Ahold Delhaize USA is investing $480 million (EUR 430 million) to transform and expand its supply chain operations on the East Coast of the United States. The program supports the Zaandam, Netherlands-headquartered company’s new three-year strategy to move the American supply chain into a fully integrated, self-distribution mode.
The Quincy, Massachusetts-based supermarket and grocery retailer operates more than 2,000 stores under the Stop & Shop, Food Lion, and Hannaford banners. The group ranks first in size on the Eastern Seaboard, with more than 1,000 trucks delivering 1.1 billion cases to the network’s outlets.
The capital outlay will support the acquisition of three distribution warehouses from C&S Wholesale Grocers and leases on two additional facilities. In addition, it includes investment in two new fully automated Ahold Delhaize USA frozen food warehouses to be constructed in the Northeast and Mid-Atlantic regions of the country.
The revamped supply chain will enable the American businesses to reduce costs, improve speed to shelf, enhance relationships with vendors, and improve product availability for customers.
“This is another example of how we are transforming our infrastructure to support the next generation of grocery retail,” said Kevin Holt, chief executive officer of Ahold Delhaize USA and management board member of Ahold Delhaize. “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 for customers of our local brands.”
Excluding the transition expenses, the impact on Ahold Delhaize USA’s underlying operating income will be neutral in 2020 and 2021 and projected to be favorable in 2022 by approximately $60 million. It is expected that the ongoing annual benefit on underlying operating income will be more than $100 million. During the first three years, there will be transition expenses of $160 million, impacting underlying operating income ($50 million in 2020; $50 million in 2021; $60 million in 2022).
The company’s previous group level annual free cash flow target of €1.8 billion through 2021 expressly excluded M&A and other such transactions. Therefore, free cash flow will be impacted by an incremental $410 million (€369 million) in capital expenditures from 2020-22. The total investment also includes an additional $70 million (€63 million) in lease commitments.