After nearly a decade of minimal store-driven capital investment, the Ahold USA banners in the Ahold Delhaize USA lineup will be getting considerable attention over the next few years.
Earlier this year, the best performing unit within the original Ahold USA network – Giant/Martin’s – was given $70 million in store improvement funding. That investment will yield six new stores, five new fuel stations and two major remodelings. The Carlisle, PA-based brand also recently acquired and last month opened a new Lancaster, PA location that was previously owned by the Darrenkamp family. It plans to open its first Giant Heirloom Market next month in Center City Philadelphia, its first small format model. And in October, the division acquired five Shop ‘n Save stores in Maryland, Pennsylvania, West Virginia and Virginia from UNFI. Those stores were formerly Food Lion stores before the government ordered them to be divested as part of the Ahold-Delhaize merger in 2016.
At Stop & Shop, Ahold Delhaize’s largest brand, the Quincy, MA merchant will also be receiving substantial capital over the next five years. In the last two months, the division spent approximately $70 million upgrading 21 stores in the Hartford, CT market where it long has controlled the lion’s share of market. Next up is revitalizing its more than 50 stores on Long Island and by 2023, the Amsterdam-based organization is expected to spend as much as $2 billion remodeling Stop & Shop’s more than 400 stores that cover the New England and Metro New York markets.
And earlier this month, the third original Ahold USA banner – Giant Food – said it would be receiving $175 million targeted for store improvement and market expansion over the next two years. This significant expenditure will include one new store and 24 store remodels. These efforts are in addition to the recently announced $21 million investment into a new Giant in Olney, MD, set to open in spring 2019.
“As the region’s leading grocer, this announcement is part of our long-term commitment to deliver a consistently exceptional experience for our shoppers,” said Gordon Reid, president, Giant Food. “We look forward to updating and enhancing our existing stores and constructing both new and replacement locations to give our shoppers a fresh and imaginative selection, unique in-store experiences and superior customer service.”
The brand-new store will be located in Fairfax Circle, VA. Giant opened two new stores in Herndon, VA and Alexandria, VA earlier this year on November 9 and November 16, which allowed additional space for updated amenities and increased product selection.
In addition, Giant will also be remodeling 24 store locations to feature enhanced perishable departments including produce, beer, wine and spirits offerings, full-service florists, expanded natural and organic departments, hot Asian food bars, fresh squeezed juice bars, enhanced check-out zones, full-service pharmacies and more.
As a result of the new projects, Giant anticipates the creation of approximately 500 new jobs in the communities it serves through the hiring of full and part-time associates.
In related company news, Ahold Delhaize delivered optimistic plans about its growth in the U.S. and abroad at its annual Capital Markets Day held last month at the Citi Executive Center in Manhattan.
“The merger and integration of Ahold and Delhaize Group have created a strong and efficient platform for growth, while maintaining strong business performance and building a culture of success. In an industry that’s undergoing rapid change, fueled by shifting customer behavior and preferences, we will focus on growth by investing in our stores, omnichannel offering and technological capabilities which will enrich the customer experience and increase efficiencies. Ultimately, this will drive growth by making everyday shopping easier, fresher and healthier for our customers.”
Those were the words of Ahold Delhaize president and CEO Frans Muller to the investment and business community that highlighted the themed “Leading Together” event.
Muller led a group of Ahold Delhaize executives that included Kevin Holt, CEO of Ahold Delhaize USA; Mark McGowan, president of the retailer’s largest brand – Stop & Shop; and JJ Fleeman, the company’s chief e-commerce and digital officer in the U.S. Jeff Carr, corporate CFO, and Wouter Kolk, CEO of Ahold Delhaize’s business in Europe and Indonesia also spoke at the meeting that was attended by more than 100 people.
“We worked very hard for two years on integration,” Muller said. “Now is the time to take us to the next phase of growth and market share gain.” He added: “Everything we committed to, we delivered. We deliver what we commit to.”
During his presentation, Muller also noted that he expects Ahold Delhaize to deliver
comparable sales growth and market share gains as well as a doubling of net consumer online sales to around 7 billion euro ($8.02 billion) by 2021. While investing in growth, he stated that company will maintain a disciplined approach to capital investment and allocation, supported by a 1.8 billion euro ($2.06 billion) cumulative “Save for Our Customers” cost program through 202. Those programs will help produce and estimated free cash flow of around 2 billion euro ($2.29 billion) per year from 2019 to 2021. Capital expenditure will be around 3 percent of annual sales during the coming three years.
“Our commitment is to self-fund the investments needed to drive growth, as our new cost savings program will allow us to maintain a stable group margin through 2019. This will allow us to invest in our stores, omnichannel offering and technology, while we explore and seize new leadership opportunities in existing and adjacent markets,” Muller asserted.
For 2019, Ahold Delhaize expects a stable group margin and high single digit earnings per share growth, while buying back 1 billion euro ($1.15 billion) of its own shares. To fund investments in the repositioning of its largest U.S. brand, Stop & Shop and in the speed and coverage of its delivery and click and collect network, cap-ex is expected to be 2 billion euro ($2.29 billion).
Buoyed by the success of its recently completed third quarter which showed solid gains in overall sales, comp sales and earnings both in the U.S. and internationally, the giant merchant feels it is well positioned to ramp up its online strategy as well as adding significant capital to its approximately 1,960 U.S. stores, particularly at its large Stop & Shop brand.
At Ahold Delhaize USA, third-quarter sales increased 3.2 percent from $10.83 billion to $11.18 billion. The retailer’s U.S revenue comprised about more than 60 percent of Ahold Delhaize’s overall sales. Online sales in the U.S. rose 11.8 percent to $215 million. Same-store sales grew 3.3 percent (3 percent excluding fuel sales). Operating income increased 12.3 percent to $428 million while underlying operating margin in the U.S. jumped 10.1 percent to $453.5 million.
One of the recurring themes of Capital Markets Day was Ahold Delhaize’s focus on its e-commerce and digital strategy which the company believes will be a catalyst to grow market share.
“We are not just in the supermarket business,” Muller explained. “We are in the omnichannel business. It’s not just shopping but the preparation, the idea generation, how are you going to shop, how are you going to work with your products, what is the inspiration to cook a meal?”
During a later presentation, Fleeman, whose role within the $43 billion U.S. organization has seemingly become more important since Ahold Delhaize USA restructured its business last January, said he expects more growth from its online business which he believes will be aided by a new business that was recently formed – Peapod Digital Labs. That unit has developed a new media partnership program that will involve the retailer’s hundreds of vendors.
“We’re going to launch a new media partnership platform, and it will allow us to optimize media campaigns on any device and in-store,” Fleeman said. “The benefit that creates for our customer is that it allows us to take media and content and get it to her directly at the channel of her choice. And you would also imagine, this will generate new revenue streams for Ahold Delhaize that will help fund the new omnichannel strategy that we plan on launching here soon.”
Ahold Delhaize’s U.S. plans also call for improved digital content (recipes and planning tools) and an additional fulfillment distribution center that will include an automated center that utilizes robotics.
Kevin Holt focused on continuing to build Ahold Delhaize’s brands, which include Stop & Shop, Giant/Martin’s, Giant Food (Landover), Food Lion, Hannaford and Peapod. He noted several times that “selling stuff” remained a major priority.
“We know how to reposition a brand. Our brands have a leading market share position, despite the fact that we operate in a very fragmented market,” said Holt. “We have over 150 different operators that make up the total share across our marketplace. And that fragmented marketplace really provides a great opportunity for our brands as we strengthen our local presence, win in the local market and see other weaker performers leave the marketplace.”
In addition to the new capital investments into the company’s core Ahold units in the U.S. the retailer has nearly completed its remodeling/rebranding of its large Food Lion banner (originally a Delhaize USA company) Delhaize USA that began more than three years ago. To date, 712 of the regional chain’s 1,030 stores have been refurbished and upgraded under its “Easy, Fresh and Affordable” program.