ZAANDAM, Netherlands -- It hasn't always been smooth sailing for Ahold in the United States. Since arriving on these shores in 1977, the Dutch global supermarket giant, based here, has faced many hurdles in turning an ever-growing number of chains into a network of companies sharing best practices and economies of scale. A number of banners struggled for a time with customer acceptance, and executives at various chains faced the challenges of restructurings as their companies were melded into close operating relationships with others in the Ahold U.S. group.
But at a time when Ahold hopes to add to its base in this country, the company's U.S. network, which posted sales of $14.3 billion last year, appears to have turned a corner. The operation, which included 812 units at the end of the 1997 fiscal year, is on a solid course, according to interviews with executives conducted at Ahold's Netherlands headquarters. A few chains that stumbled in performance have reversed their fortunes. Ahold's U.S. operating companies, which run six chains, have reached equilibrium following major group restructurings that resulted from the 1996 Stop & Shop acquisition, executives said. There was a redivision of trading areas with the formation of these four operating companies, which meant that Edwards was melded into the Carlisle, Pa.-based Giant unit and Finast Friendly Markets into Buffalo, N.Y.-based Tops, although all four chain banners were kept intact. The other two Ahold operating companies are Stop & Shop, Quincy, Mass., and Bi-Lo, Mauldin, S.C.
"It was far from easy to merge these companies and to maintain their identities," said Robert Zwartendijk, president and chief executive officer of Ahold USA, based in Atlanta. "This has required a lot of time and attention from our managers. But in hindsight, it appears that things have turned out quite well."
The individual chains will grow at vastly different rates in coming years, with some experiencing sharp unit growth while others will hold steady to build clout in the existing market or primarily focus on remodels, Zwartendijk said.
But the quest for synergies among group members has intensified, and the activities are increasingly linking with Ahold retail operations in Latin America, Europe and Asia. Different U.S. chains are leading different projects, ranging from a variety of information-technology efforts to home-meal replacement experiments.
"We're on our way in 1998," Zwartendijk stated. "1998 will be a perfect year for us. We'll have to work very hard with Project Compete, which is focused on the economies of scale we can realize with our different companies."
The long-range plan is to layer more chains into the U.S. group and extend the Project Compete gains to more companies over a wider geography. Indeed, Ahold is now scoping the entire country for acquisition candidates in hopes of staying among the top operators in a rapidly consolidating industry.
"You need to speed up your process just to stay as one of the biggest five companies," Zwartendijk said.
From its base in the Netherlands, Ahold operates a vast network of approximately 3,300 stores with sales of $25.9 billion at the close of the latest fiscal year. The company is pursuing growth in the developing markets of Asia, Central Europe and Latin America even as it attempts to build market share in its mature home base in the Netherlands. But Ahold's U.S. pursuits continue to be all-important, and its strong grip on the east coast will be the base for any expansion efforts.
And the company's management style has been fine-tuned over the years, with Ahold still careful to avoid running its properties centrally.
"Initially, Ahold was very laissez faire in the way they did things," said Gary Vineberg, a financial analyst with Merrill Lynch, New York. "They ran these things hands off. Over time they learned that, without losing the benefits of local management who understood the markets, they could bring their own knowledge in and bring people in from other businesses who could improve things. It took Ahold a long time to get there. But Ahold understood that the right approach was to be somewhat decentralized and not to be colonial in how they did things."
Ahold expects U.S. store growth (net for closings) of about 25 units a year. That figure, of course, doesn't take into account any acquisitions the company might make.
MELDING CULTURES AND GEOGRAPHIES AT GIANT/EDWARDS The integration of Giant and Edwards into a division led by Giant was helped by common pricing philosophies: Both chains practice forms of everyday low price. But complicating the process was the diverse operating areas of the two chains, Zwartendijk pointed out. The $3.2 billion division represented 147 stores at the end of 1997.
"This includes Pennsylvania, New Jersey, and the suburbs of New York and Long Island," he said. "It's a vast area, with different consumer groups."
In essence, there were four cultures being brought together: Giant, Edwards, and stores formerly operated under the Mayfair Super Markets and Mel's Foodtown banners. The Mel's stores, on Long Island, were transferred to Edwards from the Stop Shop division, which in turn picked up 28 Edwards stores in New England and New York.
Adding to the complexity of the Giant/Edwards organization, parts of the operating areas are unionized and other aren't.
Proving most thorny have been the former Mel's stores now operating under the Edwards banner. "That one didn't happen as we wanted and is behind schedule, but now we're controlling the situation," Zwartendijk said.
At issue were the complications in fine-tuning the assortment for the heavily Jewish customer base, he said.
"We need the right mix and promotions, and it's different than the rest of the Edwards chain," he said. "It's more specific; there are more holidays."
Ahold is bullish about expanding the number of Giant and Edwards stores because the operating areas are densely populated.
"We'd like autonomous [organic] growth and fill-in acquisitions, if there are smaller companies like Mel's available," Zwartendijk said. "We'd like to expand on Long Island and in the boroughs of New York, but it's difficult to find locations."
MARKETING TAKES CENTER STAGE AT TOPS/FINAST The other big integration of 1997 involved the melding of Tops and Finast into a division led by Tops. There were 218 locations in this group at the close of 1997, representing sales of $2.8 billion.
"There we [had] some rough spots, but in the fourth quarter it appeared we could control the problems, which appear to be behind us now," he said.
The turnaround was boosted by a rethinking of the marketing approach to Finast. "We weren't very satisfied with developments in Cleveland at Finast for some time," Zwartendijk admitted. "We didn't have the right solution of how to approach the Cleveland customer in a number of areas. Now we feel more satisfied."
The improvements resulted from listening to the customers. Asked to cite examples, Zwartendijk said: "We had too much in our print ads. So we changed that. We also changed the dates of ads to be more suitable.
"We made improvements in perishables. We changed a number of things about private label, such as the packaging. And we introduced Tops brand private label products, which went well. It's a good label and product."
Will the introduction of the Tops label mean that the Tops banner will replace Finast in that market? Ahold transformed three Finasts into Tops, but didn't go beyond that, Zwartendijk said.
"We've decided to stick with different names because they're different customer franchises," he explained. "The Finast name is good in Cleveland, and Tops is good in Buffalo. The Tops banner doesn't mean a lot in Cleveland."
A major developoment at Tops was the appointment of Steve Odland as president and chief executive officer in January. His posting was notable because his background was focused on the supplier rather than retailer side. He was most recently president of the food-service division of Sara Lee Bakery, Chicago, and before that spent 16 years with Quaker Oats, Chicago, in a variety of executive positions.
dijk said. "But we feel confident. He's a marketing person. And in Cleveland and upstate New York, with the changing competition and new consumer attitudes, it's more important to have a marketing specialist who listens to customers."
Tops has recently introduced a number of initiatives to improve organizational culture, including Mission ExSell, a program to empower employees to act on behalf of customers, and management sounding boards, which will enable associates at all levels to relay questions and ideas.
Given all the recent changes at Tops/Finast, Ahold won't be revving up expansion plans anytime soon. "We say, 'wait a minute, slow down the growth a bit,"' Zwartendijk said. "Let's get our house in order before starting to expand again."
"We're happy with all of Stop & Shop; it's our biggest and most successful acquisition," Zwartendijk said. "It surpassed our expectations last year. It's well-integrated into the rest of Ahold USA. We'd like to encourage unit growth at Stop & Shop."
Stop & Shop operated 187 locations at the end of 1997, with sales of $5.5 billion. But its growth in the Ahold organization hasn't been without challenges. There were some initial hurdles when Stop & Shop absorbed the 28 former Edwards stores in New England and New York.
"It frustrated customers at first," Zwartendijk said. "The strategy of EDLP at Edwards is different than Stop & Shop's high-low approach. So there was a bit of adaptation. But after that, Stop & Shop came back and surpassed it, showing positive identical sales."
Zwartendijk lauded Stop & Shop for its active role in Project Compete, which is Ahold USA's effort to build strategic cooperation, economies of scale and synergies among the various chains. Stop & Shop was not only accomodating in adapting to Ahold's initiative, bit it was aggressive in suggesting improvements to the effort, he said.
Stop & Shop also finds itself in the midst of a leadership transition. Last December, William Grize, who was president and chief operating officer, added the title of chief executive officer. He succeeded Robert Tobin, who continues as chairman.
"Bill Grize is now the man in charge at Stop & Shop," Zwartendijk said, noting that Tobin's activities will be gradually diminished at that company. "Bob will be doing different activities for Ahold," Zwartendijk noted. "He'll be visible within Ahold for some time."
Tobin was instrumental in the integration of Tops and Finast. He served as interim CEO of Tops until the appointment of Odland. Tobin also has been serving as mentor to Ahold's Brazilian joint venture partner Bompreco, which is the leading food retailer in northeast Brazil.
BI-LO REALIGNS STRATEGIES WITH CUSTOMERS One of Ahold's comeback chains last year was Bi-Lo, which was behind schedule in 1996, Zwartendijk said.
"But 1997 was a top year for Bi-Lo, and that's due to its Vision 2000 program, to the motivating of the organization and to the chain's bonus card," he said.
Bi-Lo's Vision 2000 program was launched to align the company's marketing strategies more with customer wishes. The new initiatives range from progress on category management to the creation of a store managers marketing council, which will advise on matters including how corporate objectives can best be presented to customers.
Bi-Lo's bonus card has chalked up successes for the chain, and is considered a model for the rest of Ahold, Zwartendijk said. In fact, when Ahold's Netherlands chain, Albert Heijn, launched its bonus program this year, the initiative was based on Bi-Lo's experiences.
The Bi-Lo card removes the need for coupon clipping and offers rebates and rewards to frequent shoppers who reach spending thresholds. The card has helped jump-start sales and now represents over 80% of transactions.
Among other Ahold U.S. chains, Stop & Shop and Finast also have bonus-card programs, while Tops and Giant are considering the adoption of such initiatives.
The strategy for square-footage expansion at Bi-Lo is focused on remodels, and for now, unit growth isn't being emphasized, Zwartendijk said.
"We would expand at Bi-Lo where absolutely necessary," he said. "But our policy there is to convert smaller stores into bigger ones, where we can have larger assortments. There's a lot of regional 'wood burners,' as we call them, and they can't compete with the competiton."
The chain's 50,000-square-foot prototype for urban sites has been upgraded in design, and incorporates international and gourmet assortments. A 36,000-square-foot format will continue to be the norm in rural markets.
Ahold has never made secret its intense efforts to assemble synergies throughout its operations. The company is making substantial progress in building a common, integrated information-technology system at its U.S. companies, Zwartendijk said.
Ahold USA is about 90% complete with melding the IT systems of chains integrated into new divisions last year.
Ahold USA is building "a new state-of-the-art IT system" as part of Project Compete, which includes efforts in category management, purchasing, bonus cards and many other areas. "IT is at the core of Project Compete," he said.
"A lot of Project Compete goes through our Atlanta headquarters," he pointed out, but the process isn't dictatorial. Approval for IT projects is needed from the CEOs of the individual chains.
Project Compete gains no longer depend on Ahold's chains being located adjacent to one another. That reality wil fuel Ahold's expansion strategy of seeking acquisitions across the United States. "It used to be we had to meet eye to eye," said Zwartendijk, referring to Ahold's concentration on the east coast. "Now we can use computers and videoconferencing and speak in one IT language across wider areas."
The creation of new and integrated systems doesn't come without hurdles. "There are some old legacy systems you can't throw away immediately," he said. "And you must convert some of those systems to make them millenium-proof."
Zwartendijk said category management is a prime area of systems focus. "We're working on one category-management system for all the companies," he noted. "We must get all product and price and cost definitions aligned. We're pretty far ahead already."
Information technology played a big role in the success of Bi-Lo's bonus-card program. "We had to develop our own IT and test it, and it was very successful," Zwartendijk said. "Bi-Lo and Stop & Shop are on similar systems. Finast isn't on the exact software system and will need some changing."
Zwartendijk is closely watching an electronic shelf label program being launched at Giant, and he considers it a success -- so far. He said a big question involves the levels of cost savings that can be reaped.
"If you don't have to price items anymore, it brings in big savings," he explained. "The question is, 'if you don't have that savings anymore, is it still successful?' So the jury's still out on that."
Cees van der Hoeven, president and chief executive officer of Ahold, said various projects now under way will end up boosting the entire organization.
"The area of information technology is proving to be a big one for synergies," he said. "So, in the United States, category management is a big concentration for us, while in the Netherlands we're researching an on-line system for item movement, which will tell where every product is in the supply chain. So, at some point, efforts in one part of the world will benefit Ahold companies in other regions."
Ahold's strides toward developing best practices extend solidly into the merchandising arena, with various chains taking leads for numerous projects. For instance, Zwartendijk said Stop & Shop is leading a test of home-meal replacement, while the regional head office in Atlanta will soon pick one of the other divisions for another HMR test.
Zwartendijk failed to provide many specifics of Ahold's HMR tests, but he stressed that the company is experimenting at a time when the whole category is still undefined. "My opinion on HMR is that there's a lot of talk, but no real solutions as of yet," Zwartendijk said.
The company has developed a broad direction for its meal programs. "I believe in chilled, prepackaged foods -- fresh, with a shelf life of maybe a couple of days," he said. "I think that's going to be the future; that's also what we're doing in Holland at the Albert Heijn chain. We're having a lot of success with it there. So that's where it's going to go."
This direction de-emphasizes hot meals prepared in the store. "These become cold by the time they're taken home, and then they have to be heated up anyway. So you lose a lot of quality. So I don't have a lot of faith in that."
As Ahold pursues its chilled-meals tests, it faces a number of tough questions. "You have all kinds of different avenues. Are you going to build your own commissary? That's one solution. Are you going to partner with outside professionals? That's another alternative. But then how do you steer the process. So we're looking at all these different options."
So far, Ahold has been working with suppliers for its efforts, but the company is considering other formulas as well, he noted.
Supermarkets industrywide have been waking up to market-share challenges as other retail formats get more aggressive in foods and nonfoods. Ahold has decided to go on the offensive, and nonfoods is a key area, according to Zwartendijk.
"We want to compete against the supercenters," he said. "They're attacking us by putting food in their stores, and we're trying to defend ourselves by pursuing more perishables, which is what all supermarket companies are doing.
"But why don't we attack in nonfoods? That's what we should be doing. We're looking at ways and means to do that. And our global network helps; sourcing, product ideas, experience in other countries, common buying and best practices in merchandising."
"I believe it will be a growth category for Ahold U.S.," he said. "At the moment, Stop & Shop is selling a bit more nonfoods. We have a project group looking at ways to improve nonfoods sales."
Ahold's buying abilities can improve considerably with increasing size of the organization, and private label -- in particular -- stands to benefit. "Common buying is terrifically improving our private-label efforts," Zwartendijk said.
In Ahold's European backyard, chains typically devote very high percentages of sales to private brands. The U.S. supermarket industry's experience has been more tempered, but still spectacular.
"I don't think we'll ever get to the levels of Albert Heijn, but we're growing it in the United States," he said. Ahold's U.S. private labels appear under store and proprietary names. "Private label is now about 19% overall for Ahold USA, but our chains may be anywhere from the 14% to 20% range. We'll certainly get higher than 20%. Whether it will be higher than 30% remains to be seen. I doubt it in the U.S. market."