Defined Strategy SOME SIX MONTHS ON FROM THE COMPLETION OF ITS MERGER, "To us, 'Better Together' has a number of DELHAIZE HAS OUTLINED ITS STRATEGY AS A COMBINED different meanings," Boer explains. "First of ENTITY, WITH AIMS TO GENERATE€500 MILLION IN NET all, it obviously applies to the two compa• SYNERGIES IN BY FULL-YEAR 2019. STEPHEN WYNNE-JONES nies, Ahold and Delhaize, but there's also MET CHIEF EXECUTIVE DICK BOER TO LEARN the question of aligning services, of aligning technologies, and generating best practices HOW THE GROUP IS HOPING TO ACHIEVE ITS AIMS. so we can serve our customers better." On paper, there is much about the strate• he completion of the Ahold happily coinciding with significant anniver• gy that makes sense. A key focus for the Delhaize merger in July of last saries for both Ahold (130 years) and group has been on ensuring that each year marked the completion of Delhaize (150 years) in 2017 - Ahold regional business maintained its own identi• a rumour cycle that had per• Delhaize has announced its proposals for ty, particularly in its home markets of sisted for more than a decade. the period leading up to full-year 2019 - a Holland and Belgium. ITt was, as the company repeatedly stated, a blueprint that it is dubbing 'Better • "The first thing we did was make it very merger of equals, bringing together the best Together'. clear that we strongly believe in the heritage of both worlds, from the Dutch market Ahold Delhaize recently held a capital- of all our brands," says Boer. "There was a leader and Belgian retail giant, on both sides markets day in London, at which Stephen lot of debate in the media over what the of the Atlantic, where the combined opera• Wynne-Jones, ESM editor, spoke to the Dutch and the Belgians coming together tions of the two have a combined yearly rev• group's chief executive, Dmck Boer about would mean. People were afraid that their enue of €60 billion. the challenges inherent in such an ambitious local Delhaize supermarket would disap• Six months on from the announcement - game plan. pear, or their local supermar-

20 ESM Issue 1-2017 flflpres:'• r The new Albert Heijn XL store in Purmerend AHOLD DELHAIZE: THE STRATEGIC FRAMEWORK ket would disappear. We weren't prepared "To me, where there is a real Ahold Delhaize recently unveiled its to let that happen. The heritage of every strategic framework, built around the brand is hugely important to us." benefit is maximising how purpose that 'together, we build great At the same time, however, there has been we can work together with local brands, bringing fresh inspiration a degree of cross-pollination between the every day'. There are three core ele• Dutch and Belgian stores. In October of last our suppliers. It's about ments therein: year, Delhaize added a selection of private- asking whether a supplier • Save for our customers: buy better, label Albert Heijn products to its shelves in that is already producing for operate smarter, waste less. a trial campaign entitled 'Onze Buren • Invest in our customer proposition: Hebben Goede Smaak', or 'Our Neighbours the Belgian market can also affordable for all, best own-brands, Have Good Taste', while Albert Heijn supply efficiently for the fresher and healthier, most local and returned the favour with its 'Tastiest from personal service. Belgium' range. Dutch market." • Fund growth in key channels: super• "We're also organising customer tours Dick Boer markets, e-commerce and smaller from Albert Heijn stores to Delhaize stores," Chief Executive, Ahold Delhaize formats. says Boer. "Things like this help us to under• The group's 'Better Together' strategy stand what opportunities are there to devel• builds on this framework and establishes op products that meet specific customer fits, to drive supply-chain costs down. With a number of goals that the retailer hopes demand. Certainly, in the Benelux region, we Ahold and Delhaize located so close to each to achieve in the coming years. The most have the opportunity to use the same suppli• other, I suggest, such synergies could be notable of these is its ambition to deliver ers to develop a specific product for the potentially easy to implement, necessitating €500 million worth of synergies by full- Dutch market, or a specific product for the some DCs closing and distribution consoli• year 2019. Belgian market, as our supply chain devel• dated into other centres. Boer doesn't exact• Other targets include a doubling of con• ops. You don't need to use the same brand ly see it this way. sumer online sales by 2020 (from 2016 name, you just use the same suppliers." "I'm personally always a little hesitant on levels), of €2.3 billion, and €1.6 billion supply-chain integration, particularly when worth of free cash flow. In addition, it plans Supply-Chain Savings the system already works," he says. "If you to launch a €1 billion share-buy-back pro• With many mergers of this size, the consoli• cut our supply-chain operations into three gramme in 2017. dated company looks to gain synergy bene- pieces, we have the stores, we have the

ESM Issue 1-2017 Retail & FMCG | Ahold Delhaize

hasn't gone unnoticed, with business groups WHAT THE fearful that the combined buying power of ANALYSTS SAID t local brands Ahold Delhaize will squeeze them out of business. Bruno Monteyne, Bernstein Research Local reports in the Dutch and Belgian "Ahold Delhaize's capital-markets day markets have spoken of suppliers being was a clear statement of AD's business required to pay an 'integration bonus' to the and financial strategy. Management artic• retailer, and of new purchase considerations ulated Ahold's long experience at suc• implemented retrospectively, back to the cessfully competing against the discoun• start of 2016. ters and Walmart while gaining market "Supplier groups have done very good share. [...]The strategy is simple and sus• lobby work and have been very successful in tainable: save, invest in the proposition communicating their concerns, but there is and fund growth. The focus is on growing nothing unexpected about what we are dis• local brands while leveraging global scale." cussing with them," says Boer. "If I look at how we have been negotiating with our sup• James Anstead, Barclays European pliers, we mainly asked for the opportunity Food Retail Equity Research to harmonise deals. "Ahold Delhaize will launch a €1 billion "We want to be treated the same in buy-back in 2017. The dividend-payout Belgium and Holland. Why should it cost ratio will be 40-50% of pro-forma under• 10% more to send the same product, pro• lying income from continuing operations - duced in the same factory in the the same policy as Ahold used to have. warehouse execution, and we have the sup• Netherlands, to a store in Belgium? We're The buy-back of €1bn represents -4% of pliers to deliver to the warehouses. not squeezing suppliers, we're telling a real the market cap and would be similarly "To me, where there is a real benefit is story about Europe. We are all operating in EPS accretive, given the negligible interest maximising how we can work together with a European marketplace." income it would have received if they did our suppliers. It's about asking whether a The group's 'Buying Better' strategy also not return the cash. The key issue of the supplier that is already producing for the extends to agreements that it holds with capital return is as good as realistically Belgian market can also supply efficiently for AMS and Coopernic, two of Europe's was expected - there may be slight dis• the Dutch market. It's not about looking at largest buying groups. appointment on the FCF forecast, but it is whether an Albert Heijn warehouse in "As Ahold Delhaize, we are a large retail• difficult to draw a definite conclusion." Zwolle, in the Netherlands, is supporting a er, but we're not the biggest in Europe, by Delhaize supply chain in Flanders. That any means. We are a top-ten European Rekha Jogia-Soni, Senior Editor, Moody's doesn't make any sense." retailer and the third supermarket chain in "The announced sizeable share buy-back the US," says Boer. "We need size and scale will deteriorate the group's credit quality, Supplier Relationships because many suppliers are still a lot more as it will reduce cash at a time when the On the question of suppliers, the fact that powerful than we are. Some brands have a implementation of the merger of the two the merger has created a €60 billion monster very strong position in the market and can large European retailers may create oper• designate different prices for different mar• ating challenges. However, we do not kets. We want to be more equalised with think that the contemplated share buy- that and have similar pricing right across back programme will materially affect Europe. That's what we're aiming for." Ahold Delhaize's currently strong financial profile, as the group expects to generate On The Right Track €1.6 billion of free cash flow in 2017. [...] According to Ahold Delhaize's most recent Ahold Delhaize is now one of the largest Sales increase at Ahold Delhaize set of results, for the third quarter of the European food retailers and enjoys a track in Q4 at constant exchange rates year, the group already appears to be on the record of high cash-flow generation. right track. Ahold Delhaize posted pro-forma Management intends to sustain a payout net sales of €15.5 billion in the fourth quar• ratio of 40-50%, in line with Ahold's prior ter of its financial year - a 2.8% increase at dividend target, but less conservative constant exchange rates. In the Netherlands, than that of Delhaize, at 35%. These comparable sales were up 6.6%, however in Comparable sales increase in the announcements imply that the group is Belgium, sales were down 0.9% for the peri• Netherlands in fourth quarter leaning towards Ahold's prior, sharehold• od, 'when compared to a strong fourth quar• er-friendly financial policy." ter in 2015', the group said. Comparable sales were down 0.2% at

24 ESM Issue 1-2017 Retail & FMCGI Ahold Delhaize

They feel this is helping them to drive their agenda. Then, on the back of that, we can create best practices," Boer says. This is particularly true, he notes, in the area of digital and e-commerce, where dif• ferent markets operate according to different principles. In the Netherlands, for example, Albert Heijn is particularly strong on home delivery, with 86% of Dutch households able to avail of its service, while Belgium's Delhaize uses more of a click-and-collect model. "With digital, Hanneke [Faber, Ahold Delhaize's chief e-commerce and innovation officer] and her teams have exchanged best practices in e-commerce and digital loyalty. We have developed a global platform of best practices around IT, business services, retail technology, and how to drive cost out of the total chain," says Boer. "We have been able to drive these innovations centrally and localise them according to each market and what their requirements are. We're not going to influence that from the top. That's Ahold USA, while Delhaize America posted way and investing in formats that suit par• the responsibility of our managers in each of a comparable sales growth of 2.2%. As a ticular markets." the markets in which we operate." result of the merger, the group's US busi• This is the basis of Ahold Delhaize's nesses now account for two thirds of sales. strategic framework, which has been devel• Looking Ahead Drill down into the figures, however, and oped, Boer says, to be a "guiding principle" Next year will mark Ahold Delhaize's first it is clear that it is very much business as that the various members of the group can full 12 months of operation as a combined usual in all the various regional parts of the apply to their operations, rather than act as entity, and Boer is confident of several quick business. In the Netherlands, for example, a strict, top-down operations structure. wins that will help the retailer on the path the Albert Heijn brand has unveiled the first "When we introduced the strategic frame• to achieving its target of €500 million worth 100% C02-neutral supermarket in the work at an internal meeting in Washington, of synergy savings. country and rolled out its AH To Go con• the feedback was positive - it was some• "A quick win, for me, is clearly around cept into petrol forecourts. thing that everybody could feel comfortable aligning our agreements with suppliers, In Belgium, the group's Red Market stores with," he says. working with them on innovations and cre• are being rebranded as AD and Proxy "Everybody agrees that there are certain ating more substance," Boer explains. Delhaize stores. In the Czech Republic, a concepts, like 'fresher and healthier' and "That's something that I think will benefit consumer campaign offering storage boxes 'local and personal service', that they can our P&L this year. and reading books to children has hit the buy into, but, at the same time, they want "Further down the road, we will look at mark, while in Serbia, a 'healthy lunchtime' ownership over how that is implemented. aligning systems and technology, an area in initiative has proven successful. As Boer which you need to be more careful. We need stresses, while these businesses are now part "We need to examine the to examine the opportunities we can exploit, of a much larger retail conglomerate, they opportunities we can whether it be around pricing technologies or have the freedom to develop as they see fit. assortment standards, and how we can "If you have a strong, established position exploit, whether it be share that across the group." in the marketplace, like we do in the around pricing technologies After all, he adds, in a sector as competi• Netherlands and Belgium, we need to find or assortment standards, tive as retail, the ability to benchmark ideas different ways to grow, which is why we're across multiple banners and markets can seeing the growth of the AH To Go and and how we can share that only serve to benefit the group as it embarks Proxy Delhaize formats," says Boer. "In across the group." on its new journey. other markets, like Romania, our growth "Retailers are always looking to learn opportunities are different - we opened our Dick Boer from each other," says Boer. "Now, with 500th store there a few weeks ago - so it's Chief Executive, Ahold Delhaize Ahold Delhaize coming together, that all about allocating investment in the right process is made even easier." •

26 ESM Issue 1-2017