AMSTERDAM — Ahold  considers its extensive global operation to be well into its next chapter, one whose main plot line involves creating new opportunities in the United States and Europe.
However, to reach this chapter, the Netherlands-based operation first needed to make sure all parts of its organization were on the same page, which was easier said than done at a company spread across two continents with a range of retailing formats and online shopping.
“It’s one strategy framework for the whole world of Ahold now,” said Dick Boer  (above right), chief executive officer, in a recent interview with SN.
That framework impacts the American operation, Ahold USA , whose units include Giant-Carlisle, Giant-Landover, Stop & Shop and online retailer Peapod, and the European businesses, including Albert Heijn in the Netherlands and numerous banners elsewhere on the continent.
“There’s a complete alignment on how to move further as an organization and business,” said Boer, a company veteran named to the top spot in October 2010. “That’s our biggest accomplishment over the past year: Designing and refining strategy, and creating clear opportunities.”
Those opportunities wouldn’t have been possible just a few years ago, when Ahold was still rebounding from the disastrous impact of a 2003 accounting scandal, but the passage of time and a series of smart strategic moves have positioned the company for growth, according to executives.
“We feel comfortable we’ve regained our credibility,” said Carl Schlicker (left), chief operating officer, Ahold USA. “The foundation is solid financially. So now it’s about how do we grow the business.”
Ahold announced this month that in the latest fiscal year it grew net income by 19.2% to 1 billion euros, or about $1.33 billion U.S. Operating income in the U.S. grew 8.7% to $1 billion on a 6.6% rise in sales to $25.1 billion.
“When I look at the U.S. numbers, I’d say we really had a good year,” Boer said.
However, the company warned of challenges ahead this year as the still difficult economy impacts both the U.S. and Europe.
In a report following Ahold’s release of year-end results, the analysts at J.P. Morgan Cazenove said, “The clouds we expected are gathering,” citing in particular “falling volumes as consumer confidence weakens further in both the U.S. and Holland.”
Boer, nevertheless, took a glass-half-full approach to the near-term outlook.
“We said we’re seeing low growth for the first weeks of [first-quarter] trading, but it’s still growth. We still see some growth on both sides of the Atlantic.”
Ahold’s growth path has been a major question mark for equity analysts and investors, said Patrick Roquas, an analyst with Rabobank Securities, Amsterdam. After rebounding from the earlier serious financial challenges stemming from the 2003 scandal, “a key concern of the past three years was how do they go forward?” he said. “I believe the company’s recent strategies outlined last November provide a lot of initiatives to grow in a mature industry.”
This ranges from new stores and formats in Europe to acquisitions and customer loyalty efforts in the U.S., he said.
Ahold’s pricing strategy is a big factor in its recent success, said John Rand, director of retail insights for Kantar Research.
“I think they’ve done a really good job of repositioning the company, and repositioning pricing was critical because they were perceived as high priced,” he said. “They’ve moved away from a pure high-low model, and it’s had an impact.”
Throughout the economic downturn, Ahold has benefited in the U.S. from its expertise with loyalty marketing and understanding customers, Schlicker said.
“The period when the economy worsened was the same time when our capabilities in these areas were improving,” he continued. “Over the last couple of years that involved our ability to understand and segment the customers and deliver offers in multiple ways, in addition to improvements in quality, service and assortments.”
Sharing Best Practices
Ahold’s U.S. loyalty expertise includes the ability to take advantage of the latest technologies to deliver offers in real time. That know-how is now finding its way to Europe, Schlicker said.
“A lot of the program that we developed in the U.S. is now going to Europe to be implemented first in Albert Heijn.”
That extends to the systems level. Ahold selected London-based EYC (Engage Your Customers) as its U.S. partner to support database and customer insights, and that partner will be used in Europe as well.
But it’s not just a U.S.-to-Europe one-way street. Ahold in Europe has pursued its own loyalty efforts, “so we’re taking some of the things they’ve tested and using them here,” Schlicker explained. “So going forward, we’ll have similar systems and sharing of information, and this is our first real global project. It shows how far we’ve come as a company.”
These efforts to streamline practices extend to Ahold’s strategic statement, called the “Six Pillars,” which include growth-creating steps such as increasing customer loyalty, broadening the offering and expanding geographic reach, and growth-enabling steps, such as simplifying the business, fostering corporate responsibility and developing the organization’s people.
“In our vision and values we’ve made a big step forward in alignment,” Boer said.
One of the biggest challenges facing any company with expansive holdings is balancing the need for central structure with the imperative of local decision-making. That’s not a new topic for Ahold, but the company has lately found a successful model for dealing with this, executives said.
They point to the balance struck at Ahold USA back in November 2009, when four geographic divisions were created, a move that encouraged locally driven management, including separate presidents and teams. The four divisions are Stop & Shop New England, Stop & Shop New York Metro, Giant-Carlisle and Giant-Landover.
Prior to this, some 550 stores in Stop & Shop and Giant of Landover were managed out of headquarters in Quincy, Mass.
“Now they have local people who make decisions on assortments, local buying and other things,” Schlicker said.
While benefiting from local management, the divisions can count on central support for certain behind-the-scenes aspects, including operational and commercial development from Carlisle, Pa., and IT, finance and real estate from Quincy, Mass.
“The divisions are empowered, and they’re driving the sales,” Schlicker said. “They’re making decisions on ads, on competitive situations, on relationships with labor contracts, and other things. So they’re really an accelerator of our growth, and the support organization is there to support.”
Neil Stern, senior partner, McMillan Doolittle, Chicago, said the U.S. divisions appear to be on a “positive arch. They had long challenges in getting the balance right between local autonomy and centralization, and now it seems they have that balance.”
Readiness for Acquisitions
Locally driven management is also fueling the company’s U.S. acquisitions strategy, Ahold executives said.
“As opportunities present themselves, we think we’re able to move quickly,” Schlicker said. “That’s because it’s not like there’s this corporate entity that has to analyze it. It’s our folks in the market that know the stores and know the fit. Some of these deals have moved along at lightning speed because of that.”
The biggest recent news was the announcement in January that Ahold USA would acquire 16 Genuardi’s stores from Safeway, a deal still pending. That transaction is expected to jumpstart the company’s growth in the greater Philadelphia area, where it had earlier acquired Clemens Family Markets.
“Philadelphia is a place we’ve tried to grow our business over the last decade or so,” Schlicker said. “But this is an opportunity to get into new locations, where we’ve tried for years but there were just no spots to go into.”
He said Giant-Carlisle has a “very strong position in that market, on the quality side and the value side, and we’re very active in the community.”
Giant’s progress in that market has been “remarkable” given that it hasn’t been there that long, said Roquas, who noted it’s now the No. 2 player in the market, behind Acme.
“So Giant’s proven to be strong, and most of the recent conversions were successful,” he said.
The Genuardi’s units will be converted to the Giant banner, but the overall game plan will be to return to “some of the basic tenets that made Genuardi’s what it was in the past” while “moving in some of the technology and things we know about the market from Giant,” Schlicker said.
Ahold has “good expectations” for success, and it’s prepared to move quickly once the deal is consummated, Schlicker said.
“I would anticipate from the time we’re able to start we’ll have them converted within three weeks,” he explained.
The deal will further the growth of the Giant-Carlisle division, as did Ahold’s 2010 acquisition of Ukrop’s stores in the Virginia market that were converted to the Martin’s banner under Giant-Carlisle.
“We’re continuing to work with Ukrop’s, and happily so, because it’s coming along to our expectations,” Schlicker said.
Ahold anticipates further U.S. acquisitions if the right opportunities are present. While management prefers acquisition targets situated close to existing holdings, there’s now more flexibility than before.
“I think we’re more ready to take a geographic leap than in the past,” Schlicker said. “Before it was totally in-market or maybe adjacent, but now the right opportunities wouldn’t prevent us from jumping a geographic distance.”
Stern said that while Ahold hasn’t been making major acquisitions, its deals “have strengthened their position in their trade areas. It allows them to fill in and fill out the Northeast geography.”
Despite the interest in acquisitions, much of Ahold’s recent growth has been supported by big investments in existing operations. A prime example is Giant-Landover, which accomplished some 115 remodels over the past few years. Ahold has spent more than $100 million in capital on Giant-Landover in each of the past three years, Schlicker said.
“And that’s well deserved because we needed to invest in the market,” he said. “We’ve been very happy with the growth, as last year was a good year in that market.”
Ahold has also made investments in Stop & Shop in New England and New York, where the focus has been on remodels and improving the productivity of stores, Schlicker said.
“Over the last couple of years we’ve seen very good results from remodels,” he said. “As we do these remodels, a lot of it is based on how we can improve sales per square foot in the stores.”
Growing Online Retail
Increasingly, Ahold’s focus isn’t just about bricks, but also clicks. The company has set an ambitious goal to triple its global online sales by 2016, which would bring it to about $2 billion. In the U.S., those efforts are focused on Peapod, which has been associated with Ahold since 1991, while in the Netherlands the online business is Albert.nl.
This is being supported by investments in technology.
“On both sides of the ocean we have the No. 1 position in food online,” Boer said. “So we really know how to do food, and we want to expand that faster and bolder.”
The company will test how it can further leverage its brands online, and success will hinge partly on delivery strategies.
“Peapod has been good at developing great systems, including list-building technologies, but we need to handle the delivery process faster,” Schlicker said. “We’re thinking that potentially you could get down to a four-hour window from the time that you ordered to the time you get the delivery.”
Also important is providing flexibility in how consumers pick up their orders. This has included experimenting with curbside pickup, which enables customers who shop from home to pick up orders without leaving their cars.
Other strategies are being mulled as well. “If they order it online, or on a mobile phone, do they want it delivered to their home?” Schlicker began. “We’re also looking at strategically placing pickup points off major highways. They can order it at lunchtime and pick it up at 5 p.m. We’ve seen examples in Europe where that’s been successful, so we’re aggressively looking at those types of things.”
Ahold’s online business is “close to break even in the U.S. and Europe,” Boer said. However, top-line growth will be a big part of the mission going forward. “It’s about how can you grow your business,” Schlicker said. “And not only that, we want to grow it at least three times in the next couple of years, and internally we have more aggressive targets than that.”
Meanwhile, last month Ahold announced it’s acquiring Bol.com, the Netherlands’ largest online retailer, whose business concentrates on categories including books, entertainment, electronics and toys.
Sharing best practices between Europe and the U.S. is just as important in the home shopping business as with other operations, executives said.
“There are things from the supply chain side that we’ll be able to incorporate from Europe,” Schlicker said. “And there are some things on the technology side we’ll be able to export to Europe.”
Enhancing Private Label
Another activity that shows the impact of global cross-pollination is merchandising, in particular private label.
Ahold is one of the most successful European private-label players, and it hopes to grow its U.S. private-label share to 40% from about 31% last year, Roquas said.
“We in the U.S. were always impressed by Albert Heijn’s own-brand product and how they grew loyalty with it,” Schlicker said.
Ahold USA leveraged that expertise in recent years, including with the decision to standardize packaging for its national-brand equivalent line across U.S. divisions.
In an SN story published in late January, Jeff Martin, Ahold USA Retail’s executive vice president of merchandising and marketing, said the move led to better economies of scale and enhanced supply chain efficiency. Martin was named SN’s Marketer of the Year for 2012, partly as a result of his efforts to provide value and improve the shopping experience at Ahold USA.
Ahold has reformulated about 85% of the U.S. private-label products, including national-brand equivalent and its Nature’s Promise brand. It’s completed extensive taste testing as it enhances quality.
“In many cases there are products that we still haven’t brought to market because they don’t yet meet the quality standards we want,” Schlicker said.
The payoff on revamping private label has been quantified.
Ahold’s December 2011 U.S. non-perishable own-brand share represented a gain of nearly 200 basis points over first-quarter levels, Schlicker said.
In aspects ranging from merchandising to its organizational structure, Ahold has experienced a rapid pace of change in the past couple of years.
Part of that involved the makeup of the executive board. “Two years ago it was more controlled by financial-focused people,” Roquas said. “Today there are more people with track records in food retail. So it’s a team of experienced and well-regarded retail people, which is perceived by the markets as positive.”
In the U.S. rapid organizational change has left the company in better shape, the Ahold executives concluded.
“We’re positioned now to weather the storms better,” Schlicker said.
“It’s amazing the full transformation we went through over the past three years,” Boer added. “There have been immense changes. There’s excitement with the teams in the divisions. They know they’re part of a bigger group both in the U.S. and globally, and we’ve created a strong organization for the future.”