- The Washington Times - Thursday, March 22, 2007

Giant Food’s parent said yesterday that it plans to lower prices on 75 percent of products and reduce promotions in its U.S. stores by the end of next year.

The move is part of Dutch company Royal Ahold’s attempt to rebound from struggling sales in its U.S. chains, which includes Giant stores in the Washington area, called Giant-Landover; a Giant chain based in Carlisle, Pa.; and Stop & Shop stores.

Ahold already has reduced prices on 15 percent of Giant products, including cleaning, paper and baby products, as well as produce, under the Value Improvement Program. Giant has been airing commercials highlighting the lower prices since late last year.

Ahold Chief Executive Officer Anders Moberg said during an annual report Webcast that the program started with cuts to produce prices because of consumer research.

“It was clear that our prices were too high and that customers valued freshness ahead of variety,” he said in Amsterdam yesterday.

He said the stores have improved the supply chain to increase freshness by about two days and reduced the number of produce items stocked by 30 percent, which reduces costs.

“Customers are reacting positively to the improvements we have made,” Mr. Moberg said, without adding specifics.

Across the store, Giant plans to focus more on low prices and less on sales.

“They are concerned with reforming the company from a high-level format driven by promotions to an everyday low price,” said Ton van Ooijen, a Kepler Equities analyst, comparing the format to Food Lion stores before it converted some of them to Bottom Dollar and Bloom stores.

Ahold’s strategy with Giant may be a combination of Wal-Mart’s emphasis on low prices and Giant’s existing emphasis on customer service.

“There are several [grocery] strategies right now, but ‘everyday low prices’ appears to be what Giant is going for — that’s the Wal-Mart strategy,” said Todd A. Holtquist, a Washington food industry analyst.

The price cutting took a chunk out of Giant-Landover and Stop & Shop’s sales, which fell 8 percent during the fourth quarter from a year ago.

Sales at stores open during the period measured have been on the decline at Ahold’s chains in Central Europe (5.5 percent in 2006), as well as Stop & Shop (1.3 percent) and Giant-Landover (1.6 percent). Ahold Chief Financial Officer John Rishton said improving sales at these chains is “our key focus at present.”

“We have plans that will stop the decline and start to grow identicals again,” he said.

Ahold plans to fund the low prices with about $665 million worth of savings, Mr. Moberg said. These include $50 million in labor and discretionary spending cuts at Stop & Shop stores, as well as closing underperforming stores and requiring Stop & Shop employees to contribute more to their medical benefits.

Mr. Rishton also forecast $13 million to $20 million in restructuring costs in the first quarter of the year, “primarily related to staff reductions at Stop & Shop and Giant-Landover.”

The chain also plans to rely more on self-service at some perishable departments in select stores.

Ahold also still plans to sell U.S. Foodservice, its Columbia, Md., food distributor. Mr. Moberg said there is “considerable” interest in the subsidiary and expects a sale later this year.

Net income more than doubled to $320 million during the fourth quarter from $144 million, using constant exchange rates, a year ago. Ahold also said it plans to buy back $4 billion worth of shares, 50 percent more than it had planned.

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