Ahold Delhaize sketches out COVID-19 investment plan

This year, Ahold Delhaize plans to focus on improving in-stock levels, adapting store operations, and accelerating digital and omnichannel initiatives as part of investments in safety, relief and support during the coronavirus pandemic.

CEO Frans Muller said the global food retailer already has committed €170 million ($184 million) to those efforts, with €100 million already spent in the first quarter and another €70 million carrying over into the second quarter. More will be forthcoming, he noted.

“This €170 million figure is by no means the full amount and, in fact, it will ultimately cost more than this. This is just what we are currently deploying,” Muller said yesterday in a conference call on Ahold Delhaize’s fiscal 2020 first-quarter results.

He said changing conditions make it difficult for the company to quantify future coronavirus-related investments, but the funds allocated so far provide an indication of what may be needed.

“While we are doing our part to prioritize safety, relief and support during the COVID-19 crisis, we also know it’s not enough,” Muller told analysts on the call. “In the nearer term, our priority is to continue to run operations safely and smoothly and offer our customers more convenience so we can serve them better in their time of need. This means there are a higher level of investments needed in the upcoming quarters to make this happen.”

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“While we are doing our part to prioritize safety, relief and support during the COVID-19 crisis, we also know it’s not enough,” CEO Frans Muller said.

With consumer demand for groceries still high, work is already under way to tackle lingering product shortages in various categories so shoppers don’t encounter empty shelves in stores. Ahold Delhaize USA, for example, saw comparable sales jump 34% in March, as customers stocked up for extended stays at home amid the spread of the virus. U.S. comp sales tailed off slightly for April but remained well above normal.

“It will be no surprise to you to hear that we, along with the broader food retail industry, have had challenges with in-stock levels in categories such as paper, sanitation, frozen, proteins and, in some [areas], cooking supplies such as flour,” Muller said. “We are, therefore, proactively working with suppliers to provide better availability of products to our customers, including prioritizing SKU offerings to meet current levels of demand. We are using our scale to ensure that we have provided our fair share of allocation for these products. We’re also leaning upon idle capacity in the labor force and foodservice distribution providers in order to overcome capacity bottlenecks.”

Through its stores, Ahold Delhaize has implemented a range of measures to protect customers and employees as well as support the communities it serves. Plexiglass shields have been installed at registers; new traffic-flow patterns have been established to promote social distancing; more contactless payment and delivery options have been added; and more stringent cleaning and hygiene practices — such as shopping cart cleaning before and after use — have been introduced.

Related:Ahold Delhaize sees U.S. comparable sales jump 34% in March

The retailer said it also has invested in security staff, provided a special grocery delivery service for health care workers and offered special opening hours for seniors (with its Stop & Shop chain the first major grocer to do so in the U.S.). And at the community level, the company is collaborating with business partners, vendors and service providers to ensure food and supplies are available and making more donations to local food banks, national and private health systems, the Red Cross and medical facilities.

In the U.S., Ahold Delhaize plans to grow to more than 1,000 pickup sites this year.

Ahold Delhaize, too, has added bonus pay for frontline associates, stepped up benefits and launched plans to hire more than 40,000 associates, including about 20,000 in the U.S.

“We’re also adapting our store operations through changes in customer behavior, preferences and safety needs. We are working with local governments and agencies on health and safety measures for stores and distribution centers, and our leaders know it’s more important than ever to push for higher level of customer services through exemplary associate efforts,” according to Muller. “And we are adjusting our systems and processes — such as inventory ordering and labor scheduling — to better match the new demand patterns caused by community lockdowns and health and safety concerns. For example, weekends have historically been some of our highest traffic days, and customers have shifted towards more weekdays and shopping during off-peak hours.”

For the first quarter, global net consumer online sales for Ahold Delhaize climbed 38.6%, and the company expects continued strong growth. In the U.S., where first-quarter online sales advanced 42.8%, the company is raising its online sales growth forecast from 30% to 50% for 2020.

“For many reasons, including more recently safety concerns, and always for convenience, customers both new and existing, younger and older, are preferring to engage us more online,” Muller said in the call. “Our near-term and long-term plans always involved investing more in digital and omnichannel capabilities, even prior to COVID-19. We need to invest in accelerating these capabilities even further this year.”

U.S. customers have particularly embraced online grocery pickup, with the fulfillment mix edging closer to 50/50 between pickup and delivery, according to Muller. Ahold Delhaize USA had 707 pickup points overall at the end of the first quarter on March 29, and now the company aims to have more than 1,000 by the fiscal year-end, up from its earlier projection of around 1,000.

Globally, Ahold Delhaize had previously set a goal of reaching €7 billion ($7.6 billion) in online sales by 2021.

“That number might come closer and faster, looking at the growth rates we have at the moment, 50% in the U.S. but also strong growth rates with our European business,” said Muller. “What is clear for us is that online sales will be sticky in a growth perspective for our customers, and we accelerated due to COVID-19. So, that’s one thing we see. The second thing is that we have been always convinced as well that an omnichannel proposition, both the combination of online and bricks-and-mortar, is where we get a higher share of stomach and higher share of wallet from our customer base. So we believe that, in the end, it will drive growth, it will drive loyalty and also drive profitability.”

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