AHOLD CONTEMPLATES COST-SAVING MEASURES IN U.S. RETAIL

CHANTILLY, Va. -- The retail division of Ahold USA here is conducting "business as usual" for the most part but is considering cutting back on spending and accelerating some cost-cutting initiatives, the division's top executive told SN.In an interview with SN last week, William Grize, chief executive officer, Ahold USA Retail, said that the U.S. supermarket chains were continuing to operate largely

CHANTILLY, Va. -- The retail division of Ahold USA here is conducting "business as usual" for the most part but is considering cutting back on spending and accelerating some cost-cutting initiatives, the division's top executive told SN.

In an interview with SN last week, William Grize, chief executive officer, Ahold USA Retail, said that the U.S. supermarket chains were continuing to operate largely as they did before their sister company, U.S. Foodservice, was found to have overstated its earnings by $500 million during the last two years. The U.S. chains, which include Stop & Shop, Tops Friendly Markets, Giant (Landover, Md.), Giant (Carlisle, Pa.), BI-LO and Bruno's, are being forced to watch their budgets more closely, however, as Zaandam, Netherlands-based Ahold attempts to pay down its debt of 12.3 billion euros ($13 billion).

"We obviously have to be very attentive to what we're spending," Grize said. "The only thing that might not be business as usual is the amount of debt we have and the ability to pay that back over time, and we're working very hard on that."

Grize said the company's lenders have approved a capital-expenditure plan that calls for the construction of about 60 new stores in the U.S. in 2003, and he also anticipates being able to take advantage of some small acquisition opportunities. To achieve that financial flexibility, the company may cut back on store remodels.

Brian Hotareck, chief financial officer, Ahold USA Retail, said the company has prioritized the review of its remodeling plans to look for possible savings.

"We may do less remodels because those are discretionary, and we've had a very rigorous program of remodeling over the years," he said.

Grize said the company wants to be able to pursue opportunities like the recent purchase of four A&P stores by the Stop & Shop division.

"Why put yourself in a position where you max out your cap-ex budget, and something comes up during the year and you can't do it?" he said. "It's better to defer a few things and get a little bit of wiggle room."

Another area in which the retail division might seek opportunities to cut costs is in an acceleration of the previously announced back-office consolidation of Tops and Giant-Landover. The chains have been combining some of their support functions during the past two years, and recently began integrating their merchandising and administrative operations.

"That's where I think you might see some acceleration, in the back-stage stuff," he said, adding that such moves would not involve "a huge number of jobs."

He declined to comment on trade reports that the company might consider selling some of its core assets -- such as the U.S. supermarket chains -- to help pay down the debt.

Grize also refuted statements by an analyst in a recent SN article that the company's Stop & Shop stores in the New York area were unprofitable and were likely to be sold.

"That statement was factually incorrect," he said.

He repeatedly described the U.S. business overall as "solid."

"Europe and U.S. retail are almost 70% of the business, and U.S. Foodservice is almost 24% of the business, and in my humble opinion, fixable," he said. "When you look at it, the bulk of the business is very solid, so there's no need to do anything as a knee-jerk reaction. Our U.S. retail business is strong and healthy, and we are working very hard to keep it that way."

The company is continuing a business review begun last year in which it is evaluating its non-core and underperforming assets, but Grize declined to comment on what businesses might be evaluated in the U.S. Analysts have told SN that the company's BI-LO, Tops and Bruno's divisions are the company's weakest and are likely to be subject to the most scrutiny.

Although Ahold's U.S. Foodservice and U.S. Retail divisions have made some joint purchases -- especially of warehouse and transportation goods that are not for resale, like forklifts and storage equipment -- and the retail division has done some data storage for U.S. Foodservice, the two companies have maintained separate accounting functions.

Hotareck said Ahold was "very, very confident in its numbers.

"Within each [operating company] we have or own internal audit function, and we have CFOs and controllers, all of whom work to ensure that we have controls in place," he said. "They report to me. We are constantly looking at controls and ways to improve them, and at this point in time we are very comfortable with our controls and our review process."

U.S. Foodservice, which is under investigation by authorities, overbooked vendor allowances for the past two years, Ahold said.

Grize also said the retail division has enjoyed the backing of its vendors, although reports last week indicated that at least one insurer of accounts receivable had limited its coverage of certain companies that provide goods to Ahold chains.

"Our suppliers, our real estate developers and our other business partners have been unbelievably supportive," Grize said.