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Open Source: A Profile of AMS Sourcing

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Open Source: A Profile of AMS Sourcing

AMS Sourcing, arguably the most far-reaching of the ‘big five’ supermarket sourcing alliances, counts among its members some of Europe’s top retailers, including Albert Heijn, Delhaize, Système U and Migros. Stephen Wynne-Jones chats to the company’s managing director, Bert Swartsenburg, about the challenge of maintaining such a comprehensive buying network.

With a customer base of over 80 million shoppers per week across 20 European countries, and a combined member sales value of over €100 billion, AMS Sourcing is one of the largest strategic buying alliances operating in Europe. As one of the ‘big five’ European buying groups (alongside Alidis, BIGS, Coopernic and EMD), AMS is the parent company of the popular Euro Shopper discount brand, and sources both Europe-wide and country-specific private label products for approximately 10,000 stores in Europe. As managing director and former Ahold vice-president European sourcing Bert Swartsenburg explains, there’s never been a better time to be a major player in the private label business. “The recession certainly worked in our favour,” he explains. “Customers are looking more and more for value for money products. Private label is increasingly being seen as an opportunity to boost their brand, and as well as using our Euro Shopper brand, most of our members now offer up to three tiers of private label, from premium national brand equivalents to the economy range. In some cases, such as Albert Heijn and Migros, we’re seeing as much, if not more innovation than with some A-brand suppliers.” AMS was created in Switzerland in 1987 to “create synergy in commodity buying” for Europe’s top supermarket groups. A relocation to a new headquarters at Schiphol, Amsterdam, followed in 2006, and since then, the group has grown significantly; there are now eleven shareholder partners, Ahold, Dansk Supermarked, ICA, Jeronimo Martins, Kesko, Migros, Morrisons, Superquinn, Esselunga, Delhaize and Système U, with the latter three joining the group just last year. In addition, Booker, Elomas, and Hagar are Euro Shopper distributors. According to Swartsenburg, AMS is traditionally strong in the “dry grocery” segment, but has recently invested heavily in its fresh offering, which “requires close co-operation, very skilled people and a constant focus on product development.” As well as Euro Shopper, which recently underwent a brand overhaul, AMS buys multiple-tiered products for its partners, who are responsible for the logistical operations in their respective countries. “We mainly buy across three tiers for our partners,” says Swartsenburg. “Economy products represent only a small part of the total – around 10 per cent of our business is focussed on the sourcing of the Euro Shopper range, and the remainder is spent on other private label ranges. The decision in what areas to introduce new products is taken by our partners themselves. Each of the partners is responsible for their own operations, whether that be private label development, logistics, these sort of issues. All individual retailers develop their own private label and marketing strategy, including the entry-level price.” AMS has recently also started an A-brand initiative for its members, and is in regular contact with top brand manufacturers to discuss enhanced cooperation on a European scale. With shareholders hailing from ten different European countries, it’s unsurprising to learn that communication plays a vital role in the group, with regular meetings between partners and visits to different markets to allow members to understand the different business environments. It’s all about sharing knowledge, and communicating experience. “All the partners meet on a quarterly basis in the AMS advisory board meeting,” says Swartsenburg. “From a logistical point of view, our location beside the airport here in the Netherlands is ideal, and in most cases we have one-day meetings and our partners fly in and fly out the same day. A lot of our partners do speak English so it’s not that much of a problem to communicate with each other. That said, of course, the cultures are different, and while we are first and foremost a sourcing organisation, discussion is also very important, so our partners should be fully aware of the challenges of the different markets. It’s a very attractive part of our job – we talk to people right across Europe, and it makes it a very exciting organisation to work for.” Supply and Demand With a large, pan-European supplier portfolio, AMS relies on a database of market and supplier intelligence, which allows the group to create an efficient, transparent sourcing process across all product categories, and the ability to align product specs and packaging as much as possible without ignoring local consumers preferences. “It’s crucial to have a very accommodating structure in place,” Swartsenburg explains. “We have a very fixed six-step sourcing process. Ideally, at the start of a project, we will have a buyers meeting, where our partners come to our office and we discuss which items are to be sourced, which suppliers to invite, where and how can we harmonise specifications and packaging. We then invite suppliers to quote, we start into negotiations with these suppliers, and then we reach step number six, the signing off of the contract.” As food is the core assortment of all our partners, AMS sources most of its products in Europe, although the company is currently expanding its joint sourcing efforts in Asia. Around 90 per cent of the food in the company’s Food & Beverages and Fresh & Frozen segment originates in Europe. As new members come into the fold, as Delhaize, Essenlunga and Système U did last year, so the sourcing reach of the group expands, with each bringing their own suppliers and ideas to the table. “It’s a very structured process,” Swartsenburg explains. “With new members, we start building a few cases, and they participate in a few projects to build their own experiences, not only when it comes to buying conditions, but also in terms of the whole way of working. If that’s successful, then they speed up and accelerate in their participation. In the case of the three newest members, the first experiences have been very successful. We now source almost everything by now for Delhaize, at Système U we source most of the Bien Vu economy range, and have increased participation in other private label ranges. Each partner’s interests are a little bit different.” The Euro Shopper range, however, is available to all members, however some members choose to opt out of the programme, to focus on their own key private label tiers. While commodity items make up the bulk of the Euro Shopper range – “we are mainly focusing on products with a proven track record,” explains Swartsenburg, “each member has the freedom to source local Euro Shopper products for their home market, and suggest products that could work for other partners. In total, the Euro Shopper range consists of more than 1,000 items, but only 450 of those are available to all 16 markets. “If you take a very Dutch product, like chocolate hail, nobody else will stock it in Europe,” says Swartsenburg. “It’s very much a case of Albert Heijn sourcing it themselves for their home market. They can use the Euro Shopper branding, but it’s a locally sourced product. “Of course, in our buyers meetings, we share a lot of knowledge, and we all bring in a lot of the experiences from our home markets, which means products that are sold in one market could be sold in other markets in the future.” United We Stand It’s testament to the sense of community at AMS that none of its members have hit a financial dead end, even when faced with some of the most challenging market conditions the European economy has seen in decades. Swartsenburg points to the example of Hagar hf, the largest retailer in Iceland, and a member of AMS, as an example of a retailer that is continuing to make strides, despite the country’s near collapse last year. “We have been in partnership with Hagar since 2005,” he explains, “and from the beginning, there have been no issues affecting this relationship. Even though Iceland has been hit hard with the collapse of the banking system, AMS has not been affected at all by the situation; on the contrary, in fact. Sales were up 18 per cent for the Euro Shopper brand in 2009 compared to 2008, and despite the recession and collapse of the banking system, Hagar have fulfilled all their obligations towards their suppliers and are up to date with all payments to vendors.” With the addition of three retailers last year, and the continued growth of private label, you would expect AMS to be actively seeking further additions to what is already proving itself to be a very strong partnership. On the other hand, it could be argued, a sudden influx of new members could disrupt the flow of the group. Swartsenburg is adopting a measured approach. “Being interviewed for this position with AMS [he took on the role of managing director last year], I think I was the only candidate that did not talk about proactively hunting for new partners. If you take into account at the end of 2008 we welcomed Esselunga, System U and Delhaize – very big partners, that really added value to the existing partners. If you go back another year, to 2007, Migros joined AMS, so all of a sudden we grew incredibly fast. “I really think there’s still a lot of potential among our existing 11 partners. I think that if we are able to increase the participation level of all our partners in AMS, there’s a lot more that we can achieve. That said, if we do meet a potential interested partner – a Spanish or German partner is high on our list – we would act of course. But partner expansion is not the first priority. We have a lot of requests from retailers from across Europe, and we will talk to everyone, but it’s important that any new partner adds value to the existing partners in the group.” Innovation, on the part of both retailers and suppliers, is crucial to the future development of the group, and Swartsenburg hails the development of new sub-tiers (such as the ‘Pure and Honest’ range in Albert Heijn) as an indication of how retailers are constantly evolving their private label ranges. “In recession times, I think it’s important to stay innovative, and many suppliers slow down when it comes to innovation. I think even in times of recession, you should not only take on the competition in terms of pricing or positioning, but also distinguish yourself from your competition and stay active in terms of innovation. “In the case of Albert Heijn, it’s a retailer with a long-lasting history of private label brands; since the company was founded, they have had private labels. Customers grew more and more confused by the claims being made on packaging in terms of things like sustainability, or ethical sourcing. Albert Heijn created an umbrella brand for all these labels, and called it Pure and Honest. Other retailers are at different stages in their private label development, of course, and I’m very impressed by the premium range of Migros – the packaging is brilliant and the product itself is a very high quality product that would have no problem competing with any A-brand.” The continued growth of private label is something that AMS have been predicting for some time; back in 2005, the company’s former managing director, Arjan Both, predicted that “private label turnover [would] be doubled as a result of market share growth as well as entry into new categories.” Five years on, private label development has far exceeded that prediction, and has gone on to penetrate almost every sub-category of the supermarket industry. Swartsenburg believes that while private label has developed to a stage where it is finally able to tackle major brands head on in terms of quality and range, it wouldn’t be wise to start writing off the big brands. “I think there will always be room for private label, and there are retailers that have developed such a strong private label position over time that it will never disappear. But every label has to prove itself on the shelf. It’s important that retailers stay innovative in terms of their private labels, as you can be certain that A-brands will continue to innovate and develop concepts further. “Our partners need to be very careful in terms of how they balance our private label assortment and A-brand assortment, and I think they are doing that. After all, at the end of the day, it’s the consumer that makes the choice.”

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