Ahold CFO Dances as Fast as She Can

The speedy pace and razor-thin margins of the retail industry energize finance chief Paula Price.
David McCannJuly 13, 2012

Paula Price isn’t afraid of learning something new. The previous job for the CFO of $25 billion grocery-store company Ahold USA was controller and chief accounting officer for another retailer, but one in a much different niche: pharmacy chain CVS Caremark. Before that, she was finance chief for JPMorgan Chase’s Institutional Trust Services unit. Another career stop was at Prudential Financial, where she was general manager of the Retirement Services division.

While many CFOs remain in one industry for most or all of their career, Price sees finance skills as quite transferable. “It’s always how do we make money, what are the key drivers in the industry, how do we pull those drivers, and how do you get into the circle of influence with the decision makers?” she says. “And all of the industries I’ve been in have had a common focus on the customer and the shareholder, so you learn how to balance those.”

Ahold operates 760 stores, including Stop & Shop stores in New England and the New York metro area, and Giant stores in Delaware, Maryland, Pennsylvania, Virginia, West Virginia, and Washington, D.C. Three years into her current job, Price recently spoke with CFO about challenges in the frenetic grocery-store industry. An edited version of the interview follows.

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What’s unique about the grocery business?
It’s the razor-thin margins. Even though we’re big, we have to be very nimble and make fast decisions. We manage our business week to week. We huddle, talk about what’s going on in the competitive marketplace, how people are reacting to us, what we need to change. My big thought coming into the company was, “Wow, this business moves at such a pace.”

You’ve worked in a number of different industries. What particularly appeals to you about retail?
It’s fun: the most fun industry I’ve been in. The margins are thin, the challenges are great, you’re always on your toes because if you’re not, a competitor will be eating your lunch. And I handle not only finance but also IT, real estate, and strategy. On any given day going into work, I don’t know what’s in front of me. That is just fantastic.

Plus, everybody can relate to food. Working for Stop & Shop and Giant is a dinner-party conversation. When I told people I worked in structured products at JPMorgan, that was the end of the conversation.

With such thin margins, pricing the products must be highly significant. What is your role in that?
Pricing is handled in our merchandising area. My role is to review the overall investments and make sure they make sense for our company and shareholders.

We price by zone. A supermarket is a local business. You have to look at the stores within three to five miles of yours to stay competitive. We know where we are relative to any given competitor in any given market. And you can change prices rapidly.

So you don’t sign off on merchandising’s price decisions?
If I did that, I’d be doing it all day long.

What else do you do to keep the company’s head above water?
It is all about continuously looking for ways to reduce our cost so we can reinvest in our business. That gets harder and harder, obviously, because of diminishing returns. But I spearhead a program called FIX: Focus, Improve, Expand. We look at every cost component, whether it’s cost of goods sold, merchandising, operating costs in stores, or administrative costs, and put targets on them. This initiative will deliver hundreds of millions of dollars of savings over the next three to five years.

Even though we’re a thin-margin business, it’s a $25 billion business, so there are cost opportunities. We benchmark our divisions against one another and also do external benchmarking. Some of the savings opportunities are small, but lots of small ones add up.  When we find a best practice we go with it. There’s not a lot of conversation around it.

Can you give an example of a small cost savings?
We saw that one division’s insurance claims were lower than the others. So we drilled down store by store and found there was a best practice in how that group of stores kept their aisles clean. They had an automated system that determined how they swept their floors, at what time, and to what extent. Those stores had lower insurance claims. That was easy to apply to the rest of the company.

How about a big cost savings?
Certain divisions were more effective in how they spent their merchandising money. So we looked across the divisions and created best practices for our circulars. If a particular type of circular format works well in one place, it’s probably going to work well elsewhere. There may be different things on the cover, because food sells differently in different markets, but the idea is that putting certain types of things in particular geographies of the circular generates more sales.

When I’m in a grocery store, I’m looking at the produce and thinking, how can they not be losing money on this?
It’s all about keeping it fresh. We keep it coming in, keeping as close to just-in-time inventory as possible. People will remember where they got a good peach or a bad one. And we don’t stack the produce. Whole Foods, for example, stacks its produce every day because they think it looks more appealing that way. We anticipate a fair amount of “shrink,” which is how much you have to throw away and how much walks away, but because they stack the produce, they have more shrink than we do and they charge more.

You have four divisions: Stop & Shop New England, Stop & Shop New York, and two Giant divisions covering different portions of the lower Middle Atlantic states. Why do you need two divisions for each of those brands?
People eat differently. You have to be local. And the division leaders have to get out and be in the stores and be in the community.

What worries you most about the business? What keeps you awake at night?
It’s around the changing competitive landscape and staying ahead of that curve. We’re in attractive geographies. Everyone wants to be in them. In all of our markets, the strong are getting stronger and the weak weaker. In fact, the weak are exiting our markets, which is good for a certain period of time, but the question is, who replaces them? Will we be well-enough positioned to compete with stronger competition? The answer is yes, but it always takes some doing. You can never take your eye off that ball.

Most of your customers are probably unaware that the parent company is Ahold, which became infamous in finance circles for an accounting scandal a decade ago. All those involved have long since left the company, but is there a legacy effect in terms of how you do things now?
Sure. It is not a path we will go down again. At one point, preceding me, the company was all about coming out of that, putting the right controls in place, and recovering financial strength and credit ratings. And they did a terrific job. One of the benefits of having worked at different companies, and also having served on boards, is that I can compare our company to others. And this company is very well run and disciplined.

What boards are you on?
I recently was on the board of Charming Shoppes, before it sold Lane Bryant. I serve now on the board of Newton-Wellesley Hospital as a trustee. And I’m entertaining other board opportunities.

How do you have time for that?
I don’t. [Laughs.] I can only do one corporate board, and I can serve on only one committee. That’s how I find the time.