In 2006, Ahold undertook a company-wide strategic review of its businesses. The objective of the review was to define how Ahold could accelerate growth and improve profitability. The strategy for profitable growth was announced in November 2006 and focused on the Company's portfolio, growth, organization and financial targets.

Strategy

I. Refocusing the portfolio

Ahold is refocusing its portfolio in order to operate as market leaders in local food retail markets in the United States and Europe where it can secure a number one or number two position with clear prospects for sustainable profitable growth. The Company also decided to focus its resources and expertise wholly on the future growth of its retail businesses. As a result, a number of divestments were announced.

At the end of 2007, Ahold’s portfolio comprised: Albert Heijn and a 73 percent stake in Schuitema in the Netherlands, Albert and Hypernova in the Czech Republic and Slovakia, Giant-Carlisle and Stop & Shop/Giant-Landover in the northeast United States, a 60 percent stake in ICA in Sweden, Norway and the Baltics, and a 49 percent stake in Jerónimo Martins (JMR) in Portugal. Ahold is currently in discussions aimed at divesting its stake in JMR and its majority interest in Schuitema (announced in January 2008). During the year, the Company announced its decision to retain its operations in Slovakia, reflecting improved performance and the current difficult financial markets.

During 2007, Ahold completed its planned divestments of U.S. Foodservice, Tops, and its Polish operations. The U.S. Foodservice sale was completed in July to a consortium of Clayton, Dubilier & Rice Fund VII, L.P. ("CD&R") and Kohlberg Kravis Roberts & Co L.P. ("KKR") for a purchase price of $7.1 billion. The sale of the Company's Polish operations to retailer Carrefour was also completed in July, in a transaction valued at €375 million. The sale of Tops was completed in December to Morgan Stanley Private Equity in a transaction valued at $310 million.

With these transactions, the divestment program has largely been completed and exceeded expectations in terms of value and speed of execution. The total divestment proceeds received in 2007 were €5.4 billion. As a result, Ahold was able to return €3 billion to shareholders through a capital repayment and reverse stock split and €1 billion through a share buyback program. The cash from divestments, together with improved cash generation from the business, will also enable the planned €2 billion reduction in gross debt.

Ahold continues to consider all opportunities to improve shareholder and stakeholder value, including acquisitions, divestments and other potential cooperative ventures.

II. Building brands for profitable growth

To achieve its growth objectives, Ahold is in the process of transforming its individual retail banners into powerful local consumer brands. The critical elements of this transformation include: creating an improved product and service offering, delivering an improved price position and lowering operating costs. The key enabler for repositioning each of its consumer brands is the application of deep consumer insight. By understanding consumers better than its competitors, Ahold is committed to providing products and services that customers want at prices that are competitive with all food channels.

Ahold already has elements of successful consumer branding at each of its banners. Albert Heijn in the Netherlands and ICA in Sweden have been particularly successful in bringing together all of the elements required to create and maintain true consumer brands. The transformation at these banners has been achieved through the highly successful implementation of value repositioning programs.

Ahold's ability to transfer and apply the successful elements of its European branding programs across all of the Company's retail banners gives it significant competitive advantage compared with many of its U.S.-based competitors. All banners are focusing on providing the best choice, making shopping easy for the customer, and offering everyday competitive prices. The transformation plans, which will drive and fund future growth are based on the proven success of each of these elements.

a) Improving product and service offering

The creation of an improved product and service offering, based on the application of deep consumer insight, is a critical element of transforming stores into powerful consumer brands. Ahold is replicating key components to improve its offering in each banner by:

  • Providing the best choice. Ahold operating companies plan to excel in fresh foods by improving quality, selection and presentation. They are significantly increasing their selection of innovative private label products at a variety of price and quality levels. We will also improve and expand the existing general merchandise assortment.
  • Making shopping easy. Each operating company is simplifying their overall assortment with the goal of making shopping easier. They are also providing more convenience-focused products and services and enhancing the overall customer experience to make shopping more convenient. Format development is an important tool in achieving this. The operating companies are improving existing store formats and developing new format concepts using different layouts, assortments, sizes and service models.

To clearly convey powerful brand positionings, Ahold is strengthening the quality, quantity, variety and form of consumer communications, both inside and outside its stores.

b) Improving price positioning

Ahold's operating companies are strengthening customer trust and loyalty by continuing to build their value offerings. At all of its banners, Ahold is lowering prices across a wide range of products and, at the same time, reducing the emphasis on promotions. The goal is to improve everyday value to customers while continuing to offer attractive promotional prices on selected ranges. Ahold's increased focus on private label is a key component of its strategy to provide a wider selection of price points.

c) Strengthening consumer insight capability

Ahold's core assets are its customer base and knowledge of customer shopping behavior. The Company gathers detailed customer data across all of its banners and continues to improve the way it translates this data into insight. The insight is being shared among each operating company to deepen understanding of customer behavior and consumer trends to enable Ahold to enhance its value proposition in each market.

d) Building on successful continental sourcing strategy

Ahold is continuing to build upon a successful continental sourcing strategy. In Europe, the Company is consolidating purchases through its combined European sourcing organizations based in Zaandam and Stockholm. In the United States, Ahold is consolidating purchases through organizations such as Ahold's Perishables Procurement Organization, based in Massachusetts, and the American Sales Company, based in New York.

e) Implementing company-wide €500 million cost reduction program

To support its value repositioning programs, Ahold will reduce operating costs by €500 million by the end of 2009. It is achieving these cost reductions by focusing on simplification and efficiency measures across all of its retail businesses, including store operations, inventory shrink, logistics, energy usage and local overhead. Ahold is also taking a more disciplined and rigorous approach to dealing with underperforming stores. Due to the nature of these plans, the savings will accelerate over time. Savings achieved by the end of 2007 were in line with the plan.

f) Supplementing growth with additional store openings and targeted fill-in acquisitions

Ahold will continue to reach new customers in areas where it can achieve an attractive return. It will open stores with new format concepts and upgrade existing stores. The Company will also continue to look at targeted fill-in acquisitions to provide opportunities to reach new customers.

III. Leveraging organizational structure

Ahold is differentiated by its workforce and the way its people work together. The Company is structured to effectively execute strategy, balancing local, continental and global decision-making. The structure is also designed to enable a strong management focus on, and accountability for, the execution of its plans.

a) Two continentally-based organizations in place

To improve customer-focus and drive company-wide initiatives across all of its banners, Ahold has reorganized its former arena structure into two continental platforms, based in the United States and Europe. Each continental platform is overseen by a Chief Operating Officer. They are responsible for the direct oversight of local banners and also for identifying and implementing synergies among its businesses. In addition, the European COO has company-wide oversight of retail marketing strategies. Continental teams are responsible for the oversight of local operating companies, as well as for the implementation of company-wide growth initiatives.

b) Reduction of Corporate Center costs by 50 percent

Ahold has streamlined its Corporate Center, and is ahead of its target to reduce core costs by 50 percent by the end of 2008. The savings to date have been achieved by staff reductions and substantial cuts in discretionary spend. The core costs in 2007 were €106 million, compared to €189 million in 2005. The core responsibilities of the Corporate Center include Corporate Finance, Corporate Strategy, Internal Audit, Legal, Human Resources, Information Technology, and Communications.

IV. Financial targets

As part of its strategy, Ahold has the following primary targets:

  • Net sales growth: to achieve a sustainable net sales growth of 5 percent, mainly from identical sales growth following its repositioning programs.
  • Return on net sales: to achieve a sustainable retail operating margin of 5 percent on average for the retained retail banners.
  • Investment grade: during 2007, Ahold regained an investment grade rating from both Standard & Poor's and Moody's.