NEW YORK -- Saying that difficulties in the Giant-Landover division have been worse than its parent company anticipated, recovery will take longer than expected, an Ahold official said at the Goldman Sachs Global Retailing Conference here.
"We've lost some momentum in Landover. We had higher hopes than actually came out [in the second quarter]," said Henk Jen ten Brinke, Ahold's vice president of investor relations. Giant has been affected by "under investment" in the wake of financial difficulties by Ahold and the resulting integration with Ahold's Stop & Shop division.
Giant's store base averages around 9 years old -- "way too old in a market as competitive as the [Washington, D.C.] market is," ten Brinke noted. "We've lost ground to the competition."
He said Ahold would step up its plans to remodel, relocate and build new stores in the area, but that rejuvenation of Giant would take "three or four years," which is longer than Ahold officials initially anticipated.
The company said that 18 stores would be remodeled or replaced over the next two years. Some stores will be temporarily closed to accommodate the renovations, but the company said it had no current plans to permanently close any Giant stores.
Store closures may take place as Ahold works to reverse disappointing sales at its Buffalo, N.Y.-based Tops division. Ahold last month announced the closure of 31 Tops stores in central New York. "We are currently deciding what's in and what's out for Tops," ten Brinke said. "Tops will be a smaller but more profitable company going forward."
Elsewhere in Ahold's U.S. portfolio, ten Brinke noted Giant's sister chain Stop & Shop is responding to "irrational" price competition it experienced in Massachusetts and Connecticut during the second quarter.
"There were all sorts of stacking of promotion over promotion over promotion," he said. "It affected us on the top line and the bottom line, and was not something we had anticipated."
He declined to provide detail of how Stop & Shop would meet the pricing challenge, but said, "We will tackle this in a rational way."
Stop & Shop stores are performing strongly in metro New York, ten Brinke noted, and the Pennsylvania-based Giant-Carlisle division is also generating strong growth. "Giant-Carlisle understands the customer better than the competition, and it proves every day we can compete successfully with discounters," he said.
Ten Brinke said Ahold was unlikely to acquire Albertsons' Acme or Shaw's stores if they are sold, saying an acquisition of $2 billion or more was "quite a lot," and likely to be unpopular with shareholders. He also said with market shares in some U.S. markets near 30%, Ahold would likely encounter antitrust concerns. "We would be interested in acquisition opportunities, but more on a store-by-store basis," he said.
Ahold is focused on returning its scandal-ridden U.S. Foodservice division back to profitability, with goals to achieve a 1.7% operating margin on track for 2006. Ten Brinke said Ahold will have further details on U.S. Foodservice later this year, but added, "The least I can say is that we are pretty confident that value can be added by keeping U.S. Foodservice within Ahold."
The company still faces a class-action lawsuit related to the USF accounting scandal, as well as investigations by the U.S. Department of Justice and the Dutch Enterprise Chamber, but ten Brinke said the recent decision by the Securities and Exchange Commission not to discipline or fine Ahold was "the best possible outcome" of that investigation. The U.S. Justice Department probe is focused on individuals and not the company, he said, and the worst-case scenario of the Dutch case is "a slap on the wrist." The class-action suit is still in the preparation stages, he added.
