Management's discussion and analysis
This section includes discussion of:
Significant factors affecting the results of Ahold's
operations and financial position;
Results of operations both on a consolidated
and a business segment basis;
Liquidity and capital resources;
Contractual obligations;
Off-balance sheet arrangements;
Critical accounting policies and estimates;
Future accounting changes; and
Risk management and use of financial instruments
and derivatives.
The following charts show the Company's 2006 consolidated
net sales by business and geographical area:
The following market factors and trends affect Ahold
and its competitors:
Increased labor expense. The rate of increase of health
care, pension and insurance costs in the United States
is outpacing general inflation and the Company's
sales growth.
Competition. The food retail industry in the United States
and Europe remained extremely competitive in 2006.
Promotional activity by traditional supermarket
competitors remained at high levels throughout the year
while competition with alternative retail formats continued
to intensify in the Company's markets. The food retail
industry operates on relatively low profit margins that are
subject to pressure from increasing competitive pressure
on pricing and promotion. Conventional supermarkets are
experiencing erosion of their markets as customers shift
to alternative discount retail formats, natural and organic
food outlets, and other "food-away-from-home"
alternatives. In the United States, customers are visiting
supermarkets less frequently. The foodservice industry
in the United States is also highly fragmented and very
competitive in price and service, as competitors continue
to make significant investments in improving operating
efficiencies. The Company expects that these markets
will continue to be highly competitive.
Foodservice industry growth. The foodservice market
in the United States continues to experience a positive
growth trend as consumer food purchases continue
to shift toward "food-away-from-home." Foodservice
industry growth, however, is higher in the less profitable
multi-unit restaurant and fast food segment.
Pressure on foodservice profit margins. The rapid
fluctuation of costs of foodservice products impacts profit
margins when those fluctuations cannot be incorporated
in pricing promptly and fully. Furthermore, large
customers and cooperative buying groups continue to
place downward pressure on pricing.
J
34% Foodservice
'i?
26% European Operations
74% U.S. Operations
42 Ahold Annual Report 2006
