Benjamin Oversees Transition at Ahold Chains

MARK HAMSTRA

NAME:
Lawrence Benjamin

TITLE:
Chief operating officer, Ahold U.S.A.

CHALLENGE:
Revitalizing sales at Stop & Shop and Giant-Landover.

QUINCY, Mass. — Larry Benjamin has been working his way closer and closer to the customer.

Now, in his first supermarket management position as the chief operating officer for the U.S. division of Ahold, the CPG industry veteran is about as close as he can get.

“This is a remarkable ability we have at retail, to actually touch our consumers,” he said in an interview with SN last week. “We have them in our stores — we can talk with them, meet with them and we are able to connect with them in a very direct way. It is to me an extraordinarily exciting opportunity to really deliver something that works for consumers.”

He will have the chance to put his affinity for consumer feedback to work as he oversees a revitalization effort at two of Ahold's chains, Stop & Shop, based here, and Giant of Landover, Md., while seeking to maintain the strong sales momentum at Giant of Carlisle, Pa.

CPG VETERAN

Benjamin has spent most of his career in the CPG industry, including stints at Kraft Foods and later as the chief executive officer of NutraSweet, from which he was recruited in 2003 to head Ahold's U.S. Foodservice division following its financial implosion.

“I like businesses that are underestimated,” he said. “I think U.S. Foodservice was underestimated back in 2003.”

Described by analysts as a turnaround expert, Benjamin came to Ahold's food-service distribution arm after the division was found to be at the heart of Amsterdam-based Ahold's massive earnings overstatement. The unit had engaged in a complex scheme to inflate its profits by recording phantom vendor rebates, resulting in a profit overstatement of about $1 billion over a three-year span.

With Ahold thought to be flirting with bankruptcy, U.S. Foodservice crumbling, and the governments of two countries conducting investigations, Benjamin stepped in and reorganized the $19 billion division, preparing it for the selling block, where it stands today.

“If you look at what he did at U.S. Foodservice, he actually did put it in better shape and was executing the restructuring there very decently,” Richard Withagen, an analyst with SRS Securities, Amsterdam, told SN. “That business has been on track, and I think those qualities have led Ahold to ask him to have a look at the retail operations in the U.S.”

Among the initiatives he undertook at U.S. Foodservice — where he remains CEO — was splitting it into two divisions based on customer type: one division to supply institutional accounts and small food-service outlets, and the other to supply large restaurant chains.

That focus on the customer is one of the qualities that Benjamin said he brings to the remaining U.S. Retail chains.

“I think the most successful players — whether they are high-end, low-end or whatever they are — have been most successful when they have figured out what their consumers want and they have delivered on it in a very targeted and effective way,” he said.

SALES EROSION

Although Benjamin lists as his first major challenge in his new position the sales of U.S. Foodservice and Tops, close behind is the revitalization of Stop & Shop and Giant-Landover, two formerly high-flying banners that have seen their sales erode recently. In 2006, same-store sales were down 1.3% for the year at Stop & Shop and 1.6% for the year at Giant-Landover, at a time when many chains around the country were reporting their best sales gains in years.

Benjamin said the sales declines at Stop & Shop and Giant-Landover are really no different than the problems other chains have experienced, caused by increasing pressure from alternative channels and a decline in the perceived quality differential that previously held traditional supermarket operators apart.

Ahold has embarked on a sweeping plan to reenergize the chains, called the Value Improvement Program, which involves moving to an EDLP platform for many items, one category at a time, and scaling back on the number of SKUs in an effort to both improve quality on the remaining items and reduce costs.

“It's a combination of getting the prices to be more competitive and at the same time improving the offering that's available,” Benjamin said. “We take our read from the consumer data — the financials are really only one thing we look at. Fundamentally, consumer perception is really our guide.”

He said the company was reducing the number of items offered in each category by up to 20%, using consumer purchase data to filter out the superfluous items.

“Simplification of the assortment to better match what consumers want and not necessarily what vendors want is very much at the backbone of the VIP program,” he said. “But you can't just throw your hand up in the air and take out 20% of the items in a store — you really have to do this very judiciously, category by category.”

DUTCH MODEL

Although he was not the author of the VIP effort, as a three-year Ahold veteran he has had the opportunity to see a similar effort work in the Netherlands, where Ahold's Albert Heijn chain has undergone a renaissance in recent years.

“It's remarkable how similar the challenge that Stop & Shop faces in 2007 is to the one that Albert Heijn faced in 2003,” said Benjamin. “If you look at Albert Heijn's performance, they are just knocking it out of the park right now.”

Benjamin said that as part of the team that undertook Ahold's strategic review last year, which resulted in his being named to lead the U.S. operations, he gained a lot of first-hand knowledge about how the Albert Heijn turnaround was implemented.

Analysts said Benjamin must balance sales growth with cost reduction at the U.S. operations.

“I think his main challenge is to reignite top-line growth without having to invest too much margin,” said Patrick Roquas, an analyst at Rabobank Securities, Amsterdam. “At U.S. Foodservice, he has achieved an initial recovery of sales and margins.”

Withagen of SRS Securities said Benjamin did a good job cutting costs at Ahold's food-service division, especially in IT and logistics.

“Basically, what he should do at U.S. Retail is the same thing — work on the revenue line to make sure that the sales at Giant-Landover and Stop & Shop increase and at the same time attack the cost base,” he said.

One challenge Benjamin said he faces is keeping employees motivated through the transition process.

“There's a people challenge that goes with the business challenge,” he said. “Whether it's a business being sold, a business that's implementing a new strategy or a business that's trying to keep its momentum going, it all requires the ability to manage change, and that's something that I think everyone is learning how to do.”