In his long-awaited presentation to shareholders yesterday, Ahold CEO Anders Moberg said that the company would re-focus and simplify its corporate structure, continue looking for efficiencies, install common systems where possible across all its various divisions, and keep US Foodservice and rebuild the company until selling it makes economic sense.
However, the meeting was not a love fest. Shareholders threatened not to officially confirm Moberg's appointment because of concerns about what was perceived as a compensation package that was too rich. However, when Moberg threatened to withdraw his candidacy if he weren't immediately confirmed, the shareholders relented and gave him the post.
Excerpts from Moberg's speech:
Diagnosing the problem. "We are out of focus. We have tried to be everything to everybody. That's expensive! For example: we are in hypermarkets, compact hypers, supermarkets, convenience stores and even in discount. In addition, we run production facilities and own specialty stores and pharmacies.
"This lack of focus has a drastic impact on our cost base. For instance: our logistical infrastructure needs to be able to deliver large quantities in the cheapest possible way and, at the same time, service smaller and more frequent deliveries. Our supply chain needs to accommodate highly perishable products, as well as white and brown goods. This means that we're into areas that require the handling of after-sales support and the handling of guarantees.
"Our structure is too complex. For example: I saw too many overlapping initiatives at different levels and unclear responsibilities. Different operating companies, with different business models, and different business processes create a structure that is too complex. This makes it very difficult to have efficient controls.
"We have too many under-performing assets. There are some loss-making businesses that have no prospect of becoming profitable within a reasonable time frame. This can't go on. And believe me: there are no sacred cows!
"The company has grown very fast but failed to integrate at the same pace, and failed to have adequate financial controls. As a result of this global ambition, the debt level also increased. The result is a sub investment grade rating which constrains our flexibility and our ability to deliver growth today. However, the past is the past.
"Solving these problems is an urgent priority, but will take time. It's a matter of refocusing and revitalizing every aspect of the company, and then demanding much sharper execution from our wholly-owned companies, as well as our joint ventures.
"In order to make this happen, I'm convinced that we have to adopt a wholesale change in the mindset of our organization, if we are to deliver value to our customers, our associates and our shareholders. This entails creating a common culture and reducing the complexity of our organizational structures.
"In short, we will have to scale back our global ambitions; create a new culture and esprit de corps, and drive for synergies and organic growth."
The Future of US Foodservice. "U.S. Foodservice is in a sub-optimal state right now. Having looked at this very carefully, I genuinely believe that we can build upon, what is today, a collection of leading regional assets. And in so doing, access a major source of value for shareholders…
"The foodservice market in the United States is huge. It's worth $160 billion plus. There are essentially two national players: SYSCO with 15% market share and U.S. Foodservice with 11%, which is over $18 billion. So there is lots of room for growth.
"Our plans to integrate our U.S. Foodservice business, after a series of acquisitions, was badly de-railed by the fraud discovered in 2003. And at this stage, we don't know the true underlying strategic value of our asset which is, nevertheless, a major player in what still amounts to a highly fragmented, but still very important, growth industry. So, therefore to sell it off today would create a massive destruction of shareholder value…
"My current assessment is that it will take us 18 to 24 months to rebuild this company and restore its value. Only when we have a clear picture of the value of this business, can we decide the role of U.S. Foodservice within the future strategy of Ahold…
U.S. Foodservice will be managed as a single business operating separately from food retail, and will receive the full attention of Ahold's Executive Board…. During this period, we foresee limited investment. The company has grown too fast through acquisitions with insufficient integration. We believe that the ingredients are all there. We will have to put them together."
The future of food retail. In my review of our company's strengths, it's very clear to me that our expertise and knowledge in food gives us the ability to be the leading food retailer of choice, in every market in which we choose to operate.
And that is our vision.
We will become the leading food retailer of choice by staying as close as possible to our customers, and serving them better. Serving our customers better is our number one priority. This means through quality, value, choice and service. Many of our brands are already leading in their markets. In these markets, we want to out-distance the competition even further. In those markets where we are not yet leading, we will closely evaluate the potential for leadership, and then make a decision to invest or divest…
"The major shift in our strategic emphasis is to focus on what we do best: food retailing in selected markets in the United States and Europe. This means that we will focus on markets where we already have or can achieve a leading position within a reasonable time.
"Our businesses, like Albert Heijn and Stop and Shop, are trendsetters in food merchandising, food innovation, food management, and food choice. We want all our businesses to be at these standards.
"Let's be clear, we are already engaged in divesting our non-strategic assets and are well on our way to withdrawing from two continents: South America and Asia. We are also already divesting a number of non-core assets…
"We are scrutinizing our entire portfolio, keeping in mind our financial constraints and required returns. We will focus on: leading operations and formats capable of further growth, and operations and formats that can be fixed to become market leaders."
Tighter controls. "We will restructure our company and install tighter controls. There are a number of parallel processes currently underway to streamline the company, strengthen its competitiveness and return to sound financials."
And now, the good news… "Despite all the bad news, let's not forget that our company has some very distinctive strengths. It's built on a strong underlying business, run by talented retail professionals. We are experts in food-merchandising. We excel in its handling, its safety and its quality. We have great locations: stores that are convenient and easy to get to. All of this has allowed us to build a strong local customer base, and to establish leading local brands.
"We're leading food retailers in most of the markets in which we operate. This scale should allow significant cost savings, and therefore should improve our competitive advantage. But, we are not as competitive as we could be, should be and will be. So, the good news is that there is plenty of room for improvement."
Simplifying and standardizing. "We will need to step up our efforts to lower our cost base, to maintain our local market leadership positions. This can be achieved by simplifying and standardizing our distinct customer offering.
"This does not mean that we are moving to a one-size-fits-all proposition. But it does mean that we can extract real value from what has been, until now, a relatively loose federation of retail businesses. By standardizing our processes we can create efficiencies and genuinely drive synergies out of the whole business."
And…
"We are moving from a financial holding company to a business focused on food retail: in other words from Finance to Floor.
"We will move toward a 'one company approach', driving common processes throughout the business. Aligning these common processes will reduce complexity and improve efficiency and effectiveness."
However, the meeting was not a love fest. Shareholders threatened not to officially confirm Moberg's appointment because of concerns about what was perceived as a compensation package that was too rich. However, when Moberg threatened to withdraw his candidacy if he weren't immediately confirmed, the shareholders relented and gave him the post.
Excerpts from Moberg's speech:
Diagnosing the problem. "We are out of focus. We have tried to be everything to everybody. That's expensive! For example: we are in hypermarkets, compact hypers, supermarkets, convenience stores and even in discount. In addition, we run production facilities and own specialty stores and pharmacies.
"This lack of focus has a drastic impact on our cost base. For instance: our logistical infrastructure needs to be able to deliver large quantities in the cheapest possible way and, at the same time, service smaller and more frequent deliveries. Our supply chain needs to accommodate highly perishable products, as well as white and brown goods. This means that we're into areas that require the handling of after-sales support and the handling of guarantees.
"Our structure is too complex. For example: I saw too many overlapping initiatives at different levels and unclear responsibilities. Different operating companies, with different business models, and different business processes create a structure that is too complex. This makes it very difficult to have efficient controls.
"We have too many under-performing assets. There are some loss-making businesses that have no prospect of becoming profitable within a reasonable time frame. This can't go on. And believe me: there are no sacred cows!
"The company has grown very fast but failed to integrate at the same pace, and failed to have adequate financial controls. As a result of this global ambition, the debt level also increased. The result is a sub investment grade rating which constrains our flexibility and our ability to deliver growth today. However, the past is the past.
"Solving these problems is an urgent priority, but will take time. It's a matter of refocusing and revitalizing every aspect of the company, and then demanding much sharper execution from our wholly-owned companies, as well as our joint ventures.
"In order to make this happen, I'm convinced that we have to adopt a wholesale change in the mindset of our organization, if we are to deliver value to our customers, our associates and our shareholders. This entails creating a common culture and reducing the complexity of our organizational structures.
"In short, we will have to scale back our global ambitions; create a new culture and esprit de corps, and drive for synergies and organic growth."
The Future of US Foodservice. "U.S. Foodservice is in a sub-optimal state right now. Having looked at this very carefully, I genuinely believe that we can build upon, what is today, a collection of leading regional assets. And in so doing, access a major source of value for shareholders…
"The foodservice market in the United States is huge. It's worth $160 billion plus. There are essentially two national players: SYSCO with 15% market share and U.S. Foodservice with 11%, which is over $18 billion. So there is lots of room for growth.
"Our plans to integrate our U.S. Foodservice business, after a series of acquisitions, was badly de-railed by the fraud discovered in 2003. And at this stage, we don't know the true underlying strategic value of our asset which is, nevertheless, a major player in what still amounts to a highly fragmented, but still very important, growth industry. So, therefore to sell it off today would create a massive destruction of shareholder value…
"My current assessment is that it will take us 18 to 24 months to rebuild this company and restore its value. Only when we have a clear picture of the value of this business, can we decide the role of U.S. Foodservice within the future strategy of Ahold…
U.S. Foodservice will be managed as a single business operating separately from food retail, and will receive the full attention of Ahold's Executive Board…. During this period, we foresee limited investment. The company has grown too fast through acquisitions with insufficient integration. We believe that the ingredients are all there. We will have to put them together."
The future of food retail. In my review of our company's strengths, it's very clear to me that our expertise and knowledge in food gives us the ability to be the leading food retailer of choice, in every market in which we choose to operate.
And that is our vision.
We will become the leading food retailer of choice by staying as close as possible to our customers, and serving them better. Serving our customers better is our number one priority. This means through quality, value, choice and service. Many of our brands are already leading in their markets. In these markets, we want to out-distance the competition even further. In those markets where we are not yet leading, we will closely evaluate the potential for leadership, and then make a decision to invest or divest…
"The major shift in our strategic emphasis is to focus on what we do best: food retailing in selected markets in the United States and Europe. This means that we will focus on markets where we already have or can achieve a leading position within a reasonable time.
"Our businesses, like Albert Heijn and Stop and Shop, are trendsetters in food merchandising, food innovation, food management, and food choice. We want all our businesses to be at these standards.
"Let's be clear, we are already engaged in divesting our non-strategic assets and are well on our way to withdrawing from two continents: South America and Asia. We are also already divesting a number of non-core assets…
"We are scrutinizing our entire portfolio, keeping in mind our financial constraints and required returns. We will focus on: leading operations and formats capable of further growth, and operations and formats that can be fixed to become market leaders."
Tighter controls. "We will restructure our company and install tighter controls. There are a number of parallel processes currently underway to streamline the company, strengthen its competitiveness and return to sound financials."
And now, the good news… "Despite all the bad news, let's not forget that our company has some very distinctive strengths. It's built on a strong underlying business, run by talented retail professionals. We are experts in food-merchandising. We excel in its handling, its safety and its quality. We have great locations: stores that are convenient and easy to get to. All of this has allowed us to build a strong local customer base, and to establish leading local brands.
"We're leading food retailers in most of the markets in which we operate. This scale should allow significant cost savings, and therefore should improve our competitive advantage. But, we are not as competitive as we could be, should be and will be. So, the good news is that there is plenty of room for improvement."
Simplifying and standardizing. "We will need to step up our efforts to lower our cost base, to maintain our local market leadership positions. This can be achieved by simplifying and standardizing our distinct customer offering.
"This does not mean that we are moving to a one-size-fits-all proposition. But it does mean that we can extract real value from what has been, until now, a relatively loose federation of retail businesses. By standardizing our processes we can create efficiencies and genuinely drive synergies out of the whole business."
And…
"We are moving from a financial holding company to a business focused on food retail: in other words from Finance to Floor.
"We will move toward a 'one company approach', driving common processes throughout the business. Aligning these common processes will reduce complexity and improve efficiency and effectiveness."
- KC's View:
-
Well, it wasn't exactly a bold vision of the future, though that's not to say that it isn’t an appropriate strategy for restoring the company's faded luster.
But it's interesting. In some ways, by focusing on a "one company" approach, common processes, and "simplifying and standardizing," it seems to us that Ahold may be risking the very quality that gave it and its operating companies an advantage in year's past.
If that goes, does Ahold have a cultural imperative to replace it? That is, a cultural imperative beyond streamlining, standardizing and synergizing?
Because we're not sure that's enough.
