"U.S. Foodservice (USF) is an under-managed business, but it has a great market position and great potential to improve its financial performance," states Anders Moberg, president and ceo of USF parent, Royal Ahold. "The company holds the number two position in the growing $180-billion wholesale food market. However, U.S. Foodservice's integration process was never properly executed.
"Larry Benjamin, the new ceo, is implementing a three-step process for recovering the value of U.S. Foodservice. Although 2003 is clearly a lost year, we have significant opportunities to restore margins and raise them towards those of our competitors."
Moberg made these remarks as part of Ahold's release of strategic objectives for USF through 2006, concurrent with the release of Ahold's 2003 first-half results.
The accounting fraud at USF, which was detected at the beginning of 2003, was a "symptom of a structurally weak organization," Moberg went on to say. As a consequence, USF "saw slippage" in procurement leverage, as vendors raised prices and shortened payment terms. This resulted in a "sharp deterioration" in profitability. Nevertheless, sales remained stable, thanks to USF's strong local branches and DSRS who retained customer loyalty.
The first step in the program to recover value is already underway: to put in place a "rigorous control environment and a strong financial organization." This includes enhancement of the sales information system to track each product, customer, delivery and transaction at the corporate level and provide full transparency to the branches.
The second step, too, is underway: to focus on restoration of profitability and cash flow. Under new leadership, the company is "highly focused on regaining its leverage with vendors to improve prices and reduce costs." A key component of this strategy is to strike a "better organizational balance of corporate and branch responsibilities."
The third step will be to change the mix of customers, products and brands for greater profitability.
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