Ahold Delhaize USA to Unite Supply Chain

In a move that will unite and expand distribution serving 2,000 stores from Maine to Georgia, Ahold Delhaize USA announced a $480 million plan to transform its U.S. supply chain.

The three-year investment supports a strategy to transition the supply chain network into a fully-integrated, self-distribution model with seven new warehouses, including the acquisition of three warehouse assets from C&S Wholesale Grocers and new leases on another two facilities. In addition, Ahold Delhaize USA said it will partner with various companies to build two fully-automated frozen facilities. The initiative will provide the infrastructure needed to support aggressive omnichannel growth plans, increase local product availability and improve speed to shelf, providing benefits of freshness in stores, officials said.

The announcement comes about four years after the merger of Delhaize and Ahold. Delhaize largely self-distributed to its retail chains Food Lion and Hannaford, while Ahold outsourced distribution to its Stop & Shop, Giant Food, Giant/Martin’s and Peapod brands to C&S Wholesale Grocers. Chris Lewis, EVP of supply chain for Retail Business Services, Ahold Delhaize’s central support unit, said the move would provide cost savings and efficiency by bringing distribution points closer to local brands, supporting e-commerce, and integrating automation and other technology enhancements, such as forecasting and transportation management, to a single platform.

“The important thing is that this will bring our systems, data and distribution centers all linked to our stores,” Lewis said in an interview. “When you outsource that, there was always some redundancy.”

C&S will continue to serve as the third-party labor provider at three locations Ahold Delhaize USA is acquiring, the Keene, N.H.-based distributor said.

“C&S is uniquely positioned for the long term. We have a strong leadership team with some of the best industry veterans; an expanding footprint in key geographic areas; innovative technology solutions that enhance the consumer experience; and the most cost-efficient products and services in the market. We are confident about our future,” Rick Cohen, chairman of C&S, said in a statement.

Current employees of Ahold Delhaize will remain with the company, a spokeswoman said.

“Today’s announcement is another example of how Ahold Delhaize USA is transforming our infrastructure to support the next generation of grocery retail,” Kevin Holt, CEO of Ahold Delhaize USA, said in a statement. “Through this initiative, we will modernize our supply-chain distribution, transportation and procurement through a fully integrated, self-distribution model, that will be managed by our companies directly and locally. This will result in efficiencies and most importantly product availability and freshness for customers of our local brands—now and in the future—whenever, wherever however they choose to shop.” 

New Automated Frozen Facilities

Ahold Delhaize USA companies’ existing distribution networks include 15 traditional and e-commerce distribution centers, which service the local brands of Ahold Delhaize USA, which include Food Lion, Giant Food, Giant/Martin’s, Hannaford, Peapod and Stop & Shop. The network will grow to 22 facilities by 2023.

As part of the expansion, Ahold Delhaize USA will purchase three warehouses from C&S, including two locations in York, Pa., and one in Chester, N.Y.

In addition, the company will also pursue two new leases: one on a newly renovated warehouse in Manchester, Conn.; and another for the lease of a C&S facility in Bethlehem, Pa.  

Ahold Delhaize also said it would work with a partner to construct two fully automated frozen food distribution facilities, one serving the Mid-Atlantic market and another serving the Northeast.

Ahold Delhaize—which currently has one automated facility, in Jersey City, N.J., supporting its Peapod e-commerce business—said the investment will further help to improve relationships with vendors and suppliers, and through the integration, deepen partnerships to enhance service, quality, innovation and efficiencies while expanding presence in local markets and reaffirming local community connections through the expected creation of hundreds of jobs.

“Moving to a self-managed supply chain will enable Retail Business Services to reduce costs for the local brands it serves, improve speed to shelf, deepen relationships with vendors and better position our companies’ distribution centers in the communities they serve,” Lewis said. “These changes will enable us to take advantage of financial and strategic value within procurement, logistics and warehousing to provide the freshest product through the most advanced, efficient delivery network in the grocery industry. We will continue to partner with key providers for distribution center management services, including third-party labor services, such as our long-standing partner C&S."

“Part of our strategy is leveraging the best of automation and technology,” continued Lewis. “Each facility will also maintain a significant workforce. We recognize the future of work is changing, and we’re taking active steps to help our workforce adapt by enabling them to work more efficiently.”

The companies of Ahold Delhaize USA operate some of the most extensive supply -hain operations on the East Coast, including more than 1,000 trucks that travel more than 120 million miles annually and deliver 1.1 billion cases to local brands’ stores.

Ahold Delhaize said the investment would not materially impact 2019 results and there is no change to the financial outlook that was provided last month. The company also reiterated plans to spend about 3% of sales on capital expenditures on top of the amount to be spent on the supply-chain transaction over the next few years.