VideoIt also represents an important cultural shift at the company. With fewer staff, the CFO says, it is critical for those that remain to be able to summarise, synthesise and act on information quickly. To bolster the skills of its finance staff, for example, the company now sends employees from the operating companies on two or three week secondments in Amsterdam and other group locations to participate in quarterly and annual closing cycles, attend audit committee meetings, analyst calls and investor meetings. This is doubly beneficial, as the head office gets additional support during busy periods, while the teams from the field gain a better understanding of the key issues for the group as a whole. In a similar vein, group-level staff are also sent on short assignments to assist with projects at the operating companies. "The lines of communication between the centre and the operations are much more open than before," Ross says.
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A visit to any Albert Heijn store shows that it's not just the head office that's changed. Often neglected during Ahold's empire-building days, Albert Heijn has been the biggest beneficiary of the company's new orientation.
At the cavernous Albert Heijn XL in Osdorp, on the western fringe of Amsterdam, manager Cantor Barten discusses how the store is now selling more high-margin fresh produce, readymade meals and own-label products. The latter category, for example, grew by 35% across the chain's stores last year. As lunch approaches, a chef at the "Grill & Steak" station prepares a demonstration at a counter that resembles a TV cooking show. The smells waft through the shop, enticing shoppers to pick up the individually wrapped cuts of meat, condiments and vegetables strategically stationed nearby. To pay for their purchases, around 40% of these customers use self-scan checkout lanes, which need only one person to supervise every five machines, Barten adds.
Meanwhile, on the Damrak, in the centre of the Dutch capital, an AH To Go is doing brisk business among the throng of locals and tourists. As small as 40 square metres — the largest XL store is as much as 4,000 square metres — these convenience stores are "easy to open and to manage," notes Ross. There's another reason why Ahold is accelerating the rollout of the format, according to Dick Boer, COO of Ahold's European unit: these stores "can ask for a bottle of water at €1.50 instead of 17 cents" at a traditional supermarket.
Finally, in IJburg, an affluent neighbourhood on recently reclaimed land east of the city, Edwin van de Nadort, an 18-year Albert Heijn veteran, praises the new, highly automated supply chain system, which allows him to spend more time on the shop floor with customers rather than in the stockroom, manually monitoring and replenishing inventories. According to Chris Dik, CFO of Ahold's European unit, the new order and replenishment system is saving the chain €42m a year.
With profits, sales and margins at the chain all falling as recently as 2003, Albert Heijn is now reaping the rewards of its repositioning. Last year, operating income grew 40%, on a 12% rise in sales. The business is "clearly flying," says Fernand de Boer, senior equity analyst at Petercam in Amsterdam. The ascent is continuing this year, with identical-store sales — a key indicator of organic growth — up 11% in the first quarter, compared with 9% over the same period last year.
Though most retail observers applaud Ahold for the deft turnaround of its Dutch business, some, like Richard Withagen, an analyst at SNS Securities in Amsterdam, note that a lack of meaningful competition also helped. When Albert Heijn tried to jumpstart sales by launching a price war in 2003 the number-two player was Laurus, with 20% market share. With its own problems of over-expansion and outdated stores, Laurus struggled to respond to the price cuts, leaving it a shadow of its former self today. For its part, Schuitema — despite Ahold's majority control — also struggled with sluggish sales and low profits. While CVC, the buyer of Ahold's controlling stake in Schuitema, is "not stupid," in the words of Petercam's de Boer, he is nonetheless "puzzled" by the structure of the deal, given the amount of work necessary to turn around the chain. As its weaker competition regroups, "there are hardly any clouds on the horizon" for Albert Heijn, he concludes.
Across the Pond
Can Ahold replicate its Dutch success in the US? To address slumping identical-store sales growth, Ahold launched a programme in 2006 called VIP — short for Value Improvement Programme — for its 600 Stop & Shop and Giant-Landover stores, essentially applying the same formula that worked for Albert Heijn: price cuts accompanied by a focus on produce, readymade meals and own-label products. Around 70% of the programme was complete at the end of 2007, according to Ahold's US COO Lawrence Benjamin. For example, the chain analysed the sales-and-profit prospects for some 35,000 of the products sold in its stores, discontinuing 25% of them in order to streamline the supply chain and help make shopping less overwhelming for customers.
Identical-store sales at Stop & Shop recently began to eke out small gains, though sales continue to fall at Giant-Landover, shrinking 1.1% in 2007. While Ross claims that the company's projects tend to have a three-year lag time — suggesting that, as at Albert Heijn, the full benefits of VIP have yet to come to fruition — not everyone agrees. De Boer of Petercam points out that in the US, "there are some big national and strong local competitors, reacting all the time to what Ahold is doing." Wal-Mart, for example, is unlikely to fold as quickly as Ahold's Dutch rivals did in the face of price competition. Around Giant-Landover's base in the Baltimore and Washington, DC areas, says de Boer, "competitors smelled blood and opened a lot of stores." Unprecedented food inflation will also work against Ahold's price-led American initiatives.
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