Ahold: 35 Years of Trials and Triumphs

“We buy companies to run them, not to sell them off.” — Pierre Everaert, chairman of Ahold USA when the company bought  First National Supermarkets, operators of the Finast and Edwards banners, in 1988

For the first 90 years of its existence, Ahold [2] was content to do business in its Netherlands birthplace, where it ran hundreds of stores named for its founder, Albert Heijn.

But by the late 1970s, having created the leading chain at home but struggling to grow amid a stagnant population and a barrage of new hypermarkets created by internationally minded competitors, Ahold too looked to go global. In 1976, it built some stores near Madrid, Spain, under the Cada Dia banner. And in the spring of 1977, it invested around $60 million to buy all the shares of a small publicly traded discount chain in South Carolina, Bi-Lo [3].

Bi-Lo at the time was relatively obscure but growing quickly with deep-discount stores in the Carolinas and Georgia. Its aggressive growth profile and experienced management — and likely, a cheap stock relative to industry peers — attracted Ahold. In exchange, Ahold provided the financial backing that allowed both entities to grow.

Ahold [9]’s entry to the U.S. was not unprecedented, as it came amid a wave of foreign retailers looking to America for growth (and for many, a safe place to invest what might otherwise be subject to high taxes at home). By the late 1970s, Belgium’s Delhaize Group [10] was already buying stock of Food Town (soon to be Food Lion), Germany’s Tengelmann Group was buying A&P [11] and the French retailer Promodes had eyes on Red Food Stores, Chattanooga, Tenn. What was surprising about Ahold was how quietly it arrived.

“We approached them,” Albert Heijn, the grandson and namesake of Ahold’s founder, told SN in a 1980 interview about the Bi-Lo purchase. “They had no idea they wanted to sell.”

Heijn, who died in 2011, in the same interview outlined Ahold’s intentions in its new country. He said it sought “sound companies with good management,” and revealed that since the Bi-Lo acquisition, it was turning down entreaties from bankers representing struggling retailers at a rate of one a week.

Another Match

In 1981, Ahold found another match, acquiring Giant Food Stores of Carlisle, Pa., for a reported $35 million. Like Bi-Lo, Giant was ambitious and well run but in need of financial backing to feed its appetite for growth. Its chairman, Lee Javitz, at the time of the deal praised Ahold for having promised a “hands-off” approach to management that could nurture Giant’s strengths in a way that a combination with a domestic investor could not.

Ahold, Javitz said, “will permit us to operate with virtually free rein.”

Giant at the time operated 29 stores including the Martin’s banner, which its founding family acquired prior to Ahold’s arrival. Ahold today calls Carlisle its U.S. home base and the chain, bolstered by recent acquisitions in Virginia and Pennsylvania, operates nearly 200 stores.

Ahold had grown U.S. sales to more than $1 billion by 1988 when it took control of Cleveland’s First National Supermarkets, operators of the Finast and Edwards banners. The seeds of this deal were planted some time earlier when both Finast and Ahold had eyes on acquiring the same supermarket chain, but independently of one another, declined to pursue a deal. Their common philosophies led to talks between the suitors, and Ahold’s biggest deal to date, providing stores throughout New England, New York and Ohio.

For retailers, an acquisition by Ahold meant long-term backing that stood in contrast to a concurrent wave of leveraged buyouts leading to quick flips as practiced by private equity firms in the supermarket industry. “We buy companies to run them, not to sell them off,” Pierre Everaert, then the chairman of Ahold USA, told SN at the time Ahold bought First National.

But if the 1970s and 1980s were about selecting regional grocers with potential to grow organically, Ahold of the 1990s was about bold strategic strikes that consolidated its scale and power.

In 1991, Ahold acquired Buffalo, N.Y.’s Tops Markets [12] in a deal seen as a means to filling geographical gaps left behind from the Finast purchase. Similarly in 1994, Ahold bought the 55-store Red Food Markets from Promodes for $124 million, eventually folding Red into its growing Bi-Lo division. Ahold in 2001 would acquire Bruno’s Supermarkets, Birmingham, Ala., and bolt that onto Bi-Lo as well.

The Finast deal also gave Ahold a foothold in the Northeast, but its power there would be truly unleashed with subsequent buys of New Jersey’s Mayfair Foodtown and Long Island’s Melmarkets in 1995; and Stop & Shop in 1996.

Major Deals

Stop & Shop, acquired from private investors Kohlberg, Kravis & Roberts for $2.9 billion, was Ahold’s largest U.S. purchase, and provided the company with a dominant brand throughout the Northeast. Stop & Shop also provided a deep bench of industry talent, which Ahold would deploy throughout the organization, including future Ahold USA leaders Bob Tobin and Bill Grize.

In 1998, Ahold announced a $2.6 billion takeover of Giant-Landover, a dominant chain in the Baltimore-Washington region.

Ahold’s U.S. supermarket buying spree reached a peak in 1999, when it announced plans to acquire New Jersey’s Pathmark for $1.75 billion. However, the chain abruptly called the deal off late that year, citing divestment pressure from the Federal Trade Commission that company officials maintained made the deal untenable. Ahold instead made a fateful choice to diversify, making a $3.6 billion deal for U.S. Foodservice in 2000.

Ahold by the 2000s had grown to the fifth largest U.S. supermarket retailer, with sales approaching $20 billion, but it wasn’t all smooth sailing.

Dividing acquired stores between various banners and operating companies resulted in slow consumer acceptance, and some markets needed more attention than others. Uncertainty around the deal for Pathmark — which officials said would likely have become Ahold’s dominant New York metro brand rather than Stop & Shop — complicated growth there. And benefiting from economies of scale that its size offered required Ahold to dial back some from its previous decentralization efforts and merge cultures of companies that weren’t necessarily snug fits. When the economy stalled in 2001, sales slowed or decreased at several divisions.

Scandal Erupts

At U.S. Foodservice, senior leaders reacted to the slowdown by pressuring buyers to order additional inventories in order to recognize manufacturer rebates that came with them as income. The scheme, which allowed managers to achieve sales bonuses that would not have been possible otherwise, was sniffed out by Ahold’s auditors in 2003. When the company finally acknowledged the scandal, its size — around $1 billion in overstated profits, mostly at U.S. Foodservice — shocked the industry and nearly bankrupted the once high-flying retailer.

Authorities launched investigations of Ahold on both sides of the Atlantic and the company braced for class-action lawsuits from investors who saw their stock lose two-thirds of its value in a single day. Cees van der Hoeven, Ahold’s chief executive officer, and Michael Meurs, its chief financial officer, resigned on the spot. Dozens of additional U.S. Foodservice executives faced charges, fines and prison sentences, and the company in 2006 settled a class-action lawsuit with federal authorities for $1.1 billion, though it avoided an admission of wrongdoing.

Though the scandal brought Ahold to its knees, it didn’t go down. The company named former Ikea CEO Anders Moberg as its new CEO and Moberg in late 2003 announced a three-year “road to recovery” strategy that contemplated selling all holdings in markets where Ahold couldn’t achieve a No. 1 or No. 2 share in an effort to shore up the financial mess left behind by the scandal.

Although the process wasn’t easy, the plan worked remarkably as drawn up. In the U.S., it meant selling Ahold’s initial investment, Bi-Lo, in addition to Tops, U.S. Foodservice and operations in numerous other countries. In the meantime the normally active retailer settled into “hunker down” mode, and chains under its watch floundered. Giant-Landover, for one, saw its share erode as better-capitalized competitors attacked its aging store base.

But their road back began during this period as well. In 2006, following a similar strategy Albert Heijn stores used in The Netherlands, Giant and Stop & Shop began a program of price investments supported in part by deals with suppliers to cull selections in favor of better buying terms. This was bolstered by a reintroduction of loyalty cards, new logos and private brands, and a promotional program known as Real Deals or Bonus Buys that helped reset the value proposition at all of Ahold’s U.S. stores. Many observers found the program — known as the Value Improvement Program or VIP — puzzling at first but the onset of the 2008 recession and new shopper emphasis on value proved the prescience of the strategy.

Back in the Game

Gradually, sales improved and Ahold returned to the U.S. acquisitions game. Only this time, its goal was to bolt onto existing banners rather than conquering new territories and taking on new brand names. Beginning with a deal for some Clemens Markets stores in 2006 that were rolled into Giant-Carlisle, Ahold has since become active in-market acquirers for its all of its banners, with deals as small as one or two stores and as large as 25 (in Richmond, Va., for Ukrop’s stores, also a Carlisle bolt-on).

In 2009, the U.S. again reorganized in a kind of hybrid of Ahold’s old and new structures. The new structure recognizes four local operating groups (Stop & Shop-New England, Stop & Shop-Metro New York, Giant-Carlisle and Giant-Landover) with a common support structure covering finance, real estate, IT, human resources, legal and supply chain. To this Ahold has layered on a global “Reshaping Retail” strategy introduced in 2011 by CEO Dick Boer [13]. This program seeks to leverage initiatives around customer loyalty, broader offerings and expanded geography, supported by cost reductions and an emphasis on corporate citizenship and employee engagement.

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