Zaandam, the Netherlands – Ahold’s Annual General Meeting of Shareholders on April 16, 2014, included a speech by Ahold Chief Executive Officer Dick Boer. Following is the full text of the speech.
Welcome and thank you for joining us today – both those of you who are in the room and those who are viewing the webcast. I’m pleased to be here to talk to you about our company, our performance in 2013, and our vision for the future.
It is one of the most exciting times ever to be a food retailer. Customers have more choices and higher expectations of retailers every day. They want value for money and an easy shopping experience that fits their busy lifestyles. New technologies and innovative retail models are constantly raising the bar.
The shopping journey has never been more convenient – or inspiring – and customers have never had so much control over their own shopping journey. And we are just at the beginning of this adventure!
At a time like this, when the industry is going through so much change, retailers have to change. At Ahold, we are energized by the opportunities we have today to offer customers a shopping experience that is more tailored to their needs than ever before in the history of retailing.
And we are confident our strategy to Reshape Retail is the right one to help us do this.
In 2013, we grew our business in challenging market conditions. Our customers remained focused on value and were cautious in their spending.
This was particularly true in the second half of the year, and led to a softer sales development in the fourth quarter. Compared to this final quarter, we have not yet seen a change in market conditions during the first few months of 2014, so we are working hard to step up our efforts to improve. Still, we were able to slightly increase market share in all our major markets over the full year. Our online business showed strong, double-digit sales growth. We made almost €1.1 billion in online sales in 2013.
Across the Ahold Group, our ability to generate cash is strong. We had more than €1.1 billion free cash flow in 2013. We are proposing a 7% increase in our dividend to €0.47, based on our strong profitability and our confidence in our strategy, which is helping us meet the changing needs of our customers.
The strong progress we made on our Simplicity program, and the cost savings we achieved, enabled us to achieve broadly stable underlying operating income and to continue to invest in our customer offering. Our CFO Jeff Carr will take you through our 2013 financial performance in more detail in a moment.
We continued to actively manage our portfolio, in line with our strategy to expand our geographic reach and our focus on leading market positions. Albert Heijn in Belgium continued to perform well in 2013, and opened eight new stores, bringing the total to 19. We successfully finalized the ICA divestment and announced the divestment of our business in Slovakia during the year, which was completed successfully yesterday. Last month we announced that we have entered into an agreement to acquire SPAR’s business in the Czech Republic, and we expect merger clearance in the second half of the year. This marks an exciting new phase for us here and gives us a number one position in the country.
As I mentioned in my introduction, it is a challenging – but also incredibly exciting – time in the retail industry.
Through our Reshaping Retail strategy, we are transforming our company so that we can meet the challenges and embrace the many opportunities for retailers today.
We are strengthening our core business through our promises to be a better place to shop, a better place to work, and a better neighbor. And we continue to make great progress on our six strategic pillars to become an even better retailer.
In 2013, we rolled out our promises right down to the shop floor in all our companies. I’d like to share a short video with some examples of the great impact these, and in particular our “better place to shop” promise, are having across our businesses.
As you could see, we no longer serve our customers only in our stores, which used to be the main focus for most retailers. Today, our customers can interact with us from literally anywhere – and at any time. You, as the customer, now decide what we do and what we focus on, every day. Retailers that only focus on their stores will have a difficult future ahead of them.
And customers have more options than ever. Companies that want to grow in years to come need to build and keep their customers’ loyalty and trust.
We are becoming a better place to shop so that we can be there for our customers wherever and whenever they want to shop. We will show more inspiration and more innovation in our existing stores, and also expand beyond them to provide more shopping alternatives for our customers
One way we are already doing this is by investing in our Fresh offering across all our businesses. This is still a key area for us to differentiate ourselves versus the competition. It is where the real loyalty starts with our customers.
Our companies are building on their own-brand proposition so customers can shop for products within their budgets. In 2013, Albert Heijn launched a new own-brand, AH BASIC, to appeal to value-focused shoppers.
Our Nature’s Promise Brand of natural and organic products is doing well in the U.S. We also relaunched and expanded our premium own brand, “Simply Enjoy,” in the U.S. last year – with good success.
In Belgium, we are building on our strong Albert Heijn brand, and our stores are proving very popular with customers. GFK awarded Albert Heijn in Belgium as the best grocer in Flanders in 2013.
We’re using our customer insights to make communications with customers more personal. During the year, the U.S. divisions sent out 270 million personalized coupons, as well as personalized weekly flyers and electronic offers delivered to their loyalty cards.
As many of you know, Albert Heijn introduced a new loyalty card – the first and only one of its kind in the Netherlands. This card will also let us send more personalized offers to customers. They’ve distributed around 10 million cards so far, and 2.5 million cardholders have signed up to receive personal offers.
We are developing our store formats according to how our customers like to shop. The relaunch of our Albert Heijn to go stores in the Netherlands is therefore showing better results. By the end of 2014, we plan to have remodeled nearly half our stores. We have already rolled out a new format to over half of our Gall & Gall stores and will continue this year. It provides an assortment presented by taste, offering more a more convenient shopping experience to our customers.
Our customers have so many things to juggle each time they shop – their budgets, their lifestyles, and what their families like to eat, to name a few. If we can make this one small part of their lives easier, customers will reward us with their loyalty. Our omni-channel vision is how we’ll do this.
Omni-channel combines traditional stores and online shopping to provide a seamlessly connected online and offline experience. Through our omni-channel strategy we are transforming the shopping journey. Customers can shop how, when and where they want. They have much more information on our products, including recipes, nutritional information and helpful cooking tips – at their fingertips.
And they can choose their delivery method. Sometimes our customers want to shop in the store. Other times they’d rather have us shop for them and then collect their order at a pick-up point, or have it delivered right to their kitchen. All of this is possible today.
We believe that online is where some of our biggest growth opportunities for the future lie. And customers are demanding it. By 2020, the market is expecting 5-10% of food retail sales to take place online. Ahold is well-positioned to take full advantage of this trend.
We already have a strong online business and the advantage of trusted on- and offline retail brands. I mentioned we had record sales in online this past year. We are the number one online grocer in the U.S. with our Peapod business. With Albert Heijn online and bol.com, we are the leading online retailer in the Netherlands.
In its first year as part of Ahold, bol.com had its strongest growth year ever. They expanded their offering to include brand new categories and rolled out pick-up points in all of Albert Heijn’s stores. In 2014, bol.com will continue its successful expansion in Belgium. Peapod and Albert Heijn also accelerated the opening of grocery pick-up points. By the end of the year we had 137 operating across the company.
Our plans for 2014 are well underway. We will operate at least 200 U.S. pick-up points by the end of the year. We are opening a new warehouse in New Jersey this summer that will enable Peapod to double its capacity in 2014 and to pursue the enormous opportunities for growth in the New York Metro area. Albert Heijn online is extending its product range and accelerating the opening of pick-up points. More than 70% of Dutch households have access to shopping online with Albert Heijn today and this number will continue to grow.
We have big ambitions, but to achieve all this we need the right talent and engaged associates. We already have over a decade of online knowledge and experience in our businesses. Bringing bol.com into our company added great expertise. Ahold USA is ahead in the digital journey in the food retail industry and we want to keep it that way. We opened a new digital innovation center in Chicago last year to attract top talent so we can keep innovating in the future.
In every area of our business, our associates are critical to our growth. Throughout our company, we have great people who are dedicated to serving customers’ needs and helping us succeed. We are committed to making sure our companies continue to be an even better place to work for them, every day.
That’s why we listen to and act on our associates’ feedback. In 2013, we conducted an associate engagement survey. Our participation rate was high, with 170,000 associates answering the survey. And we were pleased to see our engagement rate climb three points to 67%. One of the highest scores driving engagement was a strong motivation to go above and beyond what is normally expected to help our company.
Investing in our associates’ development is a high priority. We have a new performance management system across Ahold, and it is helping us develop talent and manage performance in a more insightful way.
One thing that hasn’t changed is the deep commitment we have to fostering workplaces built on fairness and mutual respect – everywhere we operate. We are dedicated to providing good working conditions and competitive wages and benefits. And we create thousands of new opportunities each year for people from all levels of education to gain their first work experience and possibly build and grow a career.
Where associates have chosen union representation, we work collaboratively and constructively with their representatives. That continues to be the case in both Europe and the U.S.
We have a deep respect for the rights of our associates, particularly relating to the personal and private choice of whether or not to join a labor union.
I’ve talked about what customers want in terms of value and convenience. But that is not all that they expect from retailers. Our customers are better informed than ever. They want the companies they deal with to embody their values and operate in a responsible way. They are concerned about their health and expect retailers to help them make good choices.
I’m proud of the work we’re doing to be a better neighbor, and a more responsible retailer. We are very committed to supporting the health and well-being of our customers – of all ages. And last year we got help from an unexpected source.
It’s hard to believe this is the second AGM in a row at which I’ve talked about the Smurfs. Our Albert business in the Czech Republic introduced a range of healthy own-brand products for children – the first retailer in the country to do so. During a hugely successful promotion, the Smurfs were featured on products.
Our U.S. divisions hosted free Healthy Kids Summits to educate children, parents and community leaders about leading a healthy lifestyle.
Albert Heijn provides healthy recipes and tips through the nearly 25 million free copies of its consumer magazine, Allerhande, distributed each year. In the spring of 2013, they ran a special “vegetarian” edition to promote healthy meals and snacks.
We are also working to make our own-brand products more sustainable. Last month, Ahold USA’s own-brand teams earned the Rainforest Alliance Certified seal and its own-brand coffees are now UTZ Certified. I am proud to mention that all Ahold’s own-brand coffees worldwide are UTZ Certified. To gain these designations, the farms that we source our coffee and tea from need to meet strict sustainability standards.
Giant Landover will soon be able to offer a wider selection of local produce to customers in Washington D.C. through a unique partnership with BrightFarms. They are building a 100,000 square foot urban greenhouse - the largest of its kind in the world. It will enable them to deliver fresh, locally grown and sustainable produce year round, while also creating jobs and benefiting the local economy.
Food safety is important to us and we’re proud of the results we’ve achieved this year. 93% of our own-brand suppliers in Europe and 81% of our own-brand sales in the United States have been certified according to the Global Food Safety Initiative recognized standards. The standards have been co-developed by Ahold, and are in addition to international regulations.
And it’s not just food safety that’s important to us. At Ahold, we are fully committed to offering our customers products that are produced fairly and under safe conditions. We carefully select and monitor our suppliers, and require them to adhere to Ahold’s Standards of Engagement. These standards require suppliers to treat their employees fairly, with dignity and respect and in accordance with all laws and regulations. To ensure that our suppliers are compliant with our Standards of Engagement, we meet with them on a regular basis to review their activities.
We were pleased that our efforts are being recognized by others outside our company. Albert Heijn was named the most sustainable Dutch supermarket in the area of sourcing, by the Dutch Consumer Association, based on a survey of Dutch customers. Ahold was also able to increase its score on the Dow Jones Sustainability Index by 9%. Our score was within three points of the leading company in our sector.
We put in place a new Executive Committee, or “ExCo,” structure. This brings our top leadership closer to the business and ensures the right people are around the table to represent our companies and functions. Hanneke Faber joined Ahold’s ExCo as our new Chief Commercial Officer, to lead our global online and customer loyalty initiatives. To show how important our associates are to the business, we included the position of Chief Human Resources Officer and have welcomed Abbe Luersman to fill this role.
Earlier this year we announced further changes to our European business. We dismantled Ahold Europe as a business division. This enabled us to refocus our teams, led by Sander van der Laan, on building the Albert Heijn business and on our omni-channel offering.
There have also been some changes on our Supervisory Board since our last AGM. Jan Hommen returned to the Board to succeed René Dahan, who stepped down in October 2013. Tom de Swaan left the Board in September. Stephanie Shern has succeeded him as Chairman of the Audit Committee and we recently announced that Judith Sprieser will replace him as Vice Chair. Rob van den Bergh has succeeded Derk Doijer as chairman of the Remuneration Committee. We thank Tom for his service to the company and are pleased that Judith, Stephanie and Rob are taking on these new roles. René Hooft Graafland has been nominated for appointment to the Supervisory Board and we will vote on his appointment later today.
We are already nearly four months into 2014 and so far we haven’t seen a great deal of change in the economic situation. But it makes sense that customer habits are not changing quickly. Our industry is never the first to feel a downturn; nor is it the first to feel the impact when the economy picks up. Considering that the final quarter of 2013 was particularly tough across our markets, we are cautious in our outlook for 2014. While we do expect some improvement in economic conditions this year, we think it will be a very gradual process for the food retail industry.
We will keep delivering on our Reshaping Retail strategy with all our energy and speed. We will focus on the implementation of our omni-channel strategy. We will also continue to simplify how we operate so we can reduce costs and invest in our customer proposition.
We have an ambitious agenda, a great work force and trusted brands in our key markets. Combined with a great heritage and a solid vision for the future, we are ready to face today’s short-term challenges while delivering on the longer-term success of our company.
And we will always keep focusing on creating a better shopping experience for our customers. Because that is what’s most important to all of us at Ahold – making sure they are happy and want to keep doing their shopping with us. I want to thank our customers for keeping us inspired and passionate about what we do. I also want to thank our associates. Their hard work and dedication to getting better every day make me confident about our future
And lastly I would like to thank you, our shareholders for your ongoing support of our company and our strategy.
This press release includes forward-looking statements, which do not refer to historical facts but refer to expectations based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those included in such statements. These forward-looking statements include statements as to Ahold’s strategy and dividend, the merger clearance for the acquisition by Ahold of SPAR’s business in the Czech Republic, the expected growth of online shopping, Ahold’s ability to attract and keep adequately qualified personnel, European business, supervisory board and outlook for 2014 Many of the above risks and uncertainties relate to factors that are beyond Ahold's ability to control or estimate precisely, such as discussed in Ahold's public filings and other disclosures. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Koninklijke Ahold N.V. does not assume any obligation to update any public information or forward-looking statements in this release to reflect subsequent events or circumstances, except as may be required by law. Outside the Netherlands, Koninklijke Ahold N.V., being its registered name, presents itself under the name of "Royal Ahold" or simply “Ahold".