Ahold Delhaize Decentralization Plan Is Solid, But Can AUSA Improve Store Level Execution?
I was encouraged to hear that phase two of Ahold Delhaize’s integration/synergy plan in the U.S. is to focus on a more decentralized approach, giving the banners (“brands” as AUSA COO Kevin Holt terms the divisions) more focus with more boots on the ground in Quincy, Carlisle (division, not corporate headquarters), Landover, Skokie (Peapod), Salisbury and Scarborough. The latter two divisions, which are part of Delhaize America, already had established separate headquarters where local merchandising and procurement decisions were made.
If you’ve read my editorials over the years, you’ll know I think the industry’s seismic shift over the past 15 years to a more centralized merchandising approach has only been effective in saving backroom money. And despite almost every industry executive claiming that the individual divisions will still have significant input into local buying decisions, it never seems to work out as well as planned. That’s because at the end of the day, the category manager (or other decision maker) at corporate headquarters is the one signing that purchase order and essentially controls the deck.
In the past few years, we have seen some retailers shifting back to a more decentralized approach. Most notably, Albertsons has bought into this concept fully, re-establishing regional infrastructures at its 14 operating divisions. While we do not expect Ahold Delhaize to make the type of financial investment or level of local commitment that Albertsons did in 2013, it’s clear that Holt is a big believer in a “brand-centric” system, which will almost certainly be an improvement over the current dysfunctional merchandising system that has existed in Carlisle for at least the past four years.
However, improvement is always relative and in the case of Ahold’s brands, the success of this new initiative will be measured by both tangibles and intangibles. Tangibly, can the AUSA “brands” improve the negative 0.2 percent ID sales results from its most recent quarter? While deflation and intense competition remain major impediments to all retailers, the peer group ID sales average (for publicly-traded grocery merchants) over the past year remains in the positive 2-2.5 percent range. Ahold USA hasn’t been at that benchmark in quite a while.
Of course, the biggest (and most important) intangible component that will affect the ultimate success (not just enhancement) of this new brand-centric model is how the AUSA banners will improve their image with their customers. It’s too simplistic to say that the company’s stores look too vanilla, or more cap-ex needs to be deployed into accelerating remodelings or building new stores. Those facts are true, but the underlying core issue for Ahold USA, as it seeks better results, is its approach to its store level associates. Ever since the Ahold Delhaize merger was announced in June 2015, I’ve never seen this issue addressed specifically. Unless the newly united retailer commits more labor to its stores, vastly upgrades its training and improves associates’ morale at store level, decentralization or any other synergistic efficiency will fall short, because in any form of bricks and mortar retailing, the perception of the store associates is arguably the most important component in advancing consumer image.
Not surprisingly, we’ve been bombarded by calls and emails from associates and vendors wondering what other changes may be occurring at Ahold Delhaize in the U.S. for the rest of 2017.
Since Ahold Delhaize wasn’t doling out more specifics at this time, here are some questions from our “mailbag”: With the recently announced brand-centric approach, will vendors need to make six separate appointments at AUSA, Delhaize and Peapod to present same suppliers’ offers; or will it remain a one headquarter call? With the new local model to be implemented, how many merchandising jobs will be affected at corporate headquarters in Carlisle, either by relocations or terminations? With the new localized brand-centric plan, relative to their size, will there be a proportionate number of local merchandisers assigned to each banner? Will there be a change in job titles and responsibilities in the merchandising departments of both AUSA and Delhaize America, so that both companies are aligned as one? Is C&S being considered to supply the banners it already doesn’t service (Food Lion, Hannaford)? In order to gain nearly $400 million in U.S. synergy savings, how many associates will lose their jobs at Ahold USA and Delhaize America?
Stay tuned, it may take awhile, but most of those answers should ultimately be revealed.