Taking Stock: Ahold USA Still Seeking Crispness In Post Re-Org Execution

It’s been 22 months since Ahold USA first announced that it would undertake a massive reorganization affecting hundreds of associates and prioritizing Carlisle, PA as the Mecca for its merchandising, marketing and procurement.

Some of those months during the restructuring have been painful for the Northeast’s largest pure play supermarket operator, but in the past several months, after Ahold USA was able to get everybody relocated and seated in their new assignments and the chain’s revamped IT system was brought online, all the pieces of the complex puzzle were in place and the re-org was technically complete.

However, “complete” on paper doesn’t necessarily mean that the execution, particularly in merchandising, has returned to its previous high levels, at least compared with the way things used to run in Carlisle.

Over the past six weeks, we polled about 25 vendors (sales reps, brokers, DSD suppliers) and, while everyone noted improvement from earlier this year, virtually all of those surveyed felt that there were still major flaws in the new system.

“Too many parts were changed to expect a smooth operation, even though all the pieces are in place,” said a Pennsylvania based broker executive who has called on Ahold USA’s divisions for more than 10 years. “There are too many new people who still aren’t performing at the level I would expect – although it is not for lack of effort – and even those category managers that are knowledgeable and skilled feel with their new responsibilities they are stretched too thinly.”

To that last point, another major direct sales organization’s key Ahold rep agreed. “Communications are not particularly good. It takes much longer to get a response to an email, or even get an appointment,” the supplier noted. “But that’s not because the merchandising staff isn’t working hard. In fact, they’re overworked. When I do get an email reply, it’s not unusual to receive a message after hours or on a weekend.”

And from a sales rep at a large DSD organization came this analysis: “We were all under the belief that the local divisions and the stores in those divisions were going to get first priority, that the flow would begin at the stores and stream back to Carlisle. That has not been the case thus far. When Ahold made it clear at its annual vendor meeting that the category managers would ‘own’ the product, they may not have realized how possessive that ‘ownership’ would be. To date, I haven’t seen much ‘sharing’ between Carlisle and the stores.”

To be fair, it’s only been a few months since the reorganization was completed and there were bound to be post-restructuring growing pains.

Knowing Carl Schlicker (the head of Ahold USA) and Jeff Martin (EVP-sales & merchandising) as well as I do, I know they are fiercely determined to get this right. As inefficient as the new system might appear to some, with further fine-tuning and more “team time” together, I’m betting that things will noticeably improve before the end of the year.

Still, there will always be skepticism, such as that voiced by one sales executive (direct organization) who believes the new merchandising structure dilutes a lot of Giant/Carlisle’s discount mojo while relying too much on Stop & Shop’s high/low

marketing strategy.

And while Stop & Shop’s merchandising approach may be too heavily injected in Ahold USA’s current model, from my perspective, just the fact that the passive-aggressive culture that prevailed at Stop & Shop for 20 years has been largely blown up is a huge plus.

And as one broker owner stated: “As challenging and stressful as Ahold’s reorganization has been, it’s still a significant upgrade from the efforts of other companies such as Supervalu and Safeway to centralize, and appears to be more functional than what’s going on currently at Delhaize America (Delhaize America is utilizing two headquarter points – Scarborough, ME and Salisbury, NC – to oversee merchandising and procurement).”

On the financial front, the numbers remain very solid. Ahold USA’s second quarter net sales were $5.8 billion, up 5.3 percent, and identical store revenue (ex-gas) increased 1.2 percent. However, operating income was down 22.6 percent. Most of that amount was attributed to several one-time charges (logistics and IT). In his follow-up conference call, Ahold CEO Dick Boer said that his company is performing a “balancing act” by limiting price increases while working rigorously on cost savings.

Moreover, Ahold has $3 billion in the bank to spend on potential acquisitions and, in the nation’s most populated corridor – the Northeast – the company has more stores than any other supermarket retailer, many of them in prime locations. And, its Peapod online unit just made its 20 millionth delivery. Peapod was founded in 1989 and currently serves 23 markets.

Consolidation is a fact of life in almost every sector of the grocery business today. While most executives are forced to rationalize the few non-financial benefits that major reorganizations offer, at the end of the day it’s still about the Benjamins.

Because rarely, if ever, do whacking or relocating people, closing facilities and dramatically changing the view of the associates make for a happier or improved overall culture.

This is just a portion of Jeff Metzger’s Taking Stock column. To read more, subscribe today by calling 410-730-5013.