Royal Ahold on path to be No. 2 in world Dutch grocer's U.S. stores are nimble competitors

Retailing

May 20, 1998|By William Patalon III | William Patalon III,SUN STAFF

Royal Ahold NV, the Netherlands-based parent-to-be of Giant Food Inc., is a growth-minded, acquisition-driven retailer that manages to be very maneuverable and cater to individual markets despite its hefty size.

Indeed, at its present growth rate, it will be second only to Wal-Mart Stores Inc. as the world's largest retailer by 2002, predicts industry analyst Burt Flickinger, managing director of the Westport, Conn.-based Reach Marketing. That would put Ahold ahead of such household names as Kmart Corp. and Sears, Roebuck and Co.

"Ahold will be the No. 2 retailer with global sales of $62-$65 billion," Flickinger calculates. "Wal-Mart will have $238 billion all the others would fall into the $50-$55 billion range."

A living case study for Ahold's success may be in Rochester, N.Y., where the company's Buffalo-based Tops Friendly Markets chain competes against the larger, locally owned, and almost religiously worshiped Wegman's Food Stores Inc. chain.

In Rochester, where severe winters and short summers can limit outdoor activity, the Wegman family has turned grocery shopping into an outing-type event; stores are stocked with hundreds -- if not thousands -- more items than a regular supermarket, some of them imported and exotic. Presentation is compelling and impressive, particularly in its newest superstores.

Prices are higher, but customers don't seem to care. For instance, in a survey a few years ago, when couples were asked where they met their mate, the No. 1 answer was "at Wegman's." That same survey listed the Wegman's stores as the area's top tourist spot -- when family or friends went to Rochester to visit, their hosts would often take them to a Wegman's store to show them what they were missing.

The chain has about $2.1 billion in sales from its 55 stores in New York and Pennsylvania and is known for enjoying higher profit margins than the razor-thin 1 percent to 2 percent margins that are the norm for supermarkets.

Tops, by comparison, has 78 stores in New York, Pennsylvania and Ohio, with about $1.86 billion in annual sales, according to the latest data.

And yet, Tops has found a way to compete -- in fact, thrive -- in Rochester, said Julian Yudelson, an associate professor of marketing for the Rochester Institute of Technology College of Business whose specialty is retailing.

"They focus on the neighborhoods. They do strong ethnic marketing and seem to be focusing a lot on niches," Yudelson said of Tops. "They generally seem to underprice Wegman's. They don't have the presentation that Wegman's does."

A Rochester Tops in a predominantly Indian or Asian neighborhood will carry lots of foods to entice the group it's trying to capture, Yudelson said. And prices are often lower for the regular fare.

"They fine-tune their stores to the individual neighborhoods," he said. "They can't take on Wegman's directly."

Rochester aside, Ahold is quickly becoming a "global powerhouse," said Reach Marketing's Flickinger. The Giant Food Inc. chain was perhaps the last large, publicly traded U.S. supermarket chain that was available. It was a good buy and will be "a perfect fit," he said.

Ahold already owns such well-known U.S. nameplates as Stop & Shop of New England, Bi-Lo of South Carolina, Finast of Ohio. Together with the "other" Giant -- the one based in Carlisle, Pa. -- and some other supermarket chains it already has, Ahold stands to gain an East Coast reach that will start in New England and extend to Florida. Ahold is opening new stores under the existing names.

With this deal, the company will have about $20 billion in U.S. sales and $35 billion worldwide, said Hans Gobes, an Ahold senior vice president in the Netherlands.

But the United States isn't the final frontier for this international grocer. In fact, it's pushing hard to set up shop in such emerging economies as China, Latin America and Eastern Europe. Managing a far-flung network -- 3,300 stores and $26 billion in sales at the close of its last fiscal year -- takes a deft touch.

Somehow Ahold has managed to combine the advantages of large size -- lower buying prices and reduced costs by eradicating redundant work -- without losing the benefits of local managers who understand the markets they serve, according to experts on the company.

That's going to be particularly important in markets such as China, where first-time consumers want the best the West can offer, and yet demand some ethnic specialties, too.

Milestones for Giant Food Inc.

November 21, 1912: Israel Cohen born in Palestine. Two years later, his father, Nehemiah Myer Cohen, emigrates to the United States.

February 6, 1936: In the middle of a snowstorm, Nehemiah Myer Cohen and Samuel Lehrman open the first Giant Food store on Georgia Avenue and Park Road in Washington. The new store is the capital's first self-service, mass-market supermarket.

November 16, 1955: Giant openes Store No. 36, the chain's first Baltimore shop.

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