- The Washington Times - Wednesday, November 5, 2003

Financial woes at Royal Ahold NV have put the future of Giant Food Inc. in limbo, but retail analysts expect the troubled Dutch retailer to hold on to the Landover grocery chain.

Ahold officials are scheduled to release a strategic plan tomorrow detailing the future of the world’s third-largest retailer and its subsidiaries.

Giant, as one of Ahold’s successful businesses, would not go under. The only question is whether the Washington area’s largest grocery chain would be sold.

“Giant is a high-quality business,” said David McCarthy, managing director of food retail research at Citigroup Smith Barney in London. “I would not expect it to be sold.”

But Ahold’s uncertainty has left some questions.

“[Giants] future is in doubt,” said Mark Millman, president of Millman Search Group, a retail consulting firm in Owings Mills, Md.

“Who’s going to wind up owning them?” he asks. “It’s up in the air.”

Dick Baird, president and chief executive of Giant, declined to comment.

Ahold has been under fire since February after inflating earnings for the past three years. Total overstatements of pre-tax earnings are about $880 million, according to an investigation by auditing giant PricewaterhouseCoopers. Ahold’s Columbia, Md.-based U.S. Foodservice subsidiary is at the heart of the accounting irregularities.

Ahold said its 2002 loss totaled about $5 billion under U.S. accounting standards.

The company operates about 5,600 stores worldwide, including about 1,600 stores in the United States. It has six U.S. supermarket chains including Giant, Stop & Shop and Giant Food Stores in Carlisle, Pa.

Ahold is the seventh-largest grocery company in the United States with $25 billion in sales, according to Supermarket News, a weekly trade magazine.

Giant was founded in 1937 as a family-owned business, when Nehemiah Cohen and Jacob Lehrman opened their first store on Georgia Avenue in Northwest.

Israel “Izzy” Cohen, Nehemiah’s son, was the key figure in expanding the chain. J. Sainsbury PLC bought the Lehrman family stake in 1994. And after Izzy Cohen died in 1995, a management group that included his sister and four Giant executives gained control of his half of Giant’s voting stock and four of seven board seats.

Ahold’s purchase of the retailer in 1998 appeared to be the right decision for Giant. The Dutch giant would pump money into Giant to help it grow and remain a key player locally.

Since Ahold acquired Giant, the company has grown from 177 stores to 194 stores in Maryland, Virginia, Washington, Delaware and New Jersey. It has sales of $5.5 billion — 30 percent growth from five years ago.

The company has continued to be aggressive in its expansion plans and the remodeling of existing stores, particularly in the past two years.

Giant controls about 40 percent of the supermarket industry in the Baltimore-Washington area, according to Food World, a Columbia trade publication.

But the parent company’s financial woes could end up hurting Giant in the long run, Mr. Millman said.

“It’s going to hurt its prize possession, Giant,” he said. “Royal Ahold has issues and it filters down to the operating divisions.”

Mr. Millman said that despite Giant’s dominance, the uncertainty of the chain’s future is giving its competitors an edge and the ability to drive into the market.

“With the ongoing problems with the parent, it’s a plus for the other competitors,” he said.

Rochester, N.Y.-based Wegmans, for example, will enter the Washington area in February 2004 with a 130,000-square-foot store in Sterling, Va. Another location is scheduled to open in Fairfax in the last quarter of next year and a third store will open in Hunt Valley, Md., in 2005.

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