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At Capital Markets Day, Ahold Delhaize Reveals Post-Merger Growth Platform

“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 delivered at the company’s “Leading Together” themed Capital Markets Day held at the Citi Executive Conference Center in Manhattan on November 13.

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.”

Ahold Delhaize USA has invested heavily in the past three years on its Food Lion unit where 712 of the regional chain’s 1,030 stores have been remodeled and rebranded as “Easy, Fresh and Affordable.”

Additionally this year, the company’s Giant/Martin’s unit unveiled a $70 million cap-ex plan that includes six new stores, five new fuel stations and two major remodelings. The Carlisle, PA-based brand also recently acquired and opened a new Lancaster, PA location that was previously owned by the Darrenkamp family and next month will debut Giant Heirloom Market in Center City Philadelphia, its first small format model. And just last month, 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.

The next big U.S initiative for the supermarket retailer is improving its 416 Stop & Shop stores. Last month, the New England juggernaut unveiled its new modernized fresh-oriented format at 21 stores in the Hartford, CT area. Holt described the expansion and improvement of prepared foods as one of the company’s best revenue growth opportunities.

Those changes are expected to provide a 4-6 percent sales lift, and according to McGowan, Stop & Shop’s more than 50 stores on Long Island are targeted for similar refurbishments beginning next year.

Subsequent improvements will be made annually at the rate of 60-80 stores per year with the total Stoppie improvement plans projected at $1.6 billion-$2 billion.

There’s no question, the Ahold Delhaize synergy plans that were first revealed after the merger agreement between two of Europe’s largest retailers in June 2015 have been effectively executed and the company’s recent third quarter financials provided a strong indicator of that success.

For the past three years, this reporter has urged the company to maximize its leverage by spending money on its stores to refresh and modernize them. I’ve also criticized Ahold Delhaize for understaffing and under training its associates at store level.

Clearly, the store cap-ex plan is evolving favorably. If the next phase of improvement also calls for better trained associates and more of them, Ahold Delhaize will be a virtually unstoppable force in the U.S.