Produce procurement insights from Albert Heijn/Ahold Delhaize
From the pages of Jim Prevor's Perishable Pundit
We recently announced the Thought-Leader Panel at The Amsterdam Produce Show and Conference. It is an important part of the event because the goal is not served simply by people visiting a trade show.
The key is for attendees to become more valuable colleagues, more valuable business connections and more valuable people — and to do that, one has to learn and open one’s eyes and ears to new ideas and new ways of thinking. Indeed, visiting a trade show itself becomes a different experience if one first begins forging relationships at an opening reception and then opens ones’ mind as a result of robust discussion of industry issues.
In fact, here is an underappreciated secret: If people only go to events where they do a lot of business, they are usually too busy dealing with that business to become smarter and more valuable contributors to their organizations. To be successful in the future, people need to invest in learning more now.
We are fortunate to have such wonderful people (and companies that support them) who are willing to share their knowledge, experience and insight to make the whole industry better. The whole panel is extraordinary, and in advance of the event, we wanted to explore the rich intelligence being laid out at the show.
So we asked Pundit Investigator and Special Projects Editor Mira Slott to visit with some of the thought-leaders and get a deep dive into what made them what they are today and gain a bit of insight into their thought processes. We begin with Michiel van Zanten, who welcomed Mira to the Ahold headquarters for a pre-show visit…
Q: We are honored to have you serve on the prestigious Thought-Leader Panel at this year’s Amsterdam Produce Show to engage in a dynamic discussion on the pressing issues facing the industry. Attendees also will have the opportunity to tour your beautiful Albert Heijn XL store in Purmerend, which I just had the pleasure of visiting.
It’s great to meet up with you at Ahold Delhaize headquarters to garner your insights about Ahold and its role in the produce industry in the run-up to the Show to pique attendees’ interest.
A: I’m happy to welcome you. Shall I start by giving a short introduction about myself?
Q: Yes, that was going to be my first question…to describe your background and responsibilities.
A: My background actually in the last 15 years has been in retail, but always on the sourcing side. The beginning of my career was playing a role in Aldi, which at that time was really a regional responsibility because Aldi buys European-wide, and in some cases even further than that, but the local buyer as they called it, was actually experimenting with local needs. So, after that, I moved towards Ahold because Ahold at that time had a centralized buying desk for their European operating companies.
Q: When was that?
A: I stepped in around 2006/2007 here, but there was a strong relationship with Ica, a supermarket chain in Sweden and Norway, where 60 percent of its shares belonged to Ahold, so we were asked to work together in the buying field. After that, I moved more and more to the fresh world, fruits and vegetables and flowers.
In the past five or six years, I’ve been working even deeper into the relationship that we built up in that world. So, I’m really back in the chain. I’m not the merchandiser, which Said Belhassan [Sr. Director Produce & Floral & Plants] is. Said is the guy who is responsible for the merchandising commercial side of Albert Heijn at this moment.
Q: Are you focused on Albert Heijn as well?
A: We have this structure now, where we work solely for Albert Heijn. So my responsibility is only for Albert Heijn, for the fruit and veg, and also some other groups within Albert Heijn, but mainly produce, of course. I am also responsible for the strategic sourcing.
My definition of strategic sourcing is how we can look further than the horizon of just one year. The heartbeat of this company is very fast. We have the motivation and ambition to innovate and to differentiate the assortment in produce towards our competitors, but also towards the rest of market, because we want to be a frontrunner. Albert Heijn wants to be a frontrunner, but that has a great impact on the rest of the chain. And I see the rest of the chain as my responsibility to optimize that and also to improve and make it better every day.
Q: How important is the produce department at Albert Heijn in that mission?
A: Our growth is mainly driven by the innovation power that we have. I estimate in the produce department alone, we have over 500 SKUs of innovation every year, which is quite a lot.
Q: When you say innovation, could you provide some examples?
A: Sometimes it’s creating something that makes it easier for consumers, like our fresh meal boxes, which are a huge success in the Netherlands, and I’m sure you saw at the Purmerend store. But you have to do something more than just putting the box in the microwave, whether it’s cutting the items up or putting them in the mixer. We portion out every single ingredient in the right measurements, so you can’t make any mistakes. You have the feeling you created your own meal from scratch, which fits into this do-it-yourself trend, but with a lot of help from the retailer.
Q: You’ve certainly been ahead of the curve on that trend. I attended a Future of Food conference in Delft with a focus on e-commerce late last month, where a hot topic was penetration and strategic growth in the fresh meal box home delivery segment…
A: It’s a box, yet you still feel like you’re the kitchen queen (or king), in control of the cooking process, and proud of the dish you made, instead of emptying a can or a packet of powder in a pan of water to cook it. We also have soup mixes of fresh herbs and vegetables you can cook with less effort. We tried the concept with fruit for smoothies, but that was less successful… maybe the timing was not great.
In answering your question, there’s another definition of innovation. How can we bring new produce items to families, like we did in the past of introducing the kiwi to the Netherlands, or the yellow kiwi instead of the green, or new varieties of tomatoes and exotics to make the intake of fruit and veg higher than it is today because we believe in healthy foods for our customers, which I think every retailer wants.
Q: And you’re on the procurement side to make this happen…
A: Yes, and for a long time in procurement, because in the structure of Albert Heijn, we say there’s a table, where we have the category manager and the buyer, and the Albert Heijn buyer is supported by amongst others, me. I am responsible for everything that is green, but there is also a buyer for the meat and the fish and the poultry. To a question that you raised earlier, how do we see this impacting the chain, if we want to bring in a new variety of mango, for instance, which takes seven years to actually grow, of course.
In the vastness and the ambition of the front side of our company, sometimes the real world gets lost. OK, we want a new mango next year… well first, we have to find a grower for that, and maybe the grower doesn’t have the variety we need, and then there are concepts like picked-from-the-tree, ready-to-eat fruit. You can do that by techniques to breed certain characteristics, like with bananas, which we do, but there are also other ways to create that, and how can you actually optimize the value chain? That’s my focus.
Q: What is the consequence of the Ahold Delhaize merger in these efforts? Could you talk about the impacts?
A: First of all, the merger was seen as joining forces, as I believe is the ambition of every merger to build synergies. As we speak, we are working together with our Belgium colleagues on different fields. For instance, we work together, of course, in learning from each other on the biggest successes and innovations and how we can share that. Also on the backside of the company, which is more of my responsibility, is how to join buying forces and procurement in a way that we enter the market together and boost volumes if we start the discussion with our suppliers.
Of course, it has great advantages for our suppliers because they have more and larger volumes but maybe also better commitment. But it also gives us… well, sometimes the chain needs solutions in this perspective because not all our systems are tailored and built for the systems next to us. Everyone wants to grow in quality but sometimes also in volume. The challenge that we have at this point is how can we join forces and have the benefits of going to the market together, but also to use the quality we’ve built up on both sides of the two systems.
Q: How different and how compatible are the systems of Ahold and Delhaize?
A: I can say some things Albert Heijn does pretty well, and there’s lessons to learn from it, and on the other side, Delhaize does some things differently, which Albert Heijn can learn about. That’s one step in the chain. But we also work with partners in the chain like big service providers, such as produce processors.
For example, we have a big partner in the north of Holland that does all our cut salads, all our cut fruit and meals and ready-fresh salads. They create something, and there is a big side of machinery that we use more efficiently to go to the market with a bundling of our volumes. We also try to see where we can choose the best partner from both sides, because we’ve built up a great history with both banners but now we are one.
We have suppliers that are either part of the chain or are an integrated space of the value chain to bring products together to the market. And how can we use each other’s pearls in the chain to be the frontrunner in the retailing market?
Q: Could you elaborate on the logistics of how you get products to market? Do you import directly or work through importers? How does that work.
A: We work directly, mainly directly, but I don’t think there’s one answer to this question. We have our work-arounds if we don’t see the meaning of working directly. Actually, during your visit today at Ahold, as you’ve seen, our Albert Heijn Foundation is having a celebration of 10 years. That has built up in South Africa. For our Southern Hemisphere products, large volumes are coming from South Africa, of course, if you look at exotics and also citrus and grapes. We started building up our supplier base on the African continent a long time ago. And we choose to work directly with big growers there, to answer your question.
On the other side, we have a great food producer in the Netherlands. We have lots of greenhouses here, and it’s a huge exporting country, quite amazing when you see the size of the country and what we are able to produce. We also lean on that. In the Netherlands, we have the advantage of having great growers here and great quality, but that actually just covers part of our needs in a year.
The weather is getting a lot more gray at the moment and the days are getting shorter, so this is the time where we step over to the Spanish or to the Southern Italians or to our suppliers in Greece to extend the availability of our vegetables, like salads and spinach, and things like that. In that perspective, we also have direct growers we’ve worked with for a long time in Southern Europe. So, our main coverage on the total is direct.
Also, because we are a retailer that does a lot of promotions, sometimes we need to rely on the wholesale market volumes, if they are there, to meet the needs of our consumer. But that’s more about managing the exceptions, and we’re happy to have long term relationships in most sides of the assortment.
Q: You know how Wal-Mart and others have set up global procurement systems. Does Ahold have such an operation? Do you try to contract with major companies, such as Chiquita or Driscoll’s on a trans-Atlantic basis?
A: Yes, we try. Of course, more than half of our retail business is in the U.S., with Ahold and Delhaize together. So, we see the potential, mainly on accounts like Chiquita and Dole. We actually also started discussions to see that whole global world as one starting point in our strategies and also in cooperation with these companies.
Q: What role would you play within the structure of Ahold Delhaize to capitalize on such trans-Atlantic deals? How complex is the process? And what are the considerations going forward?
A: We’re exploring the opportunities. But I have to be honest. As I already mentioned, I work for Albert Heijn, and it’s not like we have daily contact with our fellow colleagues in America. But we do see the potential of these sorts of cooperation together. A Chiquita banana is a Chiquita banana and has a great quality hopefully all over the world. And, yes, it’s a recognized brand.
But there are other considerations. Not to jump further into the details, but I think there is more of a difference in how people want to have their banana in the shop, what stage of ripeness, etc. That’s an intermediate step in the chain. We also look into how to optimize every step, such as the ripening process.
Q; Right, you have to evaluate the entire process from a synergistic and logistical standpoint across chains and countries…
A: It’s the process of setting the price, but then getting it to the Netherlands. Ahold and Delhaize are quite close to each other on the European continent because it’s the Netherlands and Belgium. We actually speak each other’s language, well at least in the northern part of Belgium, so it’s easy to communicate. Of course, there are still challenges because of differences in culture, even in the Netherlands, where it’s just 500 square kilometers or so…
Q: Could we talk more about how the Ahold Delhaize merger is positioned to compete in the context of the rapidly changing and increasingly cut-throat retail environment? The infiltration of deep discounters into the U.S. market, namely Aldi and Lidl, is not a new phenomenon in Europe. Your background at Aldi could shed more light on that...
What is the way for supermarkets to compete? The produce industry has always been a low-margin business. Do you find margin pressure caused by deep discounters to impact your vendor relationships?
A: I started working with Aldi, which I still believe is the most hardcore retail discounter in Europe. There are two different Aldi’s. You have the Aldi North and the Aldi South. Aldi South is actually also in the UK, and in Australia and I also think in America. Aldi North has been experimenting in the USA with a totally different part of retailing, Trader Joe’s is.
Coming back to your question of how I see that discounting phenomenon in the Netherlands, I think of what’s occurred in the past ten years. Ten years ago, there was a huge difference between Albert Heijn and Aldi, and Lidl as well. There was the retailer and the discounter. And the retailer as a full-service concept, Albert Heijn was perceived to be as too expensive.
Q: Was that consumer perception based on reality?
A: I say perceived, but it was also factual. The difference was maybe more than 20 percent on basic items. I’m proud that we did a good job of changing that perception over the years. It was the toughest. Because you can still say and prove you are less expensive or close to a discount price, and trust me the difference nowadays is really small. On one side, we improved and optimized our value chain, but we also did efforts to adapt to the fact that there would be less revenues from the market, to create a more efficient company for ourselves, and more able to bring more innovation to the market than we were in the past.
I believe in those years, Lidl moved towards a discount type of formula, and they also do a good job and still have the perception from consumers that they are the cheapest on the market, or at least on the cheaper side.
Q: With so many choices to shop, is there any consumer retail loyalty anymore?
A: I’m not sure if it’s comparable with the American population, but the Dutch are famous for their hunting for bargains. It’s crazy. I’m not sure if the statistics are still accurate, but maybe two or three years ago, the average visit of different retail formulas in the Netherlands was above two-and-a-half a week. So, the consumers are not loyal. They used to be very loyal to their formula, like Albert Heijn.
They would always go to Albert Heijn; maybe it wasn’t the closest, but they thought it was trustworthy and had great quality. Also due to the density of the retail landscape, the consumers have the time — and I’m still amazed by that — to shop at different retailers. First they are close to each other and there’s so many retailers in the Netherlands, you can go to the right corner for Albert Heijn and the left corner for Lidl. And if you walk maybe a half mile further, you can visit a Jumbo, which works well for the bargain-hunting Dutch consumer.
Q: But that bargain-hunting must put extra pressure on you…
A: That’s also the whole thing about being in the comfort seat, as we have been through the decades many times. We went through some price wars, and three to five years ago we were not perceived that well from the consumer side, not only on price, but also on the X factor—that Albert Heijn is great.
It’s still a great store to walk into and the warmth is there. We really had to work on that. One of our strategy points was gaining back the hearts of the consumers and to get back that X factor. We managed to do a good job. We’re doing well, and we have a nice market share.
It’s great to work for Albert Heijn, let’s put it that way, but also it’s great to visit Albert Heijn. I don’t have to come with apologies anymore at parties in the neighborhood. We have the good media attention where we had some difficulties the past few years, but we’re back on track, and we’re ready to move on, together with our strong sister company now.
Q: Amazon is moving heavily into a multi-channel strategy by buying Whole Foods. What does Ahold do online or plan to do?
A: Of course, it’s in the media, and I’m aware of it, but it’s not in my circle of influence. I’m responsible for Albert Heijn and its food and veg long-term planning and that is what I focus on. It’s like, who would ever imagine that Uber is here? I do see it through those glasses, but that’s all I can actually say about that.
Q: How would you describe your online presence?
A: We have strong confidence in that part. It’s one of our drivers because it’s the growing business. We have no reason to believe we missed the train there because we stepped in early enough to use the experience from one side, the traditional retailer, and we hooked up with a real strong player on line that actually helps us build up that part of our company in a very professional and sustainable way. Who will say what the future will bring?
Q: What is the actual arrangement with the online company?
A: Bol.com was acquired by Albert Heijn a few years ago, but at that time we already had our online shopping… but then again, that’s not my part of the business. The feeling and also the results show it helps to actually absorb knowledge from that market. It boosts what we were already building. And we are still experimenting with all kinds of concepts in that online business, but I can’t tell you all the ins and outs.
Q: More in your purview, could you discuss procurement strategies in different product categories; organic, local, Fairtrade, the Rainforest Alliance, and philosophy on the sustainability side?
A: Yes, I can talk a bit about this. Starting from the things we get from furthest away, our philosophy is, we source as close as possible and as far away as needed, because it’s not in our DNA to just make food miles just because. That’s one of our starting points, where far away mainly also means different markets, where social compliance and the right way to walk is difficult, but we started to work on that a long, long time ago. And the celebration of our Albert Heijn Foundation is proof that we are not just there to buy products and feed our local consumers, but also to create a better world for the environment in the places we source from.
I can elaborate on that for hours because I get very enthusiastic. If you see how we contribute, the primal things are actually more in the hands of government to put their funding in. We try to do our little piece of cooperation together with our suppliers there. And we have a great model for that. Until now, it’s has been quite in the shadows because we just think it’s the right thing to do.
We never choose to make it big publicity, to wave our flag, but it’s also in line with what the consumer wants to know now. Where do my products come from, and how are the products grown, and are the local people in the fields treated well? I’ve been lucky to visit those places sometimes. It is great to see. Still you feel shy, and it makes you feel very small, but the thank you’s from the people really only touch the surface.
Q: In terms of branding, how much of your business is private label, and why?
A: Most of our produce is private label. I’m not sure of the exact numbers but it’s the vast majority. Brands are present in the market. We choose to not have that many brands. This way we’re not locked in. We choose to carry particularly well known brands, for example a big brand like Chiquita because it sets an example, it tells the consumer something about our overall quality even on the non-branded items. We also have the ambition to have both great global brands but also to have small brands that are exclusive, which isn’t easy to negotiate, but if we can keep brands exclusive, we believe we have reason to bring them in the shops and take that frontrunner position being that no one can come in on those brands.
Q: How does that work in creating those exclusive partnerships?
A: That’s more on the merchandising side that they work on that when a deal with Chiquita or Dole has to be made. The Chiquita brand for bananas is exclusive with Albert Heijn in the Netherlands.
Q: I forgot to ask you when you’re dealing with your suppliers on sustainability, do you have requirements with the suppliers or some kind of grading system?
A: Do you mean the social side or the environmental side? We have the social responsibility side, where we have a department within the company that makes sure suppliers are all certified, with Global Gap and social compliance, so there is no question about it. On the environmental side, we are very severe… we are actually more severe on our own protocols than the governments of the local countries are.
For example, if the Dutch government says on a vegetable, we can only have .2 percent of a pesticide spray, we’ll put the rule on our own side for half of that. Our own protocol is more stringent than the law. In that way, we hope to extremely reduce the risk of what’s allowed by law, and at the same time we challenge our own suppliers and growers to become creative in maybe using other sprays or organic sprays or alternative,more sustainable methods.
Q: Do you relay this kind of information to your consumers at the store level, while I know this isn’t within you responsibilities?
A: No, we don’t really do that, and I think it’s actually wise not to communicate that information to consumers. A lot of consumers think every vegetable and fruit is 100 percent clean.
Q: It’s an interesting point, because there are many consumer misperceptions regarding produce, such as the differences between organic, local and conventional. In the U.S., there is strong debate on the merits and validity of promoting organic produce as safer, healthier or more nutritious compared to conventional, because it disparages conventional produce, and creates a cloud over the industry as a whole…
A: With pesticides, I think Europeans are extremely risk-averse, compared to Americans. We have consumers who embrace organic totally, and we believe that is a part of our business that can grow. We see it growing pretty fast actually. It’s still not a great percentage of the total, but it grows faster than the rest. We want to be more present in that market. We wrote it down in our plans for 2017/2018 to be more ambitious in this side of the market.
Q: You’ve been so gracious with your time, and insights in advance of the Amsterdam Produce Show. As we conclude this thought-provoking discussion, I wanted to get your feedback on the big picture, but also on a personal note. The scope and influence of Ahold Delhaize is momentous and vast, multiple store formats and 6,500 stores worldwide, including supermarkets, convenience stores, online delivery, pickup points and specialty stores. From your vantage point, where do you see the biggest challenges and the biggest opportunities going forward?
A: From my own perspective, I have a pretty young family; I have three kids and my wife works. I live 50 kilometers from here, and for me it’s still a challenge because we both love to cook ourselves. Professionally I love to walk the store, but personally we choose to have online deliveries or pickups because it’s so convenient and it saves us time. Of course, it’s nice to visit the shop on the weekends if we don’t have that much shortage of time, but I believe this is going to be part of how people shop.
You choose your moment, based on where you live, in the Netherlands as well, and there you make the perfect combination of how you can save the most time with the activity of the family. And I think that will continue for the coming decade. Maybe for the younger generations, the online shopping will be more and more embraced. But on the other side, people still want to have the emotion of the real live product and the choice in the store. You also have a choice online, but I become greedier in the store and it’s less rational, or more rational online.
Q: There are studies done through the Food Marketing Institute in the U.S., where the consumer prepares a shopping list of produce items beforehand, but once they enter the store’s produce department, they buy based on what draws them in… [Editor’s note: FMI will present its latest research findings at the Amsterdam Produce Show. See the preview published below.]
A: As far as challenges and opportunities…I see the biggest challenges on availability, also because it’s a big part of my responsibility. We build relationships over many years. We hear from our growers. It’s not hard to be loyal, but there are so many unexpected forces in the world affecting their wealth. The challenge is to produce and have availability to meet the needs of consumers, and also climate-change, especially this year, where we have great shortage on spinach and salad because the fields were destroyed by rainfalls that we’ve never seen before.
It’s a wakeup sign, on one side to jump into technology solutions like in the America, where there are companies 10 steps further than us on things like vertical farming, but it doesn’t take away all the risks and tendencies we follow globally in climate and politics, etc.
On the opportunities, I can build a bridge from the first answer on the potential in the growing and agriculture techniques that are developing fast, such as irrigation systems that take less water to grow a great piece of fruit. The other opportunity is that people see food as an extension of themselves. You can vary and innovate many things, from the preparation to the varieties, to re-inventing the outcast, strange-looking fruit and veg to reduce food waste.
Q: That brings to mind Albert Heijn’s collaboration with InStock, a pioneering food rescue project that I was able to highlight in an article last year when we launched the Amsterdam Produce Show.
A: It creates discussion in the consumer landscape, and you see the potential of doing something extremely different. We, as a full-service supermarket, have the opportunity to educate consumers and to share the experience of this great magical world of fruit and veg.
There are bigger events in the world of produce… and we go to them all… but there are no smarter people than the ones we gathered here, and there is no place to so intimately gain proximity to people with ideas and significance as at our events, most presently The Amsterdam Produce Show and Conference. So come and engage with Michiel and the Thought-Leader Panel. Come be a part of The Amsterdam Produce Show and Conference!
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