Skip navigation

A HOLD ON THE FUTURE

NEW YORK -- As 1996 draws to a close, it seems increasingly clear that Ahold -- one of the world's few global food retailers -- has set an expansion pace and breadth that are without peer. Quincy, Mass., giving it a sixth U.S. chain. The transaction closed in July. The big Stop & Shop operation was added to Ahold's existing portfolio of food retailing that is winning it a major position in the eastern

NEW YORK -- As 1996 draws to a close, it seems increasingly clear that Ahold -- one of the world's few global food retailers -- has set an expansion pace and breadth that are without peer.

Quincy, Mass., giving it a sixth U.S. chain. The transaction closed in July. The big Stop & Shop operation was added to Ahold's existing portfolio of food retailing that is winning it a major position in the eastern part of the United States.

At the same time, though, Ahold's challenge is to make sure that its rapidly expanding U.S. holdings don't exist in total isolation and that an exchange of information -- both in person and electronically -- can foster the transfer of good ideas.

Indeed, the complexity of its holdings in North America are such that in September, the operator realigned its operating companies, which fall under its Ahold USA subsidiary, based in Atlanta, into four divisions: Giant Food Stores, Carlisle, Pa.; Tops Markets, Buffalo, N.Y.; Bi-Lo, Mauldin, S.C.; and Stop & Shop. Edwards Super Food Stores, Windsor Locks, Conn., was merged into Giant and Stop & Shop; Finast, Cleveland, was folded into Tops.

Worldwide, Ahold is a $24 billion food retailer with, in addition to its U.S. holdings, long-standing operations in the Netherlands, Portugal, the Czech Republic and Poland. Augmenting those operations, in October Ahold entered joint ventures in Spain and China, and unveiled the Tops banner as its Southeast Asia supermarket format, opening stores in Malaysia and reporting that it plans to do so later on in Indonesia, Thailand and Singapore.

Last month, Ahold entered a joint venture in Brazil, and earlier this month it launched a discount food-store format under the BILO name in Malaysia.

What's next for Ahold and in what directions can a company as far flung as this one look for future growth? To find out, Ahold executives participated in a wide-ranging interview conducted here by SN editors.

Ahold participants in the interview were Cees van der Hoeven, Ahold president and chief executive officer; Robert Zwartendijk, Ahold USA president and chief executive officer; and Hans Gobes, Ahold senior vice president of communications.

Here is an edited version of that interview in which the executives describe what's next for Ahold, and many of the reasons behind expansion strategies that have largely played out.

SN: Could you give an assessment of where you see each of Ahold's U.S. divisions going?

Robert Zwartendijk: We face a number of challenges with the mergers we have arranged. With Finast and Tops, they're adjacent geographically. But Finast has its own distribution center, Tops has its own distribution center, they both still have their own MIS systems. So we first have to merge MIS systems so we speak a common language, and then see what we're going to do with those two distribution centers. Are we going to keep them separate, with fast and slow on the whole assortment, or are we going to make a consolidated picture? So we are looking at that, which will be quite a challenge.

At the same time, we're looking at the headquarters. We had a headquarters in Cleveland [for Finast] and we had one in Buffalo [for Tops].

Since Tops' Buffalo headquarters has taken over, that will be the main office [for the division], and there will be a regional office in Cleveland. So you're looking at evaluating all the people we will need to run the Tops [division]. A number of them will be going to Buffalo, and a small staff will stay in Cleveland. We are going through this as we speak, and I think that will all be finished in the next month or so. By that time, we also will have the systems merged.

And we will also have a clearer picture of what we're going to do with the stores themselves. Finast has a good name down [in Ohio], but in putting the American companies together we would also like to see some economies of scale in the stores. Again, we are doing extensive customer research in our stores to see what they like, what they would have a problem with, what kinds of benefits we could offer them from Tops, etc. So we will gradually track a new picture of what those stores are going to be like in the next couple of months.

SN: Including evaluation of the Finast name itself?

Zwartendijk: Including the Finast name itself. In Ohio, we do think the Finast name has a lot of positive connotations. We also had Finast in Connecticut, which was converted into Edwards. I'm not so sure we'll have to do that [with Finast and Tops]. But that also depends on the consumer research to see what changes we need to make in the stores and how [customers] look at Finast at this moment. Will there be an advantage in making any kind of a change? It's the consumer who decides.

SN: Is there some consideration about calling it Tops?

Zwartendijk: Might be. It's certainly one of the scenarios we'll be looking at.

SN: Is there a possibility that the Edwards name might be dropped, since it's been merged into the Giant and Stop & Shop divisions?

Zwartendijk: I don't think we will do that. The Edwards name in Long Island [N.Y.] and New Jersey has already been established -- in New Jersey not so long -- but on the Island and in the boroughs of New York, we have had Edwards now for three or four years. It is a very good name and has a very good reputation. And if that is so, we don't really see a lot of reason to change it into Giant because [the chains] just happen to be in one company.

For that matter, Giant, which is in Pennsylvania, also operates with two names -- Giant and Martin's -- because we own the Giant name in Pennsylvania but not in Maryland. So our stores in Maryland have the Martin's name.

So it very much depends on how the customer looks at it. If it's favorable, you keep it. If it's unfavorable, you may have to do a lot of changes in the stores, and then we would also consider changing the name.

SN: So, at the moment, Edwards is favorable?

Zwartendijk: Edwards is a very, very good name in the areas where it operates.

SN: What about consolidation of private labels? Edwards stores, for example, carry Finast private-label items. Would private label be an area of consolidation across Ahold USA chains?

Zwartendijk: In private label, of course, we are looking at economies of scale, but to keep the name of the company on the private label we think is a marketing advantage.

The next step is to look at technical specifications. For instance, if the technical specifications of a jar are identical for the different companies and the only thing you need is to change the label, then economies of scale of 95% have been obtained.

We don't want [to create] one common name or identity, because the key is the customer. The customer knows Bi-Lo, the customer knows Tops. And [chains] are fine-tuning their assortment and everything they offer to local customers. And private label is part of that.

SN: Ahold USA's chains primarily use self-distribution. Would you eventually want to go with fewer, larger distribution centers?

Zwartendijk: If you look at economies of scale, especially the network of our companies and all the different distribution centers that we have -- although some of our chains don't work with their own distribution centers, like Edwards and Giant -- there possibly would be some economies to be had if we would be able to re-organize the flow of goods on an Ahold USA base instead of a local base.

But that's very complicated, it draws from very far and it cuts deeply into the organizations. Eventually, we will look at that. It's not something that's high on the list of priorities, but I'm sure it's one of the things we'll be looking at in the time to come.

Cees van der Hoeven: But there are some immediate things that we will address. Stop & Shop has the slow-moving warehouse.

Zwartendijk: And, of course, we have [facilities in] Cleveland and Buffalo. That's to be addressed immediately. In Buffalo, we also have American Sales Corp. for all of Ahold USA in HBC and general merchandise; it's very centralized. Stop & Shop also has a slow-moving warehouse, HBC and general merchandise, in Boston, and obviously we will be looking for synergies between those two facilities.

So in some parts of the distribution pattern, we will be looking [for synergies] earlier. But the big scheme of Ahold USA will take some time.

SN: What about the possibility of doing more outsourcing with another wholesaler? Will that be strongly considered?

Zwartendijk: We are looking at that; Giant and Edwards are now with an outside wholesaler. We've addressed that question every three or four years when the contract runs out. And every time we have come to the conclusion that we should continue it.

There are advantages and disadvantages. The big advantage is that the attention of [Ahold USA], which does not [focus] on local distribution, is concentrated on the customer.

Van der Hoeven: We're happy with the fact that we have two options.

Zwartendijk: Therefore, it's good to play off those two against each other. Giant is with Richfood [Richmond, Va.], and Edwards is with C&S [Wholesale Grocers, Brattleboro, Vt.].

If you look at all of Ahold USA, if you would add that part [outside wholesalers] to it or leave it out, the equation again becomes different. It is a moving target; it's going to change. When we get our MIS structure together, we'll look at it with different eyes than we're looking at it today.

Soft Results

SN: Bi-Lo has seen some soft results. What's the outlook for that chain?

Zwartendijk: The people at Bi-Lo have come a long way in the last year or so. They have activated the whole company. They have brought something that we call 'Vision 2000,' and along that there are a lot of initiatives that focus the company, again, on the customer.

Vision 2000 is a total customer approach. It goes back to operations, remodeling stores to include departments, to customer service and distribution, such as [reducing] the number of lines in the stores.

Van der Hoeven: This so-called softness is long gone. We have reported positive same-store sales for more than half a year already, very substantial numbers. So it's really history.

And it isn't a big deal either, because we clearly had said there was a temporary softness in our operations since we were facing new formats we had to adjust to. Well, that's exactly what [Bi-Lo] has done, and they've done it effectively. And I think at this point we have our highest Ahold USA same-store sales numbers in Bi-Lo. [Bi-Lo reported a 4.2% same-store gain in the third quarter ended Oct. 6.]

Growing in North America

SN: Do you have an ultimate strategy for the United States, perhaps to blanket the East Coast from top to bottom?

Zwartendijk: Blanket is not the word. We are looking at it from a more strategic point of view. You see a lot of consolidation taking place in the industry. Eventually, we will have a number of very large players and a number of smaller niche operators, and the area in between is going to gradually disappear.

We want to be one of those large players. Now how large do you have to be? We thought something around the $15 billion mark would be a comfortable size -- we have $14 billion now -- so we are among the four or five biggest [supermarket operators] in the United States. But the [industry] consolidation will go on, so we will have to continue building our size to compete with the large companies.

So we would be looking for additional acquisitions in the East. Why the East? That makes sense from a synergy point of view. We would stick to the East -- let's say, up to east of Chicago -- and we have some ideas about some target companies that we would like to add to our Ahold USA family. And if you're going to ask who those companies are, of course we won't tell you.

Van der Hoeven: As long as we can add value, we will continue to grow and acquire. We have found that with the Stop & Shop merger, we will be able to create substantial shareholder value, but also we are convinced that in the end we will add customer value.

We feel very confident that we are presently in a position that we will be able to add substantial value to other regional chains in the United States that would join our family. We would add value to our shareholders, their shareholders and to the customer base. So as long as that continues, we will continue to grow in the United States, because the shareholders will make money available to us to do just that.

Zwartendijk: And it's not only the value we can add to a newcomer, but also vice versa. For instance, Stop & Shop has a lot to offer our other companies in Ahold USA. So it's a win-win situation. Their management stays the same, and we add on top a layer of know-how that can improve their situation and, therefore, improve Ahold USA.

SN: As for other parts of North America, do you see growth potential in Mexico? Van der Hoeven: There are a lot of growth opportunities in Mexico. We have done research on Mexico, so it is in focus. But it's like Italy. We'd like to go into Italy, but if the players we want to deal with are not ready for it, then we'll just have to wait.

Zwartendijk: We know most of the players in Mexico and have talked to them. We've also been looking at the economic changes in Mexico, which makes us a bit more careful. But that all comes into play: the economics, the players and our alternatives. Eventually, I think we'll end up there.

Basic Global Goals

SN: Can you explain Ahold's goals and its strategy for international expansion?

Van der Hoeven: Our strategy has been very consistent over the years. We feel we're on our way to becoming the No. 1 global supermarket company in the world. That's still our mission, and we think we will reach that goal in the coming years.

SN: What is the scope of Ahold's global growth?

Van der Hoeven: We have a mission to be on the major continents of the world and be globally spread. That doesn't mean we will be in every country, but we will be represented in a major way in the United States, Europe, Asia and Latin America.

This is a trend that's unavoidable in our business -- consolidation and globalization -- and, long term, there will be substantial advantages of being represented in many parts of the world.

As far as we're concerned, the world is split into two: the mature markets -- northwestern Europe and North America -- and the developing markets, particularly Asia, Latin America, central Europe and southern Europe.

It's clear that in those markets -- particularly in Asia -- the supermarket segment is still poised for substantial growth. I think approximately half of the people in the world don't know what a supermarket is; they've never seen one. So you could argue that it's a young industry in those parts of the world.

In the mature markets, we are basically only interested in building our position further in the United States -- substantially building our position in the United States -- and ensuring very good and defensible returns from our home country, Holland. We have no particular interest in going into other mature markets like Germany, France, Canada or the United Kingdom because we feel that there are much more interesting parts that we could enter that offer greater promise.

We are focusing on developing our business further in southern Europe. We recently announced a joint venture in Spain, and we are already big in Portugal. We continue to be interested in Italy but don't have anything there right now. We are building our business further in the Czech Republic and are now the market leader there, and we are really developing our business in Poland.

At the same time, we are quickly starting to build a position in Asia. It's not much yet, though our acquisition in Thailand, which has not yet been closed, will put us in the No. 1 position in a joint venture in Thailand. When you look at Indonesia, China and Malaysia, it's essentially building business from scratch because there isn't much in the way of acquisitions that exist in those countries. But wherever there is a possibility, we would pursue that. We are presently involved in some discussions for some smaller acquisitions in Asia and also in central Europe, in Poland and the Czech Republic.

Latin America is a jump-start for us, with Bompreco [in Brazil]. It's the best-known supermarket company in Latin America and, arguably, the best-performing supermarket group in Latin America. It's a happy marriage; the cultures are very compatible. And there are substantial growth opportunities in Brazil. Northeastern Brazil is less developed than the southeast -- Sao Paulo and Rio de Janeiro -- but in the last two years had better growth than the rest of Brazil. So it clearly is an area that has a lot of promise.

SN: How has Ahold guided its global expansion? Have certain areas been targeted for growth, or has growth been more opportunistic?

Van der Hoeven: We are coming from a situation where we were more opportunistic -- say, 10 years ago -- to a situation now where we are much more systematic in our approach.

What we do is start with very extensive market research, first on a macro basis and then on a business basis, [that is] how does the food retail business look in a particular country, what are the opportunities and challenges, who are the competitors. Then we do some basic customer research before we decide on progressing further into a country.

Once we have a good grasp of what's going on and after we've looked at the competitors, we start to develop our contacts. And we do that pretty systematically, too. All of the members of [Ahold's] executive board play a role in establishing those contacts, and we communicate very much among ourselves about who talked to who, are they in CIES or FMI or whatever, who are they talking to, what is their point of view, etc. And this is how you create opportunities. Once we are actually talking with potential partners, then we do further customer research to understand what is necessary to get into those markets. That's essentially our approach.

Zwartendijk: In the past, we waited until something was for sale and somebody came to us and asked if we would be interested. Now we don't wait until something is for sale; we determine what makes sense to add to our company and find targets. If it takes one year or three years, it doesn't matter so much.

SN: So once you've identified a target market, you'll do the necessary research and then will look for what's available?

Zwartendijk: We talk to the players and discuss what their long-term strategic alternatives are and explain what Ahold can offer in that context.

And we have a very compelling story to tell because we do not amalgamate companies and then change them to our format and name. We leave them with their own identities and management -- that's one of the criteria, we are looking for strong management -- and they can run their own company, and we'll add tools and strengths to further their goals.

SN: What led Ahold to go with the Tops banner in Southeast Asia?

Van der Hoeven: Very expensive research. There are substantial advantages to going into an area like that under one name. But it's much easier to go in under different names.

In the case of establishing the Tops name, we were determined to get the advantages of going in with one format, private label and so on. We have done extensive research in China, Malaysia, Indonesia, Thailand, etc., of various names that we could use. And, obviously, a priority for us was to find out if an American name could work because it would make private-label sourcing and so on much easier. So customers were exposed to all different names, and Tops came out on top.

Hans Gobes: The banner appears both ways: the American lettering at the same time with the translation in Mandarin, Malai or into the Indonesian language. You will see the English name 'Tops' and also in the stores the Tops name in the local language.

Tailoring Store Formats

SN: How do you determine the store format for different countries? Is it similar across different countries?

Van der Hoeven: The format will be different in different countries. How do we determine that? That's done on the basis of customer research in each country. So we work from the customer on up to see what it is that customers are looking for in each of those countries. The first two [Tops units] are up and running in Malaysia. They're doing very well. But there are always hundreds of things that you have to fine-tune and change.

One exotic example is that Asian customers like to buy fish live. So you have to offer them a basin from which they can choose the live fish themselves. Frozen fish is not as attractive to them, but we feel that will change over time. But you cannot force the customer to adapt to different habits that aren't there yet. We're also trying to make customers feel more comfortable in our supermarkets in that we are creating a bit of a 'wet market' atmosphere. A wet market is where they buy the perishables, etc.

So while we were offering more consistent quality and better prices, we still had to create the kind of atmosphere where customers could touch everything before they buy it. That's the way it works in Asia. Whether that has been the right point of view, we will see -- because most of our competitors are actually building American-type supermarkets.

Our ambition is to attract middle- to high-income customers, not only the top 10%. So we have to make inroads into the middle classes, in Shanghai, [China], Kuala Lumpur, [Malaysia] and Jakarta [Indonesia].

Zwartendijk: Regarding formats, in most of those countries we start from scratch because there is not anything to start with; there are no large retailers. But in certain areas, we do find pockets of smaller [retailers] -- maybe five or 10 small chains. So we buy those and convert them into Tops stores, which gives us a flying start. So there's some adaptation to what we find locally.

After a number of years, the Tops format will be recognized as a supermarket format -- an Asian supermarket format. The [concept] will be the same, but how you fill it in locally may be different a little bit. It still stands for quality, freshness, local products, low-priced groceries, etc.