Holland's Ahold: Snapping Up The World's Supermarkets

It aims to rival Carrefour and Wal-Mart

Cees van der Hoeven is hungry. The president and CEO of Dutch supermarket group Royal Ahold used his fast-appreciating stock to buy food stores worldwide. Now, if market turbulence doesn't derail him, van der Hoeven aims to take advantage of Europe's single currency to expand on his home turf and beyond. He wants to challenge France's Carrefour and America's Wal-Mart Stores Inc. for global retailing supremacy.

In an age of look-alike chains, Ahold believes in the power of the old-fashioned local market. Unlike Carrefour and Wal-Mart, which have expanded under their own names, Ahold has grown by acquisitions while keeping local brands intact. They include Albert Heijn in the Netherlands, TOPS in Asia, Disco and Bompreco in Latin America, and Stop & Shop and Giant in the U.S. Ahold's operating margins run about 3.6%, against Carrefour's 3.1%.

The localized strategy has paid off. On Sept. 3, Ahold announced a 28% rise in first-half profits, to $286 million. Now, competitors are mimicking its approach. Carrefour paid $3.1 billion on Aug. 28 to buy supermarket chain Comptoirs Modernes. And Wal-Mart bought Germany's Wertkauf chain earlier this year.

The century-old company began as a corner grocery store in Zaandam, an industrial suburb of Amsterdam. It operated primarily in the Netherlands until van der Hoeven took over in 1993. Ahold now has 3,600 stores in 17 countries with annual sales expected to exceed $36 billion next year.

Market troubles could jeopardize future growth, since Ahold is the biggest Dutch equity issuer. Since selling $1 billion in stock at $34 a share last March to finance the purchase of Disco in Argentina and Santa Isabel in Chile, its stock price has fallen to around $30. As a result, Ahold will issue around $1 billion in convertible bonds to help finance the $2.6 billion purchase of Washington (D.C.)-based Giant Foods Inc.

But don't expect caution. After snapping up 27 supermarkets in Malaysia on July 16, van der Hoeven is looking for other bargains in Asia and Latin America, where Ahold does $4 billion in annual sales. By contrast, he hopes to cut costs at Ahold's American operation, which has $14 billion in annual sales. Ahold will keep its six different U.S. brands and combine back offices.

STEEP PRICE. The cost-savings are expected to fuel Ahold's European expansion plans. Its Continental operations are currently limited to the Netherlands, Portugal, Spain, Poland, and the Czech Republic. But "the euro is going to spur retail consolidation," says Banque Paribas European retail analyst Amita Gulati. "Companies will be able to compare prices across borders and negotiate rebates," making a strong European presence more important.

Continental companies don't come cheap. Carrefour paid 43 times 1997 earnings for Comptoirs Modernes. Van der Hoeven says he'll make more acquisitions only if he can realize an earnings-per-share gain of 15% this year and 20% in 1999. That's tough talk from a compulsive shopper.

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