Management's discussion analysis
Re-engineering our retail business
Arena organizational structure
Recovering the value of U.S. Foodservice
Reinforcing accountability, controls and corporate
governance
2006 AND ONWARD
Overview of our retail strategy
information, see Note 12 to our consolidated financial
statements included in this annual report.
We have reorganized our food retail companies into arenas to
integrate back office functions and gain synergies. In this
way, we can achieve economies of scale while continuing to
operate using local brands, pricing and product assortment.
We have also reinvested in many of our stores to maintain
and improve our market position.
The arena structure promotes effective management and
harmonization. The arena structure also allows us to more
effectively take advantage of opportunities in the areas of
sourcing, information technology, supply chain, store
operations and operational alignment and thereby
streamlining our infrastructure. Our U.S. arenas have
centralized certain common functions into integrated
support service organizations. Each arena is headed by a
CEO, who reports directly to the Ahold President and CEO.
Retail portfolio strategy
Our strategy for our food retail business is to focus on
format, location and competitive position. We are focused
on the supermarket format in Europe and the U.S. Our
objective for our companies is for them to have or to be
capable of achieving a sustainable and profitable number
one or number two position in their respective markets
within three to five years. If we own assets that do not fit our
criteria for store format, geographic region, market position,
profitability and adequate returns on capital invested, our
strategy has been to evaluate divestment opportunities.
Following the completion of our divestment program, our
retail portfolio strategy is focused on integration and
concentrated, smaller "add-on" or "fill-in" acquisitions.
On August 1, 2005 we announced our plans to grow our
business in key markets through selective acquisitions. On
the same day we announced the acquisition of up to 67
stores from Julius Meinl a.s. in the Czech Republic. As of
March 28, 2006, we have acquired 59 of these stores.
Improving our competitive position
In November 2003, we launched a program of strategic
business cost saving initiatives aimed at improving our
competitiveness. These initiatives are expected to lower
costs related to sourcing, information technology, supply
chain and store operations. Our arenas and operating
companies share responsibility for the initiatives together
with our Business Support Office (the "BSO"). The BSO,
which was established in connection with the launch of the
cost savings program in 2003, facilitates the development
of the various initiatives.
Through these initiatives, our goal is to achieve aggregate
gross cost savings of approximately EUR 650 million by the
end of 2006. We plan to reinvest a portion of these cost
savings in strengthening our value and service proposition.
We have incurred and will continue to incur significant
one-time costs related to the 2003 cost savings program.
We introduced a three-step program in 2003 to restore the
value of U.S. Foodservice as part of our Road to Recovery
strategy. The three steps are: (1) improving internal controls
and corporate governance; (2) restoring profitability and
cash flow; and (3) pursuing profitable sales growth. We have
already made significant progress and have implemented a
number of initiatives and changes at U.S. Foodservice to
clarify accountability, improve our internal controls and
strengthen our corporate governance. In 2004 we
implemented a comprehensive plan focusing on
organizational improvements, procurement enhancements,
operational and system improvements at U.S. Foodservice in
order to restore profitability and cash flow. In 2005, U.S.
Foodservice continued to execute these initiatives which
resulted in improved operating income, and in November of
the same year announced a new long-term strategy, which is
discussed below under "Overview of our U.S. Foodservice
strategy."
As part of our Road to Recovery strategy, we have
implemented numerous initiatives and changes to clarify
accountability, improve our internal controls and strengthen
our corporate governance. We have concluded that as of the
end of the period covered by this annual report, the two
material weaknesses reported in our 2004 annual report no
longer exist. For additional information, see "Corporate
governance" and "Internal control" above.
We have defined a growth strategy for 2006 and onwards
based on core values that our operating companies share
and core capabilities that we are improving. Our core values
are rooted in Ahold's heritage and reflect our ambitions for
the future. Increasing the focus on our core capabilities will
help us build upon what we do best and differentiate us
from the competition.
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