On the Bus With Ahold Delhaize CEO Frans Muller
In November, Progressive Grocer Managing Editor Bridget Goldschmidt attended Ahold Delhaize’s Capital Markets Day in New York, where the company talked about its progress to date and its plans for the future in various presentations. Afterward, there was a tour of one of the grocer’s reimagined Stop & Shop stores, in Windsor, Conn. On the way there by bus, Goldschmidt had a chance to speak with Ahold Delhaize CEO Frans Muller on a variety of topics, and even got to make a suggestion about how to make her own local Stop & Shop better. Ahold Delhaize USA is No. 4 on PG’s 2018 Super 50 list of the top grocers in the United States. The following interview has been edited and condensed.
Bridget Goldschmidt: One of the things that you had talked about during the [Capital Markets Day] presentation was about small formats, and how you really want to concentrate on those, and that you've done so in Europe, and you want to bring that to the United States. But you had also pointed out that the traditional American supermarket is huge. So how do you propose to win over the American consumer who might not automatically look at a small-format store and think, “Yes, this is where I want to shop.”
Frans Muller: Yeah, a couple of things to say. I mean, for the Americans, supermarkets are already small formats, right? Compared to mass market, or compared to superstores. Correct?
BG: Well, that’s true.
FM: And then if you look at our Food Lion stores, which are, let's say, 20-25,000 square feet, it's a very small supermarket for the Americans, because our biggest stores – Stop & Shop or Hannaford – are 45-60,000 square feet. So, for the Americans in their perception, our Food Lion stores are small, convenient supermarkets.
BG: I see.
FM: So, it’s a little how you see the differentiation. But in Europe, our average supermarket … is 14,000 square feet, which is extremely small for the U.S. To us, it’s normal size, putting all the market in perspective.
I think what we can do is what you learn from the smaller formats, how you can make more efficient use of your space, have a different type of assortment. I think there we can learn a lot how to excite also the U.S. consumer. And I think the other learning, of course, in the U.S., when you see companies like Aldi and Lidl who come with, what will it be store-wise, it will be 15,000 square feet, 20,000 square feet. Those companies also come with much smaller assortment, and apparently there is a group of Americans who say, “Oh, why not?” So there’s a pocket of potential in the market where I think we could take a bigger share.
FM: So I think it’s a combination of running smaller formats, and how can you make such a good selection of maybe only 12,000 items, which is much bigger than Aldi and Lidl, and much smaller than we’re running now in [our] supermarkets. Can you find the space there, that with less space, you can still bring a very good proposition? And [that’s why at the Windsor, Conn.,] Stop & Shop store … we took the parking space away to have this micro fulfillment [center] and we have less space, and see if you force yourself to condense your offer, the proposition on smaller space can be all still very good for us. So, I think we have a trend here that with online, with center store and which is … giving up some space, I think we can go to more compact stores. And I think that’s exactly the learnings we also can take from Europe.
BG: Are you encouraged by the growth of own-brand products in the United States, because I know that was really lagging behind Europe for many years, but now it seems to be picking up?
FM: We [have noted] the growth of [our own-brand] share in the U.S. And the reason is … that, with our own-brand offer, we have a very nice opportunity to differentiate ourselves. If you have your own formulation of the product, specs, we can differentiate the packaging, and I think we can make it look … different … from our competition.
And what [Ahold Delhaize USA President] Kevin Holt also mentioned … is that we in-sourced our own-brand department. In the past, we worked with brokers like NMI and Daymon, and we in-source this now. And by in-sourcing this, I think we have it in our own hands, [not just] the product itself and the specs, but also the packaging. And I believe – and I’ve been working that field for quite some time – I think we’re very intelligent in … packaging. You can do a lot for customers.
BG: Oh, yeah.
FM: And [to] give maybe a crazy example, but you have those bag-in-box products for wine, which are great to take to your barbecue, or take to your party at the beach, or to your park. … These are very smart boxes. [Consumers] pull the vacuum, and the wine in that box, [the] technology [enables the wine to keep] better than the wine in an opened single bottle. So that is great value for customers, and there’s more and more things possible in packaging, less waste, compostable materials, easy to open, easy to close.
I think the packaging engineering … is something where I would like to be free myself, to choose my own packaging engineering, and not be in the hands of a branded supply.
FM: More and more, customers expect also from us – because they trust our brands, they expect from us that we have brands which are healthier or which are properly sourced or are clean labels – those type of things – and that is exactly what we like to bring.
BG: Right, and you’ve got that commitment to get rid of all artificial ingredients, and so by in-sourcing the own brands, then you also have the consistency across all of your offering and all of your different banners.
FM: So, for example, Kevin [Holt] presented … one of the brands, which is Taste of Inspirations. And Taste of Inspirations is an upmarket brand for us … across all our U.S. brands. So we use the skill and we agree on specifications and packaging; then we get [to] create our own scale and a very good negotiation position with the vendor for private label.
BG: You had mentioned also during the presentations that the company would engage in both organic and inorganic growth. I’m not a financial person so ... could you explain to me what inorganic growth is, exactly, as opposed to organic?
FM: Organic growth is that you grow with your stores with your existing source, or you have expansion yourself. So how to get more sales out of your five Stop & Shop [stores], and that is organic, and what is also still organic is how much can you get out of seven Stop & Shop stores if you build the stores yourself.
FM: What is inorganic is … if you buy two Farm Fresh stores as an M&A. So inorganic is more [of an] M&A piece.
BG: Right, and then converting them into Stop & Shops or any other brand.
FM: In our business, we look at same-store sales, comparable sales, based on the same square footage growing your sales number – that is the most difficult but the most profitable. Second thing is that you buy yourself, you create yourself extra space expansion, that you also can grow, of course, but then you have to invest it because you get yourself extra space, and the third is that you get extra space or extra stores through M&A. The first two are organic and the last one is inorganic, and the first one is comparable sales. And that’s how we would like to grow, because that is the most powerful and the most profitable.
BG: You’ve talked about expansion, about the inorganic and the organic kind. Is it possible that you would be interested in other supermarket brands in the United States beyond the brands that you already own and are currently expanding, or are you just interested in expanding in those particular brands?
FM: No, we’ve said so far that we would like to grow in our present markets for adjacencies, but at the same time we also said that … if we get offers to grow our business by building or by buying a company that we would look at those offers, [but] our first focus now is executing our strategy. ... That’s the first thing. The second thing is to ... strengthen that strategy with in-markets expansion through M&A. And the third thing is, yeah, if … there is a potential target which fits the bill of supermarket and of material capital … and which fits the bill of a good fit, and it’s close to our geographies, then we will look at it.
BG: [Are you] really getting into and investing in [ecommerce] because that’s really beginning to become a major element of how people shop, both in the United States and in Europe?
FM: Yep. We talked today a lot about ecommerce with important trends, but we also [have] a lot of customers who just come to our stores [and] are okay to do their normal shopping.
BG: Yeah, I think it’s not only like, perhaps a demographic, [as] with maybe younger shoppers sort of preferring ecommerce, but I think it is also personal preference. I think some people would just rather … select the food for themselves.
FM: See what this avocado is.
BG: Although I did see a study that said that buying fresh products over the internet is actually growing among even U.S. customers, which … was kind of an obstacle for a lot of them when it came to online shopping, that they didn’t want somebody choosing their produce for them, or other fresh products, but it seems that as people get more used to the concept of online shopping, they’re more okay with that part of things. I personally I don’t think I would mind if somebody picked [my] fresh products.
FM: Isn’t it nice that we have that option?
BG: Yes! That’s exactly it. It’s about options.
FM: You decide; you are in charge.
BG: Exactly. I mean, I do enjoy shopping in person, I enjoy the physical activity of shopping, but I know there are people for whom it’s a chore and they would rather have someone deliver it for them, or they’d rather just pick it up after it’s already been chosen.
FM: I also like it myself to go to [a] store, see new products, get new ideas, get some ideas for what’s for dinner tonight or other recipes ... and it’s always so nice to see the product assortment develop.
FM: And we will see today [at the Windsor] store, I hope you get that sensation, how the produce looks and the kitchen and excited about food in general.
BG: I actually shop at a Stop & Shop, so I’m very excited.
FM: Where? Which Stop & Shop?
BG: In Queens, it’s actually in Arverne, N.Y., on the Rockaway Peninsula.
FM: Are you happy there?
BG: Yes, it’s a vast improvement on what was there before.
BG: So, yeah, I enjoy shopping there a lot, and I’m excited to see what the next iteration of the Stop & Shop brand will be.
FM: And if you’re a customer there in Queens, what would be your recommendation to make it an even better shopping experience?
BG: Well, now that you mention it, [what] would be a great addition to the store … that I go to is to have a place where you could eat in there, like in-store dining or something like that, to have like an in-store restaurant or grocerant. That would be a nice addition.
FM: We have a couple stores going [in] that direction, for lots of people [coming] from work, and these kind of things. ... All the people just can take a quick bite, do the WiFi.
BG: Right, right. Yeah, that would actually be pretty nice. Now that I would be particularly excited about.
FM: It’s amazing how fast we found a new idea, right?