CHATTANOOGA, Tenn. -- Ahold moved last week to expand its U.S. operations with the acquisition of Red Food Stores here.
Ahold, based in Zaandam, Netherlands, said it intends to acquire the 55-store supermarket chain from Promodes, a French company, for an undisclosed amount. Promodes acquired Red Food in 1980 and operated the chain through its holding company, Pramer.
Red Food is the dominant food retailer in this market, according to local observers, and likely has more than a 60% market share. Ahold said Red Food has annual sales volume of $585 million.
The deal, which Ahold said it would finance through internal sources, is expected to close by the end of April.
Ahold operates five regional chains in the U.S. market, which combine for annual sales of $6.6 billion. Its most recent acquisition
Robert Zwartendijk, president of Ahold USA, said the acquisition of Red Food would be "a clear plus" for Ahold USA operations.
"We see new opportunities for synergy, benefiting the customer, the people and the bottom line," he said. "Red Food Stores' strong customer relationship, good community citizenship and strong management team have allowed the company to successfully maintain a large market position in a market of strong competitors."
In addition to Tops, Ahold's U.S. chains include Giant Food Stores, Carlisle, Pa.; Bi-Lo, Mauldin, S.C.; Edwards Food Stores, Windsor Locks, Conn., and Finast, Maple Heights, Ohio. The Bi-Lo chain of 185 supermarkets operates near Red Food's Tennessee base in Georgia, South Carolina and North Carolina.
James A. Bolonda, president and chief executive officer of Red Food, told SN the rapid consolidation of the food business in Europe and "the need for Red to grow as well" led to Promodes' decision to sell.
"To protect the long-term interest of Red Food Stores, it was a strategic decision to sell it," he said. "But that should not be interpreted as a withdrawal from the United States. There remains a keen interest in the United States on the part of Promodes."
Bolonda said the deal "happened very quickly," but declined to specify a time frame. He also said Promodes had not actively discussed selling Red Food to any other company.
"Ahold is the only company that Promodes has ever actively discussed any type of transaction with," he said. "In fact, when other companies have inquired, [Promodes] has always said, 'No.' "
Bolonda, who is leading the due-diligence effort, said he believes the deal is "great" for the future of Red Food.
Association with a company such as Ahold would allow Red Food to move ahead with plans to open an unspecified number of new stores.
"The strategy of Ahold USA is for rapid growth in the United States," he said. "This bodes very well for Red Food to be able to have that kind of aggressive growth strategy in terms of increasing its markets and the quality of stores it can serve its markets with."
A spokesman for Ahold, which derives about half of its sales volume in Europe and the balance in the U.S. market, said Red Food met all the criteria the company had set for a U.S. acquisition.
Red Food is profitable, well managed and has good possibilities for growth. It fits well geographically and culturally with the company's other U.S. chains. And it has a dominant position, No. 1 or 2, in its operating areas, the spokesman said.
The deal also will not change Ahold's U.S. growth strategy, he said. The company will not necessarily wait another three years to make another acquisition.
"Our growth strategy is a daily business," the spokesman said. "As our president, Cees van der Hoeven, more than once has said, 'It's not a question of the right time, but the right choice.' "
The spokesman said financial details of the transaction would be released at the time the deal closes.