Back to Basics

After years of empire building, Ahold learns the importance of focus.

At the cavernous Albert Heijn XL in Osdorp, on the western fringe of Amsterdam, manager Cantor Barten discusses how the store is now selling more high-margin fresh produce, readymade meals and own-label products. The latter category, for example, grew by 35% across the chain’s stores last year. As lunch approaches, a chef at the “Grill & Steak” station prepares a demonstration at a counter that resembles a TV cooking show. The smells waft through the shop, enticing shoppers to pick up the individually wrapped cuts of meat, condiments and vegetables strategically stationed nearby. To pay for their purchases, around 40% of these customers use self-scan checkout lanes, which need only one person to supervise every five machines, Barten adds.

Meanwhile, on the Damrak, in the centre of the Dutch capital, an AH To Go is doing brisk business among the throng of locals and tourists. As small as 40 square metres — the largest XL store is as much as 4,000 square metres — these convenience stores are “easy to open and to manage,” notes Ross. There’s another reason why Ahold is accelerating the rollout of the format, according to Dick Boer, COO of Ahold’s European unit: these stores “can ask for a bottle of water at €1.50 instead of 17 cents” at a traditional supermarket.

Finally, in IJburg, an affluent neighbourhood on recently reclaimed land east of the city, Edwin van de Nadort, an 18-year Albert Heijn veteran, praises the new, highly automated supply chain system, which allows him to spend more time on the shop floor with customers rather than in the stockroom, manually monitoring and replenishing inventories. According to Chris Dik, CFO of Ahold’s European unit, the new order and replenishment system is saving the chain €42m a year.

With profits, sales and margins at the chain all falling as recently as 2003, Albert Heijn is now reaping the rewards of its repositioning. Last year, operating income grew 40%, on a 12% rise in sales. The business is “clearly flying,” says Fernand de Boer, senior equity analyst at Petercam in Amsterdam. The ascent is continuing this year, with identical-store sales — a key indicator of organic growth — up 11% in the first quarter, compared with 9% over the same period last year.

Though most retail observers applaud Ahold for the deft turnaround of its Dutch business, some, like Richard Withagen, an analyst at SNS Securities in Amsterdam, note that a lack of meaningful competition also helped. When Albert Heijn tried to jumpstart sales by launching a price war in 2003 the number-two player was Laurus, with 20% market share. With its own problems of over-expansion and outdated stores, Laurus struggled to respond to the price cuts, leaving it a shadow of its former self today. For its part, Schuitema — despite Ahold’s majority control — also struggled with sluggish sales and low profits. While CVC, the buyer of Ahold’s controlling stake in Schuitema, is “not stupid,” in the words of Petercam’s de Boer, he is nonetheless “puzzled” by the structure of the deal, given the amount of work necessary to turn around the chain. As its weaker competition regroups, “there are hardly any clouds on the horizon” for Albert Heijn, he concludes.

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