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Frans Muller-Ahold Delhaize CEO-horizontal.jpg Ahold Delhaize
'There will be more [market] consolidation in the U.S. going forward. That’s our belief,' Ahold Delhaize President and CEO Frans Muller told Supermarket News in an interview this week.

Q&A: Ahold Delhaize's Frans Muller sees omnichannel as ‘winning proposition’

One-two punch of expanding e-commerce and modern stores resonates with U.S. grocery shoppers

Frans Muller has served as President and CEO of Ahold Delhaize since July 2018. Previously, he held the posts of deputy CEO and chief integration officer in the wake of 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, before that, spent over 15 years at German retailer Metro AG.

This week, Zaandam, Netherlands-based Ahold Delhaize reported strong fiscal 2021 results, with its U.S. business building on pandemic-driven, double-digit net and comparable sales gains in fiscal 2020. U.S. online sales climbed 30.5% in the 2021 fourth quarter and 68.9% for the full year, following increases of 128.5% and 105.1% in the respective 2020 periods. Looking ahead, the global food retailer aims to boost market share through an omnichannel strategy that combines readily accessible grocery pickup and delivery services and e-commerce benefits (such as “endless aisle” online marketplaces) with robust local supermarket brands offering modernized stores and value through engaging loyalty programs and attractive own brands.

Ahold Delhaize USA, the company’s largest business unit, operates more than 2,000 grocery stores on the East Coast under the Stop & Shop, Giant Food, Giant/Martin’s, Food Lion and Hannaford banners as well as online grocer FreshDirect, all supported by the Peapod Digital Labs, ADUSA Supply Chain and Retail Business Services units. Supermarket News Senior Editor Russell Redman interviewed Muller after he delivered Ahold Delhaize’s fiscal 2021 report. Here are edited excerpts of the discussion.

SUPERMARKET NEWS: Ahold Delhaize just reported financial results for its 2021 fiscal year. What stands out to you about the company’s performance?

FRANS MULLER: What stands out to me are a couple of things. First of all, with all of the teams running the business and keeping everything safe, it was a remarkable effort and a remarkable job done there. In 2020, the first COVID year, you have a crisis that you’re all rallying around and it’s difficult. But you know what you’re doing for this and everybody’s together on this. 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 are almost two years with a face mask on every day in your store, it’s quite a burden for people. And, of course, people falling ill and people losing their lives. I would say the second year was a year of fatigue setting in. So even more management time was needed to get everybody motivated, to get your teams complete and to get the work done. That’s one element that stands out, and the folks did a remarkable job. At the same time, we also saw a lot of macro-economic factors, which are not always easy.

So there was the mental part, the stamina part [of the pandemic], which has lasted so much longer than everybody thought. Then the other thing that I’m very proud of were our e-commerce sales numbers — 38% growth for the total company and [about] 70% growth for the U.S. in 2021. Unbelievable 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 click-and-collect opening in so many locations and with all the various next-day, same-day and instant types of delivery solutions. So a lot of new fulfillment, a lot of new opportunities for customers to buy through [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 is unusual in food retail, right? And in 2020 and 2021, the inflation numbers were not so prominent. It was a lot of volume growth at the same time. So that is something to be proud of.

SN: I went back and looked at Ahold Delhaize’s fiscal 2020 results, which were very strong, and the company was actually able to build on that.

MULLER: Yes, and 2020 was a 53-week year, with a 14-week fourth quarter, right? And if you see the results with 3% of growth in total sales, and also some growth in the quarter, that is remarkable for a 53-week year or 14-week quarter. We did not expect that when we made the budget, I can tell you. When you make a budget, you look at what is the normal here? You look a little bit at pre-COVID and you say, ‘OK, it's 2019 plus some normal incremental growth there.’ That’s how we try to budget and keep our costs under control. But it came out much better, both in 2020 and 2021.

Ahold DelhaizeAhold Delhaize-two year stack growth-fiscal 2021.png

SN: 2021 finished amid volatile economic conditions, including supply disruptions, labor shortages, rising inflation and a COVID surge. Some of that has continued into 2022. How is Ahold Delhaize navigating these difficult conditions, and what are you seeing among customers in this shopping climate?

MULLER: What we see are a couple of things. Slowly but surely, all the markets — if it’s Europe or the U.S. — are starting to open up again. Restaurants open, cultural centers open, schools and universities open. Hopefully, everything will be open by, let’s say, Easter this year, roughly. Yeah. Our country [the Netherlands] is going to open this week. That means life is getting more normal, which is great for the mental shape of people. So getting back to a more normal world, that’s one thing. I think that working from home will stay to a certain degree, if it’s two days or three days at home.

I think people will have more in-home consumption than they had before. [During the pandemic] they learned how to cook. They discovered, ‘Hey, you can also have cool meals and meal solutions from supermarkets now, and those are pretty good quality. And if it’s mac and cheese or a nice pizza or a good steak that I really can cook myself, I don’t have to go to a restaurant. I can save a lot of money as well.’ I also believe that, maybe in the second half in the U.S., when government funding might be gone, when SNAP support is different and when unemployment monies are different than they used to be, we might see a less strong consumer. And if that would happen, we’ll have stronger in-home consumption, and we might talk about inflation later as well. So a few of the things people learned during COVID, or were forced to do during COVID, will be more sticky than we might think. That could be a positive for supermarket sales, online business sales or e-commerce delivery sales.

SN: At Investor Day in November, Ahold Delhaize said it aims to boost sales by €10 billion ($11.44 billion) between 2023 and 2025, with half of that growth from online sales. How does e-commerce offer more potential to take market share from competitors?

MULLER: We have a good, long history in e-commerce in food and nonfood. In the U.S., we went from 2% penetration to 6% to 7% penetration. So, roughly, we tripled the penetration, and I think it has to do with a good supermarket offer. The quality of your in-store offer is very important, but also your online offer is important, right? Then the second thing is the digital connection with your customer and the customer value proposition in an omnichannel world — stores and online together. And the third thing is that your fulfillment must be very good quality, preferably flawless, of course. Especially in food, people like to see that you handle the food in a respectful way, if it’s cold chain, if it’s boxes. On the food offer, I think there are a lot of things to wish for and to work on. If it’s healthy, sustainable, convenient — all these kinds of things are important.

In our total [global] network, we have operators as competitors who have maybe a pretty good delivery service but lousy assortment. In the end, customers switch to the better assortment and the best propositions and look at the fulfillment solution on top, if it's click-and-collect, same-day or next-day delivery or pick up from store. So, um, so, uh, that element will, will come. What else is important in the e-commerce space, I think, is the connectivity, the relationship, with your customers and to open up other avenues of product offers. For example, in November, we just opened the Ship2Me platform with Giant Food in Washington [D.C.]. Customers are able to access 60,000 general merchandise items with same online checkout [as grocery]. That is a new proposition. So those are things you can do to understand the customer better and that customer journey. What is he/she looking for and also new services and new assortments like extended-aisle and these types of elements. Those are new things which can make you win [share] from other e-commerce players or omnichannel players.

Food LionFood Lion To Go parking spaces-Garner NC store.png

Ahold Delhaize thinks the combination of upgraded stores, such as this recently modeled Food Lion in Garner, N.C., and broad online grocery access is a market-share driver.

SN: Ahold Delhaize has discussed the idea of “omnichannel ecosystems.” Can you talk about that and where the company now has these ecosystems in the U.S. and Europe?

MULLER: We have those e-commerce systems in place for our omnichannel proposition in the U.S. and Benelux as well. We try to connect the Ship2Me [online marketplace] proposition and an omnichannel platform with our supermarket businesses in the U.S., Belgium and Holland. I believe in these kinds of things for the future. We started years ago with Peapod in Chicago as a delivery business. It has now moved into an omnichannel business, with stores and e-commerce under one brand roof. So it’s not Stop & Shop for the stores and Peapod for delivery. It’s Stop & Shop for the omnichannel view, in the store, delivery to your home and click-and-collect at the stores — all these different modes of fulfillment. That’s one big change. The next change will be that we connect an offer for merchandise that you cannot buy in our stores. And then if you think through the various shopping journeys, the same loyalty program, the same type of checkout, you make it very convenient and attractive for customers. That’s what we believe.

SN: What types of market areas are these omnichannel ecosystems in? Does this have to be in an urban environment?

MULLER: Not necessarily. For the Benelux, we do this countrywide, in the more remote areas as well as in the more urban areas. Of course, in the city areas, you have higher productivity, more drops per hour, right? And sometimes in the city there’s a little bit more spending power, a little different type of basket in value or margin. We also offer these kinds of things in remote areas., our [online marketplace] platform business in the Benelux, has 95% penetration in the Dutch market and 50% or so penetration in the Belgian market. So they already have very deep access to all those markets. And our supermarket brands also have a very deep access in No. 1 and No. 2 positions.

So we believe in brands leading markets in No. 1 and No. 2 positions. I think 90% of our total sales are in markets or DMAs where we are No. 1 or No. 2, leading from a relative market share position. And then we try to connect it with brand strength. So Hannaford has a super [market] position in the state of Maine but also a very strong brand. And with those two together, you have a winning proposition.

The Giant CompanyGiant Direct ecommerce fulfillment center-Philadelphia.png

E-commerce fulfillment centers like this new Giant Direct automated facility in Philadelphia will help Ahold Delhaize support growth in online transactions.

SN: You’ve mentioned the Ship2Me service. What potential do you see in the U.S. and Europe for “endless aisle” services like Ship2Me and and frictionless retail technology like Ahold Delhaize’s Lunchbox?

MULLER: That one [Lunchbox] is still a bit experimental for us. We tested a few stores with camera systems and checkout-less technology, and the best the present take is, yes, the technology is working. But it’s still quite expensive and not so easy to scale. So that’s where we are. What we’re doing now is having a very high percentage of self-checkouts in stores. Some stores have 60%, 70% or 80% of sales through self-checkouts. Customer customer adoption is very high. That’s one thing. The other thing is that it saves a lot of labor. And, as you know, the labor market itself is getting tighter.

A lot of customers like it [self-checkout]. For example, here in the Dutch market, we have another variant on the theme. You come in with your trolley, get your scan gun, take something from the shelf and scan the price in your shopping basket. At the end of the trip, you just pass through the self-checkout, put your scan gun in the cradle, the system recognizes you and you pay with cash, a credit card or whatever, or with your iPhone, and you walk out of the store. It’s extremely efficient and very fast, and customers love it because they have a bit more control. They’re not surprised at the [total at] checkout, right? So more control of their budget. They also save one or two process steps. At checkout, they don’t have to take everything out of the cart and put everything back in. So there are more conventional things that can be done fast and in a safe, cost-effective way. You can hang 150 cameras in the store, and that’s great. But in the end, it’s most likely not a scalable solution.

SN: By the end of this year, Ahold Delhaize plans to have over 85% of its U.S. distribution network self-managed. What will this mean for ADUSA’s omnichannel strategy, and does that set the stage for expansion behind its East Coast footprint?

MULLER: Yes, it is designed to support the omnichannel strategy. It’s designed to have the right forecasting in the total supply chain, both for store operations and omnichannel operations. All our dark stores — the e-commerce fulfillment centers, like we opened just recently in Philadelphia, a completely new, 100% robotized warehouse — and our normal stores are connected to the network and have the same type of forecasting and replenishment methodology and process. It’s completely integrated. What it will bring to the whole network is, if we are more precise in our forecasting — because cause it’s one system with one technology and one process — then we can be also more precise with our vendor partners. That means a better mix and link between the order and the deliveries and lower working capital in the total chain. And, of course, it is also good for fresh because you have lower shrink. This is both for online and stores.

We were not completely self-distributing because of the legacy business. They a big contract with C&S [Wholesale Grocers], not for everything but for a number of volumes. Now we’re bringing everything into one system, so you have a holistic view of your assets, transportation, distribution, forecasting, processes and also your total administration, when it is linked to your SAP system.

Ahold DelhaizeAhold Delhaize-omnichannel strategy-2021-22.png

SN: How does Ahold Delhaize apply learnings in Europe to the U.S. market and vice versa? Can you give some examples?

MULLER: That’s a great question. If you’re a company like us, with a footprint in Europe and the U.S., the first question is what can we do together, and then what can you learn from each other? For example, we do quite a lot of things together in IT technology and sourcing. We source a lot of technology together. So you can agree on one [set of] hardware, checkout equipment. You can agree on one contract with Microsoft, one type of cloud technology, and make it an infrastructure for the total company — one architecture, one cloud. But you also can think about procurement of things, how to bring European wines to the U.S. or how to bring U.S. beef to Europe.

With learnings, for example, you can think about algorithms developed with Peapod’s digital apps in Chicago. Those algorithms are traveling now to Europe to be used there, because sometimes the world is less different than people try to tell you. And the other way around, the algorithms travel to the U.S., for example, on forecasting recommendations, a powerful tool. And there’s a lot of knowledge exchange, for example, on ESG and how we look at sustainability on topics like climate change, food waste or plastics. On both sides of the ocean, there’s quite some know-how there, and you can help each other. So those are positive things. They require coordination and oversight, but those are important things to figure out as one company.

SN: How open is Ahold Delhaize to brick-and-mortar acquisitions in the U.S.? Do you see any prospects there, or is the industry well-consolidated now?

MULLER: I can share with you what we’ve always told. It’s easier to find potential consolidation in the U.S. than in Europe. The U.S. is still one market and, most of the time, one language. You might argue that it’s not the same culture everywhere in the states, but it less different than in Europe with countries’ patchwork legislation, different languages and different in all kinds of things.

The first step we always like to do is grow sales on the same square footage, which is the most profitable. So in your existing stores, organic growth. The second thing is, in the same markets where you already operate, to find stores you can buy as sort of fill-in acquisitions. We bought 70-plus stores from Southeastern Grocers in the Carolinas and integrated them with 1,000 to 1,100 Food Lion stores — the same geography, same logistics, the same brand, adding procurement value, intuitive, and works quite fast. Management knows what they’re talking about, and people know the brand. And the third dimension is to see how you can grow in an adjacency where you not might not be. We are adjacent to upstate New York, so you could think about something there because we saw a few companies who did not do so well and came up for consolidation. So there will be more [market] consolidation in the U.S. going forward. That’s our belief.

And with COVID, a lot of food retail has got a lot of tailwind, right? Our business is very cash-generative. So a lot [of operators] say, ‘Well, we’ll take this long. We don’t have to invest yet in technology and digital. I might not have a successor in my family business. But for those two years, I still can make it happen.’ But there will be a lot of topics [of discussion] on succession, on making necessary investments in digital and tech, on consolidation, on scale and procurement and on scale and talent. I think that that time will come halfway into this year. I think there will be more consolidation in the U.S. than ever before. That’s what we might see.

SN: Ahold Delhaize acquired FreshDirect after previously having an acquisition agreement with King Kullen, which was terminated. Did that reflect the elevated grocery demand and changing business climate amid the pandemic as well as your company’s stronger emphasis on e-commerce?

MULLER: Yes, I think so. FreshDirect is nice example. We have 21 stores in the boroughs of New York City with Stop & Shop, and we’re going to modernize those stores. The first store that will get completely modernized will be Stop & Shop’s Bronx store. We don’t have stores in Manhattan, but FreshDirect is there. And we could think about a stronger collaboration and integration between Stop & Shop and FreshDirect to work in the New York market. And a lot of people working in Manhattan are living in Manhattan. Hopefully, they use us through FreshDirect, but probably not for the total basket. People also still go to all kinds of Manhattan supermarkets, which don’t necessarily have the broadest assortments or the best prices.

So there’s an opportunity there to make that combination. If you can give people the same loyalty program, the same own brands they love or better price points, and you can would make a combination of FreshDirect delivery and a modernized Stop & Shop store, then you could find some synergies. So that is a nice example where we have a fill-in acquisition in one of the biggest online markets in the U.S., with $9 billion in potential retail there. So there’s something to win. This is how we would like to combine these kinds of things, and there’s more creativity needed to do that because customers are combining more formats together. That’s what we would like to be a part of.

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