Online Growth Powers Ahold Delhaize in Q4

Powered by a 128.5% increase in U.S. e-commerce, non-fuel comparable store sales at Ahold Delhaize USA climbed by 11.2% in its fiscal fourth quarter, completing an extraordinary fiscal year that officials said has strengthened its strategic positioning as it begins a 2021 fiscal year facing daunting year-over-year comparisons and what’s expected to be a return to a normalized competitive environment.

Officials of the Dutch retailer, discussing financial results of the 14-week quarter and 53-week fiscal year, said the boost in sales and profits over the course of the year—supercharged by the arrival of the COVID-19 pandemic—helped it to meet or exceed many of the key financial goals established as part of its three-year strategic plan, including strongly outkicking a stated goal of 30% e-commerce growth set as part of its 2018 Capital Markets Day strategic conference.

“Exiting 2020 in this position makes us feel even more confident about our prospects in 2021 and beyond,” said CEO Frans Muller, according to a Sentieo transcript. “While no doubt that COVID-19 helped our results last year, we also know that the future for Ahold Delhaize is very promising. Many consumers have found a new love for eating at home and found new ways to engage with our brands, both online and in-store, which are behaviors we think will have a lot of stickiness.”

U.S. sales for the quarter totaled $13.6 billion, an 18.7% increase or 10.4% increase on a proforma basis, excluding the extra week. Online sales jumped to $755 million. For the year, U.S. sales totaled $51.8 billion, a 15.6% increase, and online sales of $2.26 billion climbed by 105.1%.

Underlying operating margin in the U.S. was 3.9%, down 0.4 percentage points from the prior year at constant exchange rates, impacted by significant costs related to COVID-19, including an increase in worker absences, officials said. One-time items and the previously announced expenses related to the U.S. supply chain transformation initiative also unfavorably impacted margins by 0.5%. These impacts were partly offset by a margin benefit of 0.4 percentage points from the calendar effect of a 14-week quarter.

Evaluating Automation

The U.S. online boost was powered by 1,116 U.S. click-and-collect points at the end of the fourth quarter, up from 883. The company completed remodels of 33 Stop & Shop stores under its “reimagine” initiatives, including 22 in the recent quarter, and about 60 Stop & Shop units will be remodeled in 2021. Those projects are on track to meet performance goals at the company’s largest U.S. brand, calling for sales gains of 4%-6% in their first year, 2%-4% gains in year two and 2% in year three.

Food Lion, Ahold Delhaize’s Salisbury, N.C.-based brand, continues to be the company’s strongest U.S. performer, recording its 33rd consecutive same-store sales gain on the strength of a comprehensive rebranding program. That chain has extended availability of SNAP/EBT online payments to its shoppers in North Carolina.

The Giant Co., based in Carlisle, Pa., is deploying geofencing technology to strengthen the functionality of its Giant Direct app to reduce customer waiting time by 50%. That brand premiered a paid loyalty tier called Choice Pass recently, and as reported earlier this week, will premiere a dedicated e-commerce facility in Philadelphia powered by deployment of the AutoStore system to automate goods-to-person.

Muller said the company intended to compare performances of the facility, expected to be completed in November of this year, with an ongoing test of a Takeoff Technologies system built inside a Connecticut Stop & Shop store to evaluate future automation decisions. The company through its newly acquired FreshDirect business, is also beginning operations at an automated facility with the microfulfillment company Fabric in the Washington, D.C., area. “We believe that a multiple MFC network along the East Coast is for us the best solution,” Muller said, adding, “We have not made up our mind if we can work with one, two or three vendors. That's exactly what we are trying to work out and to learn from AutoStore, from Takeoff and from Fabric.”

Muller said the company was also gaining learnings from a proprietary software it calls Prism that is guiding manual picking to support U.S. click-and-collect.

Natalie Knight, Ahold Delhaize’s chief financial officer, said U.S. markets in the fourth quarter experiences “a little more pushback on the promotional side,” which she said led to an increase in private-brand sales during the period. “There’s still nothing moving in at a high speed, but there is more promotion than we saw in Q3 or Q2,” she said.

2021 Outlook

Officials framed their outlook for the 2021 fiscal year in comparison to 2019 figures to bring better context to the extraordinary 2020 year.

It said underlying operating margin is expected to be at least 4% this year, reflecting a balanced approach with cost savings largely offsetting cost pressures.

The company did not specify comp expectations in detail beyond saying it would be “better on a two-year basis in 2021 compared to pre-COVID-19.” The addition of acquired businesses such as FreshDirect and the 62 former Bi-Lo stores now being absorbed by Food Lion will provide incremental sales boosts—nearly enough to account for the extra week of sales provided by 2019’s 53rd week, Knight said.

Those additions will be modestly dilutive to earnings as the company integrates them.

Muller highlighted progress against key financial goals set as part of his three-year Leading Together strategy that began in fiscal 2019, including achieving annual free cash flow of about 2 billion euros in 2019 and 2020 (vs. a 1.8 billion euros target); over 1.5 billion euros in cumulative “Save for Our Customers” cost reductions so far—a figure on pace for about 2 billion (vs. a 1.8 billion goal). Capital expenditures at 3.3% of sales is slightly higher than a 3% target set then, but cumulative net working capital has exploded to 1.3 billion euros vs. a 300 million euros goal.

Other goals exceeded include already surpassing a companywide goal to double online sales to 7 billion euros by 2021. That figure is now at 7.6 billion euros. U.S. online sales, forecasted for 30% growth in 2020, grew by 105% last year.