- The Washington Times - Monday, November 6, 2006

The Dutch company that owns Giant Food supermarkets said yesterday that it plans to sell Columbia, Md., distributor U.S. Foodservice in its plan to turn the conglomerate’s flagging sales around.

Royal Ahold NV plans to retain Giant Food Inc., the Landover grocery chain, but says it will lower prices and rely less on promotions.

The sale of U.S. Foodservice doesn’t come as a surprise. The company’s U.S. operations have struggled under competition from discount retailers such as Wal-Mart Stores Inc. as well as a crippling accounting scandal in 2003 at U.S. Foodservice, a bulk-food company. In August, two major shareholders urged the company to sell its U.S. businesses and focus solely on its European chains.

Ahold President and Chief Executive Officer Anders Moberg said there has been interest in U.S. Foodservice, which sells bulk food and products to cafeterias, hotels and restaurants. About 450 people work at its Columbia headquarters.

Ahold said it plans to return $2.5 billion to shareholders and settle about $2.5 billion in debt with the sale of U.S. Foodservice, as well as the Tops supermarket chain, which has stores in New York state. No timeline was announced.

Analysts say Ahold is underestimating the price of U.S. Foodservice, the second-largest food distributor in the country behind Sysco Corp., which they price at about $6.4 billion.

Mr. Moberg declined to comment at a press conference in Amsterdam on rumors that private equity firms already have placed bids.

But financial firm Fortis Bank noted its surprise at the announcement.

“Regarding the timing of the announcement, we were a little surprised that it comes now and feel that it may mean that the group has already received attractive offers and that the disposal could happen shortly,” said Fortis Bank in a note to investors.

Fortis raised its credit rating of the company from neutral to “top league,” or market outperform, on the news of the sale.

The plan to sell U.S. Foodservice may relieve shareholders, who have put up with sluggish sales from Ahold’s U.S. operations.

A source close to Centaurus Capital Ltd., one of the large shareholders that called for the company to sell its U.S. business, said the hedge fund views the move as a step in the right direction.

“I think in Centaurus’ point of view, they’re happy with the direction that it’s going. The disposal of U.S. Foodservice is a sensible approach, but there is more to be done,” the source said.

“It’s better late than never,” said Ton van Ooijen, an equity analyst at Kepler Equities in the Netherlands. “At least something is happening.”

Mr. Ooijen does not own stock in Ahold.

Ahold’s stock rose to a 52-week high of $11 yesterday to fall back to $10.64 on the Euronext exchange.

Ahold also plans to increase retail sales at its remaining U.S. chains — Giant Landover, Giant Carlisle and Stop & Shop — by 5 percent, signaling that the company doesn’t plan to sell those chains.

“It is now time for us to focus our efforts on strengthening our retail competitive position, particularly in the United States,” Mr. Moberg said, declining to put the 5 percent growth on a timeline.

Just last week, the company reported its third-quarter net sales rose 0.7 percent, or 3.7 percent at consistent exchange rates, to $13.1 billion. Comparable sales at Giant-Landover fell 0.2 percent.

The company plans to lower prices, add fresh produce and more private labels, use consumer-friendly technology and rely less on promotions in its U.S. stores.

“To set yourself apart, it’s no longer enough to have a name that everyone knows,” Mr. Moberg said. “You have to make an emotional connection with customers. We don’t want to just sell brands, we want to be powerful consumer brands and we are going to see this through our proven value repositioning strategy and by knowing consumers better than the competition.”

It’s a move that has turned around grocery chain Albert Heijn in the Netherlands, Mr. Ooijen said.

The strategy was put in place in late 2003, and last quarter, sales at the chain rose 10 percent.

“I’ve never seen that before,” he said. “It was very impressive.”

Ahold also plans to reduce operating costs by $636 million over three years and cut administrative costs in half over the next two years.

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