Koninklijke Ahold Delhaize NV

AEX:AD

Earnings Call Transcript 2018-Q4

[Operator]

Ladies and gentlemen, good morning, and welcome to the analyst meeting on the fourth quarter and full year 2018 results of Ahold Delhaize.Please note that this meeting is being webcasted and recorded.Please note that in today's call forward-looking statements may be made. All statements other than statements of historical facts may be forward-looking statements. Such statements may involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ material from those included in the statements. Such risks and uncertainties are discussed in the summary report fourth quarter and full year 2018, the 2018 annual report and also in Ahold Delhaize's public filings and other disclosures. Ahold Delhaize's disclosures are available on aholddelhaize.com. Forward-looking statements reflect the current views of Ahold Delhaize's management and assumptions based on information currently available to Ahold Delhaize's management. Forward-looking statements speak only as the day they are made; and Ahold Delhaize does not assume any obligation to update such statements, except as required by law.The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize.At this time, I would like to hand over the call to Henk Jan ten Brinke, Senior Vice President, Investor Relations.Please go ahead, sir.

[Henk Jan ten Brinke, Senior Vice President of Investor Relations]

Thank you, operator, and good morning, ladies and gentlemen. Welcome to our Fourth Quarter 2018 Results Analyst Meeting and Conference Call.I'm here with Frans Muller, our CEO; and Jeff Carr, our CFO. And after a brief presentation, we are happy to take your questions.So without further ado, over to you, Frans.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Thank you very much, Henk Jan. Good morning, ladies and gentlemen. Welcome to our fourth quarter 2018 results and the meeting here in Zaandam.We are pleased to support and to report a strong financial performance again this year which resulted in the close to 30% growth of underlying earnings per share for the full year. In 2018, we essentially completed the integration and delivered on the synergies according to plan. And in the meantime, our strong local brands continue to perform well while investing in meeting the needs of our customers in a rapidly changing industry. Ahold Delhaize is fit for the future, built on a very robust financial foundation and with the right structure in place to accelerate growth both with stores and online. Our Leading Together strategy creates focus on further strengthening our local brands; accelerating investments in omnichannel, technology and in healthy and sustainable offering for our customers, supported by our Save For Our Customers program and the strong base of engaged associates.Now let me give you a few highlights for the fourth quarter.Sales grew by 3% at constant exchange rates. And net consumer online sales grew by 25%, firmly on track to meet our target of around EUR 7 billion in 2021. Our operating income was 9.1% up at constant exchange rates. And the underlying operating margin increased from 4% last year to 4% -- 4.2% this quarter, supported by the synergies.In the U.S. we continued to see good momentum in the business with market share gains while benefiting from synergies and investing in both our store network and online offering. The Netherlands reported a solid quarter, with bol.com reaching EUR 2.1 billion sales in the full year, growing 32% and with a positive EBITDA. The strategy in Belgium is clearly setting and clearly getting traction, resulting in sales growth and margin recovery, providing a base for expanding our footprint in the next few years. In Central and Southeastern Europe, we were pleased by the good performance in the Czech Republic and with the expansion of our store network in Romania and in Greece.Our strong free cash flow, which Jeff will talk about in greater details, allows us to raise the proposed dividend by 11.1% to EUR 0.70 a share. And we will introduce an interim dividend on our first half 2019 results.Now let me hand over to Jeff.

[Jeffrey Carr, CFO & Member of Management Board]

Good morning, ladies and gentlemen. And thank you, Frans.As Frans mentioned, net sales were up 3% at constant exchange rates to EUR 16.5 billion mainly due to increasing comparable sales growth which improved in all segments and a strong online performance, with net consumer sales for e-commerce up 25% in the quarter at constant exchange rates. Underlying operating profit at EUR 691 million was up 7.2% versus last year, with incremental synergies in the quarter of EUR 37 million compared to the prior year.For the full year, underlying operating profit was EUR 2,554,000,000, up 6.7% versus a year ago. And underlying operating margin was 4.2% for the quarter and 4.1% for the full year, both being up 20 basis points from the prior year comparative period.In the quarter, income from continuing operations was down versus last year, but that was due to a onetime credit of over EUR 400 million posted in the fourth quarter last year as a result of the U.S. and Belgium tax changes and the recalculation of the deferred tax position.Now as Frans has said, for 2018, we're proposing an increase in the dividend of 11% to EUR 0.70 per share. And that's based on an underlying earnings per share of EUR 1.60, which gives a payout ratio of 42%. Now underlying income from continuing operations grew by 18.8% to EUR 1,880,000,000, but I think it's important to explain the movement between income from continuing operations and the underlying number since the dividend payment is based on the underlying number. In 2018 and '17, we've adjusted the income from continuing operations for store impairments, restructuring and integration costs of EUR 159 million and EUR 231 million in the respective years. In addition, we've adjusted due to the tax changes due to local tax reforms. That was just EUR 22 million in 2018, but as I mentioned, that was EUR 407 million in 2017. So those are the major differences.Now let's move on to look at the performance in the quarter by segment, starting with the United States.Net sales grew by 2.6% at constant exchange rates to EUR 9.8 billion in the quarter, of which online sales grew by 12.1%. Comparable sales excluding gas grew by 2.7% in the quarter, and we did see a slight favorable impact due to some weather events in the quarter.Across the brands, Food Lion had the strongest growth, as we continued to roll out the Easy, Fresh and Affordable program where we continue to see good results. We've now remodeled 70% of the Food Lion stores. And in the year, we completed Virginia Norfolk and the greater Roanoke markets in 2018. At Stop & Shop, comparable sales growth remains a little bit more challenged. However, we are excited about the reimagined Stop & Shop program, which started in Hartford, Connecticut at the end of last year, where we'll be investing an incremental $100 million to $150 million of capital per annum in this program, with probably something in the region of 1.6 billion to 2 billion to be invested in the next 4 years. We -- and we expect to see an acceleration of sales growth as we continue to expand this program, which is currently in 20 of the 400 Stop & Shop stores.Underlying operating profit grew by 7.4% in the U.S. to EUR 424 million. And operating margins grew by 20 basis points as we continue to see the delivery of integration synergies and improvements in operating efficiencies.Now in the Netherlands, sales grew by 3.6% to EUR 3.8 billion, and comparable sales were up 3.3%. And while -- if we exclude bol.com, you see comparable sales up 1.0%, which does reflect the tough comparatives that we had in 2017 and the negative impact due to the calendar effect from new year in 2018. At bol.com, net consumer sales continued to grow at over 30% and as Frans mentioned for 2018, with net consumer sales at EUR 2.1 billion for the year. And EBITDA margins were positive for the full year.Underlying operating income for the Netherlands was EUR 185 million for the quarter, up 6.6% versus last year. And margins of 4.9% were up 20 basis points versus last year.Now in Belgium we continued to gain traction, and in the quarter, we saw an overall improvement in the operating performance. Net sales were up 3.6% to EUR 1.3 billion, and comparable sales were up 3%. Now this did include just over 1% impact from the inclusion of an extra opening day in the quarter compared to last year. Underlying operating profit margins were 2.9%, significantly up compared to last year. And for the full year, underlying operating income was EUR 141 million, up 27% versus last year. Now the improvement in operating profit, while supported by synergies, was also supported by an improvement in areas like shrink management and improvements in the general operating cost management.In Central and Southeastern Europe, sales were up 3.9% at constant exchange rates to just over EUR 1.6 billion. And compared to last year, we operated some 130 additional stores, mostly convenience stores which we continued to open in Romania and Greece. Comparable sales growth ex gas was up 2%; as Frans mentioned, a very strong performance in the Czech Republic and another good performance in Romania. In Greece, we continued to see a competitive market. However, volumes were positive in the quarter, which is a really good sign.Underlying operating income at EUR 84 million was flat compared to last year. And for the full year, underlying operating income was down 2% mainly due to the tougher market conditions in Greece.Now looking at synergies. In the fourth quarter, we delivered EUR 120 million of net synergies. That's cumulative from the start of the program, so annualized, you can see we're pretty close to delivering the EUR 500 million commitment. Further synergies are due in the first half of 2019, both based on the annualization effect of the existing projects and the completion of some of the longer-term projects which are now being finalized.Integration and restructuring costs related to the merger are largely complete. There will be some expenditure in 2019, but I expect to close the account on these 2 lines pretty much in line with the expected levels of EUR 380 million and EUR 70 million for integration and restructuring, respectively.Now moving on to free cash flow, which remains very strong.We finished the year at EUR 2.3 billion of free cash flow, up from EUR 1.9 billion in 2017. And the improvement in free cash flow was largely due to net working capital, which was better than last year by some EUR 484 million. Cash tax was lower by EUR 200 million, as we projected, and this was largely -- and capital expenditure, which you can see, increased versus last year by around about the same, EUR 197 million, versus last year.It's worth highlighting at this point that net cash from financing activities, the line below, does include repayment of finance lease liabilities under IAS 17, the current -- the 2018 accounting standard, but under IFRS 16, we'll move this into free cash flow. And whilst this has no economic effect, it does affect our KPI, but we'll explain this in more detail at an IFRS briefing that we are due to have in March, later in a couple of weeks time.Now let me just take a moment to reflect on the 3-year performance we've seen during the integration of Ahold Delhaize.As you can see, sales have continued to grow at around just over 2%, if you exclude the significant deflationary effects in 2017. And you see underlying operating margins have grown consistently from 3.7% to 4.1% as we delivered on our synergy commitments during these 3 years. We've seen, at the same time, increased challenges from discount operators. We've significantly increased our digital and e-commerce investments, and I'm -- but I'm very pleased to show that overall margin improvement.Consequently, EPS, underlying EPS, has increased from EUR 1.17 a share to EUR 1.60 a share. Most pleasing is the fact we've been able to increase our capital expenditure from EUR 1.7 billion to EUR 1.8 billion, while you can see free cash flow has increased significantly from EUR 1.4 billion to EUR 2.3 billion this year.Now as you know, we'll be adopting, along with everyone else in our peer group, IFRS 16 in 2019. Economically, nothing changes, but obviously we'll be getting used to some differences in our income statement and balance sheet. And we'll be adopting the full retrospective approach. And Note 3 of our annual report, which was published today, gives an explanation of the impact of the new standard on our 2018 financial statements. For 2019, I will say at this point that we don't expect any additional impact on earnings per share, but for a full explanation, including the restated quarterly financial statements, we'll be hosting a meeting on IFRS 16 in London on March 25.Finally, let me see -- let me summarize our key guidance for 2019.As we mentioned, we'll finalize our synergy program in the second quarter, and we expect that to result in EUR 750 million of gross synergies and EUR 500 million net synergies. And as we transition from integration into business as usual, our save for our customer program will be critically important. And we're in good shape with a full pipeline of projects for 2019, where we expect to deliver EUR 540 million of cost reductions and cost efficiencies which will be reinvested in our customer proposition. Of course, this is the first year of our 3-year program to deliver EUR 1.8 billion in our save for our customer efficiencies.As we said at our Capital Market Day, we expect full year group underlying operating margins to be flat in 2019 compared to 2018, and we expect underlying earnings per share to grow in percentage terms by high single digits in 2019. Additionally, we'll be increasing our capital expenditure to around EUR 2 billion while delivering free cash flow at EUR 2 billion in 2019. Now let me hand back to Frans.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Thank you, Jeff.And I would like to show you some highlights of our business developments, but first, let me take you back to what we presented at our Capital Markets Day last November in New York.The set of results for the fourth quarter that we presented today clearly demonstrates that we are well positioned to win in this dynamic environment with changing customer needs and increasing customer expectations both in store and online. With our ambitious Leading Together strategy, we will accelerate the deployment of initiatives and investments that will make the difference for our customer journey in omnichannel, in technology and for a healthy and sustainable offering. Let me give you a few examples of what we are doing in our business.We continued to invest in our U.S. business. In 2018 alone, we invested $1.2 billion remodeling stores, expanding our network, both bricks and mortar and online. The rollout program of our Click and Collect points is absolutely on track, with Food Lion To-Go service now available at 53 Food Lion stores. Peapod opened its fifth wareroom on Long Island, increasing the order delivery capacity by 10% in the New York Metro region. Stop & Shop launched its first micro fulfillment center in Hartford, Connecticut and plans to build several more in 2019, with further expansion expected in 2020. Next, the remodeled stores in the Hartford area, the first phase of the Stop & Shop reimagining program, is generating a positive sales uplift. Giant Food stores opened the first Giant Heirloom Market, a new store concept tailored to the needs of the urban customer. And three more of these stores will be opened this year in Philadelphia. And as part of our continued focus on technology transformation, Stop & Shop and Giant/Martin's will introduce robots to its stores, making one of the largest deployments of robotics innovation in the U.S. grocery industry overall.In the Netherlands, Albert Heijn was rewarded the most sustainable food retailer in 2018, and this for the second consecutive year and this according to the sustainable -- sustainability brand index. Through Google Home technology, Albert Heijn and bol.com customers can now receive voice-activated shopping advice. And furthermore, Albert Heijn broadens its omnichannel offering. In Amsterdam, AH to go, together with Deliveroo and Thuisbezorgd.nl, started instant delivery of groceries. In addition, the brand initiated home delivery of freshly prepared hot meals based on recipes from its leading cooking platform, Allerhande and this kitchen, Albert Heijn, Amsterdam West. We expect to open a new high-tech, fully mechanized Albert Heijn distribution center of more than 40,000 square meters in the first quarter in Zaandam with a capacity to deliver 400,000 crates and boxes per day.At bol.com, Black Friday sales were EUR 30 million on the day itself, which was the highest sales ever recorded in 1 specific day.Now let's turn to Belgium. We also focus on further improvement of our omnichannel offering and are planning to accelerate growth by expanding our store network. Delhaize expected -- expects to open around 100 new stores, both supermarkets and proxy, in the next 3 to 4 years. And in addition, Albert Heijn will open 30 to 50 new stores in Flanders in the next few years. bol.com started the collaboration with Delhaize, adding in-store bol.com pickup points to its stores. And bol.com also announced to open a branch office in Antwerp this spring to better serve the 2,000 Belgian Plaza partners who sell their products on bol.com platform in Belgium.Moving to Central and Southeastern Europe. In the Czech Republic, our Albert hypermarket at the Chodov mall was awarded the trophy for the best store; recognized for the overall look of the store, with special recognition for freshness and quality as well as for various innovations. Throughout 2018, we applied this concept in 63 supermarkets and 4 hypermarkets, all showing a sales uplift and increased customer count. And we are planning to implement this more in more than 50 stores more in 2019.Alfa Beta in Greece launched its first green truck, which uses compressed natural gas as combustible and recycled CO2 for its cooling system. It's less polluting and more silent and therefore ideal for delivering goods to stores in downtown Athens. In Romania, Mega Image had a very successful launch of its Connect loyalty card. Almost 300,000 customers enrolled already, starting November till the end of the year. And in Delhaize Serbia, we introduced 3 new own brands: Maxi Kuhinjica, sorry for the pronunciation, meal solutions that are ready to cook; Maxi Apetit for meal solutions that are ready to eat; and Etos, our Dutch personal care brand.So before we start the Q&A section, let me briefly wrap up.With a very robust financial profile and with the right structure to grow further our brands, both in store and online, we are well positioned to continue to win in our markets.We are completing the merger integration process this year and delivering synergies as promised.The full year free cash flow was EUR 2.3 billion, up 24% compared to the year before. And full underlying earnings per share was EUR 1.60, up 29.6%. And therefore, as Jeff already mentioned, we propose to raise the dividend by 11.1% to EUR 0.70 per share.Thank you very much.

[Henk Jan ten Brinke, Senior Vice President of Investor Relations]

Thank you, Frans. Thank you, Jeff.We will now take the first round of questions from the audience. Please use the microphone for the webcast and introduce yourselves and the name of your company.Fernand?

[Fernand de Boer, Research Analyst]

Yes. It's Fernand de Boer from Degroof Petercam. A couple of questions my side. Firstly, on the U.S., you have Albert the first Hartford -- Albert Heijn Hartford to take off automatic delivery. How is that going? And how much are you planning to open in, let's say, a couple years? You highlighted some, but could you be a little bit more specific? Then I had a question on Belgium. You announced to go further with 2 banners, Albert Heijn and Delhaize, and after 2 weeks of that -- after that announcement, you also came with a very price-aggressive campaign of some of the products in Albert Heijn. How can you make sure that you are not shooting yourself in your own foot? And that actually, at the end of the day, Delhaize becomes a kind of victim of the price aggressiveness of the -- of Albert Heijn in Belgium? And then I have a question on the supplier side in the Netherlands and costs going up. One of your suppliers, key suppliers, for Albert Heijn seemed like in deep financial problems. Not to talk specifically about that one supplier, but I also understood that other suppliers have difficulties. How can you make sure that in case of bankruptcy you will be -- continue to see your supplies in the Netherlands? And then I have one question left on the U.S. We had shutdowns in the U.S. How is that hitting your business? Should we be a little bit cautious on the first quarter because of that reasoning, in terms of comparable sales plan?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Good. Thank you very much, Fernand. I'll just start, and Jeff can fill me in later on during the 4 questions. Hartford, Connecticut, we all visited in November the first store in Connecticut. We have now 20 stores rolled out. And as I mentioned, we're quite content with the development. We see overall sales uplift, but we also know and we also announced this in November that we will test a number of different modules talking about the investment levels for more affluent and value stores. We test a number of things on fresh and produce. We've made a few very nice adjustments already to our central store. So it's a little bit early days, but we are happy with the development, and we see ourselves also getting into the space of the pro forma. So that's one thing on Hartford. The second batch of stores will be there in the middle of this 2019 year. So another -- close to 20 stores as well. And we hope also to close King Kullen in the first quarter. So that would mean that we roughly would have this year as planned, roughly, and 40 to 60 stores remodeled. And we would like to having 60 stores roughly per year, to go through the 400 stores of Stop & Shop. On Belgium, you talk about 2 brands. I talk about 3 brands in Belgium because we are very proud to have not only Delhaize as the leading brand but also Albert Heijn and bol.com in Belgium. And those 3 brands, we announced that we see a very complementary type of setup for Belgium where the brands serve different type of customers and needs and therefore can fit very nicely together to gain overall for the company a bigger market share. We have roughly 40 stores of Albert Heijn in Flanders, and we have a good 800 stores of Delhaize. And we grow also strongly with bol.com. The brands Albert Heijn and Delhaize serve a different type of customer, and that's what our research tells us. And Albert Heijn is well known and successful, by the way, in Belgium, as we know, to have an surprising assortment for the Belgian market, to have a strong price image, to have new stores and good service. And I think we market this, as you know, under Holland [ Surprise ] in Belgium, and it works very well. So we announced the same thing, the 3-brand strategy, but we also announced that Delhaize will grow 100 supermarkets in the coming 3 to 5 years, supermarkets and proxy that for Albert Heijn, we will grow 30 to 50 stores in a couple -- few years times. With all the brands, at this moment, we gain market share, so we gain market share as a group. All the brands are growing, which is great news. Coming back to the element on price: Albert Heijn has a high-low strategy; and is, like in Holland, also in Belgium, well known for its strong promotions. And that is part of the DNA, how we positioned Albert Heijn in Belgium. And we are successful there. And I think there was a little bit overstatement in the last couple of weeks about the price war in Belgium. I mean, sometimes, price promotions are indeed very aggressive and very attractive and highly appreciated by customers, but I think it's overdone to say we see in the -- the price war in Belgium. 3 brands on our side all gaining market share and growing, and that's exactly what we wanted to distribute the market in a different way. And we take market share most likely from a few others.Then you talked about the CPG suppliers which, according to your quote, have a difficult time. We have overall very good relationship with our vendors both in the U.S. and in Europe. And for us also, the national brands are important, although as you know, in Holland and in Belgium roughly 50% of our sales, in private label, which is roughly a 30 number, 30% number in the U.S. So I think we focus on ourselves to make sure that we ourselves have a good customer journey and proposition, that we have strong private labels and good relationship with vendors. And I think the vendors themselves have to see how they manage their own costs and these kind of things. We do not see -- by the way, there was another topic you partly mentioned. We see some press on CPG companies raising prices because of raw materials and inflation. We do not see raw material commodity prices increasing. We see in the U.S. some increases in L&D and in logistics and in pulp and paper, but we manage this as we always manage this in a good way and try to mitigate those cost increases. And the last thing, on the government U.S., I think you were referring to the shutdown there. I'm happy that's over because it is never good, this disruption in these kind of services, but overall we're doing very well in the U.S., as you've seen from the numbers. And also, with the brands we gain market share there. Was that an answer to your questions? Jeff, sure, yes, go ahead.

[Jeffrey Carr, CFO & Member of Management Board]

Maybe just to add a couple of points. On micro fulfillment, we're not going to be any more specific about numbers. We said we'd have several this year. So the first one is going well, and we'll have several more added in 2019. The beauty about those centers is they can be added much more quickly than a sort of Ocado type of large-scale capital investment. And we will continue to expand that in 2020, but we're not -- we can't give specific numbers yet at this point. One follow-up on the supplier in the Netherlands you specifically asked about: I can reassure you, where we have strategic supply contracts, we have protection in those contracts. So we understand -- I understand your question, but we do have strong protections in each of our strategic supplier contracts.

[Henk Jan ten Brinke, Senior Vice President of Investor Relations]

Robert Jan?

[Robert Jan Vos, Analyst]

Robert Jan Vos, ABN AMRO. I have a couple of questions. I think most of the questions are for Jeff. Trade payables is a big driver of cash flow generation in fourth quarter. Do you consider this the normal seasonal pattern? And will this therefore reverse in 2019 or in the first quarter? And related to that, you mentioned further working capital improvement in 2019. Do you see that as a sustainable improvement? That's my first question. Second, I noticed that depreciation is coming down a little bit. Can you explain that knowing that CapEx is up? And my third question: Online grew by 10% in the U.S. Do you still think that you can grow this by 20%, as was mentioned in November, in the U.S. in 2019? Those were my questions.

[Jeffrey Carr, CFO & Member of Management Board]

Okay, look, trade payables is -- we've been through a working capital program which we called internally smooth and improve because we are going through a program of aligning trade payables with each of our companies. For sure, where we've had negotiated extensions, we can extend payables. We still pay our suppliers on time. Our average payables in the Netherlands is in line with the industry average, but where we see opportunities to work with suppliers in negotiated terms to -- part of the package to extend payables on key suppliers, no, no, we're not talking about small suppliers. We're talking about the big multinational suppliers. Then we will continue to look to optimize that. We've seen continuous improvements in working capital for the last 3 years. I've said I see small improvements going forward, coming from both areas -- all areas of working capital in 2019 to '21, not in the range that we saw this year of maybe EUR 500 million but more in the EUR 100 million per annum range for the next 3 years. And I continue to see opportunities there. Let me just reiterate we pay our suppliers on time. We don't pay late. We don't stretch terms over the fourth quarter and see a big rebound in the first quarter. We've -- there is a seasonality pattern to working capital, but we don't see any big swings between the fourth quarter and the first quarter, which I think, if you look at the tracking for 2018, you see that improving in the first quarter versus '17 and '16.Just on depreciation. We mentioned when we did the PPA work at the time of the integration that we saw a spike up in depreciation in 2016, and we expected that to come back down in 2 years. And a little bit, it's related to that, it's the short-term assets that we took onto our books at a quite short depreciation life. And those are now coming off the books fully depreciated. So that's causing the reduction. And so it's related to those adjustments at the time of the merger really, as opposed to any underlying depreciation work. And then in terms of online, let me just finish that: Yes, I always remain confident that we will achieve the target. We were at 12% in the fourth quarter. Clearly, accelerating online growth in the U.S. is one of our priorities. We grew 25% online as a total company. We're very pleased with the bol growth over 30%, but we need to get the U.S. growth rates up. We have strong plans to do that, and I see no reason we shouldn't hit those targets that we gave at the Capital Markets Day.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Which is 20% for this year and 30% for next year.

[Jeffrey Carr, CFO & Member of Management Board]

Yes.

[Henk Jan ten Brinke, Senior Vice President of Investor Relations]

Bruno?

[Bruno Monteyne, Senior Analyst]

Bruno from Bernstein. A few for me. You lost a bit of market share in the Netherlands. And given I understand correctly, Lidl seems to be the one gaining right now. Can you comment on what's going on? How concerned should we be? And what your plans to tackle that? My second question is a -- you're starting this food solution business here in the Netherlands, hot food delivered, a whole new sector. Do you see any potential for that in the U.S.A., to come up with solutions where you deliver hot food with local delivery partners? And the third one is, a few years ago, there was all the talk about the price wars in the U.S., Lidl entering the U.S., Walmart price cuts. How is the pricing environment today in the U.S.? Is it slightly better, heating up? And the last question is Ocado or Kroger announced its 3 CFCs locations recently. I think one of them -- is it possible that it's in your neighborhood of the Food Lion stores? Can you comment on that? And what's your expectations of how concerned you are about a Kroger Ocado warehouse in your backyard?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Okay, thank you, Bruno. To talk about the hot meals and the services we have in the Dutch market. We opened our first Dutch kitchen from the Allerhande brand, which is a very well-known brand in Holland. Amsterdam West, we opened a kitchen, doing very successfully. I was very happy with the flammkuchen and the pappardelle menus. I was one of the first customers, I think, in the kitchen. So doing very well; and doing, I think, very good numbers; and also getting up there in the ranking with Deliveroo in the ranking of successful outlets. And I think we see an opportunity there. This is a test. And I think we do a lot of innovation in the Dutch market with the teams in all kind of technology, in closer foods, in new assortments, in ready to meal -- ready to eat and ready to cook and convenience in general. So this is another innovation which fits that bill, and I think we'll see more innovation of the Albert Heijn team in the Dutch market. Talking about market share, I think we also announced this in January already, that we lost some slight share of market share. We are the leader in the market with roughly 35%. So it's not always easy to the leader with 35% always to defend your market. On the other hand, the teams are very excited with the plans for 2019 to regain that market share. And we hate to see this, I hate to see it but also the team at Albert Heijn hate to see to lose market share, so we have everything now fueled up to regain that position of market share. So -- and I see no reason why we wouldn't do this. You see that we brought together in a single sign-on Albert Heijn and bol.com for the Dutch market. We see that Etos and Gall are having a very positive trend. So I feel that for the total Dutch market, we have a very good proposition to gain share again.Then you talked about the price situation in U.S. The market is very competitive. I think there's no doubt about this. If I would say, how to say this precisely, it's market by market very differently, but I would say -- I would describe the market as competitive but stable. That's how I would describe it. And this is different in Food Lion territories that may be in the Northeast. It has to do with competitors. But on the new entrance of Lidl and of Aldi, I think we did a very good job there. And as I already mentioned earlier, overall, also in the fourth quarter, we gained market share in the U.S., of course also supported by a strong Food Lion performance. Maybe Ocado, Jeff, is this something for you? Or...

[Jeffrey Carr, CFO & Member of Management Board]

Well, I mean I'm quite happy to take it. We're very confident that our micro fulfillment strategy is the right approach. I don't think, by the way, Kroger announced a date, so I don't know how long that's going to take, but our micro fulfillment centers can be initiated quite quickly. As I said, we'll have several, not quite specific on what several is. It's -- I think it's more than 2, less than 10, something like -- several of those micro fulfillment centers up and running in 2019. And we continue to expand our own e-commerce offering. We have a good position in the Food Lion markets, where we compete very nicely versus Kroger and also with Giant and Harris Teeter. And we continue to take market share in those markets, so I don't see any real concern about that.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Micro fulfillment center, as Jeff already mentioned, is fully operational, 13,000 items, with capacity of 4,000 orders a week. And a micro fulfillment center, to give you a data point compared to big boxes we see delivered longer time. Upon delivering the building, and we have those buildings, as you saw, in Connecticut. It's 20 weeks to install and to get an micro fulfillment center operational. So an agile way of working, an agile way of not only be fast and agile but also be closer to your customers.

[Henk Jan ten Brinke, Senior Vice President of Investor Relations]

Operator, we'd like to take some questions on the phone, please.

[Operator]

[Operator Instructions] The first question is Mr. Nick Coulter, Citigroup.

[Nick Coulter, Director]

Just one, if I may, or maybe two. On interests, could you say what range of charge, interest charge, is implied by your EPS guidance? And I guess, similarly for tax. And apologies if I missed it.

[Jeffrey Carr, CFO & Member of Management Board]

No, you didn't miss it. I didn't give it. So we expect tax to be in the low 20% in terms of the effective tax rate and a relatively flat on a GAAP-to-GAAP basis. Obviously, this will change with IFRS 16 but a relatively flat interest expense in 2019 versus '18, but on tax I'd say in the low 20%.

[Nick Coulter, Director]

On interest...

[Jeffrey Carr, CFO & Member of Management Board]

Flat year-on-year.

[Nick Coulter, Director]

Okay, flat, yes. And is there anything else? I'm just trying to deconstruct the EPS guidance...

[Jeffrey Carr, CFO & Member of Management Board]

I'm not going to walk down the whole P&L for you. I think we've given quite a lot of guidance, Nick, and I'll leave you to deconstruct the rest on your own.

[Nick Coulter, Director]

That's quite fine. And just one follow-up, if I may, on working capital. Obviously, it's a big move, and obviously you've articulated what you're doing, but why has that come through so much earlier than expected?

[Jeffrey Carr, CFO & Member of Management Board]

I think it's focus, quite frankly. I think we've had the whole -- all of our brands really focused on improving their inventory terms; aligning payments and receivables, which is quite a significant number. And I think we've had all of our brands, all of our finance and general managers focused on the working capital number. And when you focus on working capital, you tend to see it improve, and it's as simple as that. I've seen at other areas, where you have a working capital issue, it's usually because the people have lost focus on those numbers. So I think it's just a key focus. It's still part of the integration benefit of aligning terms between the 2 companies even 3 years in. These things take time. I do think, the 7 -- almost EUR 700 million improvement we've seen in 2017, 2018, I'm very pleased with. I think it's been extraordinary. And as I mentioned, I think we'll see a smaller but a -- still a positive trend but a smaller trend in 2019 and '20.

[Operator]

Your next question is from Mr. Le Mené, Merrill Lynch.

[Xavier Le Mené]

Yes. Two, if I may. The first one, can you potentially comment the inflation trajectory you are seeing in the U.S. as well as in Europe as well in Belgium especially? So what are your guess, I will say, for 2019? Second question, on cost savings. You've got EUR 1.8 billion guidance over 3 years. You are guiding for EUR 540 million in 2019, so can you give us a bit of thinking about the initiatives you're implementing in 2019. And why is it back-end loaded?

[Jeffrey Carr, CFO & Member of Management Board]

Okay, I think, first, on inflation we see around -- currently running around 1% inflation in the U.S. and also the Netherlands, by the way. I think in the U.S. you might see that -- I'm not going to get into projections, but you might see that ticking up a little bit. I think the trend is slightly positive. I think it's a little higher in the Netherlands -- sorry, in Belgium, just over 2% in Belgium. So that's the general inflation environment. I think, in terms of the save for our customer program, in 2019, we continue to deliver synergies and save for our customer, so we're focused on both areas. There's still a lot of work to be done to finish off the synergy program, but I think, once we can focus just on save for our customer, we have exciting pipeline of work coming through in 2020 and '21. And I think that we'll see an acceleration because, you're right, obviously 5 -- EUR 540 million times 3 doesn't get quite to the EUR 1.8 billion. So we will see a step-up in 2019. And of course, we'll aim to exceed the EUR 540 million number that we have targeted in 2019. There's many projects within that. It's difficult to point to one single project, but for example, we're doing a lot of work in Europe on building shared service centers for the back office in Europe. We continue to do a lot of work on our cost of goods, especially in areas of our own brands where we can optimize packaging and reduce plastic. We see a lot of work still being done in labor efficiency by technology is -- continues to be an opportunity for us. We'll be running more and more tests and rollout of electronic shelf labeling in areas like that as we look to the future. So there's a lot of work being done across all the brands. We literally have thousands of projects running, and it's ingrained in our everyday business as usual. And we have a strong pipeline for 2020 and 2021, so I'm confident we can get to that number.

[Operator]

The next question, from Mr. Mahamkali, Macquarie Capital.

[Sreedhar Mahamkali, Analyst]

Three for me as well, please. Firstly, on gross margin, it seems to have accelerated in Q4 to 60, 70 basis points improvement. Do you have a view on how we should see that in FY '19, given nearly all your competitors seem to be talking about lower gross margins? I appreciate, in your case it's clearly synergies impacting them positively. That's the first one. And secondly, again in the same vein, I suppose, within the stable group margin guidance, how do you characterize U.S. operating margin expectation? And finally, just in terms of PPA asset decline or fall in depreciation, do you have in mind roughly how much further depreciation decline we should expect in FY '19?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Thank you, Sreedhar. I think we already gave guidance earlier on our margin for 2019. We will see in -- a stable margin in 2019 compared to 2018, and that is the margin on group level. And we do not give further guidance below that line. And the question came up already here on pricing in the U.S., competitive but stable. And on the synergies, Jeff mentioned that we will close the synergy program by the middle of this year, but synergy programs in the meantime is already in parallel supported by Save For our Customers. And we already gave a number for what we expect out of the Save For our Customers program to get -- to hit our EUR 1.8 billion program over 3 years, which is the funding to do the things we feel are necessary to stay competitive. So I think we gave already quite some guidance there, but Jeff, maybe a few things on PPA from your side?

[Jeffrey Carr, CFO & Member of Management Board]

No, I don't have a -- I have a number in mind in terms of the PPA for 2019 relative to '18, but I'd have to get back to you. I know it's a few tens of millions. It's possibly in the 20 -- something EUR 20 million range, but I'll come back to you with a more specific number. Obviously, on gross margin, you're right, synergies are having an impact on the gross margin. We maintain our price positioning on all our brands in the U.S., and we remain competitive. Clearly, we wouldn't be gaining market share if we weren't competitive and maintaining that price positioning in the U.S., but we see some benefits from the synergies still coming through in gross margins, which is why we see that overall improvement. And of course, on the mix across, we have a portfolio across areas like Belgium where we are seeing an improvement in the overall performance and gross margin as well from a relatively low position. So we have that impact factoring into the total company as well.

[Sreedhar Mahamkali, Analyst]

And on the -- a quick follow-up. On the EUR 540 million, how is that split regionally, please?

[Jeffrey Carr, CFO & Member of Management Board]

It's relatively stable across all the regions, running just under 1% of sales. So I'd say the mix is pretty stable across Europe and the U.S., as I said, just under 1% of sales, 0.9% of sales.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

And also pretty stably distributed on quarter split?

[Jeffrey Carr, CFO & Member of Management Board]

Yes. Calendar wise, it will be relatively smoothly split as well because it will not stand -- we're not coming from a standing start. This program was running through 2017, 2018. We didn't talk about it so much because we wanted to focus on the synergies. And quite frankly, I'm sorry to say this, but I thought 2 savings numbers out there might confuse people. So we focused on the synergies, but now that program is rolling off, we need -- really need internally and for -- to be -- remain competitive and to continue to invest in our customer proposition, we need this program to deliver. So I'm happy to talk about it and -- but it's not coming from a standing start. We came into the year with a full pipeline of projects, and we continue to top that up as we see new opportunities. There are some big areas of improvement in efficiency that we didn't get around to in the integration which we still need to address and those areas that we're now addressing.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

The save for our customer program, Sreedhar, is first of all led by Jeff, but it's also a great result of our merger because there are thousands of ideas, where people learn from each other, where they find cost savings and efficiencies. That is all now visible for all the brands in a very nice centrally provided catalog. So if you say what are the opportunities and what are the ideas in the group on -- say, for a checkout process or for -- what are the opportunities to shave on -- to save on private label packaging. Then brands can just dial up that catalog, can learn from what other brands were successful with. I think this is nice attribute to also see that this merger does not only bring synergy numbers but also best practice sharing and great ideas and that we also get richer out of this.

[Sreedhar Mahamkali, Analyst]

Very, very short follow-up. In terms of working capital, have you done anything different last year like supply chain financing or reverse factoring? A quick yes or no is fine.

[Jeffrey Carr, CFO & Member of Management Board]

Nothing different. I mean we do have a little bit of supplier financing in there, but it's not a significant amount.

[Operator]

The next question is from Ms. Caron, Kepler.

[Fabienne Caron, Head of Food Retail Sector]

Questions from my side. The first one, on Holland. You commented that the EBIT margin ex bol was down in Q4. I can see minus 20 basis points. Can you comment and can you give us a view for 2019? The second question is on the U.S. Have you started to cut prices on all the Stop & Shop stores already? And can you give us a feeling of -- on the magnitude? And the last one, on IFRS 16, for you, Jeff. I know we'll get all the detail in March. I've heard what you said -- what you wrote in January. Probably something I don't understand, because you're saying that the impact of the new IFRS 16 rental charge peaking depreciation and interest is roughly 510 at the maximum? It looks as if it's half of what is to be your rental charge. That's why I don't understand why you expect no impact on the EPS or no significant impact.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

If you take one and three, I take two. Is that -- have you understood?

[Jeffrey Carr, CFO & Member of Management Board]

I didn't get one. Could you -- sorry, could you just repeat your first question, on margin? Which was that related to?

[Fabienne Caron, Head of Food Retail Sector]

Yes. On one was -- yes, it was -- you commented that for Holland your margin ex bol was down in Q4, and we can see it's roughly minus 20 basis points. If you could comment and say what's the outlook for 2019.

[Jeffrey Carr, CFO & Member of Management Board]

Well, we're not going to talk about margins by segment. The Dutch margin was up 20 basis points in the quarter, 4.9% versus 4.7% last year, but I'm not -- as I said, we give quite specific guidance in terms of overall group margins. But I'm not going to get pulled into individual margin guidance by segment...

[Fabienne Caron, Head of Food Retail Sector]

Okay, so -- but can you just -- can you -- sorry to interrupt. Can you just comment on what was the driver for the fact that, excluding bol, the margin was down in Q4? What was the main driver there?

[Jeffrey Carr, CFO & Member of Management Board]

There was nothing specific. We said it was slightly lower margin excluding bol. It was slightly lower. It was still 5.2%. I think, for the full year, we still delivered a strong margin for the Albert Heijn ex bol. And I think we'll see a continuation. There's no specific watch out in terms of margin development in the Netherlands. I think the Netherlands remains a strong business, and we're looking forward to a strong year in 2019. So I don't think there's any particular watch out in terms of the margin in the Netherlands ex bol. Obviously we get various, small variances from quarter to quarter. And I'm sure we had a strong quarter -- if you look at the sales development, I think, in 2017, with -- including the numbers for bol, we had a much stronger identical sales performance. And I think that drove strong margins in Q4 2017. That's more about the comparative than anything happened. On IFRS 16, I think we'll leave -- I'd prefer to defer that question until we get to the March 25 briefing. As I said, the delta between operating profit and financing costs is about the same offset, and therefore they pretty much offset each other. The operating income and depreciation will increase, but it will be offset by obviously the financing costs. And we'll go through that in some detail. So I'm -- as I said, EPS will be relatively unaffected and no significant effect. I think with Tesco you saw some -- the announcements, a significant effect on EPS. I just wanted to reassure that we don't see a significant impact at this point but not really dive into it any deeper until we publish. We'll publish a full quarter-by-quarter analysis, which we will be able to go through.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Then Fabienne, on the pricing in the Hartford area. We test a number of elements in Hartford. We modernized our stores. We have different pricing strategies. We have different investment strategies for value stores, more affluent neighborhoods. And I think that's exactly what we also saw at Food Lion, where we started a couple of years ago. You test various composites of elements and you will see how markets will react. And it could be that in more value stores people are reacting stronger to the price; and in more affluent areas people strongly will react to a completely modernized, sensational produce department. At the same time, in central store we did a lot of things on pet foods and on baby. And we have quite some work to do. We digitalized the stores all over, but also there we see also the next steps in self checkouts which are even more modern than we showed the teams in November. And we also make mistakes. I mean we took out in one of the stores a -- and fully serviced deli departments into self-service, and customers didn't appreciate this. And we didn't expect that. So we reversed that one. So it is the learning with only 20 stores in the Hartford area. And as I said, we have a very positive customer reaction. We see that overall we have a positive sales uplift. We have a good idea that we get into those pro formas which we already shared with you for -- of 4% to 6% in the first year, but it's just early to tell, to make all those kind of analysis from price sensitivity, which elements in the concept work best, what is working well in which demography from an GDP per capita to an ethnicity background. And that's exactly what we're going to find out. And just to make the last analogy to Food Lion: Also there cycle by cycle we learned. And we adjusted, then we learned; and we adjusted, then we learned then we adjusted. And that's exactly what we have in mind also with Stop & Shop, to learn from Robin, how we call the project; and to go to the next one, to the next cycle, the next 20 stores; and learn from what we saw in the first 20. So a little bit too early to tell and to give you all those analysis, but we are positive with the sales uplift, Fabienne.

[Fabienne Caron, Head of Food Retail Sector]

Okay, I just wanted to make sure I understand. Do you -- are you telling me that the price investment goes hand in hand with the remodeling, i.e. so the price investment may go faster than the remodeling, i.e. that you will start cutting price in all the 400 and something stores?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

No, we go hand to hand with the remodeling. And we started only in October. And those different price concepts, we test. And of course, we try at the same time to be competitive for the full Stop & Shop 400-store network, but the pricing tests and check for value in affluent markets, that testing is taking place in Hartford.

[Operator]

The next question is Mr. Milosavljevic, Berenberg.

[Dusan Milosavljevic, Analyst]

Two questions for me. The first one, just on the one-off costs for next year. They were EUR 160 million in 2018, EUR 230 million in 2017. Where should they come next year? It should be only a few tens of millions if we will just look into the integration costs, I guess. So I don't know if there's any...

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Just could you talk a little bit slower? Because you are difficult to understand. Could you repeat your first question, please?

[Dusan Milosavljevic, Analyst]

Sure. Of course. So the first question is what's the guidance for the one-off costs for next year? Then the second -- so that's -- yes, that's essentially the first question. The second question is on the Netherlands. I was just hoping you can talk a little bit more specifically in terms of what changes you intend to implement in the business. Obviously we've seen the market share data from a couple of data providers which show you kind of losing market share. And it's -- they're also showing that Jumbo, after a few years of being a relatively constrained competitor, is gaining significantly more market share this year. So what -- you're not -- then there is some change in management you announced. And in that release, when you have announced that, you've talked about some changes. So I'm just wondering what kind of -- what are the initiatives for 2019 for the Dutch business to recover the market share losses? And the third question I had was in respect to we had a news flow the other day that the trade unions in the U.S. -- that you haven't been able to reach the agreement with the trade unions in the U.S. and that they will give -- they have been given a green light to start the strike. So my question is just, is it something we should be concerned about? Or do you think you can -- it's a kind of a minor issue at this point?

[Jeffrey Carr, CFO & Member of Management Board]

Okay, let me start with the onetime costs in terms of integration and restructuring. We expensed around about EUR 80 million in 2018. And we said that we would expect to get to EUR 380 million integration costs and EUR 70 million U.S. restructuring. And that means we'll have something in the region of EUR 40 million to EUR 50 million further costs to complete that program in 2019. And that'll mostly come in the first half of 2019, and after that, those programs will be closed.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Yes. On the Dutch market, it's correct that we had a slight decrease of market share, like I already answered a question earlier. We don't like that, and also the Dutch team doesn't like that. And there's a lot of activity in innovation and in store formats to regain our position, which was a very strong of -- position of 35%. So just to give you some examples: We have introduced a real fresh format. In the meantime, we have 60 stores roughly rolled out, and we will -- no, we have, in the moment, roughly 25 stores rolled out of real fresh; and every week, 3 more. It gives a huge reaction, positive reaction, with customers. What you will see differently, that the store is much more digitalized, that you see many more meal solutions opportunities in all kind of phases of preparing a meal, that we have service areas for delicatessen, for cheese and these type of things that we have on the efficiency side a different way of self checkout, percentages also that we can balance the assortments and the store formats also with efficiencies. We have just gotten Etos online in January, so they have now an online website proposition, which took off quite nicely. We have Gall & Gall in very modern store formats and a great proposition in wine and liquor. We have a strongly developing bol.com business, 32% growth last year. And also the online business overall for the Dutch market, 28%. So I think we are firing on all cylinders, and I'm very confident that in 2019 we get that share back.On Jumbo, I think you know. Or otherwise, I can share this with you, that growth is mainly coming from M&A, with the EMTÉ acquisition. So also there we should compare apples on apples, but we have strong plans to firm -- affirm our position again. And the teams are working with a lot of innovation and new initiatives, also with strong pricing and promo campaigns, which you will see also in the course of 2019. So I'm very confident that we regain that small decrease, that we regain it back.

[Jeffrey Carr, CFO & Member of Management Board]

And I'll just mention we've had an excellent relationship with our associates and with our partners and our unions in the U.S. over the last several years, and I don't see why that should change. And beyond that, I don't think we should comment on the -- an ongoing negotiation. So I would just say, look, we've had good -- great relationships. And this is a once -- I think, every 3 years, we have this New England negotiation, and I don't really want to comment on it beyond that.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

No. And at the same time, our health and benefit packages are very strong in the New England area. We invest very strongly in Stop & Shop with our remodeling schedule. We have an incremental investment in Stop & Shop of $100 million to $150 million a year. I mentioned before that we invest very heavily in U.S., with $1.2 billion for the overall network. So we're very committed to the U.S. and very committed also to invest further in our brands and also to make sure that our associates are really very comfortable with us.

[Dusan Milosavljevic, Analyst]

And can I just ask as a follow-up on that, potentially, just one more question? There's been the data from the U.S., the food retail data, kind of ticking down a little bit for the month of January relative to couple of months before that. Is that something you've seen in your numbers kind of that -- I guess that ties back into the question about the government shutdown and how that's impacting the market developments in the U.S. Or if you -- it doesn't have to be anything relating to current trading, just the market environment.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

No we -- looking at the fourth quarter 2018, I think we were pretty clear that we don't see that we gain overall market share. I think that is in a pretty strong number.

[Operator]

The next question, Mr. Porteous, HSBC.

[Andrew Ian Porteous, Analyst, European Retail]

A few for me, if I could. The first one was on online. It's -- we've seen -- we've heard a lot about what's going on in the U.S. market environment and some competitors potentially talking about opening capacity where they don't necessarily have a physical store presence. You guys have been in that for a long, long time. I just wonder what you'll use on the ability to deploy that successfully. And to what extent you really need to think about online as a sort of complement to a physical store presence there? The second one was on private label. And I'm really just wondering whether you're seeing any changes in U.S. consumer trends that might mean over time we'll start to see that private label 30% penetration crept up towards the European average? And then the last one was really on IFRS 16. I suspect I know the answer, but is there -- you talked, you alluded to a change in the composition of free cash flow and obviously a bit high leverage as well. Does IFRS 16 change the way you think about returning cash flow?

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Okay, shall we start with the exciting topic of IFRS 16, Jeff, first? Or...

[Jeffrey Carr, CFO & Member of Management Board]

Yes -- no, let's touch on that. And I'll have the pleasure of spending the whole morning on it on March 25. No, I don't think it changes the way we look at how we operate. I mean, economically, there's very little -- there's no impact. Our overall cash generation doesn't change. In terms of what I mentioned on free cash flow, below free cash flow, we've typically included our finance lease repayments as effectively debt repayments. That will be included in the KPI of free cash flow, but our net cash position doesn't change, so it shouldn't change the way that we look at our cash generation and the uses of cash. You're right. Based on the numbers that we published in the annual report today, our leverage will go up a little bit, but it's -- we still have a significant headroom within that. So I'd say there is no real change in economically how we look at the business, how we operate the business, how we look at cash, how we look at capital allocation based on the standard.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

And talking about private label. We see growth potential in that private label space. First of all, a lot of things in our retail business has to do with trust. People trust our retail brands, so if we have private label brands which are connected to those retail brands, I think that creates a lot of trust on the quality, on price-value, on the ingredients, on the tracking and tracing of the sourcing and the suppliers, on social compliance, a lot of sustainability elements which are more and more important to customers. And we get those questions. And therefore, we see good potential for private label. We'll see -- I also think that we will see both in Europe and the U.S. a gradual growth there. And also at the same time, the private label industry, the manufacturers of private label also are getting more and more professional with the bandwidth of the products they can make, the type of packaging they can produce but also the time to markets. And I think time to market in these time -- at these times is important. And if we can differentiate ourselves with the volumes we have, because we have critical volumes in the U.S., I think we can make a difference. And we see a number of things and not only in central store but also in fresh, where we -- if it's all natural beef, if it's organic, if it's gluten free, if it's paleo, it's free from, if it's diabetes. All these type of -- very specific type of needs of customers which are more and more important, which people expect to find those type of products under our private label with our stores, there is an opportunity there. And the other thing is that, like I mentioned before, the private label industry is professionalizing quite fast. And also -- I think also people expect also from our brands in the U.S. and in Europe that we also use our international network to have truly produced Italian pasta in our shelves in the U.S. or that we have the real U.S. beef in our Belgian stores. So I think there's enough potential there. It's a little bit long answer, but you might hear a little bit the passion I have for that category. So if we then talk at online, I don't know if I understood this well acoustically, but what do we see in online growth in the U.S.? Was that roughly your question, including the competition, Jeff?

[Jeffrey Carr, CFO & Member of Management Board]

No. I -- let me -- I think the question was more about how do you feel about competitors opening capacity online where they don't have stores. I'd say it is difficult. We've operated for many years in Chicago. I think the -- an omnichannel approach is a more longer term -- I think we have a strong presence in Chicago. We continue to have a strong presence in Chicago, but I think the omnichannel approach where we meet the customers' needs with bricks and mortar, with online, with a really strong digital offer is the strongest offering that you can give. And I think opening in a new location without brand presence and without store presence is a challenge.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Yes. And what I forgot to say about private label and our commitment is that we announced 2 years ago that we insourced our private label away from agents in our own business in the U.S., which is another token of commitment to our business in private label that we would like to be in control ourselves of specs, packaging, supply chain, choice of suppliers and also the ingredients which we put into those private labels.

[Operator]

The next question is from Mr. Vandenberghe, KBC Securities.

[Alan Vandenberghe, Co]

I have one left. It's regarding your Dutch competitor Jumbo, which apparently sees room for opening 100 stores in Belgium/Flanders. I was wondering if you could comment on this view or this ambition, whether if or how that would change the dynamics on the Belgian market.

[Frans W. H. Muller, President, CEO & Chairman of Management Board]

Yes, thank you for that question. Now to be honest, we're not invited in their boardroom to understand their plans, but what is more important is that we concentrate our -- on our own strength. So we have 40 stores of Albert Heijn in Flanders. We have 100 store -- hundreds of stores of Delhaize in Flanders. And we have a very strong bol.com presence in Flanders as well. So this 3-brand strategy is for us a very strong proposition to service a lot of customers with different profiles in the Belgium market and also in the Flanders part of Belgium. And the second thing is that we announced, as you know, to grow Albert Heijn stores 30 to 50 more stores in the coming few years, 100 more Delhaize stores in the coming 3 to 5 years and that's what we do. We concentrate on our own growth. And as I said before, we grow with all 3 brands and we grow with all 3 brands market share. And we believe in ourselves, and that's what we're concentrating on. And that keeps us already more than busy.

[Henk Jan ten Brinke, Senior Vice President of Investor Relations]

That, ladies and gentlemen, concludes this meeting and conference call. Thank you very much for attending, and have a good day. Thank you.