NEW YORK -- Ahold, Zaandam, Netherlands, outlined plans for growth that call for a doubling of net income within five years and an aggressive supply chain integration in U.S. operations.
The chain is also looking to import a number of key technologies to its U.S. operations that it has already implemented with wide success in Europe, Cees van der Hoeven, president of Ahold, told SN in an interview here.
"We're looking to double our earnings over a five-year period. We've done that in the past and we think we can do that in the next five years; it means a rate of growth of about 15% annually," he said.
Van der Hoeven pointed to several opportunities for growth and operating improvement among its U.S. divisions, which include Bi-Lo, Mauldin, S.C.; Edwards Super Food Stores, Windsor Locks, Conn.; Finast, Maple Heights, Ohio; Giant Food Stores, Carlisle, Pa.; Mayfair Super Markets, Elizabeth, N.J., and Tops Markets, Buffalo, N.Y. Among the initiatives:
Earnings Goals: Ahold is committed to doubling earnings in the next five years. To accomplish that, the company has targeted various earnings levels in each of its worldwide operating regions.
"We feel, roughly speaking, that [doubling our earnings] translates into 10% earnings growth in the Netherlands, which is a relatively mature market, on the basis of about 4% sales growth. It also means about 15% earnings growth in the United States on the back of approximately 9% sales growth," van der Hoeven said.
"And it means about 25% to 40% earnings growth in what we call emerging markets, new markets that are relatively less developed and have a higher than average economic growth. That would be Eastern Europe and the Far East," he said.
Expansion Plans: In the United States, part of the earnings growth will be achieved through expansion. "We would like to enlarge our holdings in the United States, particularly in the Northeast. We are also continuing to grow at a high pace in our existing businesses.
"Giant Food Stores had 20% square footage growth this year and will have 10% next year. Edwards has significant growth now and is investing in new stores. Finast will have three new stores next year, and Tops is looking to enlarge their footage by 5% to 6% next year," van der Hoeven said.
Higher U.S. earnings will be driven several factors in addition to sales growth and expansion, he added. One is improvement in U.S. divisions that have "lower than average operating rates, such as Red Food Stores, Edwards, Finast and, to an extent, Mayfair."
Supply Integration: van der Hoeven declined to cite specific plans or a timetable for integrating much, if not all, of the company's U.S. supply chain operations. But he was clear about longer-term goals in this area.
"We used to think the greatest thing was that our chains acted independently in everything. On the demand side, we still believe that and want to reinforce the local identity of our divisions, even to the tune of more micromerchandising," he said.
On the supply side, however, Ahold wants to see more integration, which means "developing a flexible system adaptable to the needs of individual chains and stores but relying on common sources and a central distribution network."
A prime difficulty in building an integrated distribution system is creating the software for driving the network. "We aren't talking about central support structures or head offices or anything like that. It's about systems," van der Hoeven said.
Private Label: One area where supply chain integration will proceed more rapidly is private label. The organization is now in the process of consolidating sources for private-label lines across all its U.S. divisions.
"Basically, private-label lines will be single-sourced and single-quality but feature different labels by company division. Private label should reflect the name of the chain," he said.
Advanced Technology: Considerable opportunity exists in the next several years to roll out advanced technology-driven systems to help improve U.S. operations in particular.
"In Holland we have a sales-based reorder system, which is fully implemented throughout the Albert Heijn chain. It is based on a very short 18-hour cycle of product replenishment, which is never going to be feasible in the United States because the lead times are longer. Nevertheless, there is a significant shortening of that cycle possible in the United States," van der Hoeven said.
"We also have a completely paperless system via EDI, resulting in very significant savings in the stores as well as in the distribution centers," he said.
Asked to elaborate on the rollout of technology at Ahold's U.S. divisions, van der Hoeven said, "Parts of these overall systems are being tested in various places, but it's too early to be talking about it in detail."
