With the economy faltering and consumer concerns mounting month by month, Ahold Delhaize is choosing discipline over adventure. The supermarket group currently “really needs all the attention” to remain as attractive as possible to customers, CEO Frans Muller said in a conversation with journalists on Wednesday. “These are efforts of an intensity that we have not seen for a long time.”
According to the CEO, this involves long, firm negotiations with suppliers, so that purchasing does not become more expensive than strictly necessary. About expanding the own brand, giving the customer more affordable options. But also about reducing our own expenditure even further, in order to keep groceries affordable. Muller is ‘very concerned’ about the pace at which prices are rising.
In the midst of all that hectic and uncertainty, Albert Heijn’s parent company has now decided to suspend the IPO of subsidiary bol.com for the time being. It is “not a good time” to bring an internet company to the market, according to Muller. “That is not the plan. We’ll see when the stock market climate improves, and then we can reconsider. Most preparations have already been made: we are ready to go.”
Ahold (413,000 employees) announced the stock exchange plans last fall. The supermarket company wanted to place a small stake in bol.com on the Amsterdam stock exchange to raise capital. This was necessary to be able to use the “enormous growth potential” of the online store, the CEO said at the time.
An own listing for bol.com also had to make the value of the company ‘more visible’. According to critics, this was insufficiently reflected in the share price of the parent company. With their own price tag, lenders could better distinguish the value of bol.com and Ahold from each other, or so it was hoped.
In the run-up to IPO, online store bol.com reports shrinkage figures
The peak is over
In retrospect, that announcement came exactly at the peak of the market, in the week that the AEX index reached its all-time high. Until then, the growth opportunities for online stores and supermarkets seemed almost endless. A pandemic has been raging for more than a year and a half, as a result of which customers prefer to cook themselves rather than eat out, and online shopping has won over a visit to the shopping center.
Barely nine months later, that sentiment has completely turned around, due to high inflation, political uncertainty and rising interest rates. Investors prefer to choose stocks that generate money now, rather than an investment with bright futures. This can be seen in the prices of major web sellers: the German Zalando and the British Asos have lost almost 60 percent of their stock market value since the beginning of this year.
Ahold also felt this hesitation among potential investors. According to Muller, you can feel how favorable a stock market climate is from the ‘valuations’ and ‘placement power’. In other words: how much interest there is for a share, and what amount investors are willing to pay for it. The Financial Times quoted from a report recently of investment bank Bernstein, which valued bol.com at 1.6 to 2.7 billion euros. At the end of last year it was 5 to 7 billion.
Why should we sell something below the price we think it’s worth?
Now that the interest in bol.com is disappointing, Muller feels “no pressure” to continue with the plans.
“Why should we sell something below the price we think it’s worth?” According to him, nothing has changed in the online store’s potential. Although bol.com’s turnover has been declining for two quarters, the competition is shrinking considerably. So, relatively speaking, bol.com is growing, according to Muller.
Turnover increased
Despite a “difficult quarter”, Ahold itself is doing much better. The supermarket company saw its turnover increase to 21.5 billion euros between April and June, an increase of 15 percent year on year. This is largely due to the strong dollar, which means that US sales are worth much more than last year. But also because products themselves are more expensive, because costs increase, both at the supplier and for Ahold itself.
Yet it is by no means the case that the company is profiting from that inflation, Muller declares. He is thus responding to a statement by FNV chairman Tuur Elzinga, who was involved in the TV program news hour stated that companies making record profits off the backs of citizens. Topman Muller believes that his company plays a dampening role, now that the prices of raw materials, energy and personnel are rising rapidly.
Current inflation at Ahold, including promotions, is “clearly below 10 percent,” Muller said. Because the group “negotiates hard” with manufacturers. But also because it “does not pass on all price increases from suppliers”. According to Muller, the fact that Ahold absorbs a part itself can be seen in the profit margin: the gross profit compared to the turnover. That has decreased in one year from 4.4 to 4.2 percent.
In the near future, Ahold will take a close look at all planned investments to see which have the highest priority “in the current changing environment” and which may be possible later. That should yield another 250 to 300 million in savings over the next three years. With that money, Ahold wants to be able to absorb the cost increases in its own company.
The plans are also being revised at bol.com, so that they are ‘less capital intensive’. According to Muller, this means that they are spread out over a longer period. According to him, that is also possible, now that the turnover expectations of the division in the coming period are lower than previously thought. “Then you also need extra capacity less quickly, especially in the distribution centers.”