Ahold: Opportunities Growing

AMSTERDAM Ahold's effort to consolidate its U.S. businesses into a single entity will allow the retailer opportunities to explore new store formats, put a greater effort behind shopper loyalty programs and better positions it to make acquisitions in the new fiscal year, officials said last week. We're actively looking for growth opportunities where we see a strategic fit, the price is right, and we

AMSTERDAM — Ahold [4]'s effort to consolidate its U.S. businesses into a single entity will allow the retailer opportunities to explore new store formats, put a greater effort behind shopper loyalty programs and better positions it to make acquisitions in the new fiscal year, officials said last week.

“We're actively looking for growth opportunities where we see a strategic fit, the price is right, and we can integrate smoothly,” Dick Boer, chief executive officer of Ahold, said during a conference call discussing Ahold's fourth-quarter and 2010 fiscal year financial results Thursday. “Thanks to our balance sheet and strong customer rating businesses, we are in a good position to take advantage of opportunities as they arise.”

Boer declined to put a timeframe on Ahold making a purchase in the U.S. but said “we as a company believe the opportunities will arise sooner I think than has been over the past couple of years. There are things happening in the markets we are in, so we expect there could be opportunities arising now.”

Ahold posted U.S. operating income of $180 million in the fourth quarter, down 28.1% from the same period in 2009, and profit as a percent of sales of 3.8%, down from 5.2%. However, the company noted the 2010 operating income included $26 million in impairment charges, $12 million of restructuring costs and was impacted by a $10 million loss at Ukrop's. As previously announced, Ahold posted net sales of $5.6 billion in the quarter, with comparable-store sales up by 0.9% excluding gasoline.

Boer said restructuring in the U.S. during 2010, which included collapsing Ahold USA into a single entity based in Carlisle, Pa., with four geographic divisions (Stop & Shop-New England, Stop & Shop-Metro New York, Giant-Carlisle and Giant-Landover) has made the unit “much more focused” and “ready for innovation.”

“If you look back at four years ago we were certainly focusing much more on developing our brands [and] repositioning brands,” Boer said. “Now we start to benefit from the role and the position we have in our markets.”

Boer said Ahold would unveil a new “compact hypermarket” in the Czech Republic this year and has assembled a format development team in the U.S., which among other things is looking at addressing “tightness and the speed” of shopping trips.

Ahold projected capital expenditures of around $1.2 billion in the fiscal year, down from around $1.4 billion in 2010. Boer was cautious about the consumer market in 2011, noting that expected product price inflation could hit consumers hard.

“I expect 2011 to be another challenging year, particularly in the Unites States, and customers will remain cautious in their spending,” he said. “I also expect inflation will remain and that we will not always be able to easily pass it on to customers.”

Higher raw-material costs will force every retailer to adjust pricing, Boer added, but said the pace of those adjustments could vary. “Over the year we still believe that the total balance of passing through inflation, promotion and sales growth will be equal, so we're expecting that will equal out.”

Although Ukrop's accounted for a loss of around $50 million during 2010, Ahold is making progress on the turnaround, Boer said. The stores, converted to Giant-Carlisle's Martin's brand, contributed $458 million in sales during 2010.

“A turnaround at Ukrop's will take time, but we have already been able to better target our customers and are seeing a broadening of our customer base,” Boer said. He added he was optimistic the stores could show positive returns by the second half of the fiscal year.

Boer said Ahold would focus on six strategic areas in 2011: Improving customer loyalty; developing new store formats and technologies; growing in new markets; reducing costs; furthering “responsible retailing,” including sustainable sourcing; and investing in training and employee development.

Kimberly Ross, Ahold's chief financial officer, said the retailer would look to drive further savings in 2011.

“We have had a tremendous consolidation of systems, and actually as of this year we're operating on a single host platform of systems in the U.S. That means we'll be retiring about 20% of the systems we had in quarter one and another 20% of the systems by the end of the year,” she said. “That obviously leads to cost savings.”