Management's discussion analysis
(52 1
weeks) 1
The increase in net sales for the arena was largely
attributable to the strong increase in sales volume as a
result of an increased number of transactions at Albert
Heijn. The increase occurred despite the additional week
in 2004. Excluding week 53 of 2004, the arena's net
sales in 2005 increased by 4.6% to EUR 6.6 billion
compared to 2004.
The increase in the arena's net sales in 2005 was
primarily driven by the success of Albert Heijn's value
repositioning program, its strong promotional activities
and increases in its total sales area in 2005, partly offset
by lower prices.
Net sales at the arena's Internet retail company, Albert,
increased by 26.6% in 2005. Excluding week 53 of
2004, Albert's net sales increased by 28.1%.
The arena closed four Albert Heijn stores in 2005. At the
end of 2004, 12 convenience stores at gas stations were
closed due to the expiration of the arena's contract with
ESSO.
The increases in identical and comparable sales at Albert
Heijn in 2005 compared to 2004 were primarily driven by
the value repositioning program and strong promotional
activities. Albert Heijn had substantially higher net sales
due to an increased number of transactions, while net
sales per transaction slightly decreased as a result of the
continuing food price deflation in the Dutch food retail
market.
In 2005, Albert Heijn continued its value repositioning
program for its private label products, which resulted in
an increase of net sales of such products.
The market share of Albert Heijn increased to 26.4%
compared to 25.3% in 2004.
Net sales at Etos decreased by 3.5% to EUR 341 million
in 2005. Excluding week 53 of 2004, net sales at Etos in
2005 decreased by 1.2% compared to 2004 mainly as
result of lower prices and fierce competition. During the
second part of 2005 Etos began to implement a renewed
commercial strategy focused on competitive pricing and
at the same time strengthening quality and service. The
first positive effects of the strategy were seen during the
2005 holiday season.
In 2006, Albert Heijn expects to continue the value
repositioning program, to focus on adding new stores, to
make bulk shopping, which is targeted at families with
children, more attractive and to add next generation store
prototypes.
Operating income
The following table sets forth information relating to
operating income for the Albert Heijn Arena in 2005
and 2004:
2005
2004
In millions, except
percentages
Change
(53
weeks)
Net sales in EUR
6,585
2.6
6,418
Operating income in EUR
288
(9.1)
317
Operating income as a
percentage of net sales
4.4%
4.9%
Change in gross profit
margin
(0.9)
Change in operating
expenses as a percentage
of net sales
0.4
Operating income for the arena decreased in 2005
compared to 2004 primarily as a result of higher pension
and other retirement costs, which increased by EUR 34
million compared to 2004, mainly due to pension plan
amendments, changes in the key assumptions used to
calculate benefit obligations and net periodic benefit
costs, as well as new agreements with labor unions.
The arena's operating income in 2005 compared to 2004
was negatively impacted by the additional week in 2004.
The arena's operating income in 2005 was positively
impacted by lower non-current asset impairment losses
which decreased by EUR 12 million compared to 2004,
partly offset by lower gains of EUR 3 million on the sale
of real estate compared to 2004.
Albert Heijn's ongoing value repositioning program
combined with strong promotional activities resulted in
fierce price competition in the Dutch food retail market
and put pressure on gross profit margins, which decreased
in 2005 compared to 2004.
The ongoing cost reduction program at Albert Heijn is
focused on lowering logistic and transportation expenses,
other variable store expenses and administrative expenses
as a percentage of net sales. As a result of these cost
reductions and efficiency improvements, as well as the
favorable impact of the increase in net sales, operating
expenses as a percentage of net sales were lower in 2005
compared to 2004.
Operating income at Etos was lower in 2005 compared to
2004, primarily as a result of lower net sales, lower prices
and the start-up costs for its new commercial strategy
initiated in the second half of 2005.
Albert Heijn expects to continue its cost reduction
program in 2006 and to focus on efficiency and
optimization programs at the store level and throughout
the supply chain.
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