Ahold Delhaize Merge Part Two: Operations Elley Symmes October 2016 Executive Summary
Senior Leadership: COO of Ahold USA, James McCann, abruptly left the company and Kevin 1 Holt has now stepped in to take on his role. Frans Muller will serve as the interim COO of Delhaize US as the company looks to find a permanent fill for this position.
Format Summary/Store Divestitures: Ahold Delhaize US is now the third largest supermarket retailer operating across 23 states. Their largest banners, Stop & Shop and Food Lion, will 2 continue to contribute over 50% of sales through 2021E. As part of the merge, Ahold Delhaize is divesting 96 total stores.
Capital Expenditures: Ahold Delhaize is investing in improving its perimeter departments including produce and bakery and shopper messaging, especially around value. The retailer is also 3 developing differentiated store formats such as its newly opened Hannaford concept store or its millennial small format, bfresh.
Distribution: Ahold Delhaize continues to operate separate supply chains with Ahold outsourcing 4 to C&S and Delhaize keeping its distribution in-house. We expect the two companies to gradually integrate their supply chains but to not expect any consolidation for 18-24 months.
Source: Kantar Retail analysis
2 COO of Ahold USA, James McCann, Abruptly Leaves Company, 3 Ahold Delhaize Appoints Kevin Holt to Lead Ahold US Business
James McCann Kevin Holt Frans Muller Previous COO of Ahold USA COO of Ahold US Interim COO of Delhaize US ‒ James McCann’s departure came as a surprise to larger company, indicated by Frans Muller’s interim position. ‒ We expect a more permanent solution to be determined by the end of 2016. ‒ Eventually we expect Ahold Delhaize to bring the US business under one person to maximize 2014-2016: CEO of Delhaize 2013-2016: CEO of Delhaize America Group synergies across the Previous: President of retail 2008-2013: CEO of Metro Cash businesses. & Carry (Germany) Source: Kantar Retail analysis, company reports operations at SuperValu.
3 Ahold Delhaize is the Now the Third Largest Supermarket Retailer 4 in the US, Operating Across 23 Different States
Sales (USD mil) CAGR Retailer 2016E 2021E '16E-'21E 1 Kroger $ 104,161 $ 130,070 4.5% 2 Albertsons Market (LLC) $ 56,801 $ 57,816 0.4% 3 Ahold Delhaize * $ 45,104 $ 50,506 2.3% 4 Publix $ 33,801 $ 45,710 6.2% 5 H-E-B $ 21,084 $ 27,647 5.6% 6 Whole Foods $ 15,481 $ 19,404 4.6% 7 Walmart Neighborhood Market $ 14,640 $ 30,095 15.5% 8 Wakefern $ 14,615 $ 18,691 5.0% 9 Southeastern Grocers (Bi-Lo) $ 10,129 $ 11,111 1.9% 10 Wegmans $ 8,248 $ 10,616 5.2%
Sales are on a proforma basis Note: Sales include supermarket sales only Source: Kantar Retail research and analysis, AggData
4 Retailer Operates 1,990 Combined Stores 5 Food Lion accounts for 52% of combined store base
Banner: Stop & Shop Banner: bfresh 2016 Banner Sales: $13.6 billion 2016E Banner Sales: $26.5 million Store Count 2015: 417 Store Count 2015: 2 No. of Markets: 5 No. of Markets: 1 Avg. Sq. Ft./Store: 53,230 Avg. Sq. Ft/Store: 9,300
Banner: Giant Landover Banner: Food Lion 2016E Banner Sales: $5.7 billion 2016E Banner Sales: $10.4 billion Store Count 2015: 169 Store Count 2015: 1,039 No. of Markets: 4 No. of Markets: 10 Avg. Sq. Ft./Store: 41,000 Avg. Sq. Ft./Store: 28,000 Banner: Giant Carlisle* Banner: Hannaford 2016E Banner Sales: $6.6 billion 2016E Banner Sales: $7.1 billion Store Count 2015: 185 Store Count 2015: 178 No. of Markets: 4 No. of Markets: 5 Avg. Sq. Ft./Store: 52,493 Avg. Sq. Ft./Store: 40,000
Banner: Peapod Banner: Hannaford to Go 2016E Banner Sales: $745 million 2016E Banner Sales: $544 million Store Count 2015: Online grocery Store Count 2015: Curbside pickup No. of Markets: 13 available at 27 stores No. of Markets: 4
* The Martin’s and Giant banners make up Ahold’s Giant Carlisle division. Note: Store counts reflect store divestitures. Source: Kantar Retail research and analysis, Peapod.com
5 Ahold Delhaize US Sales to Remain Concentrated in Top Two 6 Banners, Stop & Shop and Food Lion
Ahold Delhaize US Share of Sales 1.7% 1.2% 0.1% 2.3% ‒ Stop & Shop and Food Lion together will account for 53.6% of 12.5% Stop & Shop sales in 2016E. 30.4% Food Lion ‒ Hannaford will continue to be a Hannaford Brothers key growth platform, especially Giant Food as retailer tests new perimeter 12.8% Giant MD services with this banner. Martins Foodstores (VA) ‒ Although ecommerce banners Peapod and bfresh will remain small, they Hannaford.com will continue to be innovation 15.9% bfresh hubs to better differentiate Ahold 23.2% Delhaize’s business.
Note: Ahold Delhaize sales are proforma Source: Kantar Retail analysis
6 Ahold Delhaize to Divest 86 Stores to Meet FTC Merge 7 Requirements, Two-Thirds of Stores to Be Divested by End of 2016
‒ The divested stores will equal 4.1% of the Ahold- Delhaize U.S. store base and 3.2% of the retailers’ combined 2015 U.S. net sales.
‒ Of the divested stores, 83% will be Delhaize banners — 61 Food Lions and 10 Hannafords
Source: Kantar Retail research & analysis, Company Reports
7 Ahold Delhaize Cuts its Losses in Virginia, Divesting 10 Additional 8 Martin’s Stores in Richmond Area
‒ Richmond is a new grocery battleground with Wegmans and Publix coming in, making it harder for less differentiated banners such as Martins to maintain shopper loyalty and capture foot traffic.
‒ These additional store divestitures will leave 30 total stores under the Martins banner in West Virginia, Maryland, and Pennsylvania.
Source: Kantar Retail research & analysis, company reports
8 Ahold Delhaize Focusing Capital Expenditure in Store Remodels 9 and Format Innovation
Perimeter Department Shopper Messaging Store Prototypes Urban Small Formats Store Remodels Improvements
Source: Kantar Retail research & analysis
9 Ahold Delhaize Finishes Store Perimeter Remodels at 87% of 10 Ahold US Banners, Remaining Stores to Be Finished by End of 2016
Source: Kantar Retail research & analysis, store visit
10 Food Lion Finishes Remodeling 142 Charlotte-area Stores, Remodels 11 Include Improved Produce Departments and Shopper Messaging on Price
Source: Kantar Retail research & analysis, company site
11 Ahold Delhaize Also Launches Hannaford Prototype in Bedford, 12 NH in June 2016
Differentiated Holistic Approach to Value through Food Services Health & Wellness Center Store
Source: Kantar Retail research & analysis, store visit
12 And Opens Second Millennial Small Format Store, bfresh, 13 in Brighton, MA Multiple Prepared Food Options
“Soups” “Salads” “Pasta” “Sandwiches” High Quality Fresh Food at Good Value
Source: Kantar Retail research & analysis, store visits
13 Ahold Delhaize Operates a Diverse Ecommerce Offering Across 14 Fulfillment Types
‒ Peapod is Ahold Delhaize’s largest online banner, operating in 13 markets across the Midwest Northeast. ‒ The retailer continues to expand Hannaford to go, expanding it to about 14% of its total store base this year. ‒ Food Lion recently expanded its Instacart pilot in North Carolina. ‒ Bfresh launched third party delivery via CartFresh this year Home Third Party Third Party for shoppers in the Boston metro Click & area. Delivery/Click Delivery via Delivery via ‒ Ahold Delhaize’s diverse Collect & Collect Instacart CartFresh ecommerce portfolio allows it to meet shopper demands for enhanced convenience and test various digital initiatives across fulfillment types. ‒ In the next 18-24 months we expect Ahold Delhaize to begin expanding its Peapod banner across its combined store footprint. Source: Kantar Retail research & analysis, company websites
14 Ahold Delhaize US Continues to Operate Separate Supply Chains 15
Ahold Delhaize
‒ Ahold US outsources its supply chain to C&S (excluding Peapod) while Delhaize keeps its supply chain in-house. ‒ Within the next 18 months we expect Ahold Delhaize to integrate their supply chains. ‒ It would make the most sense for them to move everything in-house because it would allow them to maximize synergies and cut down on costs. ‒ That said, it would require a large upfront investment that the company is not known to do so chances of this happening are small.
Source: Kantar Retail research & analysis, company websites
15 Supplier Implications 16
Senior Leadership ‒ Incorporate Ahold Delhaize’s adjustment period to solidify its senior leadership team into your 1 planning, as it could lead to slight delays and disorganization across the retailer’s teams. ‒ Serve as of navigator for Ahold Delhaize’s senior leadership to help them understand regional differences across banners, especially if coming from a European background. Format Summary/Store Divestitures ‒ Develop tactical plan to manage different call points across the company for product sales, 2 price negotiations, and promotional calendar planning until company fully integrates. ‒ Demonstrate your understanding of regional and banner variations by establishing more nuanced and flexible brand objectives. Remodels & Innovation Update ‒ Establish your brand as key contributor to innovations that Ahold Delhaize will execute. 3 ‒ Enhance merchandising displays by incorporating an interactive and/or entertainment component to help Ahold Delhaize better differentiate banners. Distribution ‒ Expect to continue with three different distribution points (C&S, Peapod, and Delhaize) for the 4 next 18-24 months ‒ Anticipate continued downward pressure on price negotiations as retailer looks to cut costs to invest more in other areas.
Source: Kantar Retail research & analysis
16 Additional Reading 17
Ahold, Delhaize Complete Merger, but the Work Is Just Beginning
Ahold Delhaize USA Merge Part 1: Brand
Ahold Delhaize USA Q2 and H1 2016 Results: Merged Operations See Resilient Momentum
Source: Kantar Retail research & analysis
17 For further information please refer to www.kantarretailiq.com
Contact: Elley Symmes Analyst
T: +1 617 912 2865
@kantarretail www.kantarretail.com
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