Q&A With Ahold Delhaize CFO Natalie Knight

Natalie Knight, the consumer goods executive who joined Ahold Delhaize as its chief financial officer in search of a role that brought her closer to the consumer, got all that and more over the past 17 months. She began her role March 8, 2020—or just in time for the Dutch retail giant to confront the early effects of a global pandemic; she’s been committed since then to being sure the company exits the crisis in better shape than it went in. In the following Q&A, excerpted from a conversation Aug. 11, Knight discusses the challenge of capturing COVID’s consumer tailwinds and her plans for its financial rewards, as well as progress at the company’s U.S. banners. She also shares perspectives on inflation and new competition—and why they may not be as threatening as they first look.

Jon Springer: You’ve got an unusual background as an American who has worked for most of your career in Europe. Can you discuss what attracted you to the opportunity at Ahold Delhaize, and how that reflects on you personally?

Natalie Knight: I’m a native Seattleite, and you’re right, I’ve been living in Europe, with the exception of three years, since the early 1990s. Time flies when you’re having fun, as they say, and I think I’ve [worked in] six countries, and in six industries. Most of it, however, was with Adidas. I was there 17 years and did a big variety of finance functions. Prior to coming here, I worked at Arla Foods, which is one of the big dairy companies in Europe.

For me, I looked at Ahold Delhaize and I said, this is a perfect match for me as a company, because it’s European-based with a large U.S. footprint, and it was about understanding the consumer in both of those markets. I’d also seen kind of the other side of [retail], with the FMCG (fast-moving consumer goods) background. And when I worked on that side, what I always dreamed of was when I was going to get to be closer to the customer, looking at the POS data that the retailers have, and having that direct connectivity.

Coming into this business with the COVID [onset] was obviously a challenging time, but also a tailwind to the business. It has been a real equalizer in terms of everybody learning new things now. So it’s been a good time to come into the business and bring some new ideas. I think we’re getting a lot more agile and focused with some of the things we’re doing.

Ahold Delhaize discussed seeing a sustained level of stickiness to those COVID trends as demonstrated in the second quarter. Can you talk about what you saw in the U.S.?

From a U.S. perspective, the big story is that two-year comp sales stack. So looking at 2020 and 2021, what you see is we are at over 19% [stacked comps], so we are higher than where we were all of the 2019-2020 combination, and higher than we were in Q1. If you look at our numbers and see a -1.5% comp, that’s a lot better than what you’ve seen from our competitors in the last six to eight weeks. So we feel good.

Frans [Muller, Ahold Delhaize CEO] mentioned our market-share gains based on preliminary IRI [proxies] and we expect that to continue. I think what it shows is that having the number one or two market position, being connected to your customer and being able to move faster with everything we’ve done to continue the rollout of click-and-collect—those things have put us in a place where we’ve been able to bring the strengths that we have that we developed during COVID into this. I know we’re not through COVID yet, but I’ll say as we’re transitioning, we’re seeing those strengths being sustainable, and playing to that stickiness of consumer behavior, which is clearly more working, eating and shopping at home, which are all things that play into our strengths.

You called out a 35th consecutive quarter of comp growth at Food Lion. How do you guys look at the continued strength of that banner?

Food Lion as you know went through a huge transformation. By the end of this year, we will have completely remodeled the whole network. They established a very strong culture that’s all around making sure that we have the customer in the middle of everything we do.

I also think during COVID they had a super format, a smaller format with very high density across the market. So it wasn’t the big store people were afraid to go in. And it wasn’t the small store that didn’t have product. It was something where people said, “We trust it.”  

Pricing, the right-sized box and consumer trust has generated 35 quarters of same-store sales increases at Food Lion. Photograph courtesy of Ahold Delhaize 

Part of their turnaround in the last few years has been very focused on great prices. Of our brands in the U.S., it’s the one that probably has got the strongest pricing proposition. The other thing is that the demographics in that part of the country are also the strongest for us. So, you know, it’s growing and we expect that to continue as things go forward.

I know you would like to do the same kind of turnaround at Stop & Shop that you’ve done at Food Lion, although it’s not exactly apples to apples. But that’s the one banner that did not gain share during the quarter. What can you say about what’s happening at Stop & Shop?

Stop & Shop has maintained its position, and we did have nice growth over the last 12 months, so for me, I’m quite pleased with where we are. But I think it remains to be proven that when we do transition out of COVID, that we have made all of those positive improvements. We have now remodeled a quarter of the fleet, about 100 stores. And we’ve seen them performing on plan. They’re beating the comparable stores, or our control stores, internally. That’s a little hard to measure because in COVID, they’ve blown through all those numbers, but so has the rest of the fleet as well.

When I look at Stop & Shop, I’m excited by the opportunity, because as we make improvements there, it has the biggest absolute upside for our business. Having said that, it’s very different from Food Lion. It’s in a different part of the country, so we don’t have the demographics playing with us there. In New York and the Northeast, people are moving out vs. coming in at the moment. And we still have three-quarters of our stores that we need to remodel. It’s a process. We’re in year two or three in that journey, and if you look at Food Lion, we’re in year eight of that journey so we’re a bit further down the line.

Photograph courtesy of Ahold Delhaize
And I don’t think it’s actually a one-size-fits-all, and just doing at Stop & Shop what we did at Food Lion. It will be about how we win key geographies that that brand serves. I’m excited by the opportunities, for example, with FreshDirect in New York, being able to play some of those things across the group. And I feel like you do see, in the Stop & Shop team, a different feel in the business vs. where they were a couple of years ago. They have our strongest e-commerce sales penetration, so there are some areas where they’re out on the front. That’s something that gives us confidence that we will continue to see things move in the right direction.

As the head bean counter, what’s your view on what Ahold Delhaize does with all of the profits that it’s been able to generate over the past year?

If you look at it over the last 18 months, you saw that one, we rewarded our shareholders. And we made big investments. We increased our expectations on cap-ex last year. And this year, we talked also about the opportunities with stores and digital. We’ve gotten faster in terms of how we can take advantage of those opportunities. The other thing we’ve done is spent a lot of money as a group making sure that we take care of our associates and our customers. If we look at last year and this year, I’m absolutely confident we’re going to pass the half-billion-dollar mark.

We are reinvesting it. If you look at the last quarter and then this one, it’s a little more European-focused because we had the Belgian flooding, and the Indonesian outbreak of COVID. COVID is coming to the U.S. again, but in Indonesia, only 20% of the people have one shot. So that’s been very big. There’s been tornadoes in Czech Republic and fires in Greece. Q3 tends to be our U.S. quarter for disasters with the hurricane season coming. That’s all part of our focus, because it just isn’t the numbers and the opportunity, but how do we actually help? That’s part of our DNA in each of those communities.

It’s nice when you see the numbers go the right direction, but also, really being able to take the opportunity to invest in the future. And I think that’s what you see in the numbers now, it’s the way we’re being able to hold the momentum. We’ve had our capacity in the U.S. grow online by 70% in the last 18 months. So we are really taking those positions to hopefully be stronger as we go forward. And I think that’s a place where we differentiate ourselves vs. some of the other players in the U.S. I think there are a lot of people who are getting tailwinds, and I think some of them are using them to go after past opportunities, or just pocketing it. And our view is, this is the time we’ve got to be planning for the future.

I was thinking about what you said about Stop & Shop. Would this allow you, for example, to go and double the number of stores you renovate and rebrand in that banner?

You’ll definitely see us doing more in that banner. To be fair, more of it has been more in e-com than on the brick-and-mortar side, because in COVID, one of the places where we had some of the hardest challenges was rezonings. So we actually saw a slowdown [in brick-and-mortar] last year.

This year, you’ll see us at the full level in terms of what we want to do on remodels, and we really can’t open them any faster than we’re doing at this moment. What we’re doing is saying, “How do we make those better?” And at the same time, “What are the technologies that we can put in our own stores?” We’re doing a lot there in terms of cashierless, the camera analytics, the signage in the stores, because those are all things where I think we can make a big difference in terms of how the consumer perceives our stores, even if we’re not being able to do the full remodels. But a quarter of the stories is not a bad amount.

There’s been a lot of talk industrywide this year about inflation, both for the retailer and for the consumer. Where do you see that going in the next couple of months? And would you expect that consumer behavior is going to change as a result?

I think if you look at inflation, in the second quarter, we had a U.S. number that was less than 1%. There was big inflation last year. It hasn’t dissipated in any way, but it wasn’t a big move. I think you’ve probably talked to a lot of CPGs who see those raw material costs go up, and we have a little bit of a lag time. But having said that, our expectations when we look at what we’re seeing externally, are kind of the 2% to 3% range. I think it’s more moderate than maybe what people had expected, a quarter ago, in terms of how big those inflation impacts could be. And, you know, when we look at retail, a little inflation is actually not unhealthy for the business.

It’s our job as retailers to make sure that we’re looking all the time to protect our customers and be very thoughtful. And we’ve got the economists, we’re looking at the “should cost.” We know exactly what the packaging, the materials, the raw material costs, and the transportation costs are. And I think we’ve gotten pretty sophisticated in terms of how we look at that. I don’t want to say it’s not an issue. It’s  something that we’ve included in our guidance. It’s something that will be managed.

Is there a message you want to get out to the industry?

I think when you look at the business, besides the fact that we’ve had the market share gains and the great e-com sales growth—our online sales in the States is up 60% again in the quarter, off over 100% the year before—I think the big callout for us is that we feel like we are strategically positioned for a more omnichannel future. And we think our position, as a leader with great local brands, is what the consumer is looking for.

You know, there are big national players and they all have something positive to offer the consumer, but where we think our area of differentiation is is being able to build those local ecosystems where you have the density of customer where people trust your brands, and where we’re able to piggyback on the opportunities across our businesses. That feels like a very good formula for success.

You’re from Seattle: What do you make of Amazon Fresh and some of the newer competitors coming your way?

It’s funny, because when we talk about competition it’s so different from what we see in the U.S. and Europe. In Europe, it’s all about instant delivery. When you look at the U.S., it’s about some of the different formats that are coming in.

I think we have the secrets of success when it comes to omnichannel because we have the store density, and we’re building up the e-com piece. I think when you look at our other competitors, what you’ll find is most have one or the other. Mastering the supply chain—how you get that to work with the stores—is something very different.  It’s just very hard to get the secret sauce in getting the economics of that to work.

So when I look at those places, I’m thinking, “What is it going to take for us to maximize the ecosystems we can build?” Because I think that’s where we have something that’s very difficult to replicate. When I look at somebody building a sexy store with a new technology, we’re going to be fast followers on a lot of that stuff. We’ll see what works and what’s successful.

Where we’re going to win, and be different, is that USP (unique selling proposition) with the customer where you get our products; you get your local hot sauce and the special assortment that you want; and the collaboration with other local businesses; and somebody to deliver your product. That’s something where we think there is a real market.