The stock markets reacted negatively to the AholdDelhaize financial report for 2020. At the start of the AEX-trading day, the stock opened 5 percent lower. Boom, a billion stock market value gone. Despite strong growth figures, investors were disappointed with the lower net profit due to setbacks in the US; including investments in local distribution centers for online. Investors expected more.
In the past year, AholdDelhaize sales grew by more than 14 percent to nearly 75 billion euros. Especially online sales increased explosively. Consumers choose to shop online. The growth in online groceries of more than 50 percent did not result in additional value. Dutch Albert Heijn general manager Marit van Egmond says in FD that the online customers are still loss-making.
The Albert Heijn stores also notice that sales are cannibalizing in-store sales. GFK reported this recently. Half of the growth in online sales comes from AH store visitors.
Get big, or get out
Making a profit from online groceries remains difficult. Hellofresh will be in the black in 2020. Ocado possibly in 2021 (but they have more than 30 percent gross margin). Fulfillment costs are one of the fundamental problems. At Hellofresh they are more than 35 percent of sales, at Ocado almost 20 percent. McKinsey states in their report “Reviving grocery retail: Six imperatives” that online grocery providers must halve these costs to become profitable; get big, or get out. AholdDelhaize acknowledges that online grocery stores are less profitable than physical stores, but sees improvement. Ahold Delhaize CEO Frans Muller tells FD: ‘Thanks to new technology, we are now making smarter delivery trips, for example.’
But, it takes more for profitable omnichannel sales than just smarter delivery trips: more margin (category management), more differentiation in service levels and assortment, more automation in the home delivery centers, supply chain collaboration with suppliers, and different store formulas. After more than 35 years, the start of Ahold’s James Telesuper, a ‘reset’ of the overall omnichannel formula of AH is necessary.
The new online consumers have not delivered shareholders value at the bottom line. That hurts when you have worked so hard together over the past year. By the way, I have kept my shares in Ahold Delhaize; a ‘strong buy’. All in all, AholdDelhaize remains a great company. They get a thumbs-up from me; well done!
Walther Ploos van Amstel.