RISK FACTORS
RISK FACTORS
The following discussion reflects business risks that are evaluated by our management
and our Board of Directors. This section should be read carefully in relation to our prospects
and the forward-looking statements contained in this annual report. Any of the following
risks could have a material adverse effect on our financial condition, results of operations
or liquidity and lead to impairment losses on goodwill, intangible assets and other assets.
There may be additional risks of which the Group is unaware. There may also be risks
Delhaize Group now believes to be immaterial, but which could evolve to have a material
adverse effect.
Strategic Risks
Macro-economic Risk
Major macro-economic risks of
Delhaize Group are reduced con
sumer spending, cost inflation
or deflation and possible conse
quences of the sovereign debt crisis
in Europe. Economic conditions such
as employment level, business con
ditions, interest rates, energy and
fuel costs and tax rates could reduce
consumer spending or change con
sumer purchasing habits. Weaker
consumer spending can negatively
impact profitability due to pressure
on sales and margins. If labor cost
and the cost of merchandise sold,
which are the Group's primary
operating costs, increase above
retail inflation rates, this could have
an adverse effect on the Group's
profitability. In addition, rising fuel
and energy prices can increase the
Group's cost for heating, lighting,
cooling and transportation. Where
possible, cost increases are recov
ered through retail price adjust
ments and increased operating
efficiencies.
Delhaize Group is particularly sus
ceptible to macroeconomic risks in
the U.S. In 2012, 64% of the Group's
revenues were generated in the
U.S. (2011: 65%), where its stores
are located on the East Coast. Con
sequently, the Group's operations
depend significantly upon the eco
nomic conditions in this area.
In Europe and in particular in
Greece, Delhaize Group is exposed
to the possible aftermath of the sov
ereign debt crisis and the breakup
of the eurozone. This is likely to have
an adverse impact on consumer
spending and may cause the com
pany to impair assets and record
lower contribution in operating
results.
Expansion Risk
Delhaize Group's ability to open new
stores is dependent on purchasing
or entering into leases on commer
cially reasonable terms for proper
ties 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 acquisi
tion opportunities in the food retail
industry. Delhaize Group looks for
the acquisition of businesses oper
ating 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. These risks include,
but are not limited to, as applica-
ble, incurring significantly higher
than anticipated financing related
risks and operating expenses, fail
ing to assimilate the operations and
personnel of acquired businesses,
failing to install and integrate all
necessary systems and controls, the
loss of customers, entering markets
where we have no or limited experi
ence, the disruption of our ongoing
business and the stretching of our
management resources. Realiza
tion of the anticipated benefits of an
acquisition, store renovation, mar
ket renewal or store opening may
take several years or may not occur
at all. The above may also have a
negative impact on goodwill rec
ognized in the financial statements
in connection with acquisitions (see
also Note 6 "Goodwill" in the Finan
cial Statements). Our growth strat
egy may place a significant strain
on our management, operational,
financial and other resources. The
lack of suitable acquisition targets
at acceptable prices may limit the
Group's growth.
Risk Related to Competitive
Activity
The food retail industry is competi
tive and characterized by narrow
profit margins. Delhaize Group
faces heavy competition from many
store chains. The Group's profitabil
ity could be impacted by the pricing,
purchasing, financing, advertising
or promotional decisions made by
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