Dutch food retailer Royal Ahold unveiled the outcome of its strategic review this morning (6 November), stating that it plans to sell-off its US Foodservice unit, its US Tops retail chain, its operations in Poland and Slovakia and its holding in Jeronimo Martins Retail.
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Announcing the much anticipated overhaul of its business in order to boost profitability after the highly-damaging 2003 accounting scandal, the world’s fourth largest retailer by sales said that it would slash operating costs by EUR500m (US$634.96m) by the end of 2009 and cut group support office costs by 50% by end 2008.
Reaffirming its financial target of retail net sales growth of 5% and retail operating margin of 5% in the coming year, the company said that the disposals will enable it to reduce debt by EUR2bn and return EUR2bn to shareholders.
The plans are designed to accelerate identical sales growth, improve profit returns and strengthen the company’s foundation for future expansion, creating additional value for its shareholders, Ahold said.
“Since the crisis in 2003, we have completed a comprehensive revitalisation program.” said Ahold president and CEO Anders Moberg. “We have substantially reduced debt, divested non-core assets, transformed business and financial controls, and resolved multiple investigations and litigation issues. At the same time, we have implemented a successful repositioning program at Albert Heijn and ICA and recovered significant value in US Foodservice.”
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By GlobalData“It is now time for us to focus our efforts on strengthening our retail competitive position, particularly in the United States. We will apply our consumer insight much more actively to improve our product, service and price offering in order to increase customer loyalty.”
In order to implement these reforms, Ahold has announced its intention to appoint a European chief operating officer and US chief operating officer, each of whom will be responsible for their respective regions.
“At the heart of our new continental structure is our commitment to remaining a strong global team,” Moberg continued. “Our new structure will enable us to execute our strategy more effectively as a combined organisation. We will be able to better drive operational synergies and leverage our retail capabilities and talent across all of our businesses. Our people have always been and will continue to be our greatest asset.”
Speaking to reporters at a news conference after the announcement, Moberg said that Ahold will continue to review its retail operations as it restructures.
“We need to operate at a lower cost level, reduce costs across the company,” Moberg commented. “We will review underperforming stores on an ongoing basis.”
He added that the restructuring could pave the way for bolt-on acquisitions that would compliment the company’s core operations.
“We will try to make acquisitions which make sense for us, we see further opportunities out there,” Moberg he said.
Ahold shares increased by 3.1% immediately following the announcement, before dropping back to trade at EUR8.30, down 0.60%, at 1.10pm (GMT) today.
