By Geoffrey Nairn

Food retailing is a mature business and growth-hungry retailers have traditionally opened new stores or hit the acquisition trail. The internet now offers a new way to grow revenues through online sales and also a powerful tool to boost margins through streamlined supply chains.

Ahold, a leading Dutch retailer, is employing all these strategies in an attempt to become one of the world's leading retailers. It has expanded aggressively outside its domestic market and today has 4,000 stores in Europe, the US and Latin America. Its latest acquisition is US Foodservice, a $7bn food services business with 40 distribution centres in the US.

Alongside this traditional expansion, the Dutch food giant is also expanding its online sales, which in 1999 generated sales of E60m.

"We believe it is the right moment to expand our e-commerce activities," says Cees Van der Hoeven, president and chief executive. He predicts internet sales will grow rapidly to more than E200m in 2000 and double that figure in 2001.

Looking ahead, Ahold is exploring new ways to reach customers and use distribution networks. It wants to become a "multi-channel food provider" capable of serving millions of customers at any one time, not just at home but in locations as diverse as sports stadiums, petrol stations and hospitals. The acquisition of US Foodservice is a step in this direction.

By 2010, Ahold aims to have a wider variety of store formats ranging from large centres with food, restaurants and freshly made take-out meals, to convenience stores close to residential areas. The stores will also function as pick-up points for other services ordered by phone or electronically from its specialised distribution centres.

Ultimately, it sees its store operations developing into sales and service channels that as well as catering for "walk-in" shoppers, can be accessed by internet, smart phones or interactive TV. One of the more futuristic ideas is to link Ahold's stores to "smart" refrigerators equipped with barcode scanners that order groceries automatically.

As well as growing revenue through online sales, Ahold is keen to use the internet behind the scenes to improve procurement. The company is one of the founders of the WorldWide Retail Exchange, a web-based business-to-business exchange designed to simplify trading between retailers and more than 100,000 suppliers and distributors. The exchange should start operating by mid-year.

E-commerce provides a golden opportunity to lower costs and enhance supply chain performance, according to Tom Schaumburg, vice-president of supply chain initiatives at Ahold USA.

"The grocery business has traditionally had a rather complex trading structure and manual processes have dominated. This has given food retailers a very poor performance when compared with other channels," he says.

In the case of non-perishable foods, it is not uncommon to have 100 days of inventory in the supply chain. The new generation of big "category killer" retailers has shown food retailers a better way to manage their supply chains. "Other channels have much more robust and efficient supply chain practices," says Mr Schaumburg.

The grocery industry was a pioneer in the use of trading networks based on electronic data interchange (EDI) but the technology has often disappointed. Mr Schaumburg believes there are important lessons that can be learned from the EDI experience before the industry rushes to embrace the new generation of internet-based e-commerce.

EDI has taken the paperwork out of a few basic transactions, such as invoicing, but it has not dramatically changed the way suppliers and retailers work together, he maintains. This was because EDI was seen primarily as a technological solution and a way to automate existing processes. But if established business processes are allowed to persist, Mr Schaumburg says it is difficult to achieve the new "core competency" model that retailers now see as the key to improving supply chain efficiency. The new generation of web-based procurement systems has greater promise.

"There are wonderful new processes and technologies to work collaboratively where traditional EDI has not worked well in the past. There are also interesting discussions about web-based trading communities which can benefit both big and small player alike," says Mr Schaumburg.

"But we must have a shared vision of what a core competency looks like and we must address the existing barriers highlighted by the EDI experience."

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