Ahold Looks for Answers
By George Anderson
Royal Ahold said yesterday that it was going to abandon its financial targets for the year in light of the weak performance of its U.S. supermarket business.
Ahold CEO Anders Moberg said, “Competitive and operating cost pressures have been greater than expected, and the turnaround at certain businesses has been slower than planned.”
“Going forward, we’re very well aware . . . that we need to take further steps, more probably drastic steps [than] we’ve taken in the past,” he said.
Ahold plans to name a new CEO for its Stop & Shop and Giant-Landover operations next week in an attempt to right that ship. Former CEO Mark Smith who announced his retirement last month will stay on as the new chief executive transitions into the job.
According to a Washington Post report, Ahold plans to continue remodeling its Giant Food stores even if cost cuts are necessary. The company has had success at its Albert Heijn and ICA food chains after remodeling stores in Europe.
The company also plans to reduce price promotions to focus on every day values in its stores while pushing private labels, such as its Nature’s Promise organic line.
Moderator’s Comment: What challenges does Ahold face in turning around its U.S. businesses? What will it need to do if it is to compete successfully?
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George Anderson – Moderator
Pushing private label in-and-of-itself isn’t an answer unless you do it like Wegmans or Trader Joe’s or Loblaw or Costco. Moving from high/low to EDLP helps in this channel, but, again, it isn’t the whole answer. Look at the companies doing well — Wegmans, Price Chopper, Ukrops, HEB, etc. and you’ll find firms that have developed a vital, meaningful relationship with the consumer and the local community; have a clearly differentiated market offering; and enjoy best-of-class execution. The retail graveyard will be full of the undifferentiated soon enough. Maybe what Ahold USA ought to be thinking about is how to forge a new consumer engagement principle, not whether or not to go to an EDLP price on mustard.
Everyone’s heard this song so many times from so many declining retailers: “We’re going to reduce price promotions and focus on everyday values.” It’s such a popular song! It’s part of the permanent collection of Retailing’s Greatest Hits (available on 8-track tape for 99 cents), which include these other standards:
“We care about our people” (sung by the Hundred Per Cent Annual Turnover Family), “We are customer-driven” (the Mile Long Cashier Line Orchestra), and “Quality is our slogan” (the Lowest Bidder Quartet).
This is sounding just like Albertsons’ sad song from a few months ago. Most likely, the best road for Ahold to follow is to sell off or spin off each of the divisions. They have too many banners and too many cultures. Nothing seems to get done because of all the bureaucracy. Prior to Ahold taking over Tops, the two Giants, and Stop & Shop, these were all first class grocery retailers. It would be beneficial to all if they could somehow become privately held regional competitors.
I guess I am not as cynical as Mark. Recognizing the problem is step one. Committing to a solution is step two and implementing it is step three. Part of the solution requires the Ahold stores to become customer centric. They need to listen to their customers and then upgrade their customer service and, thus, the customer experience. Ahold needs to retrain their people, measure the training and act on the results. If they do that, they have a good chance of turning around their decline.
To Mark I say, J.C. Penney Co., Nordstrom Inc. and Neiman Marcus Group were all considered troubled a half-dozen years ago, but now they are among the top-performing retailers.
Penney has accomplished what Ahold hopes to do. It reinvented itself as a middle-America retailer, abandoning some locations. Penney’s found a way to offer better quality goods than Wal-Mart and Target without going head-to-head with conventional department stores.
Nordstrom and Neiman have been hot merchants, capturing free-spending upper-income customers and turning in double-digit sales gains while most department stores were growing slowly or losing volume.
Thus, if the listen, plan and execute, they too can be a successful turn-around story.
Is Ahold crafting a response based upon a strategic alternative created in the board room or crafting a response based upon its understanding of consumer purchases and consumer needs in the US stores? An efficient system that delivers products consumers are not interested in buying will not save anyone. Lots of unprofitable stores shape strategies based upon “industry trends” without really investigating the “trends” of local consumers.