2019 Grocery Business of the Year: Ahold Delhaize USA

Consolidation is a long-term trend in U.S. food retail, no more irrefutable than the laws of economics that drive it.

Just as inevitable, many would say, is a parallel force requiring food retail mergers, no matter how magnetic the attraction, to encounter accompanying disorder and turmoil that will impair the financial, cultural or operational goals of the deal, at least to some degree. This, however, is not a rule, but only a custom.

Look no further than the $28 billion blockbuster deal between international rivals Ahold and Delhaize. The combined U.S. operations, now known as Ahold Delhaize USA, emerged from a lengthy period of integration in 2018 as a uniquely structured and financially fit U.S. chain with brands executing commercial strategies locally, supported by a central hub providing services such as innovation and new technologies. Nearly 2,000 stores barely skinned a knee getting there—they in fact improved sales and profits—while the company delivered every dollar of its lofty synergy goals. That has now begun providing ammunition for energized brands to unleash the once-dormant power of their market shares.

For building a thoughtful strategy based on teamwork, and for adroitly executing a high-risk deal that has allowed six U.S. brands to each wield the power of a $44 billion company locally, Ahold Delhaize USA has been chosen as Winsight’s 2019 Grocery Business of the Year.

Related:Q&A With Ahold Delhaize CEO Frans Muller

Culture First 

The merger of Ahold and Delhaize, which fused respective Dutch and Belgian international retailers, was announced in 2015 and completed a year later.

While Ahold and Delhaize’s U.S. holdings were complementary in many ways—one’s geographies essentially began where the other’s ended, creating a solid batch of No. 1 and No. 2 market-share supermarkets from Maine to the Carolinas—they came also with significant differences that needed to be harmonized if the company were to reach its goals. Specifically, they needed to determine whether the combined U.S. companies would be managed centrally, as Ahold’s U.S. brands had been, or left to commercial actions autonomously as Delhaize did. Either scenario would require heavy lifting.

Frans Muller, Delhaize Group’s CEO and the deputy CEO of the combined companies, who was also named chief integration officer upon the merger, put together a small team of leaders from both organizations to oversee the U.S. integration. Among them were the respective U.S. CEOs, James McCann of Ahold USA and Kevin Holt of Delhaize America; Roger Wheeler, an Ahold USA veteran then serving as SVP of supply chain who began as an integrational lead on the Ahold side and later became a U.S. leader for the integration; and J.J. Fleeman, who had risen through the ranks of Delhaize America and was the company’s chief strategy and development officer at the time of the merger. Fleeman became a global integration leader, assisting Muller.

Holt in an interview recalled “hitting it off right away” with McCann, setting the stage for the kind of culture the company desired. (McCann resigned in 2016, and Holt replaced him at Ahold, providing him with a deeper understanding of Delhaize’s new sibling).

“We always talked about this idea of building trust and bringing people together,” Holt says. “We put a lot of time into that and I think that was one of the good cornerstone things that helped us be successful in this merger because a lot of these food mergers don’t do that well.”

Holt believed that common culture would serve as the foundation for everything that followed and so he embarked upon creating teams of representatives from both companies early in the process, he says.

“We found that our cultures weren’t that terribly different,” he explains, “but when people don’t know each other and you’re bringing things together, it’s very easy to say, ‘Well, the way we always did it was the right way and the way you always did it was the wrong way.’

“And so we started to move people in the organization when the opportunities came to start restructuring and started bringing people together very quickly to build a sense of trust. And I think that focus really helped us a great deal.”

The team put a similar determination around what would not happen during the process of integration. Namely, they weren’t going to let the performance of the U.S. brands slip while they were distracted by the process of building the organization. “As we came together, we said for this to be successful, we have to be successful at business as usual,” Holt says. “So we have to keep our commitments in the U.S., which means we have to hit our targets and our goals on a daily basis.”

Brands Win 

Though they considered any number of options as a combined company, Holt was convinced that locally run and managed brands, rather than a potentially more efficient central control, was the way to win. Delhaize’s brands—most notably Food Lion, which took momentum into the merger on a comprehensive brand renewal Holt had championed, bringing new life to the Southeast chain despite an onslaught of new competitors there—was providing the best example forward.

“We really moved toward what today we would think of as a local ecosystem approach of winning locally and very, very brand-centric,” Holt says of Delhaize. “I’m a strong believer that brands win. And not just the terminology ‘brand,’ but really that you’re very, very clear on who you are, what your brand attributes are, what you stand for, who your customer is and how you service that customer.”

For legacy Ahold brands, this meant eventually dismantling some infrastructure in Carlisle, Pa.—which remains the home base of its Giant/Martin’s division and which was formerly the central operations hub for sister brands Stop & Shop in New York and New England and Giant Food in the Baltimore-Washington area—and setting those brands free to rebuild each to pursue local procurement, merchandising and marketing strategies.

Photograph courtesy of Giant Heirloom Market

But before that could come to life, a central services organization needed to be built, which took flight with a plain vanilla name but a personality of its own.

A Partnership Model 

Even as a descriptor, the name “Retail Business Services” manages to sell the ambition of Ahold Delhaize’s U.S. central services unit somewhat short. It’s a plain brown wrapper on a new and dynamic kind of business support-center model, which conducts the typical back-office details a central business serving multiple local units would do (e.g., human resources, finance and accounting), as well as other things in its purview that pack an even greater punch, such as innovation, private brands, e-commerce, sourcing and IT.

The name Retail Business Services, or RBS, as Ahold Delhaize people refer to it, further obscures the meticulousness and forethought with which it was created, which details a story that reflects the merger itself and the overarching “Leading Together” strategy behind it.

“We organized the U.S. business and really wanted to make a distinction that the services for the brands of Ahold Delhaize USA would be a company,” says Wheeler, president of RBS. “We wanted the associates within Retail Business Services to have an identity—that they were not a cost center, but provide a lot of solutions based on the complexion of our functions within the company.”

One way was to hold a companywide contest to design a logo. Joe Tumilty, a UI/UX designer with RBS, submitted the winning design as voted on by colleagues. It depicts the letter R, leaning forward to impart speed, fused with a pyramid to denote foundational strength, and shapes using the distinct color palette of the parent group.

“We like the idea that the several thousand associates who are a part of this to feel an identity, like they are part of something that's bigger than a shared services organization,” Wheeler says.

While Holt moved quickly to integrate teams of people, Wheeler and his team at RBS were slow and deliberate as they sifted through processes from each brand, the international organization and even competitors.

“It’s been a very different and changed model for all the participants. It wasn’t like it was more like one company or the other. What we really tried to do was take the best of each in every little area,” Wheeler says. “We were slow to do the integration, and it took a couple of years to really get into the new model because we did it at such a granular level, business process by business process.”

Sourcing, for example, presented challenges, because each legacy brand coming to the merger had their own practices and history with major CPGs. But it was determined that a universal approach was key to unlocking buying power.

“It came down to [questions of] which vendors are your strategic partners and which you’ll do joint business plans with, and how do you want to go to trade: Those are a lot of questions to go through internally,” he says. “How do we want to present ourselves in the community of our trading partners in a way that is strategic and has integrity while at the same time trying to wring out as much synergy to those discussions as we could, which could make those discussions somewhat contentious. Doing that took time for the organizations to get comfortable with, and find common ground of those approaches, but I think it also allowed for a better result and a commitment to work with partners.”

Ahold Delhaize USA’s local brand strategy gives brands the freedom to execute the programs spun out of RBS, but the structure works as a partnership, Wheeler says. RBS needs input from the brands on what to build, and the brands in turn need the skills RBS possesses. This dynamic imparts a deliberate friction to the model that is key to making it work.

“My reflection on the structure would be, because I worked with the brand presidents, that it was very intentionally built as a partnership model, knowing that our success as individuals and individual companies was highly dependent on our desire to collaborate and connect and partner together,” Wheeler says. “So we intentionally built some friction into the model.

“Putting all the service work together is great,” he continues, “but it also creates high expectations of the quality of those services and the cost of those services.”

Digital and IT 

As Ahold Delhaize USA spent its first years working out processes at RBS and brand strategy at its banners, one element of the company was intentionally left alone. Only after the structural foundation was built did the company turn its attention to its digital future.

That process led to the introduction last year of Peapod Digital Labs, a central digital strategy unit that would oversee Ahold’s legacy Peapod business, incorporate elements of Delhaize’s former DIPLA unit (digital, innovation, personalization, loyalty and analysis) and its Hannaford to Go click-and-collect business, while adding new capabilities such as product development, innovation and media monetization.

“When you combined it all together, you suddenly had delivery capability, an e-commerce platform and also a very strong click-and-collect model we could adopt and leverage,” says Fleeman, president of the unit and chief e-commerce officer for the U.S.

A history dating to the first dot-com boom had allowed Peapod to attain a rank it still holds as the largest internet grocer in the U.S. But to a degree, that leadership presented something of a greater challenge to position for the future, because much of the work at PDL involves adopting Peapod to be an enabler of digital commerce across the brands by integrating with store systems.

“Having an e-commerce platform is a huge advantage over a lot of [competitors] in the space. It’s different than just a website. It’s a selling tool, an integration tool, and a conversion tool. That’s very different from a website you browse to look for items,” Fleeman says, “but it was built for a dot-com business. It wasn’t built to integrate and link to the POS systems in stores.

“The work we’re doing now is building those integrated layers, getting that seamless integration inside of the platform, making sure single sign-on could be done.”

The results of that work will be rolled out in phases this year, building on initial scenarios now serving Stop & Shop in Fairfield, Conn. and Giant in Lancaster, Pa., where a new branding for the service debuted.

Photograph courtesy of Giant Heirloom Market

The merger is giving opportunity to illuminate the many things the companies had done well over the years but hadn’t fully exploited or had become in need of modernization. Ahold USA, for example, was years in front of the move to customer scanning in-store, but only now is the company turning that skill into a frictionless checkout. “It’s something I’ve wanted to do for years,” says Paul Scorza, chief information officer, who joined RBS from Ahold USA and, before that, IBM.

Scorza says he’s championing technologies as a means of improving the in-store experience for both employees and shoppers with an eye on a “singular experience” and improved efficiency and service. Look for more digital displays, apps making products on shelves easier to find and tools to keep employees on the sales floor and out of offices. Frictionless checkout—including a simple way to incorporate using the popular Scan It guns in hundreds of stores—only awaits the installation of lanes in stores. “The technology is there—we just have to crank it out,” he says.

The company is gaining new technical muscle in part through a co-op program bringing 40 to 50 students to work every semester. “It’s something we did at IBM that I brought here,” says Scorza. “They get to try us out, and we get to try them. And we put them in an innovation lab where they get a chance to contribute to things that can get put in stores very quickly.”

Standing Up 

The establishment of RBS and personnel work paved the way for the legacy Ahold brands to return to local operation, or “stand up,” early last year. Sales dipped slightly as the new merchants got to work but by the second half of the year, Ahold Delhaize was already deep into a reimagining of its Stop & Shop brand, using the brand-building skills and patterns that were successful distinguishing Food Lion, and sales had rebounded. Giant/Martin’s was developing a new urban small format in Philadelphia. Food Lion was plotting another marketwide rebranding. RBS was exploring ways to generate new revenue streams such as private brand, plus services for other retailers. Peapod had moved into a swanky new office in downtown Chicago. A companywide strategy had advanced from Dick Boer’s “Better Together” to Frans Muller’s “Leading Together.”

“For me, personally, I find just a couple things that I am very motivated by. The first one is finding purpose in our work and having people really feel like they belong to something bigger than just coming to work and punching a clock,” says Holt. “They have friends at work, and they enjoy what they do, and they’re making a difference. It’s very important that we’re not just about P&Ls, but that we’re about people and we’re about purpose. That’s important. And I enjoy that. I really do. And I think that’s mutually shared across our organization.

“I think the other thing that really is cool is doing something remarkable. A lot of the analysts over the years have written about conventional grocers, how they will or won’t be successful. And I think the ability to wake up every day and have that challenge and be able to see what people do—which are amazing things in terms of transforming organizations and being successful.

“If you can reasonably get up every day and say, ‘Wow, look what we did,’” Holt says, “I think that’s kind of cool.”