It's almost becoming the norm rather than the exception -- Ahold has agreed to buy yet another supermarket chain. This time it's Pathmark Stores.
The move is typical of Ahold's boldness. Pathmark, based in New Jersey, operates mostly in that state and in downstate New York. That's the type of market capable of scaring off many potential Pathmark buyers -- apparently including Safeway, among others -- but which suits the Dutch Ahold just fine. After all, such a population density isn't too daunting to Europeans and, by the way, why not operate stores where the people are? On the upside, Pathmark has excellent locations, high-volume stores and a financial performance that's inching upward after several years (about 1991 to 1996) of disappointment. And Pathmark fits well geographically with the other Ahold companies along the Eastern Seaboard.
Moreover, Ahold probably is getting a reasonable deal given what it is paying for Pathmark. But Pathmark is bloated with debt and, in consequence, the stores need a lot of fixing up.
But what doesn't need fixing up at Pathmark is its management. At a Food Marketing Institute meeting in January, several of us from SN were talking to Cees van der Hoeven, Ahold's president. The topic of what supermarket companies in the United States might be of interest to Ahold came up. Among numerous others, Pathmark was mentioned and Cees allowed that the management of Pathmark looked solid. And, if you take a look at the front-page news article about the Ahold-Pathmark deal, you'll see the theme of Pathmark's expert management throughout, with particular mentions about the expertise of James Donald, Pathmark's top officer. Bob Tobin, president and chief executive officer of Ahold USA, told SN last week that Jim and his management team would stay on.
What qualities does Jim Donald and his team bring to this deal? To find out, I looked at a news article published in SN last June about Jim. The news article was based on a speech he gave at the annual Grocery Manufacturers of America meeting.
His background includes stints at other retailers including Safeway, H.E. Butt Grocery Co., Albertson's and Wal-Mart Stores. He joined Pathmark in 1996 and set to work on Pathmark's sinking financial performance.
Jim attacked that problem by deciding to increase market share, and to do it by stealth so as not to awaken a vigorous competitive response.
"Increases happen when you do things that go undetected in the market," he told the GMA meeting. "We say we are doing about 60 things about 1% better. If we did one thing 1,000% better, then all my competition and everyone else would be doing it as well."
Such as? Making sure the product mix is proper and, at the same time, making sure unneeded stockkeeping units are trimmed, establishing sales incentives to win the involvement of store-level personnel in promotions, using non-price-dependent promotional activities, and encouraging vendors to become partners to help with the development of better merchandising techniques.
Pathmark is far from the biggest company Ahold has bought, but it's likely the one with the greatest upside potential at the moment.