These are challenging times for Ahold Delhaize. All the more reason for the new retail combination to capitalize on the potential synergies and advantages of the merger as soon as possible, says CFO Jeff Carr. It is crucial that Ahold Delhaize’s Not for Resale [(NFR)] procurement function realizes savings. Ahold Delhaize should succeed in this objective, with the help of KPMG member firms.
Jeff Carr became the new CFO of Ahold Delhaize almost a year ago. We met the amiable Brit right after the announcement by discount supermarket Lidl that it planned to enter the important American market. At the same time Amazon, via its acquisition of Whole Foods Market, will also enter the arena.
Carr visibly enjoys the market dynamic and the challenges that he faces: “The prospect of building something great from two large, complex retail businesses is very inspiring. Because of the merger we are even bigger in the US, and in Europe we operate in six countries. The brand identities and product portfolios differ in each country, and we want to retain the local strength of our store chains. The businesses in each country learn a tremendous amount from each other, including how to work more efficiently, improve procurement and save costs.”
In Europe alone Ahold Delhaize buys from tens of thousands of suppliers; ranging from ICT systems providers to suppliers of plastic bags; and products including cooling systems and shopping baskets. Carr: “In order to identify where our opportunities lie in terms of better procurement we first had to have an up-to-date database of information on what we buy and from whom. And for what price. Only then were we in a position to analyze where opportunities for improvement lay.”
Greater efficiency in Not for Resale procurement is essential to be competitive with other retailers. Carr continues: “After the merger we selected a new Chief Procurement Officer for NFR through an internal recruitment process, but at short notice our chosen candidate opted for a career elsewhere. No problem, these things can happen during a merger. But we needed to find someone else to fill the position quickly so that we could realize our efficiency objective. We found John Tros of KPMG in the Netherlands at the end of September last year; John has over 25 years’ experience of sourcing processes and procurement techniques. And we thought it would be wise to have someone from the outside who could look at our NFR procurement with a fresh pair of eyes.” Carr appointed Tros as interim CPO NFR. Tros set up a team to work from the head office in Zaandam, which coordinates the activities of procurement functions in the six European countries (the Netherlands, Belgium, Greece, Serbia, the Czech Republic and Romania) where Ahold Delhaize operates.
What tasks did Carr give to Tros? “I wanted KPMG to help us to create a joint vision of NFR procurement, setting up a central database and achieving our ambitious synergy targets. We also wanted to set up reporting processes, develop a ‘savings pipeline’ and implement a uniform management purchasing process in all of Ahold Delhaize’s countries of operation. But above all, we needed John to set up a new procurement organization for NFR, with the right people in the right places; and also identify where we could refine our earlier purchasing targets.”
It was clear that initially a number of cultural differences between the workforces of each of Ahold and Delhaize had to be bridged. Tros started immediately with a series of workshops for the NFR buyers in Europe, so that everyone could get better acquainted and start moving in the same direction. “Under John’s leadership the reporting structures were aligned, enabling us to better work towards one clear vision. The vision had to be shared by all stakeholders within the business, because they would carry the purchasing costs”, says Carr. In addition, Carr continues, the purchasers acquired new purchasing techniques, which allowed them to understand the pricing of each part of a product: “When, as a buyer, you enter negotiations with all of the relevant facts available, so that to some extent you may understand a product better than the supplier, you are in a very strong position. It was great to see the passion among our purchasers significantly increasing because of the approach of John and his team. As a result they no longer view purchasing targets as a task or a burden, but as an inspiring challenge.
Carr does not like to talk about cutting costs, preferring to refer to improving purchasing efficiency. “We want to reinvest gains in purchasing in improving the quality of the business. In the Netherlands, for example, we invest heavily in the quality of our meat selection and in our own brands. In the US we invest more in price, because we want to further reduce the price differential between us and other retailers such as Walmart. But the impact of lower prices is not immediately noticeable, because the price perception of customers changes quite slowly. Many American consumers still believe that our label Stop & Shop is expensive, although we have already realized a very competitive price level.
How far along is Ahold Delhaize’s integration? Carr: “We are working to a three year timeline. Currently we are on schedule. In Europe the integration is practically finished, and during the forthcoming period we are focusing mainly on the US. The integration of Ahold and Delhaize in the US is more drastic, among other things because we are building a shared service center co-locating finance, HR, legal, procurement and supply chain teams.”
Carr comments: “Because of John we were able to professionalize our purchasing expertise, to actually refine certain purchasing targets and truly realize projected savings. Above all the passion within the organization for procurement has been reignited, and to me that is just as important.”
How does John Tros look back at this project for Ahold? “We knew that there were big cultural differences between the managers and their buyers, and between both the retail chains and the different countries. To address this KPMG professionals organized 35 workshops, also working with Fons Trompenaars, known for his business standard work ‘Riding the waves of culture, Understanding diversity in global business.’ Fons developed a model with seven cultural dimensions to understand how people from different countries interact, both at work and at home.
Through the workshops we developed a joint, widely shared vision of procurement, together with a tight reporting process, based on KPIs which focused on savings in all functions and areas. This resulted in maximum involvement from local management. What helped was that we could immediately demonstrate the projected savings. In the end we achieved the savings targets and more.”