The Food Retail Experts

Sign up to receive our Analyst Views

 
Receive Analyst Views ›
 

Ahold Delhaize Shines in the Netherlands

AD Greece
Photo: LZ Retailytics
This Shop & Go minimarket in Greece is part of the dowry that Belgian Delhaize brought into the marriage with Ahold. The new group's sales grew 4.2% in the region last year.

Ahold Delhaize has seen strong sales growth in the grocer’s Dutch home market and its Central and South-Eastern European markets. During financial 2017, preliminary pro forma net sales in the latter region grew 4.2%, outstripped only by the Netherlands with a growth of 5.0%. Sales growth in Belgium was flat. Turnover in constant exchange rates at Ahold USA and Delhaize America increased 0.1% and 1.3%, respectively. 

Total preliminary net sales for the group reached EUR62.7bn, up 0.6% on 2016. Fourth-quarter sales declined 2.8%, chiefly due to the devaluation of the USD. For the full year 2017, Ahold Delhaize expects pro forma underlying margin for the group to be 3.9%, in line with the guidance.


Opinion

Sunny at Home, Cloudy Overseas

Ahold’s sales growth in the Netherlands is impressive: 5% for the year – and 4.5% in comparable sales – all against a backdrop of a store portfolio that has not even grown. In fact, it stood at 2,163 outlets at the end of 2017 (including drugstores and liquor stores), exactly the same number as a year before. There are of course good reasons for this development. One is that this figure includes sales from bol.com, the retailer’s online division. Bol.com reported nearly 30% sales growth in the important period of October to December, versus the same period in the previous year, driving annual net sales to EUR1.6bn. 

Another reason is – relatively – high price inflation, which reached 2.8% in the last quarter. One of the reasons for this value is very likely a decrease in price competition – with all retailers now focusing on quality and range improvement rather than low prices – not surprising in a supermarket-dominated country. However, now this also includes the leading discounters Lidl and Aldi Nord, which are investing in nicer stores, greater freshness, more brands and convenience, organic, fairtrade and regional foods. The price focus is increasingly narrowing down to KVIs, key value items, such as pasta, flour and sugar, rather than more sophisticated products. 

In comparison, in neighbouring Belgium, comparable sales fell 0.2% over the period. Interestingly, there, Aldi was last to list brands and extend its ranges; and leading price aggressor Colruyt has just said it is sacrificing margins to defend its price positioning. A far less attractive situation to drive turnover and margins, obviously (inflation: just 0.9% in the quarter). But going forward, Delhaize in Belgium will be able to benefit from further synergies with Albert Heijn. 

Ironically, now that the price pressure from the Aldis and Lidls is finally diminishing in Europe, a new discounter front is emerging as a long-term challenge. The situation is easing in Europe due to the ‘supermarketisation’ of the discounters. But now it is the US market, Ahold Delhaize’s most important sales contributor, that is increasingly coming under fire. Lidl has just opened some 50 stores there over the past seven months, exactly in the heartland of the group’s various supermarket divisions. 

Ahold USA reported sales growth of 0.1% at constant exchange rates - not really that impressive given the usually higher food inflation there; and in light of the still limited presence of Lidl and Aldi Süd. Delhaize America’s Food Lion – which is just one out of no less than eight banners under which Ahold Delhaize trades in the USA – is for good reasons rolling out an ‘Easy, Fresh and Affordable’ programme in North Carolina and Virginia – exactly the regions where Lidl is predominantly active and where Aldi has sped up expansion. 

Ahold and Delhaize, they know their European peers quite well, but one thing is clear: life won’t get easier in the USA going forward, especially for a listed company. It may come as good luck that Lidl is said to be underperforming in its first American stores and needs to rethink its concept. This provides precious time to better prepare for harder times.

Topics: Schwarz Group Aldi Delhaize Group Ahold Delhaize Ahold