Ahold Is Looking Fresh Again

The supermarket group has pared debt and amassed a war chest for acquisitions

Royal Ahold's (AHO ) headquarters overlooking the Ij River in Amsterdam are bright, airy, and so spanking new that workers are still clearing away construction debris outside Chief Executive Anders Moberg's office. It's a fitting metaphor for Ahold's renewal. When Moberg took over in early 2003, the supermarket group was near bankruptcy after an accounting scandal involving more than $1 billion in inflated earnings over the preceding three years. But today Ahold is back in the black after cutting costs and reorganizing, and the stock has doubled since the bad days of 2003. "We have created a platform for the future," Moberg says.

It's a solid start. But Moberg's biggest challenges could lie ahead. In the U.S., where it owns the Stop & Shop, Giant, and Tops Markets chains in the Northeast, big-box discounters led by Wal-Mart Stores Inc. (WMT ) are grabbing market share from traditional supermarkets. At the same time, upscale grocers such as Whole Foods Markets, Inc., Wild Oats Markets, Inc. and Harris Teeter (RDK ) are luring away more affluent customers. In Europe, Ahold's stores are under assault from discounters such as Aldi and Lidl.

Moberg, who joined Ahold after serving as CEO of Ikea and then Home Depot (HD ), is counterattacking. Worldwide, the company is investing $2 billion this year to remodel or replace older stores. In the U.S. Moberg plans to reposition Ahold toward the upper end of the market. A new Giant supermarket in Camp Hill, Pa., features an in-store cooking school, and a child-care center. In Europe, Ahold is cutting prices to fend off the discounters. Its Dutch flagship, Albert Heijn, has regained market share by slashing prices on more than 7,500 items.


Under former CEO Cees van der Hoeven, Ahold operated as a loose-knit federation. Moberg says he can boost margins by making different business units work together to streamline inventory control and squeeze better terms from suppliers. Improved efficiencies such as integrating the information-technology systems of the Stop & Shop and Giant chains, have already yielded nearly $400 million in savings. The bottom line: For 2006, Moberg says he is aiming for 5% sales growth and a 5% operating margin at Ahold's retail outlets.

That could be a stretch. Indeed, Ahold shares swooned almost 15% in September after the company's retail outlets posted second-quarter sales growth of only 1.3%. Ahold draws over 90% of sales from mature retail markets in the U.S. and Western Europe -- unlike retailers such as Carrefour and Tesco, which have pushed aggressively into Asia and other emerging markets. "The targets they have set are going to be very, very tough to achieve," says Fernand de Boer, an analyst at ING.

One thing Moberg has going for him is a fat purse. Since 2003, Ahold has raised nearly $3.6 billion by unloading stores from Argentina to Poland. While most went to pay down debt, the company also has begun making acquisitions in countries where it sees solid growth potential. It recently took over 56 supermarkets in the Czech Republic operated by Austria's Julius Meinl chain. Moberg also says Ahold could make some moves in the U.S. One possible target is supermarkets owned by Albertson's Inc. (SYY ). The legal cloud over Ahold is lifting, too. Last year it agreed to settle a U.S. Securities and Exchange Commission complaint of alleged fraud at its Maryland-based unit U.S. Foodservice Inc. The SEC assessed no fine and commended Ahold's new management for cooperating. If Moberg can keep the company on track, any lingering whiff of scandal around Ahold will soon be forgotten.

By Carol Matlack in Amsterdam

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