Q&A: Ahold Delhaize USA’s Kevin Holt bullish on omnichannel

Kevin Holt has served as CEO of Ahold Delhaize USA and as a member of parent company Ahold Delhaize’s management board since January 2018. Previously, Holt was chief operating officer of Ahold USA and played a key role in the $29 billion merger of Royal Ahold and Delhaize America, finalized in mid-2016.

At its 2021 Investor Day event last week, Ahold Delhaize said it aims to boost sales by over $11 billion and double net consumer online sales by 2025, as well as achieve “fully allocated” e-commerce profitability. A linchpin of the global food retailer’s strategy is creation of “ecosystems” in dense markets that build off the local brand strength of its supermarket and e-commerce operations.

Ahold Delhaize USA, as the company’s largest business unit, has a pivotal role to play with its 2,000-plus grocery stores on the East Coast under the Stop & Shop, Giant Food, Giant/Martin’s, Food Lion and Hannaford banners as well as online grocer FreshDirect, all supported by the Peapod Digital Labs, ADUSA Supply Chain and Retail Business Services units. Supermarket News Senior Editor Russell Redman interviewed Holt the day after his presentation in Ahold Delhaize’s investor event. Here are excerpts of the discussion.

SUPERMARKET NEWS: During Investor Day, the idea of “omnichannel ecosystems” kept coming up. What does Ahold Delhaize envision here, and where does this concept come from?

Related:Ahold Delhaize aims to add $11.4 billion in sales by 2025

KEVIN HOLT: Many retailers have talked about this idea of an omnichannel ecosystem, and they might view it from slightly different angles. But I’ll tell you how we think about it. Customers’ lives are in motion all the time, and they’re trying to find ways to have more convenience, more ease, more value. When we think about the omnichannel environment, it begins to offer a whole bunch of connections and touch points that we haven’t had before, particularly for fulfillment. In addition to that, in the digital world, it allows us to get a lot closer to the ability to personalize. And if you take that all the way to its extreme, it’s really being individualized.

We believe we can build an ecosystem that’s uniquely local in the neighborhoods that we serve, because we fundamentally believe that your brand and the brand attributes in that local neighborhood are critically important. We see a lot of operators out there running dot-com operations, and what you’re seeing over time is that almost all of them are trying to find partnerships that have brick-and-mortar. For grocery retailing, there’s a real opportunity for us to build this out to get that ecosystem much tighter in the local community and be able to move the personalization much more to consumers’ lifestyle needs.

Related:Ahold Delhaize USA adds to sales gains in third quarter

[During Investor Day] we showed examples of how we can actually help people with allergies or certain lifestyles shop accordingly. So for us, it’s building that ecosystem that allows us to bring those things together for the customer through any channel that she or he chooses. In some cases, they may want to have a hot meal for dinner tonight and are in a hurry to do something. So we can fulfill that with 30-minute delivery. On the other hand, they might have [product] staples that they want delivered once a month. We not only can remind them of that, but we can also have that on a subscription that just keeps rotating for them and takes care of it.

Overall, Ahold Delhaize USA's retail footprint encompasses more than 2,000 stores along the East Coast, plus online grocer FreshDirect.

SN: What are some current examples of these “ecosystems” at Ahold Delhaize USA?

HOLT: When you look at how retail is changing, we’re delivering across all channels, right? Our stores are our most profitable channel today. Taking the entire of what we think of as e-commerce, it’s unprofitable. As we think about building that out, how do you build the profitability? About half of our volume goes through click-and-collect. That becomes much more profitable once you get to a certain sales level, transaction level and size of transaction, because it allows you to cover your base costs. But then how do you grow beyond that? That’s where we start adding micro-fulfillment centers and looking at alternate delivery methods. For example, we’ll be doing delivery from our stores [with] click-and-collect on a same-day basis. So today, you pick up your groceries. Tomorrow, we’ll be able to offer from our own properties daily, same-day deliveries. Today, we run same-day deliveries through Instacart. So we’re looking at a number of different avenues like that.

And then we’re also looking at how do we drive a route density? How do you drive that ability for us to have more and more digital relationships? Because the more digital relationships you have and the more omnichannel shoppers you have, those are your most profitable shoppers. They have the biggest share of wallet with you. They also have the most loyalty, because once they find that value in your ecosystem, they have a tendency to stay there. So that’s what we're trying to build.

Philadelphia is a good example. We’re entering the Philadelphia market, where The Giant Company was only in the periphery. And we’ve decided to come into the Philadelphia market based on what consumers were telling us, what they were looking for in terms of alternatives. That’s how we created the [Giant] Heirloom Markets. And subsequently we’ve put a flagship store there, and we just opened [a Giant supermarket on] Cottman Avenue that’s doing very well. Next is our [Giant Direct e-commerce hub on] Island Avenue, which allows us to deliver by channel, same-day or next-day. So now we’re actually giving that consumer the opportunity to be fulfilled in any way they need in any time frame they need. In doing that, we believe we can build the density and the profitability over time to make this a very successful way to serve customers.

CEO Kevin Holt said Ahold Delhaize envisions a dual-brand, omnichannel ecosystem of Stop & Shop and FreshDirect in metropolitan New York.

SN: What possibilities did the FreshDirect acquisition open up for Ahold Delhaize USA?

HOLT: That’s a really neat opportunity for us. FreshDirect has a longstanding, very loyal customer base as a dot-com operator, and they have certain attributes about their brand that are very powerful. They’re thought of as kind of that culinary, speed-of-service internet [grocer], in Manhattan in particular and then out into the greater New York area. They have certain things that they’ve learned over the years that we think will be very valuable to a dual-branded view, relative to how you deliver in New York for channel, the sourcing they’ve done from local farmers and how they’ve run a fairly short supply chain.

What they don’t have, though, is the kind of the infrastructure that we have with Stop & Shop and ADUSA. We can bring that to get more synergies and to be able to invest in the FreshDirect proposition as well. Then we can take our platform operations in our PDL organization, like Prism and Royalty, and integrate them into that dual-brand strategy so the consumer has better choice and we get the opportunity to build it once and use it across both. So we see that there’s a great deal of integration that can take place while the brands still have their own identity. When you look at the FreshDirect customer today, they’re a little bit different than the Stop & Shop customer. We also have [FreshDirect’s] culinary center, which is not completely utilized. Over some point in time, we could actually bring products out of the culinary center and into Stop & Shop delis, or something like that. There are a number of different things that we can do for much better synergy and leverage and, ultimately, to better prepare for how we’re taking care of customers using that dual-brand approach.

Earlier this month, The Giant Company opened an automated e-commerce fulfillment center in Philadelphia, where Ahold Delhaize envisions another ecosystem.

SN: Where can we expect to see more of these omnichannel ecosystems?

HOLT: We see it in any urban markets where you can build near the density and opportunity. We’re in a lot of the big, major markets. Whether you look at the Washington, D.C.-Baltimore area, Philadelphia, New York, Boston, or if you go down to areas like Raleigh and Charlotte, we have a fairly significant presence in the U.S. markets. It really gives us an opportunity to think about how you can bring this ecosystem to life.

The other thing we’re looking at is, how do you extend this? That’s the whole idea of Ship2Me, which will ultimately be our local marketplace. The intention behind that is not only to offer kind of the complementary goods through purveyors to our customers on the local level, but also over time to be able to extend into services, partnerships with local farmers, and those kinds of things that will allow us to continue to hyper-focus on that local ecosystem.

SN: Giant Food is slated to launch the Ship2Me “endless aisle” service later this year. How did that come about, and what possibilities does that present to the other U.S. brands?

HOLT: We haven’t totally defined all the possibilities of it yet, but right now I would say that what we looking at is an extension of assortments — whether it’s goods, baby, pet, things like that — and offer products that we wouldn’t carry in a full-line store. It would also be the ability for us to feature minority suppliers, local growers, etc., the kinds of things that are important to people in their community. You might remember that with Peapod, in Chicago, we created custom recipes with local restaurant operators, and then we would build meal kits with those recipes that you could buy at both the restaurant and on Peapod. So there are a lot of things like this that we have experience with and, over time you’ll start seeing as we build local ecosystems versus some kind of a big, national general marketplace.

SN: How open is Ahold Delhaize to brick-and-mortar acquisitions in the U.S.?

HOLT: Our strategy that we talked about back in the 2018 Capital Markets Day is still true today. We have a No. 1 or No. 2 share in just about all of our markets. Our intention is that, as we continue to build our brand strength, we want to continue to build our relative market share. And as we’re looking to build market share, acquisitions help us do that. The SEG acquisition [Food Lion purchase of 62 stores from Southeastern Grocers in 2020] would be a good example of that. It fits very well inside of [Food Lion’s] geographical operation and helps them get better utility out of the entire supply-chain infrastructure.

If we look at FreshDirect, that was a dot-com operation that we picked up. The intention there was to help us build this ecosystem [in metropolitan New York] with Stop & Shop and FreshDirect. As we go forward, our intention is still to dense-up in the markets that we serve where there are opportunities. We’ve purchased a fair number of one- or two-store operations. So that is currently how we’re thinking about that.

Ahold Delhaize USA is on pace to end 2021 with about 1,400 click-and-collect locations, up from 1,100 at the start of the year.

SN: Does Ahold Delhaize USA see e-commerce and its integrated, self-managed distribution network as offering an avenue to expand beyond its current East Coast footprint?

HOLT: Our primary focus today is the markets that we serve, and that’s really where we want to stay focused until we feel like we’ve got that exactly where we want it to be. We’ve still got more work to do on the supply chain, as we said at Investor Day, to be at about 65% [self-distributed] at the end of this year and then about 90% to 95% at the end of next year. And then we’ll just have one other center to bring in [to the self-managed network] in the spring of the following year. We’re well on our way to achieving that. We’re well on our way to building out our omnichannel infrastructure. And we’re well on our way to our CVP [customer value proposition] in our Prism platform being installed across all of our brands. We continue to invest heavily in making certain that we have that configuration correct so we have the right coverage across all of our markets and that we're really building that local ecosystem to win on the East Coast.

SN: We don’t hear much about Hannaford. What’s going on at that supermarket chain under Ahold Delhaize USA’s omnichannel strategy?

HOLT: Hannaford has introduced our first all-digital loyalty system. It’s not price-based. It’s really based on building loyalty, and they use private brands and rebates as part of that. And it has been very successful for Hannaford. They’re highly focused on building fresh and local community involvement. Their brand has always stood tall in that regard, and they continue to invest in activities with local growers and their whole fresh environment. They also have continued to expand their click-and-collect operations pretty aggressively and have very high penetration rates. The team has done a super job of putting that in place. They are also continuing their investment in private-brand assortments to make certain Hannaford is tailored to the communities that it serves and modernizing assortments around the things we’ve seen since COVID with snacking, more meal occasions at home and fresh kitchen-types of opportunities. So Hannaford continues to be very aggressive in connecting directly with their consumers.