Ahold Delhaize will make further savings at its headquarters, but not at its stores and distribution hubs, CEO Frans Muller promised. In addition, he expects suppliers to bring prices down again as raw materials become cheaper.
Working on costs
“Our good figures are due to the strong US market and the strong dollar. We are very happy to have that business in the United States, but in Europe we face big challenges, with those high energy costs”, Muller said in a conference call with journalists.
“In Europe we are facing higher costs for energy, labour, transport. That is why we have already cut costs and saved almost one billion euros. Next year remains a difficult balancing act: we have to work hard on costs and keep investing to keep company healthy. We will also continue to invest in sustainability.”
Consumer confidence not rebounding
So where exactly does Muller want to make new cuts? “We are making efficiency improvements everywhere: in the supply chain, IT, office staffing, purchasing costs… We have to, because inflation may be less next year but will still remain high. We are also working on rationalising costs at (Dutch e-commerce branch, red) bol.com, just like at Albert Heijn and all our brands. For example, we will not always replace office staff, no longer hire third-party services. But only at head offices, not in stores and DCs.”
Will there also be redundancies? Muller makes no comment on that. At headquarters in eastern Europe, organisations were already being harmonised, though, which has led to lower staffing levels.
However, Muller does not think the worst is now behind us. “We want to anticipate and do our own work well, even if we might escape a recession. We see the customer behaviour: people are comparing prices, buying more private labels. We should not be naive and I do not see consumer confidence rebounding immediately yet.” Challenges may even intensify in 2023: “In Europe, we will have higher energy bills than in 2022, and we will see slightly lower but still high inflation, higher than before the pandemic or for 2022. There is a lot of uncertainty in the markets.”
The savings help retailers stay price-competitive, and that pays off: “Customers are smart and can judge prices and offers well. We see that they make choices: they buy more private brands, they appreciate our tips for cheaper healthy cooking. Hence we have gained market share just about everywhere: it proves that people understand what we do. We invested more in private brands and price favourites in Europe. With that we also win product awards, it is good quality.”
Ahold Delhaize did not pass on all supplier price increases to consumers. “Customers pay significantly less with us than the Dutch food inflation of more than 14.5 % reported by CBS. Customers appreciate that, they recognise that our products offer a good mix. We are not losing any customers in the Netherlands.”
Belgian market remains difficult
In the Belgian market, the situation remains very difficult, Muller admits. “Belgium is a very difficult and competitive market. The automatic wage indexation is unique and causes heavy social charges. There are too many players and too many square metres in Belgium, you could say. But I can assure you that Delhaize is profitable, although we are struggling just like all competitors in Belgium. So there too we have to look at costs and talk to suppliers. Albert Heijn is gaining market share and also as a group in Belgium we are still gaining market share.”
Muller points to an increasing cooperation between Albert Heijn and Delhaize: “That concerns, for example, strategic suppliers in fruit and vegetables, meat, fish, meals… But also with A-brand suppliers we are going to buy more together. We are learning a lot from each other in terms of supply chain, e-commerce, loyalty… We are also going to bundle the private brands even more.”
“Prices must fall again”
Finally, some warnings towards suppliers followed: “Raw material prices do now start to fall again, so we expect ourselves and our suppliers to translate these into falling selling prices as well. We went along with the price hikes, so it has to come down after that too.”
There may be gains in better enforcing Europe’s single market rules, Muller believes, lashing out at the so-called “territorial supply constraints”, the supply restrictions that sometimes result in price differences of 20 to 30 % for identical products in adjacent markets.
“That is where we see great opportunities for retail and for customers. Suppliers do not make it easy for us with different labelling and packaging. I hope the European Commission will really enforce that single market now. The damage involved is 14 billion euros, which is a lot of money. We would like to see a truly open single market in Europe.”