August 17, 2017

CEO Dick Boer talks Ahold Delhaize 1 year on

1st birthday (photo: delmonte1977/Fotolia)
Happy first birthday, Ahold Delhaize
It's not every day that two grocers with 280 years of corporate history between them are able to celebrate their first birthday once again. But this is precisely what has happened at Dutch-Belgian retail giant Ahold Delhaize.

The first anniversary since the jumbo wedding last summer is also a perfect opportunity for CEO Dick Boer to update us all on the progress made in integrating the two former rivals and their fiercely proud corporate traditions.

The union has created one of the world's largest retail groups with 6,500 mainly supermarkets and convenience stores, spanning eleven countries in Europe, the US and S.E. Asia, and pro forma net sales last year just north of €62bn.

But since then Lidl has intruded on Ahold Delhaize's patch on the East Coast of America, forcing fellow discounter Aldi into expansion overdrive. Amazon's bid for organics retailer Whole Foods is also a game-changer. This must concern a grocer who sees itself as the largest online food delivery service by sales in the US and the Benelux. So how well does Dick Boer sleep at night?

Meanwhile, a relentless search for €500m in savings in internal and external synergies as part of the new group's 'Better Together' strategy has already been felt by its 8,000-odd suppliers.

As a result of the merger, Ahold Delhaize is also now a member of two European buying groups, i.e., AMS-Sourcing via Ahold and Coopernic via Delhaize.

Dick Boer & Frans Muller (photo: Ahold Delhaize)
Ahold Delhaize
Better together: Ahold and Delhaize CEOs Dick Boer and Frans Muller sound the gong for Ahold Delhaize's first day of trading on the Euronext exchange in Amsterdam
To date, there has been no significant cull among the combined 370,000 employees of Zaandam-based Ahold Delhaize. Even here, however, the new organisation must adjust to new realities. In Belgium relations with trade unions are generally much more geared towards combat, while the Dutch tend to strive for harmony via negotiated compromises.

Since the first trading day on the Euro Stoxx 50 Index in Amsterdam and Brussels at the end of June 2016, the share price has fallen by just over 20 per cent. Are the punters assessing Ahold Delhaize's future fairly? Or are we merely looking at a good buying opportunity?

"One arm in the dyke"

Ahold Delhaize CEO Dick Boer (photo: Riechelle van der Valk)
Riechelle van der Valk
Dick Boer
Mr Boer, Ahold and Delhaize have just celebrated their first wedding anniversary. Are you popping the champagne corks?

Yes, we have made significant progress thanks to the dedication of our 370,000 associates across our brands. But I'm from Zeeland, which is in the south of Holland and nearest to the sea. People from my region always have one arm in the dyke, so, as a matter of temperament, I leave the celebrations to those who live in other regions of the Low Countries farther from the sea.

How is the integration progressing, and are you on plan to achieve the €500m in synergies you promised your shareholders by July 2019?

Yes, in fact we have exceeded our plan and will over-deliver on our promises. Much of the work has been the harmonisation of areas such as human resources, financial reporting etc. The main aim, of course, is to avoid or minimise disruption.

The statistics say that every second business merger doesn't succeed. Carrefour and Promodès or Morrisons and Safeway, for instance, were not always the happiest of marriages. Why should your union work any better?

Your examples are where two retailers were already competing with one another on the same territory. In such cases there are often fights over who is doing best. But this isn't the case with us where overlap is very limited.

Furthermore, there is a high degree of strategic alignment within our leadership. We both believe in localness and value the heritage of our brands. So we are building great local brands and linking with our specific customer communities.

Why then has your share price fallen 21 per cent since the merger?

There are numerous reasons for this: The initial share price had been supported by around one-and-a-half years of prior speculation; Kroger issued a profit warning in the US recently where we do around two-thirds of our business; the dollar has declined against the euro, thus depreciating our results on the balance sheet; and Amazon's bid for Whole Foods has also hit the share price of numerous European retailers, including our own.

This is why I sometimes hear from analysts on our road shows an expression of regret that the share price doesn't reflect the fundamentals of the business. But, at the end of the day, I don't live for the share price, but for my customers because if we serve them well, the share price will do well too.

Ahold Delhaize CEO Dick Boer (photo: Riechelle van der Valk)
Riechelle van der Valk
"Aldi and Lidl USA are a wake-up call to all retailers"
The merger has further increased the weight of the US within your group to around two-thirds of your annual sales. How do you react to Lidl's entry near your own stores on the East Coast, with plans to invest €1bn p.a. in America, and Aldi USA's announcement of the most ambitious expansion plan in its 40-year history?

Of course it is a wake-up call to all retailers, but we have been facing a Walmart that has been building up its food proposition for decades. Also, thousands of dollar stores have been established. So we are used to intense competition from discounters on both sides of the Atlantic.

But how are you reacting specifically to the increasing challenge thrown down by Aldi and Lidl USA?

We certainly don't underestimate them. We will sharpen our prices, where required, and will fine-tune our assortment. We will also speed up our online home delivery sales via Peapod as a further point of differentiation.

Last but not least, we will accelerate investment in store refurbishment, particularly at our Food Lion supermarket subsidiary, which is nearest to Lidl's point of entry on the East Coast. There we are speeding up our 'Easy, Fresh & Affordable' remodelling.

How do you view Amazon's game-changing bid for Whole Foods?

Amazon has long had difficulties with selling fresh produce, so it is a logical step. Amazon's aim in getting into food is clearly to build customer traffic.

Doesn't this sound the death knell for Peapod?

Not at all; Amazon sells through numerous channels whereas Peapod specialises in online home delivery. We believe we are well-prepared to meet their challenge because our presence in the States is well-established with more than 2,000 stores and our online home delivery service Peapod.

But Amazon already has estimated annual food sales of around €6bn in the US against the €670m-odd you make via Peapod. Won't Amazon Fresh simply crush you once it gets going?

Most of the sum you mention is from dry goods and took years to build up. It is difficult and expensive to deliver fresh produce, which, incidentally is also why many other bricks-&-mortar rivals only offer click & collect in the stores. But we do both. Our omni-channel strategy offers customers opportunities to shop whenever and wherever they want.

Amazon is also experimenting with checkout-free 'Amazon go' convenience stores in Seattle. Do you think this is the way forward?

I very much think so. If you were to fast-forward retailing to 2025, I think you would find the average store will have much more frictionless technology. This will include combined self-scanning and payment terminals, which we already offer in our 'AH to go' convenience stores today.

I think customers will be identified and welcomed as soon as they arrive by a host or hostess and served with very relevant and personalised special offers.

Ahold Delhaize CEO Dick Boer (photo: Riechelle van der Valk)
Riechelle van der Valk
"I suggest you look at the P&L of some of the A-brands"
After the merger, suppliers complained about your 'alignment meetings' in Breda. They claim that your negotiating team forced them to optimise Dutch and Belgian buying terms as a precondition for attending your annual range review in the Netherlands. Is this really win-win?

Firstly, nearly all of these talks had already been finalised at the end of 2016. But we were two companies before the merger, each with separate supplier agreements. After the merger, it was a natural moment to sit down with some of our largest suppliers and to discuss future cooperation. In cases where we found different buying terms & conditions, we sought to align them.

Obviously, this involves two parties and not one. So we discussed the new possibilities and chances that our new scale brings for suppliers.

Ahold Delhaize is now a member of both AMS-Sourcing and Coopernic. Can you really continue being in two different European retailer buying alliances?

I don't see why not, it's all perfectly logical: AMS-Sourcing specialises in own label and Coopernic in A-brands.

Ahold Delhaize corporate flag (photo: Ahold Delhaize)
Ahold Delhaize
Ahold Delhaize corporate flag
Most suppliers are not so keen on European retailer buying groups. Why should they give retailers European terms on top of national ones?

We offer brand manufacturers the combined skills and capabilities of numerous non-competing retailers, and we offer own label suppliers a single port of call.

Pan-European terms & conditions may sound logical in theory, but suppliers argue that recipes, packaging, marketing and legislation vary from country to country…

Aren't we meant to be Europeans in a common market? Today's customers shop everywhere, especially via the internet. If you look at, say, the production line of some of the A-brands, the finished product may have different names and be packaged differently in different countries, but it is still essentially the same product.

Or let's take, for instance, nappies. Are you really telling me that babies in Greece are different from babies in Germany? I could go on and on from detergents to countless other products.

So you believe in confrontation?

No, don't get me wrong, we want to be good partners. But suppliers should realise that, although the hard discounters are increasing the number of brands in their assortments, they are still essentially own label, whereas we will always offer a full range of A-brands. So they must understand that we need good prices.

So it's just about money?

No, what I also can't understand is the generally low level of innovation in dry goods shown by brands over the last few years. We are far more innovative with our own label. I just don't get it.

Suppliers complain that they are squeezed so hard by retailers on margins that there is hardly any money to invest in R&D

Then I suggest that you look at the P&L of some of the A-brands.

Ahold Delhaize CEO Dick Boer (photo: Riechelle van der Valk)
Riechelle van der Valk
"What I can't understand is the generally low level of innovation in dry goods shown by brands over the last few years. We are far more innovative with our own label"
Tesco and Carrefour have streamlined their international portfolios over recent years. Could you reduce your geographic footprint by leaving South-East Asia and Eastern Europe?

We only have a joint venture in South-East Asia, so I will restrict my answer to Eastern and South-Eastern Europe. Our strategy, whether in e-commerce or in physical supermarkets, is to be the number one or two in each of the national markets concerned.

Then wouldn't this logic demand your exiting Rumania?

No, because we are the number one in the region where we are present, i.e., Bucharest.

You have also only opened eleven 'AH to go' outlets in Germany since September 2012…

You must ask Albert Heijn about this. I would say that they are still in a phase of evaluation and are still exploring, for instance, the viability of new partnership models.

How would you describe your personal management style?

I believe I am purpose-driven, humble, and trust my people. But, at the same time, I am direct and can be tough when necessary.

Lebensmittel Zeitung with digital sister (photo: LZ)
photo: LZ
Our German retail B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: 'Ich halte den Deich' by international editor Mike Dawson & online editor Jens Holst on pages 4, 28 & 29 of Lebensmittel Zeitung, no. 33, 18.08.2017

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