Our business model
Next generation sourcing
General merchandise
IT outsourcing agreements
Category management Learning organization
The strategies of our companies are based on one shared
business model. It is designed to enable our group of
companies to apply relentless efficiency and simplicity to
everything we do. By working as one team we benefit from
group synergies and innovation that serve to further reduce
costs. Improving our efficiencies and lowering our cost base
enable us to invest in providing our customers better value
for money and an easier shopping experience.
The intention is to drive our sales volumes. We generate
cash that can be invested in new stores, new stores and
innovation. The cash we generate can be used for
acquisitions in both the retail and foodservice businesses to
enhance our position in certain markets. The overall goal is
to make our offering more appealing for customers, improve
our bottom line and create value for our shareholders.
Our value repositioning programs at Albert Heijn and ICA
Sverige have been successful to date, which has increased
our net sales and improved our ability to compete. The value
repositioning program is based on our business model of
lowering costs, investing the savings in value (including
price and customer offering), creating cost leverage in order
to sustain our price strategy over time and thereby driving
our net sales volumes to generate cash proceeds which can
be invested in our business. In order to support our value
repositioning programs, we are continuing our strategic
business cost savings initiatives to improve competitiveness
and, ultimately, net sales and profitability. These initiatives
are expected to lower costs related to sourcing, information
technology, supply chain and store operations.
We plan to implement an arena-wide value improvement
program at both Stop Shop and Giant-Landover. Starting
in 2006, this program will be implemented over the next
three years in phases applying a product category-by-
category approach. This program has similar objectives to
the value repositioning program that we have successfully
implemented at Albert Heijn and ICA. However, the starting
points and competitive environments are different and we
have designed the value improvement program specifically
for the region and the market of the Stop Shop/Giant-
Landover Arena to help us compete effectively with the
supermarkets and alternative outlets of our competitors.
Sourcing and category management teams have been
established to support two of our core capabilities and
important focus areas for increasing our competitive
strength in the future. The BSO and teams from Albert
Heijn, the Central Europe Arena and ICA are working
together to start "Next Generation Sourcing" for selected
product categories. This initiative will enable us to critically
analyze the whole value chain from raw materials to our
store shelves, identify cost savings and find ways to optimize
the value we deliver to our customers. Strategic sourcing
methods will be integrated in day-to-day sourcing and the
alignment between sourcing and category management
teams will be improved. In 2006, we will start the initiative
by creating a common organizational platform for central
sourcing of selected private label products.
We plan to introduce a family-focused range of homewares
in the first half of 2007 in our retail arenas. This range of
non-food merchandise will initially include kitchen items
and glassware, but will be extended gradually to include
other general merchandise categories which will accompany
our existing food offering. To support this initiative, a global
sourcing structure will be developed. Our ambition is to
expand our general merchandise sales within a multi-year
period by developing a design-driven, affordable and
profitable global range of such products selected
investments will be made in our store portfolio to support an
attractive offering of general merchandise to our customers.
In November 2005, we signed several major IT outsourcing
agreements, including a five-year contract for global IT
enterprise outsourcing with EDS, including applications
maintenance services in the U.S. We also signed five-year
agreements with Atos Origin and NCR (both covering the
Albert Heijn Arena) for applications maintenance and in-
store IT-support, respectively. Expected total costs during
the five-year term of the outsourcing agreements is
approximately EUR 467 million based on expected levels of
services. Subject to termination charges, we may terminate
each of the agreements by giving our outsourcing partner six
months notice. Approximately 450 Ahold employees located
in the U.S. and the Netherlands are expected to transition to
EDS. These IT outsourcing initiatives are expected to reduce
overall IT costs by streamlining our infrastructure, improve
support to the arenas and facilitate our ongoing
harmonization initiative across the business. The transition
costs related to these initiatives will almost completely be
incurred in 2006.
Being highly skilled in category management and
understanding our customers enables us to provide them
with a more targeted range and assortment with products
and services in a cost-efficient and convenient way. Our
retail strategy is supported by our company-wide ambition to
build a learning organization that encourages knowledge
exchange to leverage our expertise wherever possible.
AHOLD ANNUAL REPORT 2005 57
