Management's discussion analysis
OVERVIEW OF OUR U.S. FOODSERVICE STRATEGY
Pursuing profitable sales growth
Improving customer focus and organizational
effectiveness by creating two separate operating
companies
Initiatives including value repositioning, optimizing the
supply chain, developing new store formats and improving
private label penetration are supported by the execution of
our business model in our retail arenas.
In 2005, competitive and operating cost pressures in our
retail markets were greater than expected and the turnaround
at certain of our businesses was slower than planned. The
financial targets we originally set for retail in 2003 have
become increasingly challenging. Based on the retail trends
we have seen so far in 2006, we expect our retail net sales
growth in 2006 to be between 2.5% and 3.0% (assuming
constant currency exchange rates and excluding divestments
made in 2005). In addition, we expect that our retail
operating margin will be between 4.0% and 4.5% in 2006.
Our overall priority remains to drive net sales growth and
achieve a retail operating margin of 5%.
Our capital expenditure for the food retail arenas is expected
to be approximately 4% of net retail sales for 2006 with a
continued focus on the Stop Shop/Giant-Landover Arena.
In November 2005, we announced our strategic plan
focused on pursuing profitable sales growth at U.S.
Foodservice. The strategic plan includes the following
initiatives:
Starting in 2006, U.S. Foodservice was split into two
separate operating companies, each of which serves a
different customer segment:
"Broadline" that serves independent restaurants,
healthcare providers, hospitality customers, governmental
entities, educational institutions and other foodservice
customers.
"Multi-Unit" that serves primarily national and regional
casual dining and quick service restaurant chains.
The reorganization of U.S. Foodservice into these two
operating companies is intended to drive greater focus on
the specific needs of each of these different businesses and
to provide stakeholders with greater transparency into U.S.
Foodservice's progress in achieving its targets. Ahold will
change its segment reporting to reflect these changes in
financial reporting starting in the first quarter of 2006.
Broadline strategy
The Broadline strategy is based on four core initiatives that
are intended to drive a balance of top-line net sales growth,
bottom-line profit improvement and operational excellence:
New private brands model. To accelerate the growth and
increase the penetration of its private brands offered to
Broadline customers, U.S. Foodservice is embracing a
new business model by establishing a centralized,
dedicated private brands organization. This new
organization, named "Monarch Foods," is responsible for
the entire private brands value chain, including product
development, sourcing, quality assurance and marketing.
As part of the new private brands growth strategy, the
current portfolio of over 60 private brands will be
consolidated into approximately 20 strong private brands,
supported by an aggressive plan for new product
introductions.
Field sales investment. To drive profitable sales growth,
U.S. Foodservice intends to increase the number of its
Broadline sales representatives by 10% during the next
two years with more significant increases in selected
geographies. As of January 1, 2006, the number of sales
representatives totaled 4,850. To increase the
effectiveness of this field sales force, U.S. Foodservice is
deploying new proprietary laptop-based sales tools and
expanding its sales training capability, with particular
focus on building field sales expertise in its private brands
offering.
Enhancing local position in selected geographies.
To further improve its scale in certain geographical areas,
U.S. Foodservice consolidated a number of its Broadline
divisions and has targeted the acquisition of certain
smaller scale distribution organizations.
Operational Excellence program. U.S. Foodservice has
made significant progress in improving the effectiveness
and efficiency of many of its warehouse and transportation
operations. As part of the U.S. Foodservice Advanced
Service Technologies ("USFAST") initiative, a system
integration project, U.S. Foodservice has installed new
operating support systems in approximately half of its
Broadline facilities, significantly improving customer order
fulfillment accuracy and service performance as well as
reducing warehouse and transportation costs. U.S.
Foodservice will continue to install these support systems
in the remaining facilities. These systems are the
backbone of the field cost reduction to support
profitability. To provide a focused framework for future
improvement in every aspect of business performance,
U.S. Foodservice has initiated a new multi-year
Operational Excellence program aimed at improving
end-to-end business processes.
58
