Back to Basics

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

Across the Pond

Can Ahold replicate its Dutch success in the US? To address slumping identical-store sales growth, Ahold launched a programme in 2006 called VIP — short for Value Improvement Programme — for its 600 Stop & Shop and Giant-Landover stores, essentially applying the same formula that worked for Albert Heijn: price cuts accompanied by a focus on produce, readymade meals and own-label products. Around 70% of the programme was complete at the end of 2007, according to Ahold’s US COO Lawrence Benjamin. For example, the chain analysed the sales-and-profit prospects for some 35,000 of the products sold in its stores, discontinuing 25% of them in order to streamline the supply chain and help make shopping less overwhelming for customers.

Identical-store sales at Stop & Shop recently began to eke out small gains, though sales continue to fall at Giant-Landover, shrinking 1.1% in 2007. While Ross claims that the company’s projects tend to have a three-year lag time — suggesting that, as at Albert Heijn, the full benefits of VIP have yet to come to fruition — not everyone agrees. De Boer of Petercam points out that in the US, “there are some big national and strong local competitors, reacting all the time to what Ahold is doing.” Wal-Mart, for example, is unlikely to fold as quickly as Ahold’s Dutch rivals did in the face of price competition. Around Giant-Landover’s base in the Baltimore and Washington, DC areas, says de Boer, “competitors smelled blood and opened a lot of stores.” Unprecedented food inflation will also work against Ahold’s price-led American initiatives.

For these reasons the US, where so many of the problems that nearly bankrupted Ahold first surfaced, remains the sternest test for the company’s leadership. If VIP delivers, “the underlying value of the assets is huge,” notes de Boer. “In my view, the shares are undervalued, and the feedback I get is that Ahold is the most consensus ‘buy’ in the sector.” Indeed, most analysts’ price targets for Ahold’s shares — trading between €9.50 and €10 throughout May — are above €11, with a recent note from Lehman Brothers stating that analysts at the bank “see long-term value beyond €12.”

Back to Normal

For Ross, who has been restructuring, reshuffling and repositioning for nearly all of the seven years she has been at Ahold, “We’re not where we want to be yet, but making good progress.”

Should that progress include a successful turnaround of Ahold’s US stores, the company will earn a place in consulting and business-school lore about the value of focus, or how to pursue smart, sustainable growth instead of a reckless, scattershot expansion at all costs.

Ross believes signs are emerging that this shift is taking hold. In the aftermath of the scandal, she and others got used to fielding calls about minor adjustments in the days before earnings presentations — including a frantic call once about an $18 adjustment. Late-night calls often required attention, leading to working through until the morning. In March, when her mobile buzzed past midnight on the night before the earnings release, she read the text with the usual trepidation. She needn’t have worried. It was only from a colleague wishing her well for her first annual-results presentation as CFO.

Jason Karaian is deputy editor at CFO Europe.

Eye to Eye

As more finance chiefs make the leap to chief executive, will it affect the traditional CEO-CFO relationship?

Not as much as many think, according to Kimberly Ross, who was promoted from head of treasury and tax to CFO at Ahold last year after her predecessor, John Rishton, became CEO at the Dutch retailer. “Being CEO is a full-time job,” she says. “He is not meddling in my daily activities.”

What’s more, she and Rishton come from “different angles of finance,” she says. Her treasury background emphasised M&A, tax and capital structure issues, while Rishton, CFO of British Airways for four years before joining Ahold in 2006, rose to CFO after a career in finance that was more focused on operations. That she and the CEO “speak the same language” comes as no surprise, but they do “bang heads from time to time,” Ross adds. “As all CFOs and CEOs do.”

Outside the company, the finance-focused duo get the thumbs up. “I was impressed with John Rishton as CFO, and Kimberly Ross is doing more or less the same thing,” says Richard Withagen, an analyst at SNS Securities in Amsterdam. “What’s especially appealing is their focus on cash flow.” With more than €1 billion in capital expenditure planned for this year, Withagen believes that “the way Rishton and Ross are acting, this will not be money thrown away.”

Divestments reduced sales at Ahold, but profits are close to historic highs.
After streamlining its retail empire, Ahold now focuses on the Netherlands and the northeast US.
Ahold’s retail brands

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