Price is a given. Shopping value is a must.

In 2003, the Netherlands-based Ahold was forced to reposition and divest in order to bring it back from the brink of bankruptcy. Dick Boer was CEO of Albert Heijn and started to turn that company around. Listening to customers was of vital importance to its radical repositioning strategy as well as providing customers with shopping value. This topic is at the heart of this year’s ECR Europe Forum in Berlin in May. As conference co-chairman, Dick Boer is amply qualified to lead the discussions. 
Elsevier Food International, Vol. 11, Number 2, May 2008
Helen Armstrong

Teetering on the verge of bankruptcy was a wake-up call for Ahold. During the 1990s it had grown rapidly, buying up companies in South America, southern Europe and Brazil but there was no, or very limited, integration of synergies. Fraud and miscalculation brought it crashing to its knees. Even its flagship supermarket Albert Heijn was losing market share in 2003 because the perception that it was too expensive was causing families to desert. “Indeed we were too expensive which left us open to attack by the competitors,” says Dick Boer, president and CEO of Albert Heijn and chief operating officer Europe for Ahold. In 2003, Dick and his management team made the recommendation to reposition from having a high-low pricing strategy to becoming an Every Day Fair Price company. The strategy appears to have paid off. Before the repositioning Albert Heijn had 25 per cent of the Dutch market share, a figure which at the end of 2007 stood at 29.5 per cent.

Dick Boer joined Ahold in 1998 as CEO of Ahold Czech Republic. He was appointed president and CEO of Albert Heijn in 2000 and president and CEO of the Albert Heijn operating companies in 2003. After the crisis in 2003 Ahold quickly refinanced and turned the growth strategy around so instead of investing, which had been the policy in the 1990s, Ahold started to divest, basically giving away its companies in South America and Asia. The last big divestment was that of the US Food Service last year.  Its policy today is only to be present in countries in which it can be No.1 or No.2 in the market. The company remains strong in the Netherlands, US and Czech Republic. In November 2006, based on the Ahold Retail Review, the decision was taken to operate with a continental, rather than global, structure. At this time Dick Boer was appointed chief operating officer of Ahold Europe and in May 2007, Ahold’s shareholders appointed him to the corporate executive board. Before joining Ahold, Boer spent more than 17 years in various retail positions for SHV Holdings in the Netherlands and abroad, and for Unigro N.V., now Laurus N.V.

So lowering prices is a way to increase market share?
No, you have to do more for customers than just reposition your price. If you want to create value, driving down prices is not the answer. Price is now a given so at the same time as lowering prices we at Albert Heijn said we needed to invest in quality and service to improve value.
We wanted to expand the business. But how do you do that when people in general are eating less and spending less on food? It requires a lot of innovation in new products, new categories and new store formats.

How is shopping value changing at Albert Heijn?
Everyone can make a store and put things on the shelf. We need to add value and provide shoppers with the aspects that they think are important. If you can identify this and implement it you create more value for the consumer and you create more value for yourself. As just mentioned, this requires innovation at a basic level as well as taking into account trends such as sustainability, health and wellness, and technology. We are starting to provide customers with options such as self-scanning and shopping lists to create on the Internet via www.ah.nl, all of which are designed to make it simpler for customers to shop.

AH has introduced self-scanning in some of its stores to enhance the shopping experience. Will this type of technology be extended to all its stores?
In some of our stores self-scanning accounts for 40 per cent of our sales turnover. It is mostly used by people doing a large shop because is means they can scan the product and immediately put it into their shopping bag rather than having to unload it all and reload it at the checkout. They also know that if it’s busy they won’t have to wait at the checkout so they can use their time shopping instead. Now customers can make that choice themselves. And we find all ages are using it – from young to old. For people just popping in, they often find often quicker to go through the regular checkout.
However, the investment in self-scanning equipment and systems is quite high. We are also running a pilot scheme in which customers use mobile phones to scan their products and eventually could pay for them with the same mobile. This sort of enabling technology cannot only do much more than a self-scanner but in this way consumers are using their own equipment saving you the investment in the hardware.

How do you control self-scanning?
Customers have to use our loyalty bonus card to use the self-scanners and we find stores quickly develop a good security checking system by carrying out random checks.

You have introduced different store formats in competitive markets such as the fast food sector. How do you hope to succeed here?
There are different consumption moments and people have different consumption habits. To increase the business we said we also wanted to have a slice of the out-of-home consumption so we are now opening the small format Ah to-go stores, so far mainly at stations. Here customers can pick up food to go including coffee - you put your own money in the coffee machines- so we are in direct competition with fast food restaurants. The response has been great with customers saying it is faster and a healthier option than a fast food restaurant. This is a fast-growing format, operating just under 40 stores now, and we have plans to open many more, in particular in outlets such as universities, hospitals, metro stations and offices.
In addition we offer Internet shopping as well as our almost 700 regular stores and Albert Heijn XL, which at 4,000m^² are our largest format, operating 25 stores currently. We are now inspiring and applying these formats in the Czech Republic where we already have 350 regular stores.

You are also rolling out new concepts for the regular stores. Are shoppers ready for them?

We need to be different in order to overcome the perception that Albert Heijn was too expensive.

We now have five new ‘concept stores’ but they took at least two years to develop because the first prototype, which opened in December 2005, did not bring the results we were hoping for. We were trying to be too different so we had to go back to the drawing board.
I inspired the development team and I said that we needed to be different in order to challenge consumers, i.e. not just do a makeover of the stores but bring a fundamental change, in order to overcome the perception that Albert Heijn was too expensive.
For the first pilot in 2005 we changed the lighting, the flooring and the colours but our customers said this gave them the wrong feeling and they missed the ambiance of Albert Heijn. They felt instead that they were in a discount store and this was not what they wanted.
Also, customers said they missed part of the assortment because in the first concept store we had reduced this considerably.
We also added self-service and although this was acceptable they said they wanted to see some staff to offer service when necessary.
We are now happy that we have a good balance in the fifth concept store which opened at the start of last summer. However, because they are new they naturally attract attention so it’s too early to say how well the concept is working.

You were losing families as customers. How is shopping value improving for them?
When we repositioned our prices we decided the best way to measure ourselves was in the family category because families are most price sensitive, which is why they had been deserting. It had led Albert Heijn to having an over representation of one and two person households and we wanted to go back to the Albert Heijn principle of being a store for everybody. We set up an ‘adopt-a-family’ project: A lot of our managers do not have families so they spent several afternoons and evenings with a family who normally shop in Albert Heijn. They went with them to the store, cooked and ate with them.
Although these are the shoppers with the least amount of time because they are running around with the children and juggling work we discovered they weren’t buying the convenience products. This was because they found them too expensive and they felt they were not healthy. Also our managers were startled to discover that the average amount of money a family of four spent then on an evening meal was €8.
Because of this we developed an entirely new category: Kies & Kook [Choose & Cook], a pick and mix of four components: meat/fish, vegetables, sauce, and rice, pasta, or potatoes altogether for €8. This is a fresh healthy product and because it is for families it isn’t too spicy. This is value creation – healthy, convenient and at an affordable price.

ECR also has health and wellness on the agenda which is gaining the attention of an increasingly wider community.  How is AH responding?
In most of our categories we now offer a healthier choice and this carries a special clover-leaf symbol, introduced in September 2005. We also say how many calories are in a consumption unit, rather than in 100g, for example. We see clearly that our healthy choice private label products are growing faster than the rest which shows that consumers are responding to it.

Are private label products increasing in general?
Albert Heijn always had a strong brand image and when we decided to reposition our prices we realised that there was a great growth opportunity to combine this with private label. We now have private labels based on the good, better, best principle plus Organic and Euroshopper and turnover from this increased by over 15% in 2007 compared with 2006.

How is ECR driving shopping value?
ECR is a platform for retailers and suppliers and one of our priorities today is how we can drive value together. Initially we were driven by standardisation. Now we are collaborating on how to better align the information that we have because at the moment there is a lot of waste.
Although retailers and suppliers still have their own agendas both parties can benefit from better forecasting and better alignment of information to prevent out-of-stock which is becoming increasingly challenging. 

But with the increasing capacity for data collection and exchange surely this must be becoming easier?
Unfortunately it is becoming increasingly difficult to predict what a customer will buy when he or she enters the store. Today, Albert Heijn carries some 25,000 items and I have no idea what a shopper is going to buy today. They come into the store and they don’t know themselves what they are going to eat that evening so how can we anticipate that.
We can still influence this to some extent through promotions but not as we did in the past. Now we have to follow them – the customer buys and we have to replenish. It means that out-of-stock becomes even more difficult to manage, especially because 50 per cent of stock is fresh. 
It means that retailers, the supply chain and suppliers need to be even more aligned than ever before so that customers have what they want on the shelf. It is becoming a delicate balancing act between forecasting and following the consumers.

What can be done to make the flow more efficient?
We try to make sure that the information we receive is available to our suppliers at virtually the same time. This is a change in our way of thinking. You go from ordering to replenishing – it sounds simple but it is very complicated. Information exchange, the kind of information being exchanged and how quickly you can update your supply are all incredibly important.
For suppliers this requires a different mindset because their aim has been to standardise, centralise, and even globalise supplies. Replenishment requires much more flexibility, often fulfilling smaller orders more frequently.

The theme of the ECR forum is sustainable shopping value. What opportunities does sustainability offer the retail sector?
Sustainability is certainly an important driver and is no longer a political issue. Less availability of energy is becoming a business issue because it is affecting costs. The better these sustainability issues can be implemented, the more business sense it makes. I truly believe that it can work for charity but this takes too long. If you do it for business it can be an important driver of success. We already see lots of opportunities in the supply chain for shelf-ready packaging, which leads to less waste, and improvement in transportation efficiency. 

ECR Europe Forum and Marketplace Berlin. May 27-29, 2008. ECR Europe provides a podium for retailers and suppliers to share. ECR started out to attain standardisation in the industry and it now comes together to set an agenda and drive common goals, capturing best practice and exchanging views. This year’s forum will discuss Creating Sustainable Shopping Value.