It’s been a busy month for Ahold, the Northeast’s largest supermarket chain. On November 1, the company announced announced that its current top man in the U.S., Carl Schlicker, will be retiring on February 1, 2013. He will be replaced by James McCann, currently executive VP and chief commercial and development officer for the Amsterdam based retail organization. He will shortly be relocating to the U.S and be based in Carlisle, PA. In addition to his new role, McCann also will continue as a member of Ahold’s corporate executive board.
Later that month, on November 28-29, the global retailer held its annual “Capital Markets Days” at the Westin Hotel in Philadelphia.
The two day business session, which was attended by European and U.S. financial analysts and a handful of journalists, provided a snapshot of Ahold’s accomplishments in 2012 while also revealing plans for fiscal 2013 and beyond.
Opening the meeting was Ahold’s CEO, Dick Boer, who updated the group on the retailer’s “reshaping retail” platform, the cornerstone of its growth initiative. “We are very pleased with the progress we are making on our strategy, for Ahold to remain successful and at the forefront of the food retail industry, Boer said.
“In the next two days, we are providing an update on the progress we have made. We will present a number of initiatives for the near future, including acceleration of our multi-channel offering and expansion of our online and offline reach. We continue to improve our competitiveness, drive sales, gain market share and control costs. By performing in the top quartile of our peers in food retail, we want to continue to provide attractive, sustainable returns for shareholders,” Boer noted.
He added that Ahold has taken many steps to enable and create growth since the previous Capital Markets Day in the Netherlands 12 months ago. “We expanded our geographic reach with store openings and acquisitions in existing and adjacent markets in the United States and Europe. Our online retail operations continued to achieve double-digit sales growth. We have introduced pick-up points in our major markets to allow customers to order online and collect their groceries at designated locations, and we have also created bol.com pick-up points in 59 Albert Heijn stores.
“Meanwhile, we continue to refresh and update our existing store base. We have remodeled 50 Giant/Landover and Stop & Shop stores and converted nine Albert Compact Hyper stores in theCzechRepublic. We are also redesigning the Albert Heijn to go convenience format in theNetherlands.”
Boer also told the group of about 125 that going forward Ahold “will convert the majority of 82 C1000 /Jumbo stores to Albert Heijn in 2013; double our Albert Heijn store base in Belgium in 2013, where we are on track to operate a minimum of 50 supermarkets by 2016; further invest in our online offering to boost growth at Peapod, albert.nl and bol.com, expanding our home delivery service with increased assortment and an improved proposition; significantly increase test pick-up points in our major markets in 2013 and expand the option for customers to pick up their bol.com products in almost all Albert Heijn stores; and increase our existing cost savings program from €350 million ($455 million) to €600 million ($780 million) by including sourcing and promotional expenditures, to fuel investments in a better offering and value for customers.”
In the U.S., which represents more than 60 percent of Ahold’s total sales, Boer asserted that the company would escalate its existing cost savings programs while continuing to improve efficiency in fiercely competitive markets that have impacted Ahold USA’s gross margins.
Boer addressed Ahold’s continued priority to accelerate its online growth, noting that online shopping has resulted in the biggest shift in a fast changing retail landscape.
He pointed to increased capital expenditures dedicated to improving Ahold’s online offering (including mobile applications), significant new investment in its Peapod division and its acquisition last year of bol.com, the Netherlands-based Internet sales organization which Ahold acquired earlier this year.
“People want to shop online, and more and more are selecting the products in the store and shopping online for them. That dramatic shift brings us clearly to a new era, and a big change in our industry. And we are ready for that,” Boer said.
The 55 year old Dutch chief executive also offered three promises that the company will work diligently to focus upon: being a better place to shop, being a better place to work, and being a better neighbor.
“These promises are may be simple, but they should be simple so we can use them for all of our stores. They are simple words, but they are so important, because if we can deliver on these words in our stores that will make us very successful,” Boer said.
Jeff Carr, Ahold’s chief financial officer, addressed the group after Boer and emphasized there were more savings and efficiencies to be gained by optimizing processes and systems; driving their “own brand” penny profits; improving labor efficiency and reducing shrink; improving “not for resale” sourcing; further optimizing U.S. and EU supply chain and cap-ex; and reducing information management and general and administrative costs.
The British born Carr added that simplification of certain functions including transportation, packaging and promotional effectiveness will also drive down costs.
In closing, Carr noted that Ahold’s financial strengths lie in its ability to generate significant cash as well as its balanced approached to capital allocation while being focused on continuing to return capital in the top quartile of its peer group sector.
The business sessions resumed the next morning with Sander van der Laan, COO of Ahold’s European operations. Van der Laan, who had a brief stint in the U.S. as CEO of Giant/Carlisle in 2008-2009, detailed Albert Heijn’s expansion into Belgium where it now operates 10 stores and its recent entry intoGermanywhere it now has two stores open. He also told the audience that Albert Heijn has more potential for growth in theNetherlandsand that Ahold is repositioning its retail banner in the Czech Republic, Albert, to create more value.
In what is likely to be his last public speech, Carl Schlicker summarized the strong market positions of its fourU.S.divisions which he claimed continue to post strong results because of solid execution from its 119,000 associates.
Currently there are 772 Giant/Carlisle, Martin’s, Giant/Landover and Stop & Shop units in the Northeast serving a trading area of about 38 million people and producing more than $25 billion in annual sales. Except for its number three ranking in the Metro NY market, all other Ahold USA banners rank first in market share in their core markets. Peapod, its Internet model, also ranks first among its peers.
Schlicker also stressed the flexibility of Ahold USA, noting that the company’s four U.S. divisions are able to act locally while still being able to leverage its combined scale. Also aiding growth is AUSA’s support structure – finance, legal, supply chain, marketing and merchandising, and human resources – and the talent level of its executives who supervise those functions.
He addressed the volume shifts that have been occurring at U.S. retail where other channels have been growing faster than the grocery segment, but noted grocery (supermarket) still controls two out of every three dollars spent on food.
Schlicker also emphasized that measuring unit sales provides him with the truest evaluation of growth and that Ahold USA has continued to increase unit sales performance despite the intense and diverse competitive landscape that it now faces.
In concluding, the veteran of nearly 40 years in the business summarized that each of AUSA divisions has targeted activities to ensure that it is well positioned to hold and grow their leading positions and that has helped produce continuing market share gains. He added that AUSA is executing on the “reshaping retail” framework to drive growth and that the company’s leading presence in its 10 state (plus Washington, DC) region has consistently delivered a healthy bottom line.
Other speakers included Erik Keptner, Ahold USA’s executive VP-marketing, who detailed his company’s customer loyalty performance, which he claimed was among the best at understanding its customers. He noted that the retailer’s insights have resulted in making Ahold’s stores a better place to shop. Those insights, in Keptner’s opinion, have given Ahold an edge through improved fundamentals and customer personalization. He added that Ahold will continue to drive best practices by sharing ideas with its European operations which will improve synergies and accelerate impact across the Ahold system.
Bhavdeep Singh, AUSA’s executive VP-operations, demonstrated five key points to the analysts: 1) division leadership teams are focused on local operations and execution; 2) Ahold maintains “best-in-class” methodologies and standardized processes to optimize store execution; 3) associates make the difference in service; 4) division play an important role in local communities; and 5) keeping costs down and increasing store efficiency is a continuing priority.
James McCann, who will be relocating to the U.S. shortly, and Andrew Parkinson, president of Peapod, wrapped up the individual speaker performances and addressed Ahold’s global online strategy.
McCann detailed the changing needs and trends of consumer and how his company’s diversified approach to online marketing has begun to pay dividends and should offer even greater reward in the future. To wit: online sales last year were $585 million; by 2016 they are projected to be $1.95 billion.
With its home delivery portal (Peapod in the U.S., Albert in Europe), McCann said that a 2-3 percent EBIT return is viable (when mature) and that Ahold is investing aggressively in infrastructure. Part of that investment is a new dedicated Peapod distribution center in Jersey City, NJ (which will open in 2014) and new “Pick Up Points (PUPs)” which are standalone structures located in convenient areas where Internet driven orders are ready to be picked up. Two such PUPs have opened in the last six weeks – one in Palatine, ILa nd another in The Netherlands. McCann is also excited about the potential of bol.com, which was not only an established Internet business before Ahold acquired it earlier this year, it has the chance to blossom under the retailer’s expertise. Bol.com was already selling non food and drug products. In closing, McCann noted, “We are on track to offering more convenience to our customers.”
Getting back to the change coming at the top at Ahold USA, Schlicker will support a transition of leadership and help McCann to get to know the divisions, support offices, and introduce him to important stakeholders for Ahold USA. After his retirement, Schlicker, 61, will stay on in an advisory capacity to the corporate executive board.
Schlicker leaves a strong legacy in his 38 year grocery career that began in 1975 with Pathmark. He joined the Ahold organization as a store manager in 1986 at Connecticut-based First National Supermarkets (later Edwards Super Food Stores). In 1998, Schlicker transferred to Giant Food Stores in Carlisle, PA as executive VP-store operations. In 2000, he was promoted to executive VP-sales and marketing. In January 2007, Schlicker was named president and CEO of the Giant/Carlisle division, and in July 2008, he accepted the appointment as president and CEO of Stop & Shop-Giant Landover. He was promoted on November 5, 2009 to CEO of Ahold USA Retail, and on February 1, 2011, he was appointed to his current position as chief operating officer of Ahold USA.
“Firstly, I would like to personally thank Carl for his immeasurable contribution to our company during the past 25 years. He is a true veteran of the supermarket industry, having started work in retail in 1975,” said Boer, who added, “For me, Carl is the consummate retailer and team leader. He always puts the common goal ahead of his own individual success – “We” instead of “me” – leading people to deliver something together above and beyond their personal contribution. During the last few years, for example, he has built a highly skilled and diverse leadership team at AholdUSAhe can be proud of. As a key member of the Ahold executive team, Carl has also been critical in helping define the overall ‘Ahold Reshaping Retail’ framework and helping to establish stronger bonds within the global organization. Under his leadership, innovations in customer loyalty and insight programs were possible, as well as far-reaching community support programs with a focus on fighting hunger and advocating for children. His legacy of creating growth and innovation, and his focus on delivering customer loyalty by delivering value, quality and service is something recognized throughout the Ahold family, but certainly also more broadly in the retail industry.
“With such an impressive track record, Carl certainly deserves a relaxing and enjoyable retirement. On behalf of all of us at Ahold, I wish him and his family all the best for this next chapter in their lives. While Carl is retiring, there are few leaders, in any industry, who have positioned their business so confidently for the future while staying true to local brands and legacies. We are fortunate to be inheriting an exceptional leadership team as well as employees who are the best in the business. James will build on the strong foundation Carl has laid and will operate closely within Ahold’s global operations.”
The British born McCann joined Ahold as chief commercial and development officer in September 2011 after spending more than 20 years with some ofEurope’s largest retailers. Prior to joining Ahold, McCann was executive director for Carrefour France and a member of Carrefour’s group executive board. During the previous seven years, he held leading roles at Tesco, including leadership of some of their most successful markets such as Hungary, Poland and Malaysia. Prior to that, he worked for Sainsbury, Mars and Shell.
Boer noted: “Since his arrival, McCann has focused on strengthening our e-commerce proposition and customer loyalty programs as part of the company’s robust growth strategy that was launched last year and is now being implemented. This appointment is a natural next step for James. With his strong track record in leading roles at global retailers, James is very well qualified to take on this important role within Ahold.”
McCann, 43, and his wife will be moving to the United States early next year, and he will be dividing his time between both the Quincy, MA and the Carlisle Ahold USA support offices, which will continue to play important roles in the future of the Ahold USA organization according to Boer. A search for a successor for McCann has begun, and more information will be shared as decisions are made.
In other Ahold news, the global Dutch retailer announced its third quarter earnings and sales, and while the results were solid there was some mild revenue slippage in theU.S.in what Boer said were continuing challenging market conditions.
In the quarter ended October 7, Ahold posted operating income of euro 289 ($367 million), a decline of 3.7 percent from the previous quarter. Total company sales were euro 7.6 billion (9.65 billion), an increase of 3.7 percent at constant exchange rates. Net income was euro 139 million ($176.5 million), down 45.9 percent (including a euro 90 millionICAtax charge ($114.3 million) and Ahold’s underlying operating margin was 4.1 percent.
Boer stated: “We continued to invest in competitiveness and gained market share in our major markets. Market conditions remained challenging, with consumers cautious in their spending and with ongoing high levels of promotional activity in both the United States and Europe. Sales growth in the United States was modest, reflecting declining retail price inflation and a strong sales quarter last year. Through stringent cost control we were able to deliver a solid margin performance. In the Netherlands we were pleased with a strong sales performance, as our value investments gained traction. Margins in the Netherlands were impacted by these investments, which were not fully offset by cost savings and by the inclusion of bol.com for the full quarter. We remain cautious in our outlook and expect market conditions to continue to be difficult. We will closely monitor the potential impact of rising food commodity costs, particularly in the United States. We are confident that we are well on track to execute our strategy and we will continue to invest in growth. We are making progress on our Reshaping Retail strategy at Ahold and continue to focus on improving our competitive position through cost reductions and overall simplification of our processes. We are on target to deliver our euro 350 ($444.5 million) cost savings program for the years 2012-2014. We continue to invest in profitable growth and act when opportunities arise.”
Highlights of its third quarter, which ended October 7, include: Giant/Carlisle completed the first full quarter of operations for the 15 former Genuardi’s stores it acquired on July 13 for $113 million in the Philadelphia market; Peapod started piloting a pick-up service in the Chicago area; Albert Heijn converted the first 14 of the 82 stores acquired from Jumbo into Albert Heijn supermarkets; the company opened its first store in Germany, an “Albert Heijn to go” convenience store in the city center of Aachen; another two Albert Heijn supermarkets opened in Belgium. Year-to-date Ahold has added six stores bringing its total number of Belgian stores to eight; Bol.com opened a specialist health and beauty internet store, and made it possible for customers to search and order using their cell phones; and Albert.nl opened its third distribution center in theNetherlandsto extend its capacity.
Furthermore, Ahold announced in the third quarter that it is exploring strategic options regarding its 60 percent holding inICA.
In the U.S., third quarter net sales were $5.9 billion, up 1.9 percent. Identical sales were down 0.2 percent (down 1.5 percent excluding gasoline), reflecting ongoing challenging market conditions, strong sales growth in the third quarter of last year, and the impact of a decline in pharmacy sales due to the conversion of brand-name drugs to generic versions.
Ahold said it achieved market share gains in both the supermarket and all outlets channel as sales benefited from itsstrong promotional activities. Underlying operating margin was 4.0 percent compared to 4.2 percent last year.
The big retailer declared it was able to largely offset the impact of both increased promotional activities, which it said were are necessary in the current economic downturn, and cost inflation in wages, pensions and insurance.
For the first three quarters, net sales were $19.7 billion, up 2.7 percent. Identical sales were up 1.2 percent (0.3 percent excluding gasoline). Underlying operating margin was 4.1percent compared to 4.3 percent last year.