It’s been a busy time for corporate Ahold and its U.S. subsidiary, AUSA. The Dutch retailer released fourth quarter and fiscal 2014 year-end earnings and also announced the resignation of Stop & Shop New England president Joe Kelley, who oversaw Ahold’s USA’s largest division.
From a financial perspective, the company’s performance at its 768 U.S. stores fared marginally better than in recent quarters, with identical store revenue improving to 0.3 percent (excluding gas) compared to negative 2 percent in fiscal 2013’s fourth period. AUSA’s underlying margin (compared to the third quarter) remained steady at 3.8 percent, but was down from last year’s margin of 4 percent, and U.S. operating income decreased 4.7 percent to $222 million in the quarter.
During the fourth quarter, ended December 29, another 22 stores were rolled out as part of AUSA’s “Project Thunder” plan, giving the company 523 U.S. stores now operating under its “customer proposition” program.
Ahold noted that it will continue to focus on its own-brand initiative and during the period, penetration increased by 50 basis points to 37.6 percent on a full-year basis.
Overall market share in dollars was down slightly due to price investments made (according to Ahold) as the company’s Giant/Landover and Stop & Shop New England divisions continue to be challenging regions for the Northeast’s largest retailer.
Chief executive Dick Boer noted, “We’ve seen positive signs now also in the U.S. of making the turning point…in positive identical sales, in volume growth and we will continue in 2015 with investments in store offerings.”
At Ahold’s post-earnings conference call with financial analysts, James McCann, AUSA COO, provided an update on “Project Thunder,” noting that the third phase of the discount and customer engagement program – focusing on produce – was now under way. With 50 stores already rolled out, McCann told the analysts that the target is a 3-5 percent sales lift. By the end of this year most of AUSA’s stores will have been converted.
“It’s a changing of the lighting, of the fixturing, of the signage, of the price communication, the way we display the product, the way we train the staff, the way that we schedule the staff, the mix of full-time and part-time hours, and probably the most important element is a real step change in our quality by implementing a program of ‘Would I buy it,’” he explained.
“If we wouldn’t buy it ourselves, then we’re training our staff to say, don’t try and sell it to our customers. Take it off sale. Because the most important single thing for customers on produce is the quality of the produce itself.”
Phase 3 differs from Phases 1 (associate training, communication and price investments) and 2 (aggressive price reductions of KVIs – Known Value Items). Phase 1 is nearing implementation at all AUSA stores and Phase 2 has been unveiled at about 150 Ahold units.
Ahold USA is self-funding “Thunder” through internal savings of $200 million in 2013 and $360 last year.
McCann noted that the new produce rollout costs the company $160,000-$200,000 per store.
When one analyst asked McCann how AUSA will be able to manipulate its cost structure since much of its supply chain was outsourced (primarily to C&S Wholesale Grocers) and two-thirds of its stores were unionized, he responded:
“In terms of our customer proposition and the financing of it and the long range plan, we have that financed. The statement about the investments and savings being balanced is what we believe will happen. The supply chain, we have one partner, C&S, and we do all of the buying of the products, so it doesn’t affect our ability to negotiate with our vendors in any way.
“We are in the process of taking back the fresh elements of the supply chain so we have full control over the sourcing and the quality from field to store.
“Basically, we work in complete partnership with C&S. We have a transparent, open relationship. They’re dependent on us and we’re dependent on them. We have saved as a percentage probably more in our supply chain operations this year than in any of the last 10 years. So, we moved our relationship with them into one where we look at the total system value for both parties and then we have a formula for splitting that value. So, the interest of both C&S and ourselves are completely aligned. So, I have absolutely no concerns about being able to extract value from the supply chain. The end-to-end value chain, whether the supply chain is in-sourced or outsourced. We do it basically the same.
“In terms of labor in the stores, our associates, what we’re finding is that there are very significant opportunities for working in a more productive way. We have explained to our staff, but also to the labor unions that this business wheel will bring more hours into each of our stores. “The net effect of being more productive and reinvesting that back into the customer proposition is that you have more hours in the building. And, that is the most important thing for both our teams in the stores but also for the labor unions.
“We have also had pretty transparent discussions with the unions, because they need us as one of the higher performing unionized retailers, to be successful. As we said to them we all sit in the same canoe and if that canoe has a leak, we all go into the water. So they understood that.
“I think we have very positive and constructive relationships with our unions. We clearly argue about the things that you argue about at the contract negotiations. But I would say that we have, the majority of the locals and the international, positive and constructive relationship and it doesn’t get in the way of us being able to do the things we need to do that are right for our business, for our shareholders and for our staff and for the unions as well.”
Less than a week after McCann returned from the Netherlands, he learned that the president of his largest division had resigned.
Kelley, who joined AUSA in May 2012 to become president of the 220 store Stop & Shop New England division, announced he was leaving to “pursue other career opportunities.”
His departure, according to many trade observers, was not surprising given the competitive pressure the New England unit faced which resulted in declining sales and diminished market share.
Kelley will replaced on an interim basis by Don Sussman, the 20 year Ahold USA veteran who currently serves as president of the company sister Stop & Shop New York Metro division.
However, according to a company internal memo, the ultimate plan is for Mark McGowan to hold the dual role of president of Stop & Shop-New England and executive VP-operations for AUSA once a replacement can found for his current job of EVP-merchandising.
McCann’s search to find the “best merchandiser in the country” has now lasted approximately eight months.
This marks the third change of division presidents since McCann took the helm of Ahold’s U.S. business in February 2013. Previously, Gordon Reid was named president of the company’s Giant/Landover division in November 2013 and Tom Lenkevich replaced Rick Herring in March 2014 as president of the retailer’s Giant/Carlisle unit.
In additional news, AUSA announced that it has hired Tonya Herring as senior VP-non-perishable merchandising. She will join AUSA veteran Jeff Dichele in that role as the Carlisle, PA-based retailer seeks to become a “world class merchandising department,” according to McGowan, to whom both Dichele and Herring will report.
“As previously announced, we increased the number of portfolios to get closer to market and customer needs, McGowan stated in an internal memo. “As part of that plan, we are further re-organizing the non-perishable category into two leadership streams to ensure our continued success.”
Herring, who will be based in Carlisle, comes to Ahold USA from Safeway where she spent her entire 23 career. She began her career at Safeway as a deli department manager and steadily progressed into multi-unit roles such as district field merchandiser, project manager, and manager division operations. Herring worked in corporate merchandising and marketing as director division merchandising, director category management, regional director, and group director of marketing. Most recently, she was the VP-category development consumer brands. In this role she had end-to-end responsibility for perishable strategy including financial goals, product development, merchandising, pricing, and execution.
“Tonya brings a strong balance of operations, marketing and merchandising that blends well with our team. She possesses strong leadership, industry knowledge, entrepreneurial spirit and most importantly, a real passion for the business. I’m confident that Jeff and Tonya will work together to lead us to success as we build our world class merchandising department, McGowan proclaimed.
As part of the restructuring, there will be some changes as to direct reports. Continuing to report to Dichele will be portfolio leads: Tara Ponnett (warehouse beverage, main meals and enhancers); Lee Nicholson (baking, breakfast and candy); Denise Mullen (beverage, rewards, beer/wine and commercial bakery); Natalia Torres-Furtado (ethnic and specialty); and Maria Ruisi (natural and organic). Dichele will also continue to oversee Sal Marrocco (Peapod project) and Kyle Kirkpatrick (director negotiation strategy) Portfolio leads now reporting to Herring are: Jim Wonderly (general merchandise); Ken Kehres (fuel); Todd Patti (dairy) and Sean Maurer (frozen).