Marketplace Ahold CEO Jan van Dam on soaring egg prices, expired foodstuffs and the (un)changing taste of Czech customers
Czech supermarket chains have taken a lot of criticism recently over a series of issues. They are being blamed for the soaring price of eggs, and they have found themselves under increased scrutiny from food inspectors for selling poor-quality and even expired foodstuffs. With the hike in VAT rates and plummeting consumer trust, it seems that 2012 is set to be a tough time for the big retailers. Radio Prague spoke to Jan van Dam the CEO of Ahold Czech Republic which runs one of the biggest supermarket chains in the country, and asked him whether Ahold was cashing in on the soaring price of eggs ahead of Easter.
“The allegation is that we are taking advantage of the price hike and that we are making a lot of money now on the eggs. But that’s complete nonsense. We had to buy them at a greater expense in past weeks because of the EU regulations, and we are not making any margin on egg sales. We’re just projecting the higher buying price onto our selling price but I can assure you we are not making any money on eggs.”
The head of the Czech Agrarian chamber, Jan Veleba, said that given the prices producers are charging, eggs should cost no more than five crowns a piece. Do you manage to maintain that price level?
“Well, falling into that margin means we are not making any money on it. I don’t know where his prices come from but we don’t buy directly from egg farms; we buy from wholesalers and their price is basically our price. So if farmers are not making any money, and we are not making any money, I don’t know who is but we are not. That’s for sure.”
Is that sustainable in the long run? What will you do if this continues for months to come?
“Well, we have a lot of products that we make no money on. In total, from our company’s perspective, we were in a loss. So no, it’s not sustainable. We just don’t make much money in the retail industry here in the Czech Republic. I don’t know about my colleagues but in Albert, the EBIT, or the profit, is below 1 percent. So we are not very profitable company, also in the Ahold family.
“It’s a highly competitive market, the prices are low and the quality is high, and the market is not very profitable. It’s a rumour that retail is making a lot of money in the Czech Republic. Just look at the figures and you will see that it’s nonsense.”
Why do you think that is? There have been many complaints about the price/quality ratio compared to Western Europe, so where do you think the problem is?
“These complaints are not typically Czech. In Holland, the Dutch also think that French cheese is of much better quality and much cheaper. The grass is always greener on the other side. It always feels like what comes from abroad is better than what’s from the Czech Republic.”
Well, the daily Hospodářské noviny in fact did some tests, and found out that for instance that the same brand of ketchup that’s sold here and in Germany has much higher volume of tomatoes there, and the price is lower. They found the same about marmalade.
“I don’t know this test. There are many other examples – Czech garlic is much better than German garlic, so there are many examples where the quality is higher. We have 25,000 products, and there are products that are of lower quality, and products of higher quality. That’s the same in Germany, Poland, Russia, Holland, everywhere.
“When I came three years ago, it was all about the price. Everything was cheaper in Slovakia and Poland, and now it’s all about the quality in Germany. I think it’s a nice topic to talk about but let the facts speak. If you buy a lot of products and you taste them, you’ll find the quality is comparable.”
So why is it such a problem to be profitable in the Czech Republic?
“It’s because we offer a wide range of good-quality products at low prices. There is a lot of competition and that’s why the industry is not very profitable in the Czech Republic. But I don’t want to just complain; it’s also good for the customer because the retail offer in the Czech Republic is very good. Compare it to five or ten years ago. And we are still developing.”
One way to raise the profits perhaps is a practice that recently came into the spotlight – selling expired foodstuffs. The Czech food inspection fined some supermarket chains including yours for doing it. Is that a big problem in your opinion, and have you adopted any new measures to prevent that?
“That’s another allegation. They find some expired cheese and sausages but we sell tens of millions of product every week and I can assure you we really have the best quality system in the Czech market and we are very proud of that. It’s also about the work of people in the stores and people make mistakes.
“But overall, we don’t agree at all. People think, ‘they’re not making a profit and that’s why they’re selling stuff beyond expiration dates. That’s not true. You cannot run a proper business and do this. You will be very soon out of the market. We also won a lot of quality awards. There have been hundreds of inspections and all of them were good and we had one inspection – it was an A-brand sausage which was past the expiration date. Of course it’s not good but don’t make the conclusion that we are selling expired foodstuffs.”
It’s not me who is making the allegation, it’s the Czech food inspection which says so.
“You asked me for my reaction. We have a very good quality-control system.”
Have you changed it in any way, and perhaps made it even tighter?
“We have again had a lot of training which is very important. We also made some minor changes in the pricing procedures and they are now even stricter. But we did not change a lot because we still believe in our system.”
There has been a lot of talk about the changing taste of Czech consumers who now pay more attention to the origin of the products they buy. Have you registered this trend and how do you react to it?
“Over 80 percent of what we offer comes from the Czech Republic. It’s a bit difficult sometimes to be honest – do they grow bananas in the Czech Republic? But if it is produced here, we source it as much as possible.
“What you see in taste: people pay more attention to the origin. But if you ask, ‘do you see a shift in shopping behaviour?’, the answer is not yet. But I’m absolutely sure that it will come. People pay more attention to quality. The quality of food is number one, then there is the price in combination with the quality, and then there is the origin which plays a role. In that order.
“We already have a lot of products of Czech origin and we are also trying to tell our customers about it so that they can choose. You want French wine or Czech wine – we want to offer costumers a choice. If they prefer Czech, we are there for them.”
Wine is a good example, and I suppose meat is another. If you want to maintain some level of quality, is it difficult to find producers here? Many chefs for instance complain that Czech agriculture products are not as good as those from abroad…
“In some industries it’s more difficult to find high-quality Czech suppliers, and meat is one of them. But processed meat for example is very easy. Don’t ask me in which industry it’s harder but you see the food industry is also developing toward higher quality. So I think it’s also a matter of time.”
In January, the VAT rates went up in the Czech Republic. How was this reflected in your sales?
“It’s difficult to say but there is also very low customer confidence which you can see all across the retail business. People are very conscious about their budgets which is partly because of the VAT, partly also because of the crisis and of what’s happening in the EU. People just spend a little bit less. But that’s in the whole market so we have to do our utmost best in Albert to get the sales to the required levels.
“From the VAT perspective, the prices did rise. We tried to keep them as low as possible which is one our duties. We are in the middle of the market and we don’t want to be too expensive. So overall, the VAT did influence customer did influence customers’ behaviour which also happened in other countries a few years ago when they raised the VAT.”
Few years ago, you closed some of your supermarkets but you said there was room for more stores of this type. What are you plans for this year?
“We just opened a new compact hypermarket in a shopping mall in Ostrava. We want to grow again. We closed some 20 supermarkets we did not believe in for the future but we also announced we want to open new ones.
“I see two things: we want to remodel our hypermarkets to a new standard; we have one in Svitavy and we just opened one in Ostrava, as I said. We are going to make them more modern but mainly more fresh because we believe that it’s important to be the best in fresh food in the market.
And secondly, we will open more supermarkets in the coming years because people here just like everywhere want to have convenient shopping near their homes. So the number of supermarkets can and will grow in the Czech Republic, and we are there to grab that opportunity.”
One of your competitors launched an on-line shopping service where people choose their stuff on-line and they are delivered to them. Are you thinking about a similar move?
“We are thinking about everything and when the time comes, I will tell you. But it won’t be next week.”