ZAANDAM, Netherlands -- Supermarket giant Ahold here is ready to "define a different hunting ground" in the United States.
The global company, which has become dominant on the East coast of the United States with a strategy of growing in contiguous markets, is now ready to consider the entire country for acquisition purposes, Robert Zwartendijk, president and chief executive officer of Ahold USA, said here last week. And with the U.S. industry consolidating fast, Ahold would like to make a deal soon.
"We've always looked at the East coast because we wanted to realize synergies," Zwartendijk said during a press conference at Ahold's corporate headquarters. "Now we have to define a different hunting ground. So we'll have to move more to the center and the West of the country. There are very many interesting companies."
The press conference was held to announce the year-end results of Ahold, which operates food retail companies in the United States, Europe, Latin America and Asia. The company, which previously said 1997 U.S. sales advanced 27% to $14.3 billion, reported that U.S. operating profit increased 62% and Ahold's corporate net earnings rose 32.3% (in U.S. dollars) in the 1997 fiscal year ended Dec. 28.
Ahold USA, which currently operates 830 stores and is based in Atlanta, consists of Bi-Lo, Mauldin, S.C.; Giant Food Stores, Carlisle, Pa. (including Edwards Super Food Stores); Stop & Shop Cos., Quincy, Mass.; and Tops Markets, Buffalo, N.Y. (including Finast Friendly Markets, Maple Heights, Ohio).
In an interview with SN conducted here, Zwartendijk discussed Ahold USA's stance on three types of potential deals.
"First we look for small fill-in acquisitions [companies with volume] of about $300 million to $2 billion," he said. "But our ideal acquisition would be from about $3 billion to $6 billion. There are about 15 to 16 of those companies we would look at in the U.S.," which is a larger number than before because of the wider area Ahold is considering, he said.
Asked if Ahold would consider buying a U.S. supermarket company in the Top Five in terms of volume, Zwartendijk said that time hasn't approached yet.
"Someone asked, 'Why don't we look at the Top Five and buy someone with $15 billion sales?' Well, we've been dreaming about that for some time. Two years ago we would have thought that might have been out of our reach. Now the dream maybe becomes a bit nearer, but we haven't gone into that league seriously yet."
Ahold feels most comfortable about the $3 billion- to $6 billion-size companies because Stop & Shop's volume falls at the higher end of that range, he said.
"When we did that acquisition two years ago, we kept our fingers crossed behind our backs because that was a big acquisition, and at that time it was the biggest one a Dutch company ever made outside Holland," he said. "That's a lot of money. But now, having absorbed it, we're very happy about it. So if we can do something of that kind again, we'd be very comfortable with it."
Zwartendijk said there is a limited window of opportunity as the U.S. supermarket industry consolidates. He cited the case of Fred Meyer Inc., Portland, Ore., which shot high up on the list of top companies with the acquisitions of Quality Food Centers, Bellevue, Wash., and Ralphs Grocery Co., Compton, Calif., which closed last week.
"Consolidation in the U.S. is taking off now," he said. "On the West coast, companies are consolidating. The big companies are getting bigger. There's a concern that some things may be taken if a company doesn't act. You need to speed up your process just to stay as one of the biggest five companies."
But Ahold will not have its hand forced simply because of consolidation pressures, he stressed.
"I'd like to make an acquisition this year, but if we can't do it right now, it'll be next year," he said, noting that Ahold must have the right conditions before moving ahead on a deal.
Zwartendijk said Ahold is looking for deals in the densely populated markets, and was asked during the press conference if San Francisco or Los Angeles are prime candidates.
"There's a surplus of stores in those areas, so they aren't on our short list," he said.
Asked if Texas is a consideration, Zwartendijk said H.E. Butt Grocery Co., based in San Antonio, is a formidable player to go up against as a competitor. "So the dream would be to buy H.E. Butt, but H.E. Butt isn't for sale, so that takes care of that problem. That takes care of Texas as far as I'm concerned."
Cees van der Hooven, Ahold president and chief executive officer, said the company's acquisition of Stop & Shop has been a big success.
"We are especially pleased with this acquisition," he said. "Stop & Shop has not only proved capable of contributing excellent results of their own, but it has also taken on the function of 'booster' for the whole of Ahold USA," he said.
"Stop & Shop's contributions to the synergies among our existing supermarket chains and its contributions as coach and mentor to Bompreco in Brazil are more than excellent and clearly add an extra dimension to our activities."
Stop & Shop's work with Bompreco, which is co-owned by Ahold, is typical of Ahold's operating philosophy, in which companies serve as mentors to others in the group.
Ahold said 1997 operating results in the United States totaled $574.2 million, compared with $354.2 million the year before. The advance was largely influenced by the full-year consolidation of Stop & Shop, the company said. Higher operating results at Bi-Lo and Stop & Shop also contributed significantly to the increase. Giant Food Stores (including Edwards) also posted higher operating results. Tops (including Finast) reported lower results vs. 1996, primarily due to the integration of Finast into Tops.
In the fourth quarter, U.S. operating results increased 15% to $149.2 million compared with $130 million in the year-ago period. Stop & Shop and Giant posted significantly higher operating results. Bi-Lo's operating results virtually matched the comparable period. The operating figures at Tops were lower compared with the 1996 fourth quarter. Ahold USA's fourth-quarter sales advanced 5% to $3.4 billion from $3.2 billion.
Ahold's companywide net earnings grew 32.3% for 1997 to $478.9 million from $362 million. Sales advanced 23.9% to $25.9 billion from $20.9 billion.
The sharp growth in fiscal year corporate net earnings was primarily attributed to the full-year consolidation of Stop & Shop and to better results elsewhere in the United States and to results in the Netherlands, Portugal and Brazil.
Ahold said it plans to issue 30 million new common shares. The proceeds of the global offering will be used to refinance the recent acquisition of a 50% interest in Argentine supermarket company Disco International N.V., and to finance future small- and medium-sized acquisitions to contribute to Ahold's worldwide growth.
Qtr Ended 12/28/97 12/29/96
Sales $6.5 billion $5.7 billion
Change + 14%
Net Income $144.8 million $123.6 million
Change + 17%
52 Weeks 1997 1996
Sales $25.9 billion $20.9 billion
Change + 23.9%
Net Income $478.9 million $362 million
Change + 32.3%
NOTE: Figures are for Ahold corporate in U.S. dollars. The 1997 figures are at the exchange rate of 1.95 Dutch guilders to the dollar. The 1996 exchange rate was 1.75 guilders to the dollar.