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Ahold’s Boer Unveils Growth Strategy to Boost Slowing Sales

Royal Ahold NV, the Dutch owner of Stop & Shop stores, said it will ramp up its online business, expand in Belgium and add convenience stores as Chief Executive Officer Dick Boer aims to reverse slowing sales growth.

The retailer also plans to cut costs by an additional 350 million euros ($473 million) over three years and increase the proportion of earnings paid as dividends, Ahold said today.

Boer, who took the helm in March, wants to boost growth by expanding Ahold’s geographic reach. A minimum of 50 supermarkets will open in Belgium in the next five years, while the company aims to triple online sales to 1.5 billion euros and open at least 150 convenience stores in Europe. Sales growth at Ahold may slow to 1.7 percent this year from 5.8 percent in 2010 and 8.8 percent in 2009, according to data compiled by Bloomberg.

The plans “look more ambitious than we would have anticipated,” yet all of them “appear sensible,” James Grzinic, an analyst at Jefferies International, said by e-mail. He has a “hold” recommendation on the stock.

Ahold fell 1 percent to 9.35 euros in Amsterdam trading, the best performance in the Dutch benchmark AEX Index, which declined 3.2 percent.

The retailer said it’s “actively exploring” opportunities to expand in and around current markets in the U.S. and Europe.

Online Growth

To boost sales via the Internet, the company is testing pick-up points in Europe and the U.S., so customers can order online and collect groceries at designated locations.

Personalized offers sent to shoppers via iPhones and the Internet should add 1 to 2 percent to so-called identical sales growth, according to Ahold, which currently has annual online revenue of 500 million euros.

“The strategy they presented today is quite impressive,” said Richard Withagen, an Amsterdam-based analyst at SNS Securities. He has a “hold” recommendation on the stock.

The new cost-reduction plan follows the completion of a previous program to save 350 million euros. Savings will come from supply-chain improvement and a reduction in logistics and overhead expenses, Boer said on a conference call, adding that job cuts aren’t part of the plan.

The dividend payout ratio will be increased to 40 percent to 50 percent of normalized net earnings, from 30 to 40 percent, Ahold said. That “will contribute to a significant increase of the 2011 dividend per share,” the company said.

Ahold last week reported third-quarter earnings that beat analysts’ estimates as its supermarkets gained market share and food prices jumped.

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net

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