Ahold Delhaize has a red letter day
But, whatever the motivation, on the very first workday after leading Dutch grocer Ahold and number two Belgian retailer Delhaize merged last weekend, they sent a "welcome letter" to their top 100 suppliers in the Benelux expressing a heartfelt desire for "a good future relationship".
In the brutal cut and thrust of modern-day business this kind of thing can only bring tears to one's eyes. After all, love between retailers and manufacturers is as beautiful as it is rare. Doubtless, however, all was in a good cause. For how else could this new retail giant give expression to its joy now that it posts around €63bn in annual sales in a total of eleven countries, including Germany and, somewhat improbably, Indonesia?
Like children clinging to the hope of Santa Claus on Christmas Eve, trusting food producers and fmcg manufacturers would want to believe that the celebratory letter-writing exercise was motivated by a deep spirit of altruism and brotherly love. But a bad grown-up in the shape of Bernstein has shattered this belief for ever.
No smoke without fire. This is truly the stuff that "good future relationships" are made of. It is certainly standard operating procedure for retailers who love a bonus at the best of times, let alone a marriage. And shareholders should expect no less than a harmonisation of buying terms.
The existence of any such play books and a dispatch of letters fit the stated intention of CEO Dick Boer and CFO Jeff Carr to achieve €500m in synergies by July 2019. Around 25 to 30 per cent of the same is to be achieved through the optimisation of operating costs, especially at head office (for which read redundancies). But the lion's share must come from more efficient buying in brands and own label.
As from next week, around 100 of the larger suppliers to the Benelux region are therefore expected to attend "alignment meetings" with Ahold veteran Sebastiaan de Jong, Senior Vice President Sourcing Integration, and his team prior to the commencement of normal annual negotiations as from October. "We expect you to come as soon as we invite you because it is in both our interests that we complete the process quickly," was apparently the phrase used for those suppliers suddenly overanxious to take a very long summer holiday.
The doubtless very jolly meetings will take place in Breda − selected because it is equidistant from the head offices of Ahold and Delhaize in Zaandam viz. Brussels. But this is only a temporary arrangement. In future years, Ahold and Delhaize intend to retain their separate headquarter buying offices as they also wish to keep the former colours and logos of their 22 "local" banners.
Meanwhile, an Ahold Delhaize spokesman stresses "the increased distribution potential" that a merger combining 6,500 stores and nearly €2bn in annual e-commerce sales would bring suppliers. "After all, there are not many retailers who cover both sides of the Atlantic." This is obviously true, as far as it goes, but also sounds suspiciously like a "marriage bonus" argument for the next range review. Here the collective memory of brand manufacturers will doubtless recall Ahold's temporary delisting of major Unilever brands in the past.
At the end of the day, however, it could be that Ahold Delhaize are too sanguine as to how many eggs their 8,000 golden geese suppliers will lay. One former top manager at a major European retailer alliance has his doubts: "The trade press love to talk about the harmonisation of terms & conditions, but in my experience this is only possible on one's own domestic market because terms of trade vary too much from country to country. In the Netherlands, for instance, deals are briefly defined, whereas in France and Spain there are pages and pages."
We shall soon see whether this valuation is justified or not. On November 17 Dick Boer and Jeff Carr will present Q3 results for the first time as a joint company. Just as well they got all those letters off quickly...
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