President and CEO Frans Muller credits investments in digital capabilities for solid Q2 performance

ZAANDAM, The Netherlands — Foresight and adaptability have been two distinguishing characteristics of Ahold Delhaize since its formation in 2016, and those qualities continued to serve the retailer well in the second quarter of fiscal 2021, as it negotiated COVID-induced market changes around the world. During the three months, net revenue reached €18.6 billion, up 3% at constant exchange rates; operating income totaled €817 million; and, on a two-year basis, comparable sales, excluding gas, jumped 19.1% in the U.S. and 12.6% in Europe.

The solid performance prompted management to raise the full-year outlook for earnings per share and margin to the high-teens range versus 2019, and approximately 4.3%, respectively

The appeal of Ahold Delhaize’s omnichannel offerings was a key driver of that performance, according to president and chief executive officer Frans Muller.

Frans Muller

“I’d be bluffing if I claimed we were prescient about the pandemic, but we always had an omnichannel view of the market that encompasses stores and e-commerce,” he says.   “Very early we were already involved in online.  We were fortunate that we increased capacity, both in the U.S. and the Europe, quite a lot before COVID. So when that whole boom came, we could enjoy more e-commerce growth than most of our competitors, because we had the capacity already built.”

The investment in omnichannel infrastructure enabled the company, whose holdings in America include Stop & Shop, Food Lion and Giant, to increase online sales by 35.8% at constant exchange rates during the second quarter. That gain followed 77.6% growth in the same period a year earlier. Muller attributes much of that success to the range of robust omnichannel options that Ahold Delhaize offers.

“We are quite flexible,” he says. “In addition to our brick-and-mortar stores and Peapod — which is 99% next-day delivery — by the end of this year we’ll have 1,400 click-and-collect locations in the U.S., which is also facilitating same-day business. We started to build those units before COVID. So we’ve made a huge shift to more same-day versus next-day delivery, which is not only the customers’ wish, but of course is also helping profitability.”

FreshDirect acquisition gives grocer an edge in New York City

The company further strengthened its omnichannel proposition in November when it teamed up with Centerbridge Partners to acquire FreshDirect. The New York City-based online grocer makes Ahold Delhaize a leader in the field in the biggest U.S. market, providing an ideal complement to its extensive brick-and-mortar presence there.

“FreshDirect is a pure play food business, with a very specific but very loyal customer group,” notes Muller. “We’re very impressed by their level of freshness, meal solutions and meticulous focus on quality.

“We see also more synergies between Stop & Shop and FreshDirect.  We will import more private label merchandise from the group into FreshDirect. We will beef up their center store assortment with 2,500 items.

“And we will link FreshDirect to Stop & Shop, from a loyalty program base. FreshDirect customers don’t have to go to the Balducci’s and the Fairways and the Whole Foods anymore. When not shopping online, they can go to the Stop & Shop store, which is for sure better priced, but also in many ways are better assorted.”

City stores getting upgrades

Ahold Delhaize continues to bolster its U.S. business, which generates more than 60% of the group’s sales, by revitalizing its store base, first at Food Lion in the Southeast and now at Stop & Shop in New York state and New England. After revamping stores in Connecticut and Long Island, the company is upgrading 60 units a year, with an emphasis on the five boroughs of New York City.

“We had a lot of learnings in Connecticut and in Long Island. For example, sometimes we invested too much capital in the store, or capital which was not recognized or appreciated by customers,” Muller says. “We see that the fresh departments, deli service departments and ready-to-eat assortments are a big winner. We see also that investments in fish and meat are doing very well.

“Where we really have an opportunity is in the ethnic food assortments. In July I visited one of our Bronx Stop & Shop stores, which we will now use as a test store for more ethnic products. The Bronx is 40% Hispanic, 20% African-American, and there are also a lot of Asians there. So we have an opportunity to address the needs of those consumers.”

More relevant assortments, coupled with an enhanced shopping environment, digitization and sharper pricing, are delivering the expected increases in sales and profitability at the remodeled stores, according to Muller.

Self-distribution initiative on tap

Another major initiative that remains on track despite the pandemic is Ahold Delhaize’s shift to self-distribution in the U.S. market.

“The project is going according to plan, both in base transition, but also in contribution,” he notes. “We expect next year to be roughly break even, and the year after, in 2023, we’ll have a positive contribution of around hundred million euros, which was the original goal. With COVID, we’re more convinced that taking charge and control of your own supply chain is crucial.”

Muller credits Ahold Delhaize’s approach to distribution with helping the company minimize the supply chain distributions stemming from the pandemic that continue to impact supermarket operators and other retailers:  “We are a little bit better protected from that, because we have a lot of DCs and a lot of transportation, including trucks and drivers, in our own hands.”

Keep the customer satisfied

While Muller acknowledges the grocery market has been altered in fundamental ways by COVID-19, he expresses confidence that Ahold Delhaize is well equipped to follow consumers in whatever direction they decide to take.

“A number of customer behaviors have changed dramatically with this unsolicited experiment of COVID, which will be more sticky than we thought before,” he says. “Online sales is one of those. There are a lot of customers who never were online, or always went to the stores, and now by urgency or by necessity are testing and trying e-commerce. Some of them like it, and some will stick there for a certain part of their shopping.

“The other thing is that what we believe people will cook more at home than they did in the past. In-home consumption will stay stronger than pre-COVID. People discovered cooking, looked at convenience or looked at healthy food. And let’s not forget that that people will work more from home than in the past, which means that your breakfast and your lunch is at home. So it’s also, of course, a positive thing for food retail.

“If we look at our business, online will keep rolling, growing at a higher pace than store level. But I think the stores also have potential to do better, because of more in-home, healthier meal solutions. Overall consumption in home will go up. That will result in positive support for the stores.”