It looks like Ahold Delhaize's laser focus on e-commerce is paying off, as the company reported a 129% jump in fourth quarter online sales in the U.S.
For the fiscal period ended Dec. 31, Ahold said U.S. same-store sales excluding gasoline grew 11.2%, due largely to COVID-19 related sales strength, which has catapulted sales at many other food retailers over the past year. Online sales in the U.S. were up 129% in constant currency. However, underlying operating margin in the U.S. was 3.9%, down 0.4 percentage points from the prior year at constant exchange rates, impacted by significant costs related to COVID-19, the company said.
"We are pleased with the underlying Q4 performance in both the U.S. and Europe," said CEO Frans Muller. "Our leading local omnichannel platform generated nearly 130% net consumer online sales growth in the U.S. and nearly 75% growth in Europe in the quarter, at constant exchanges rates. This strong Q4 performance allowed us to exceed our underlying EPS outlook and produce $2.6 million in free cash flow in 2020, despite significant payments to withdraw or improve the security of pension plans in the U.S. and the Netherlands, and our accelerated investments in digital and omnichannel capabilities."
The Dutch grocer posted an overall net loss of $10.9 million for the quarter. Ahold Delhaize said the decline in profitability was due primarily to previously announced provisions for U.S. multi-employer pension plan withdrawal and settlement agreements, which amounted to $1.01 billion. In 2020, the Ahold Delhaize brands Giant Food and Stop & Shop committed to invest more than $1.7 billion to improve the financial security of U.S. pension benefits in the following plans: the United Food & Commercial Workers International Union – Industry Pension Fund, the United Food & Commercial Workers (UFCW) – Local 1500 Pension Fund, and the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund and the Mid-Atlantic UFCW and Participating Employers Pension Fund.
In its fourth quarter report, Ahold also said it has spent more than $800 million on COVID-19 related expenses, including $27 million in charitable donations. Ahold Delhaize and its local brands are continuing their COVID-19 care in 2021, with an additional provision of $12 million for charitable donations this year.
“2020 underscored the vital role we as grocery retailers play in society and I’m extremely proud of how teams across all our brands have responded to this crisis, putting the health and safety of customers and associates front and center, while keeping the supply chain running and ensuring customers were able to access essential food supplies during this pandemic,” Muller said. “Additionally, we have taken our COVID-19 care a step further by rewarding associates with extra pay for their hard work and making substantial charitable donations, for instance by making food available to the most vulnerable in our local communities. As COVID-19 is still very much part of the daily lives of the communities in which we operate, we will continue our COVID-19 care in 2021. We have allocated additional funding for continued support of the communities, served by our local brands so that we can continue to support those in need.”
Ahold said its overall sales rose 18% to $23.7 billion, beating its guidance. Underlying operating income in the period was $9.7 billion, also beating a consensus forecast.
Net consumer online sales jumped 84% to $3.1 billion with increases of 129% in the United States and 73% in Europe.
When consumers began shifting their purchases more online at the onset of COVID-19, Ahold says it acted quickly to shift capital expenditure spending in 2020 to accelerate investments in digital and omnichannel capabilities. As a result of these combined efforts, the company ended 2020 "in a strategically stronger position than before the COVID-19 pandemic began," Muller said in an earnings call with analysts.
Ahold said it expects online sales growth to continue to outpace traditional sales growth this year.
“We definitely believe we are going to continue to see very strong online growth in sales going forward. We are projecting a further growth of 30% in 2021, that includes 60% in the U.S,” Chief Financial Officer Natalie Knight told Reuters.
Investments last year in distribution networks and pickup spots for online orders, as well as other areas, would help boost capacity and increase sales, Knight said.
“It’s because we know that last year a lot of growth was still hampered by capacity. ... We are continuing to build out capacity, so we are very confident the trend is going to continue,” Knight said.
On Feb. 16, Ahold announced that its Peapod Digital Labs, the company's digital, e-commerce and commercial engine, has launched a micro-fulfillment technology pilot with The Giant Co. in the Philadelphia market. Part of an e-commerce fulfillment center (EFC), the pilot employs a Swisslog solution including AutoStore technology powered by Swisslog’s SynQ software, as well as Peapod Digital Labs’ proprietary manual picking capabilities.
An Ahold Delhaize USA spokeswoman told Progressive Grocer: "The facility is roughly 100,000 square feet. It’s a multiuse facility, and one portion is micro fulfillment. It’s a lab environment that will enable Ahold Delhaize USA companies to test with the technology and evaluate it for other-size spaces."
The pilot rolls out as Ahold Delhaize USA companies continue to expand their e-commerce fulfillment capabilities in support of a stronger omnichannel supply chain.
“Over the past year, all Ahold Delhaize USA companies have seen a tremendous increase in online sales growth, and we believe this growth is here to stay,” said JJ Fleeman, president of Peapod Digital Labs and chief e-commerce officer. “As we think about shifting consumer expectations and the future of omnichannel shopping, we must continue to build and evolve our already strong infrastructure to optimize pickup and delivery. We’re excited to kick off this pilot with The Giant Co. and Swisslog as we continue to build out e-commerce fulfillment capabilities, which we believe will be key in supporting continued omnichannel growth.”
The EFC is planned for the City of Brotherly Love to help meet customer demand in Center City and South Philadelphia. The facility is expected to fulfill about 15,000 online orders weekly for delivery to customers’ homes.
“This pilot is an exciting milestone in The Giant Co.’s omnichannel evolution as we work to transform the online grocery experience for our customers,” said Nicholas Bertram, president of the Carlisle, Pennsylvania-based supermarket banner. “As we continue to see incredible demand for Giant Direct across the Philadelphia region, working with Swisslog to incorporate state-of-the-art technology like AutoStore will not only bolster our overall e-commerce platform for future growth, but also significantly increase our operating capacity, allowing us to deliver a faster, best-in-class experience to more customers each week.”
As noted earlier, the EFC’s hive robotic technology will include the AutoStore storage and retrieval system, powered by Swisslog’s SynQ software and pick stations, as well as Peapod Digital Labs’ proprietary manual picking capabilities. Applying the advantages of the Autostore grid storage density and goods-to-person productivity gains in tandem with Peapod Digital Labs’ picking system will result in streamlined grocery e-commerce order fulfillment.
Ahold Delhaize USA companies will continue other micro-fulfillment tests, including the multi-shuttle pilot with Stop & Shop and Waltham, Massachusetts-based TakeOff Technologies in the Hartford, Connecticut, market. Additional micro-fulfillment pilots will be revealed in the coming months.
During the earnings call, Muller elaborated on the company's prospects in 2021.
"Exiting 2020 in this position makes us feel even more confident about our prospects in 2021 and beyond. While no doubt that COVID-19 helped our results last year, we also know that the future for Ahold Delhaize is very promising. Many consumers have found a new love for eating at home and found new ways to engage with our brands, both online and in-store, which are behaviors which we think will have a lot of stickiness. As a result, we are now setting more ambitious targets in several areas of our business."
Ahold Delhaize USA is a division of Zaandam, Netherlands-based Ahold Delhaize and the parent company for Ahold Delhaize’s U.S. companies, including Food Lion, Giant Food, 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.