Risk Related to Competitive Activity
Operational Risks
Risk Related to Events of
Exceptional Nature
Risk Related to Social Actions
Risk Related to Information
Technology Systems
Risk Related to Delhaize Group
Affiliated Stores and Franchisees
Risk Related to Delhaize Group
Suppliers
Delhaize Group Annual Report 2014 65
or other financial obligations. The Company's
business or financial results may be negatively
affected if divestitures are not successfully
completed.
The food retail industry is competitive and
characterized by narrow profit margins.
Delhaize Group faces heavy competition from
traditional supermarkets as well as hypermar
kets, club stores, and other alternative formats.
The Group's profitability could be impacted by
the pricing, purchasing, financing, advertising
or promotional decisions made by these com
petitors. To the extent Delhaize Group reduces
prices or increases expenses to support sales
in the face of competition, its net income and
cash generated from operations could be
negatively impacted.
Delhaize Group's operations, assets and staff
can be exposed to risks related to events of an
exceptional nature including, but not limited to,
severe weather, natural disasters, floods, ter
rorist 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 employees, its
supply chain, stores and relationships with its
customers, all of which can affect the Group's
financial condition, results of operations and
cash flows. The Group continuously evaluates
and addresses possible threats linked to exter
nal events and has taken measures, such as
business continuity plans, where appropriate
to plan for such events. The effectiveness of the
Group's preventive measures in limiting finan
cial losses will vary according to the nature
and severity of any exceptional event, and the
extent to which such losses may be recov
ered through the Group's insurance coverage
discussed below in "Insurance Risk."
At the end of 2014, Delhaize Group had union
representation in its operations in Belgium,
the Grand-Duchy of Luxembourg, Romania,
Greece and Serbia. In its U.S. operations, the
Group has union representation in one of its
nine distribution centers for which a collective
bargaining agreement with the union was in
effect until February 2015.
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, trading
affiliates, and suppliers. This risk applies par
ticularly to Belgium, where operational results
have been impacted by the announcement of
the Transformation Plan in June 2014.
Delhaize Group's operations are dependent
on IT systems for many functions and pro
cesses. These systems have been developed
and are maintained and operated by internal
experts and/or external suppliers. Failure
of these systems may cause disruptions in
Delhaize Group's operations, affecting sales,
purchases and profitability. On a regular basis,
Delhaize Group endeavors to update systems
by industry leading standard packages and
technologies. In addition, there are ongoing
efforts to stabilize these "legacy" systems in
order to ensure the continuity of business
operations.
Delhaize Group's information systems,
including back-up systems, can be subject to
damage or interruption from power outages,
computer and telecommunications failures,
and security breaches. If the Group's infor
mation systems cease to function properly,
a significant investment to repair or replace
them may be required, and interruptions in
operations may be experienced in the interim.
Any material interruption in the Group's
information systems and back-up systems
may have a material adverse effect on the
Delhaize Group's financial condition, results of
operations and cash flows.
If third parties are able to penetrate Delhaize
Group's network security or otherwise mis
appropriate customers' personal information
or credit or debit card information, or if third
parties are given improper access to such
customers' information, the Group could be
subject to claims from customers and other
parties. This liability could, for instance, include
fines, reimbursement of costs for re-issuing
replacement cards and credit monitoring
services as well as claims related to unauthor
ized purchases with credit card information,
identity theft and other fraud-related claims.
The Group's information security measures
are designed to minimize exposure to security
breaches, but failure to prevent such breaches
could subject the Group to liability, damage its
reputation, and diminish the value of Delhaize
Group's brands.
Approximately 20% of the stores in the
Delhaize Group's sales network are affiliated
or franchised. The operators of affiliated and
franchised stores operate their stores as
independent third parties. Although the Group
attempts to properly select, train and support
the operators of affiliated and franchised
stores, the ultimate success and quality of
any affiliated or franchised store rests with its
operator. If the operators of the Group's affili
ated and franchised stores do not operate in a
manner consistent with the Group's standards,
Delhaize Group's image and reputation could
be harmed, which could adversely affect
the Group's business and operating results.
Also, failure to maintain a profitable business
relationship or the eventual loss of a significant
number of affiliated or franchised partners
could have a negative impact on Delhaize
Group's financial results.
Significant disruptions in the operations of, or
in relationships with, vendors and suppliers
could materially impact operations by disrupt
ing store-level product availability or costs,
resulting in reduced sales. The products that
Delhaize Group sells are sourced from a wide
variety of international and local suppliers in
each of the regions where the Delhaize Group
operates. The Group has committed to achieve
certain goals related to the sustainable
sourcing of products, and this sourcing may
be impacted by elements outside of Delhaize
Group's control and may include political
and economic instability in the countries in
which suppliers are located, their financial
situation and any other condition that may
