Ahold Delhaize boosts e-commerce with FreshDirect acquisition

Ahold Delhaize is accelerating its e-commerce operations with a blockbuster acquisition.

The Dutch grocery company has entered into a definitive agreement, with private-equity firm Centerbridge Partners, to acquire New York City online grocer FreshDirect.

Ahold Delhaize will acquire the majority share, funded by cash on hand, and New York-based Centerbridge Partners will be a minority equity investor with a 20% stake. After the deal closes, FreshDirect will retain its brand name, report to a seven-person board, and continue to independently operate out of its facility in the New York City borough of The Bronx. Financial terms of the deal weren't disclosed. The transaction is expected to close in the first quarter of 2021, following the satisfaction of customary closing conditions, including regulatory clearance.

“FreshDirect is a leading local brand in the fast-growing online grocery sector in the New York City metro area, one of the most important e-commerce food markets in the United States," said Frans Muller, Ahold Delhaize CEO. "With its unparalleled quality of fresh food, exceptional brand recognition, and dedicated people, it has generated remarkable customer loyalty. This acquisition further propels our omnichannel evolution. It is a great addition and fit for our portfolio of leading local brands. The deal allows us to reach additional customers in the New York trade area and therefore will add incremental sales to the business. It further enables us to address customers’ growing preference for convenient ways to shop. Finally, we are excited to have Centerbridge alongside of us in this venture and believe our combined focus, expertise and scale will help us maximize the success of FreshDirect going forward.”

FreshDirect is a leader in the U.S. online grocery sector, with more than 20 years of local market and customer experience. As the name implies, the company focuses on fresh food, which represents more than 60% of its sales. It differentiates itself with direct and exclusive relationships with local farmers, coupled with unique meal solution capabilities. The company’s efficient supply chain enables faster and more direct delivery of fresh food than many other conventional grocery services, providing a further enhanced freshness experience to customers. FreshDirect also brings with it a highly scalable and state-of-the-art fulfillment center in the Bronx. Finally, its e-commerce platform enables customer ordering, from picking to packing to last-mile delivery, including the ability to provide same-day and rush delivery.

“We are strong believers that the future of grocery retail involves getting customers the best-quality food, exactly when they want it, with the best customer service," said David McInerney, FreshDirect’s CEO. "We have built FreshDirect into a reliable and recognizable business to serve this purpose. This transaction marks an important milestone in the continued growth of FreshDirect. I believe Ahold Delhaize’s global scale; focus on strong, leading local brands; and ability to utilize cost-of-goods synergies will allow FreshDirect to achieve its full potential.”

Just last week Ahold revealed new initiatives aimed "to solidify [its] position as an industry-leading local omnichannel retailer" in 2021 and beyond, including doubling its click-and-collect locations in the United States. These initiatives were noted by the global retailer as it logged an online sales increase for the third quarter of 62.6% at constant exchange rates, including 114.7% growth in the United States

The company said that it will focus on three key areas going forward:

• Significantly step up online capacity, supply-chain and technological capabilities
• Advance omnichannel offerings to consumers
• Address the call to action in ESG (environmental, social, governance)

While Ahold Delhaize's U.S. business currently reaches about 90% of market households with home delivery and click-and-collect, through 2021 the retailer said it will increase its online capacity by nearly 100%. This will include a more than 50% increase in capacity in its bol.com business in The Netherlands and an expansion to nearly 1,400 click-and-collect locations in the United States, doubling locations since the beginning of 2020.

Meanwhile, its Carlisle, Pennsylvania-based Giant Co. banner will test a new subscription offer in the first quarter of 2021, with an annual membership fee under $100, an improved value proposition and preferential delivery time slots.

Ahold Delhaize's U.S. businesses will also offer an "endless aisle" solution with an additional 80,000 to 100,000 general merchandise and food items in the first half of 2021, using the Miraki platform. Additionally, it will launch 1,500 to 2,000 more own-brand items next year, growing from its existing base of 15,000 items.

As for its supply-chain capabilities, the company is in the midst of transitioning to a fully integrated, self-distribution model beginning in 2023. Its first integrated distribution center is expected to go live in 2021.

Among its plans to improve its ESG standing, the retailer has set a goal to have 51% of its own-brand offerings be "healthy products" by 2022. Its brands are focusing on increasing discounts and rewards on healthier products using nutritional guidance like Nutriscore and Guiding Stars. The company plans to implement easy-to-use nutritional labeling across its portfolio by the end of 2025. Also, starting in 2020, Ahold Delhaize will disclose annually the percentage of food sales generated from products that achieve one, two or three stars under the Guiding Stars system.

The company said that it's working toward zero plastic waste from its own-brand packaging by 2025, including aiming for 25% of its own-brand plastic packaging to be made from recycled materials.

These initiatives were introduced as the retailer reported a 6.8% in net sales for the third quarter (10.1% at constant exchange rates). In the United States and Europe, comp-sales growth excluding gas was up 12.4% and 7.5%, respectively, due largely to the COVID-19 outbreak. Brand performance was strong across the board, led by growth at U.S. banners Food Lion and Giant Food.

Ahold Delhaize USA is a division of Zaandam, Netherlands-based Ahold Delhaize, the parent company for Ahold Delhaize’s U.S. companies, consisting of Food Lion, Giant Food, The Giant Co., Hannaford, and Stop & Shop, as well as e-grocer Peapod; Retail Business Services, a U.S. support services company providing services to the brands; and Peapod Digital Labs, its e-commerce engine.