Grabbing ahold of the reins
In Ahold USA's 2012 annual report, which covers the 52 weeks ending Dec. 20, 2012, Dick Boer, CEO of Ahold USA's Dutch parent company, Koninklijke Ahold N.V., reiterated his company's ambitious goal to drive private label penetration to 40 percent by 2016.
"Our U.S. businesses are improving their own-brand product lines to give customers more choices at different price points to fit their budgets," he said in a Feb. 28, 2013, summary of the report.
The goal is part of Ahold USA's six-pillar Reshaping Retail strategy, which Boer first announced in 2011, not long after he began his position at the company. At that time, own-brand penetration was 33 percent.
"We want our businesses to be our customers' favorite place to shop," he said in the 2011 announcement.
So it makes sense that in July 2013, Ahold USA selected private label veteran Juan De Paoli to head its store brand operations. A former executive with H-E-B and Topco Associates (who also held positions with consumer packaged goods giants such as Procter & Gamble Latin America and Oscar Mayer), he shares Boer's passion for own brands — and feels the same way regarding the role store brands play in the Reshaping Retail strategy.
"We want our customers to enjoy our brands, our stores, our people and our products so much that they do all of their shopping with us and recommend us to others," says De Paoli, who is senior vice president of brand management and own brands. "That means we must continue to strive to develop an even better, more relevant assortment to meet our customers' daily needs, with a broader range of products and services, including new and innovative own brands products."
A little history lesson
Ahold USA's faith in the power of a strong own brands program should come as no surprise, as the company's roots lie in the Western European retail market — a market historically known for its strong private label programs.
Ahold USA's parent company, Koninklijke Ahold N.V. (Ahold), traces its beginnings to the first Albert Heijn store, which opened in Oostzan, the Netherlands, in 1887. Over the following decades, Albert Heijn grew into the largest Dutch grocery chain and is Ahold Europe's flagship banner.
But in 1977, Ahold was looking to make a big splash into a new market: the United States. Ahold established its Ahold USA arm through the 1977 acquisition of BI-LO (which it ultimately ended up selling to a private equity firm in 2005). To grow its footprint, Ahold USA acquired Carlisle, Pa.-based Giant Food Stores (called Giant Carlisle by the company to distinguish it from the other Giant banner) in 1981; Quincy, Mass.-headquartered Stop & Shop Supermarket Co. in 1995; and Landover, Md.-based Giant Food of Maryland (called Giant Landover by the company) in 1998, the retailer says. It also acquired Skokie, Ill.-based Peapod, an online grocery delivery service, in 2001.
Today, Ahold USA operates 760-plus stores under its four traditional banners (both Giants, Stop & Shop and Martins) in 10 states (Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and West Virginia) and Washington, D.C., via a number of formats to address the sizes of different communities and various customer bases, De Paoli explains.
"The majority of our formats fall between 40,000 and 90,000 square feet and provide customers with a variety of amenities and product selection," he says. "We also offer several superstores, which measure more than 90,000 square feet. In addition, we have two convenience stores, more than 150 fuel stations and approximately 550 pharmacies in our store portfolio."
Through its Peapod business, Ahold operates in 12 states (Connecticut, Illinois, Indiana, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Wisconsin) and Washington, D.C. Initially solely a delivery service, Peapod opened its first pickup points in 2012, enabling customers to order online and then choose to either pick up their groceries or have them delivered. It operates 120 pickup points today, with aggressive plans to launch 100 more in 2014, De Paoli explains.
"Pickup makes online shopping more convenient for customers who find it difficult to be home to receive a grocery delivery, or who would rather pick groceries up while en route to another location," he points out.
A family of brands
Although Ahold USA operates many different store sizes and types — as well as Peapod — it doesn't change the way store brands fit into each of its operations.
"Our family of brands is available across all formats and banners, as they play a key role in our go-to-market strategy," De Paoli states.
At Ahold USA, own brands items sell in a traditional three-tier structure with additional specialty brands. According to De Paoli, the value tier is served by Guaranteed Value, which offers everyday essentials sold at the lowest price possible. Meanwhile, the super-premium end is covered by Simply Enjoy, a brand of gourmet products of "exceptional taste."
As for the national-brand-equivalent (NBE) tier, Ahold USA offers three brands: for food products, the "first label" brand — designated by the colorful wedge logo used to brand the Stop & Shop and Giant Landover banners — which is referred to by consumers as the Giant, Stop & Shop, Martins or Peapod brand (depending on where they purchase the products); for health and beauty care products, CareOne; and for general merchandise, Smart Living. Specialty brands include Companion (pet care), Cottontails (baby care) and Nature's Promise (natural and organic).
De Paoli notes that choosing his favorite products is akin to choosing his favorite child, and almost impossible to do. But he is quite proud of a few items — in particular, seasonal products such as Ahold USA's first brand eggnog and first brand apple cider, the latter of which is produced in Pennsylvania and received an award at the states National Apple Harvest Festival.
"Its an award-winning product, and its locally produced so were supporting the local economy," he says, adding that local sourcing is very important to Ahold USA. Its banners have been leaders in the "buy local" movement for many years.
Other products of which De Paoli is particularly fond are the "epicurean collection" of items under the Simply Enjoy brand (especially the French sodas, chocolate chip cookies and peppermint coffee), as well as the first label gingerbread single-cup coffee pods.
"I just had a cup this morning, and it is sensational," he says.
To create all 24,000-plus of its store brand products (500 of which were introduced in 2013), Ahold USA partners with more than 1,000 manufacturers and Stamford, Conn.-based Daymon Worldwide. It also is "highly involved" in product and packaging R&D, and has forged strong partnerships with its suppliers, De Paoli explains.
"Our suppliers are our partners," says John Ruane, senior vice president, fresh merchandising, "and we work with them to fulfill our customers traditional needs, as well as innovate to deliver alternatives that drive value through a combination of price, quality and variety."
De Paoli notes that Ahold USA works with its supplier partners to develop not only own-brand products, but also packaging for these products.
"Our plans for 2014 include a significant ramp-up in terms of R&D to drive even further product and packaging innovation," he says.
Ahold USA additionally is heavily involved in quality assurance and responsible retailing efforts tied to its private brand products, De Paoli states.
"Our QA team conducts quality testing on private label products as part of the product-approval process," he says. "These specifications are then used to document the approved quality. We have multiple systems to ensure that the product in commerce meets quality expectations on an ongoing basis."
Consumer testing also plays an important role in the process, De Paoli points out.
"When customers come into our stores on Saturdays and Sundays, they are invited to blind-test products, vote and complete a questionnaire about that product," he states. "They obviously are selected based on whether they are consumers of that category or not."
Turning to packaging, the company has plans to continue improving sustainability here for its private label products, De Paoli states.
"In all aspects of our company's operations, we are working to minimize our impact on the environment, and this includes our packaging," he says. "Technology is changing every day, and we continue to evaluate all of our packaging and how to make it better for the environment."
For example, De Paoli notes that Ahold USA is moving toward using more cardboard packaging with its bakery products, and biodegradable/compostable packaging for some of its produce items.
The company already has seen some significant redesigns with its packaging, including the relaunch of the Simply Enjoy brand in 2013, a feat of which De Paoli says he is particularly proud. The project included adding new products, improving packaging design and reinforcing the brand's marketing.
"The packaging of our own-brand products has greatly improved," he points out. "Our customers no longer think of own brands as generic."
De Paoli also states that he is proud of Ahold USA's development and marketing that supports the popular Nature's Promise natural and organic brand, a favorite with customers.
"And last but not least," he says, "we are quite proud of the results in terms of penetration and sales our family of brands have delivered throughout 2013."
A balancing act
Developing such a powerful store brand program doesn't come without its share of challenges, though. One of the biggest difficulties for Ahold USA's team lies in understanding how to properly balance the assortment of private label SKUs and national brand SKUs — and get the ratio just right.
Turning to the center store, Jeff Dichele, Ahold USA's senior vice president, non-perishables, explains the challenge, along with the opportunity, of growing both store brand and national brand nonperishables at the same time.
"Its important for us to track what percentage of business each of our categories do in own brands versus national brands, and devise plans to grow total category market share," he states. "The growth of total category market share is our goal, and the interplay between national brands and own brands helps us achieve that goal."
Dichele also says that his team must understand the diverse product needs and brand differences among Ahold USA's four divisions.
"Regional brands are very important to our business," he explains. "We have been successful in growing our own-brand penetration year on year while also growing our overall category market shares. Our national brand suppliers know that, based on our size and geography, we can move a lot of volume for them while still growing our own brands."
The balancing act of store brands and national brands also is important in the health and beauty care sector, says Raymond McCall, Ahold USA's senior vice president, pharmacy and HBC.
"For health and beauty care, new product entry is the lifeblood of the department," he says. "Today, we have a great relationship with our CPG partners and are always looking for new and innovative products for our customers. We balance our product mix between great HBC CareOne products and innovative national brands to create customer loyalty and trust."
What the future holds
Looking toward the future, De Paoli explains that through its corporate center overseas, Ahold USA has a number of goals that include — but go beyond — private label, all of which are part of the Reshaping Retail strategy.
"We have goals related to being responsible ... by sourcing our own-brand products sustainably, being a better neighbor in our community, and offering healthy choices, among others — these are global goals we share across the company," he says, adding that a goal specific to store brands is to increase focus on adding more responsibly manufactured and sourced products to shelves in the years to come.
But looking specifically at 2014, De Paoli says his team plans to continue to focus on reaching the 40 percent penetration goal with own brands, which is a major strategic priority for the company.
"We are focusing more on it than ever before," he explains. "In fact, we want to be famous for our own brands! We are taking our own brands to the next level by perfecting the expected and inspiring with the unexpected."
De Paoli, who was five months into his role at Ahold USA at press time, says the time he has spent working with his team to help make Ahold USAs brands "famous" has been a "fantastic five months" in his professional life. And he is excited about what the future holds — and confident in Ahold's ability to become among the "best in class" in the U.S. market.
"Im loving it," he says. "Who wouldn't love to be a part of the dream of helping a company become famous?"