February 28, 2019

CEO Frans Muller talks Ahold Delhaize

Love birds ascend towards the sky (photo: JackQ./Stock.Adobe.com)
Love birds: The union between Ahold and Delhaize looks both increasingly happy and profitable
Surely this is the stuff Board bonuses are made of? Dutch-Belgian retail giant Ahold Delhaize has just announced a spanking set of results for 2018 and ambitious plans for 2019.

In the second full business year since the two companies merged in July 2016, net revenues reached a whopping €62.8bn, while free cash flow grew by nearly a quarter to €2.3bn.

The Zaandam-based grocer now runs a vast bricks & mortar empire with 6,770 superstores, supermarkets and convenience stores in the Benelux, Central & Eastern Europe, and the US. This reflects the long traditions behind Ahold and Delhaize as retail brands.

But the new company is also using annual capex in excess of €2bn to pursue an omni-channel strategy via click & collect as well as home delivery services bol.com and Peapod.com. Net consumer online sales on both sides of the Atlantic have now reached €3.5bn.

Given these impressive results, we asked CEO Frans Muller how he intends to top them in 2019...


"We could do five acquisitions,
if we wanted to"

 

Frans Muller, CEO Ahold Delhaize (photo: Ahold Delhaize)
Frans Muller
Mr Muller, your net consumer online sales were up nearly 25 per cent in 2018 at constant exchange rates. Presumably this makes you one of the big boys on the Dutch and US online grocery markets?

We have around 50 per cent of the market in Holland. In the US statistics are harder to compile because food and online figures are frequently intermixed. But I can tell you that we already make around $1bn in annual online sales on the East Coast.

You intend to double your current online revenues to €7bn by 2021, but, like many other retailers, you don't reveal any profit figures. When will your e-commerce margins come anywhere near your bricks & mortar ones?

We have no specific timeframe, but we see a market for online and will therefore continue to grow market share. It is true that our e-commerce division is not yet accretive overall. But we already have positive ebitda margins at bol.com, and we are profitable in big cities such as Amsterdam, Rotterdam or Den Haag, where there is high population. Obviously it is harder to reach break-even on a national basis because the last mile can be particularly expensive in areas with low population densities.

Also, I would point out that customers who shop with us both in our stores and online have a higher average spend, which is a further vindication of our omni-channel strategy.

Ahold Delhaize (photo: Bjoern Wylezich, Shutterstock)
Reaching for the skies in 2019: Ahold Delhaize
After returning €2bn to shareholders in 2018, you intend to spend a further €1bn via your share buyback program in 2019. This will obviously be popular with those concerned and presumably has tax advantages. But doesn't it also look as though the Board of Ahold Delhaize isn't really convinced that it can offer shareholders a higher return via its retail operations?

Our strong balance sheet puts us in the fortunate position where we can regularly invest €2bn in capex, exclusive of M&A, as well as return cash to shareholders. We are also able to retain a strong investment rating of BBB+ and will always be investment grade.

You stated at a recent analysts' meeting in New York your intention to make fill-in acquisitions on the East Coast of America. You are also currently waiting for the Federal Trade Commission to authorise your intended purchase of regional supermarket operator King Kullen. How many such deals do you believe you could make annually?

We will look at any opportunities which may arise in either Europe or the US. We will always be selective, but a priori there are no limitations, and we could even do five, if we wanted to, but maybe less depending on the opportunities that offer themselves.

Giant Food Store (photo: Ahold Delhaize)
One of Ahold Delhaize's Giant Food stores on the East Coast
Is there any substance to the press rumours that Ahold Delhaize could merge with US supermarket giant Kroger?
We never comment on speculation in the media as a matter of principle.

Does it worry you that Lidl, one of the world's largest and most price-aggressive retailers, is now a direct competitor on the East Coast?

We gained market share despite increased market share from Lidl. Our great attribute is, of course, our staff in, for instance, the Carolinas at Food Lion. However, I would point out that the retail situation in the US is completely different to, for instance, the UK. In the US, Walmart has been a huge discounter for decades, Aldi already has thousands of stores, and there are also thousands of dollar stores.

Last but not least, you should also not forget that we have successfully competed with Lidl on numerous European markets for a good two decades.

Do you think after the purchase of Whole Foods in the US that Amazon will try and buy a food retailer in Europe?

It could very well be, but as neither you nor I are invited to Amazon's Board meetings, it's anyone's guess. Whole Foods doesn't have much overlap with our US stores, but, where we do compete, our fresh produce department, for instance, beats them on pricing.

Albert Heijn XL store in Enschede (photo: Christian Lattmann)
An Albert Heijn XL store in Enschede
Ahold Delhaize belongs to AMS-Sourcing and Coopernic. Do you believe that the increasingly assertive negotiation tactics of European retail buying groups such as Agecore are the right way forward?

There are some obvious differences here. AMS sources own label, and Coopernic doesn't buy a single tomato. It's a very simple set-up where our European partners, Leclerc, Rewe and Coop Italia, negotiate overriders with brands for services.

This is more important than you might think because there are many more things that international retailer groups can do than just negotiate buying terms with suppliers. For instance, they can cooperate on a pre-competitive level and tackle such issues as plastics, social compliance, climate impact, refrigeration etc.

How soon could European buying groups start to gain a trans-Atlantic dimension?

Clearly both suppliers and retailers will continue to consolidate, and we have already seen some French retailers who are trying to negotiate internationally throughout Europe. I wouldn't like to hazard a guess yet on how long it could take to develop.


Read in German: "Ahold Delhaize hegt ehrgeizige Wachstumspläne" by Mike Dawson on page 12 of Lebensmittel Zeitung, no. 9, 01.03.2019


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Comments for this article are closed.

  1. TB
    Created 1 March, 2019 13:18 | Permanent link

    Why the optimistic tone?

    The optimistic tone of your recent Ahold Delhaize article surprises me and suggests that today's retail world consists of multiple realities. Where most other bricks & mortar retailers seem to be moving south, online retailing cannot do anything wrong, or so it would seem...

    But I wonder whether the time has arrived to start looking more closely into the magical worlds of these online retail folks? Are the first cracks in their retailing armour beginning to show? After all, they are judged by the standards of their mainstream conventional retail peers. Maybe, just maybe, their best days are already behind them as the recent deal between Marks & Spencer and Ocado might suggest.

    True, M&S paid a massive £900m for its 50-per-cent stake, and the jury will be out for some time before we know whether the deal was really worth it. But why would Ocado sell, unless the best was behind them and only the promise of hoovering up more of the retail market remains?

    I have no answer to this question for now, but I do remember the dotcom boom and the bust that followed. At least for now, I have no deeper insights to offer, but maybe, as with Ahold Delhaize, there are other realities (developing) behind the gloriously sweet-smelling success of today’s online retailing?

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