Looking ahead, the global food retailer aims to drive market share through an omnichannel strategy that combines easily accessible grocery pickup and delivery services.
Frans Muller has been president and CEO of Ahold Delhaize since July 2018. Previously, he held the positions of deputy CEO and chief integration officer following the $29 billion merger of Royal Ahold and Delhaize America, which closed in mid-2016. He also served as president and CEO of Delhaize Group for three years and, prior to that, spent more than 15 years at German retailer Metro AG.
A few weeks ago, Zaandam, Netherlands-based Ahold Delhaize reported strong FY2021 results, with its U.S. business benefiting from double-digit pandemic-driven net and comparable sales growth in FY2020. U.S. online sales were up 30.5% in the fourth quarter of 2021 and 68.9% for the full year, following increases of 128.5% and 105.1% in the respective 2020 periods. Looking ahead, the global grocery retailer aims to drive market share through an omnichannel strategy that combines easily accessible grocery pickup and delivery services and e-commerce benefits (such as “endless aisle” online marketplaces) with strong local supermarket brands that offer modernized stores and value through attractive loyalty programs and private labels.
Supermarket News Editor-in-Chief Russell Redman interviewed Muller after he filed Ahold Delhaize’s fiscal 2021 report. Edited excerpts of the conversation follow.
FRANS MULLER: What strikes me are a couple of things. First of all, with all the teams running the business and keeping everything safe, it was a remarkable effort and an extraordinary job that was done there. In 2020, the first year COVID, you have a crisis that everyone is rallying around and it’s difficult. But you know what you’re doing for this and everyone is in it together. In the second year, it’s very different because people don’t see the light at the end of the tunnel. When is this going to end?
If you’re almost two years with a mask on every day in your store, it’s quite a burden on people. And, of course, people getting sick and losing their lives. I would say the second year was a year where fatigue set in. So, it took even more management time to get everybody motivated, to get the teams full and to get the work done. That’s one element that stands out, and people did a remarkable job. At the same time, we also saw a lot of macroeconomic factors, which are not always easy.
So, there was the mental part, the resilience part [of the pandemic], which has lasted a lot longer than everybody thought it would. The other thing I’m very proud of is our e-commerce sales numbers: 38% growth for the total company and 70% growth for the U.S. by 2021. Incredible numbers, very strong. Of course, the FreshDirect numbers were in that 70% for the U.S. Also, the way we brought those sales to life with opening click-and-collect in so many locations and with all the various types of next-day, same-day, and instant delivery solutions.
So, there’s a lot of new realizations, a lot of new opportunities for customers to buy through the [online] service. It’s also remarkable if you look at the two-year growth stacks [for comparable sales through fiscal 2021], 12% [for Europe] and 16% [for the U.S.]. That’s unusual in food retailing, right? And in 2020 and 2021, the inflation numbers were not as outstanding. There was a lot of volume growth at the same time. So that’s something to be proud of.
SN: At November’s Investor Day, Ahold Delhaize said it aims to grow sales by €10 billion ($11.44 billion) between 2023 and 2025, with half of that growth coming from online sales. How does e-commerce offer more potential to take market share away from competitors?
MULLER: We have a good, long track record in e-commerce in food and non-food. In the U.S., we went from 2% penetration to 6% to 7%. So, we more or less tripled the penetration, and I think it has to do with a good offer in the supermarket. The quality of the in-store offer is very important, but so is the online offer, right? Then the second thing is the digital connection with your customer and the value proposition for the customer in an omnichannel world: stores and online together.
And the third thing is that your fulfillment must be of very good quality, preferably impeccable, of course. Especially in food, people like to see that you handle food in a respectful way, whether it’s cold chain, whether it’s boxes. In terms of food supply, I think there are a lot of things to want and to work on. Whether it’s healthy, sustainable, convenient…all these kinds of things are important.
Across our [global] network, we have operators as competitors who maybe have a pretty good delivery service but a lousy assortment. In the end, customers go for the best assortment and the best propositions, and they look at the fulfillment solution, whether it’s click-and-collect, same-day or next-day delivery or in-store pickup. So that element will come. What’s also important in the e-commerce space, I think, is the connectivity, the relationship, with your customers and opening up other avenues of product offerings.
For example, in November, we just opened the Ship2Me platform with Giant Food in Washington [D.C.]. Customers can access 60,000 general merchandise items with the same online shopping [as grocery]. It’s a new proposition. These are things that can be done to better understand the customer and their journey. What he’s looking for and also new services and new assortments, like the extended aisle and these types of elements. These are new things that can make you gain [share] to other e-commerce or omnichannel players.
SN: Ahold Delhaize has talked about the idea of “omnichannel ecosystems.” Can you tell us about that and where the company has these ecosystems in the U.S. and Europe?
MULLER: We have these e-commerce systems for our omnichannel proposition in the U.S. and also in Benelux. We are trying to connect the Ship2Me [online marketplace] proposition and an omnichannel platform with our supermarket businesses in the U.S., Belgium and the Netherlands. I believe in this kind of thing for the future. We started years ago with Peapod in Chicago as a delivery business.
Now it has become an omnichannel business, with stores and e-commerce under one brand roof. So, it’s not Stop & Shop for stores and Peapod for delivery. It’s Stop & Shop for omnichannel vision, in-store, home delivery and click-and-collect in stores – all these different modes of fulfillment. That’s a big change.
The next change will be that we connect an offer for merchandise that can’t be purchased in our stores. And then if we think about the different paths to purchase, the same loyalty program, the same type of checkout, we make it very convenient and attractive to customers. That’s what we believe.
SN: What kind of markets are these omnichannel ecosystems in? Does it have to be in an urban environment?
MULLER: Not necessarily. In the Benelux, we do it all over the country, both in the more remote areas and in the more urban areas. Of course, in urban areas, the productivity is higher, you produce more drops per hour, right? And sometimes in the city there’s a little bit more purchasing power, a little bit different kind of basket in value or margin.
We also offer these kinds of things in remote areas. Bol.com, our [online marketplace] platform business in the Benelux, has 95% penetration in the Dutch market and 50% or so in the Belgian market. So, they already have very deep access to all those markets. And our supermarket brands also have very deep access in the No. 1 and No. 2 positions.
SN: By the end of this year, Ahold Delhaize plans to have more than 85% of its U.S. distribution network self-managed. What will this mean for ADUSA’s omnichannel strategy, and does it set the stage for expansion behind its East Coast footprint?
MULLER: Yes, it’s designed to support the omnichannel strategy. It’s designed to have the right foresight in the total supply chain, both for store operations and omnichannel operations. All of our dark stores-the e-commerce fulfillment centers, like the one we recently opened in Philadelphia, a brand new, 100 percent robotic warehouse-and our regular stores are connected to the network and have the same kind of forecasting and replenishment methodology and process. It’s completely integrated.
What it will bring to the whole network is that, if we are more accurate in our forecasting – because it is one system with one technology and one process – we will also be able to be more accurate with our supply partners. That means better matching and linkage between order and deliveries and less working capital in the whole chain. And, of course, it is also good for fresh produce because losses are reduced. This applies to both online and in-store products.
We didn’t self-distribute completely because of the legacy business. They had a big contract with C&S [Wholesale Grocers], not for everything, but for a number of volumes. Now we are integrating it all into one system, so you have a holistic view of assets, transportation, distribution, forecasting, processes and also total administration, when you link it with the SAP system.