The third phase of Ahold’s “Project Thunder” transformations — this one focused on a comprehensive revamping of produce departments at its U.S. stores — is underway with a goal of improving produce sales by 3% to 5% at renovated locations.
The changes — which include a new “market style” layout; new lighting, fixturing and signage; and with quality reinforced by a “Would I Buy It?” program — are currently in 50 stores with plans for as many as 600 this year, James McCann, COO of Ahold USA, told analysts in an earnings conference call Thursday.
The changes represent the third wave of investments under McCann’s “Project Thunder” program to improve the customer proposition at Ahold’s stores which include Stop & Shop divisions in New England and metro New York, and Giant Food divisions in Carlisle, Pa., and Landover, Md. It is also the first step designed specifically to address service and quality perception as opposed to price perception addressed by phases 1 (price investments, associate training and communication) and 2 (lower everyday prices on “Super KVIs” — the 30 most popular known-value items) of the program, which launched about a year ago.
The previous phases are still being rolled out, McCann said, with phase 1 expected to be in all of Ahold’s U.S. stores by the end of the second quarter and Phase 2 currently in about 20% of Ahold’s U.S. stores. Future phases call for an additional price investment in key value items followed by a second service and quality transformation.
James McCann
James McCann
The programs are being funded by cost reductions which included savings of $200 million in 2013 and $360 million in 2014, McCann said.
McCann described the produce initiative as “the complete transformation of how we go to market in produce," at a cost of $160,000 to $200,000 per store.
“It's a changing of the lighting, of the fixturing, of the signage, of the price communication, the way we display the product, the way we train the staff, the way that we schedule the staff, the mix of full-time and part-time hours, and probably the most important element is a real step change in our quality by implementing a program of ‘Would I buy it,’" he explained.
“If we wouldn't buy it ourselves, then we're training our staff to say, don't try and sell it to our customers. Take it off sale. Because the most important single thing for customers on produce is the quality of the produce itself.”
McCann said stores having received phase 1 investments were seeing sales improvements of 1.5% to 2.5% over stores that have not yet received those upgrades. And price perception is improving where Ahold has implemented Super KVI investments. “We need to make our price better, but we need to improve our price perception even more,” McCann said. “And these items are critical to that.”
His remarks came as Ahold reviewed financial results for the fourth quarter and fiscal year. In the U.S., quarterly revenues declined by 0.5% to $5.98 billion from $6.01 billion due to gas price reductions. Non-fuel identical store sales improved by 0.3%. For the fiscal year, sales were down slightly to $26 billion form $26.1 billion.
Operating income in the U.S. was down 4.7% to $222 million in the quarter; and up 9.3% for the year to $965 million.