Aggressive Dutch Food Company Gobbles Up US Chains

PIERRE EVERAERT, president of Koninklijke Ahold nv, has just completed the Dutch food company's second acquisition in the United States in three years. But instead of worrying about financing, he talks of another buyout in two or three years. Like many Dutch companies, Ahold has gone abroad in search of room to grow. Despite the move toward a single European market in 1992, Mr. Everaert says expansion opportunities are better in the United States than in Europe.

"We've never taken a nickel back out of this country," he says proudly.

Earlier this month, Ahold purchased Tops Markets Inc., which operates 59 supermarkets in western New York state. The $125 million leveraged buyout makes Ahold the seventh-largest US food retailer, the company says, when Tops' $1.15 billion sales is added to Ahold's $4.4 billion US sales in 1990.

While buyout activity has slowed in the US in general, Ahold has held to a steady course of expansion along the East Coast: It bought BI-LO (of Mauldin, S.C.) in 1977, Giant Food Stores Inc. (Carlisle, Pa.) in 1981, and First National Supermarkets Inc. (known as FINAST, in Maple Heights, Ohio) in 1988.

The latest buyout comes at a time when "acquisition activity has really slowed down," according to Kay Norwood, a food industry analyst with Interstate Securities Corporation in Charlotte, N.C. But "not all of the industry is heavily leveraged," she adds.

Goldman Sachs estimates that Ahold's debt/equity ratio will surge from 40 percent in 1990 to 86 percent in 1991, largely as a result of the acquisition.

Everaert sees Ahold taking this cost in stride through its strong cash flow. In 1988, with the leveraged buyout of FINAST, debt/equity jumped to 71 percent from 21 percent the year before. But in 1989 the ratio was down to 43 percent. Before buying Tops, Ahold considered purchasing Acme Markets from American Stores, but this deal would have been more costly - about $1 billion.

Though less costly, the Tops buyout will affect 1991 earnings, according to Charles Cerankosky, an analyst with Kemper Securities Group Inc. In a recent report he predicted Ahold's earnings-per-share growth to slow to 14.2 percent from 19.4 percent in 1990.

"We're still a good buy," says Everaert, in Boston recently to meet with potential investors as Ahold became listed on New York's NASDAQ market. The stock also trades in Amsterdam.

IN the US, the company expects double-digit growth in earnings and profits to continue as it builds new stores, revamps existing ones, and streamlines operations. The four chains remain under separate managements, but Ahold USA's Parsippany, N.J., headquarters plans to use the geographic proximity of the chains to work out synergies in purchasing, distribution, information systems, advertising, cross-merchandising private labels, and training.

Everaert does not foresee expansion taking the company beyond its present theater of operations, which extends basically in a triangle from the Carolinas to Ohio to New England. To go further afield would limit the synergy, he says.

"Our strategy is to be number one or number two" in each market the company enters, Everaert says. "We're not there yet."

In line with industry trends, Ahold's strategy involves larger stores (including "superstores") and an emphasis on goods with higher profit margins: fresh produce and bakery and deli sections.

American consumers are adventurers, Everaert says. "They like variety and novelty." Ahold's largest US store offers 65,000 products, compared to 16,000 in the largest store in the Netherlands, where the company is the nation's largest food retailer. Its sales there are roughly equal to its American operations.

In Europe, the company is focusing on continued growth in its home market, and it hopes to win approval from the government to keep stores open beyond the current 52-hour-per-week limit. It has joined with Argyll (Britain) and Casino (France) to form the European Retail Alliance. The firms will cooperate in research and distribution.