, food poisoning, health epidemics
and accidents. Such events could have a
significant effect on the Group’s relationships
with its customers and on its financial
condition, results of operations and cash flows.
The Group is continuously evaluating and
addressing possible threats linked to external
events and has business continuity plans and
crisis procedures in place. The effectiveness of
these plans in limiting financial losses will vary
according to the nature and severity of any
exceptional event.
Litigation Risk
Delhaize Group is from time to time involved
in legal actions, including matters involving
personnel and employment issues, personal
injury, antitrust claims and other proceedings
arising in the ordinary course of business. The
Group has estimated its exposure to the claims
and litigation arising in the normal course of
operations and believes it has made adequate
provisions for such exposure. Any litigation,
however, involves risk and unexpected
outcomes could result in an adverse effect
on the Group’s financial statements. More
information on pending litigation can be
found in Note 40 to the Financial Statements,
“Contingencies”.
Regulatory Risk
Delhaize Group is subject to federal, regional,
state and local laws and regulations in each
country in which it operates relating to, among
others, zoning, land use, antitrust restrictions,
work place safety, public health, environmental
protection, community right-to-know, alcoholic
beverage sales and pharmaceutical sales. A
number of jurisdictions regulate the licensing
of supermarkets, including retail alcoholic
beverage license grants. Under certain
regulations, Delhaize Group is prohibited
from selling alcoholic beverages in some of
its stores. Employers are also subject to laws
governing their relationship with associates,
including minimum wage requirements,
overtime, working conditions, disabled access
and work permit requirements. Compliance
with, or changes in, these laws could reduce
the revenues and profitability of the Group’s
stores and could affect its business, financial
condition or results of operations.
The Group is subject to a variety of antitrust
and similar legislation in the jurisdictions in
which it operates. In a number of markets,
the Group has market positions which may
make future significant acquisitions more
difficult and may limit its ability to expand
by acquisition or merger, if it wished to do
so. In addition, Delhaize Group is subject
to legislation in many of the jurisdictions in
which it operates relating to unfair competitive
practices and similar behavior. Delhaize Group
has been subject to and may in the future be
subject to allegations of, or further regulatory
investigations or proceedings into, such
practices. Such allegations or investigations or
proceedings (irrespective of merit), may require
the Group to devote significant management
resources to defending itself against such
allegations. In the event that such allegations
are proved, Delhaize Group may be subject to
significant fines, damages awards and other
expenses, and its reputation may be harmed.
For information on a pending antitrust matter
in Belgium, see Note 40 “Contingencies” to the
Financial Statements.