Netherlands-based Ahold Delhaize held a Capital Markets Day for institutional investors and analysts in which it set out elements of its strategy as a combined company. We look at three things that we learned from the day as it set out its ‘Better Together Strategy’.
The company said that it was building from strong foundations as it prepared for the future, aided by great local brands in all its major markets, with best-in-class supermarkets being supported by its growing omni-channel capabilities. The retailer also said that it was well placed to win given the key trends it was seeing in its main markets; with shoppers looking for ‘more value; more convenience; more fresh and healthy; and more personal [solutions]’.
1. Growth set to continue…
Following on from the rebranding of Red Market stores to other Delhaize banners, it appears that further disposals are off the agenda. Ahold Delhaize’s chief executive, Dick Boer, said divestments ‘are not on our radar screen – first on our radar screen is to integrate the companies better’. Boer said that both Ahold and Delhaize had spent the last decade putting their portfolios in place, creating a retailer that is invariably number-one or number-two in all the markets that it operates in, albeit with its own definitions of markets.
Despite the reassurances, question marks will remain over the company’s stores in Indonesia, which remain geographically separated from the rest of its operations. The separation limits opportunities for Ahold Delhaize to drive efficiencies, especially in relation to private labels, and so despite the statements, it would not be surprising to see it exit the country at some point.
Expansion is set to focus on the company’s core supermarket format and with its expertise in small store formats. Boer highlighted its strengths in Europe within small supermarkets and convenience stores, which Ahold Delhaize is aiming to export and inform development of similar stores in the US. Boer noted how Hannaford is testing a c. 1,900 sq. m. store, while its bfresh fascia provides another business model that it could expand in future. Any store expansion is set to focus on Ahold Delhaize’s existing countries, regions – in the US – and cities – in Romania.
2. …As Ahold Delhaize aims to drive ‘virtuous circle’ to aid price investment
A key element of Ahold Delhaize’s strategy moving forward will be to build on its ‘Sustainable business model’. The retailer said that better buying would enable it to save for its customers, which would enable it to invest in its proposition, which would in turn help it fund growth in key channels. The virtuous circle of higher sales enabling better pricing has been successful at Ahold in Europe and, through the combination of both companies’ buying power, should help it to compete better in all its markets.
Ahold Delhaize spotlighted the positive effect that its ‘Easy, Fresh & Affordable’ strategy, which is helping it to win in its region. In the presentation, Boer showed how improvements had been seen across all the stores updated to the new look and feel: 10% in the stores in Wilmington; 3% in Greenville; and 8% in Raleigh. Boer said that Ahold Delhaize will continue to roll out the design to an additional 160 stores in 2017, bringing the total to 540, or 55 percent of total sales at the brand.
However, the retailer was keen to note that solely cutting prices would not enable it to win, and investment in its offer would be key to the strategy as well. Private label is set to play a major role within this initiative, with further scope for the retailer to move products and brands between operations and across borders. Boer has spoken previously of how he could envisage Albert Heijn or Delhaize private label appearing on the other’s shelves and so private label suppliers are likely to benefit from any growth in this area.
3. Online growth to form core channel for future growth
Ahold Delhaize said it wanted to double net online sales by 2020, to €3.2 bn, up from its target of generating net sales of €1.6 bn in 2016. Ahold set itself the target of generating consumer sales worth €2.5 bn by 2017, versus 2014, adding about €370m annually, and so the increase to €400m annually to 2020 suggests that the majority of this growth will come from previous Ahold brands.
A key element within this will be Bol.com, which broke the €1.0 bn barrier in 2016, and has underpinned the company’s average 20% to 25 % annual growth in online sales. There will be a short-term boost from continuing to expand Bol.com’s reach into Belgium, linking collection with Delhaize stores and cross selling more. In the medium term, it is the skill sets and knowledge that Bol.com will be able to provide, especially around personalisation that will help support growth at Ahold Delhaize’s other online stores.
While Ahold Delhaize’s chief ecommerce and innovation officer, Hanneke Faber, acknowledges that online growth and investment in it will affect margins, not investing in the channel is unthinkable. Faber noted how the annual spend for an omnichannel Peapod shopper is nearly twice that of a someone who shops only in-store. She also said that in markets where there is dense home delivery and support from B2B sales, Peapod is already delivering 3%-5% EBITDA margins.