Ahold Delhaize is investing 480 million dollars (430 million euros) in its supply chain on the American East Coast. The Belgo-Dutch retailer wants to move towards a fully integrated self-distribution system, thereby saving nearly 100 million euros in costs each year.
All distribution centres under own management
The group wants to acquire all of its distribution centres in the United States: over the next three years, it will acquire three centres from C&S Wholesale Grocers, as well as leasing on two additional distribution facilities. In addition, the retailer is constructing two more fully automated frozen food facilities in the Northeast and the Mid-Atlantic region. The cost of the project is estimated to be around the half a billion dollar mark.
“Through this initiative, we will modernize our supply chain distribution, transportation and procurement through a fully-integrated, self-distribution model, that will be managed by our companies directly and locally. This will result in efficiencies and most importantly product availability and freshness for customers of our local brands, now and in the future, whenever, wherever however they choose to shop”, Ahold Delhaize USA CEO Kevin Holt explains.
Transitional period of three years
Ahold Delhaize believes that by taking full control of its supply chain, it will also see improved supplier relationships and a reduction in costs and in time needed for products to reach the shelves. The investment should result in annual cost savings of around 100 million euros, once the three-year transition period has been completed.
During this transitional period, the retail group initially expects additional costs of 160 million dollars (140 million euros), divided into 50 million dollars each in 2020 and 2021, and a further 60 million dollars in 2022. Excluding these transition costs, Ahold Delhaize USA does not anticipate any impact on underlying operating income in 2020 and 2021, while there would be an initial favourable impact of 60 million dollars in 2022.
The group is financing the investment with available cash: the new lease contracts will cost 70 million dollars (60 million euros) in free cash flow, while capital expenditure of 410 million dollars (370 million euros) will be added between 2020 and 2022.