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Ahold's market share gains come at a cost

May 28, 2015Written by George Anderson

While there are no current updates on the merger talks between Ahold and Delhaize, there was plenty of talk yesterday about Ahold's first quarter earning report, which showed the company's profits fell 0.2 percent in the first quarter even as it claimed to have achieved a slight improvement in market share.

Much lower gas prices, a brutal winter and competitive factors were all given as reasons for a 0.4 percent drop in the company's same-store sales in the U.S.. Ahold, which includes the Giant Food chains, Martin's Food Markets and Stop & Shop chains as well as the Peapod online grocery service, has cut prices and increased promotions to remain competitive with competitors ranging from AmazonFresh to Walmart.

Ahold CEO Dick Boer, on an earnings conference call, said the company needed to improve its pricing image with consumers. "These things are taking time," he was quoted by Reuters. "You have to win back the customer's heart in a way."

Peapod delivery
Photo: Peapod

According to a Wall Street Journal report, operating margins on food delivery have trended downward every year since 2011. Peapod's sales ($590 million) account for less than five percent of Ahold's total in the U.S.

Most of the talk around Ahold of late has been about its discussions with Delhaize. While commentators in a recent RetailWire discussion were negative about a merger of the two companies, a corresponding poll was mixed. Thirty-five percent said a merger would create a somewhat or much stronger company, while 24 percent thought the combination of Ahold and Delhaize would make for a weaker business overall.

According to a Financial Times piece, analysts at Jefferies seemed convinced that Ahold will see a further decline in profit margins if it does not complete a deal with Delhaize.

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