Koninklijke Ahold N.V. (Royal Ahold) History

Company Perspectives:

The success of Ahold comes from its overall strategy to operate modern, competitive stores under their own name, management and local identity; invest substantially in supermarket technology and training, with strict quality standards and efficient operations; and reach the highest possible number of customers by providing high quality products and services in attractive and friendly shopping environments.

Company History:

Koninklijke Ahold N.V. (known outside the Netherlands as Royal Ahold) is the world's tenth-largest grocery chain. Royal Ahold operates more than 1,500 supermarket or specialty stores in the Netherlands, making it Holland's largest food retailer. Its Albert Heijn, Alberto, and Etos units are familiar names throughout the country. The company also operates several retail chains overseas, where growth potential is much greater. The company operates stores in Portugal, Spain, Belgium, and the Czech Republic, and is beginning to expand into Southeast Asia.

Ahold is also one of the largest grocery chain operators in the United States. Well over half the company's total sales come from its six U.S. chains--Tops, Finast, Edwards, Bi-Lo, Giant Food Stores, and Stop & Shop. Royal Ahold also operates food production facilities, producing and processing coffee, tea, wine, bread, meat and other food products, mainly for sale in its Albert Heijn stores. The company has an institutional food supply business, supplying restaurants, hotels, and other large institutional kitchens. In the Netherlands, Ahold operates wine and liquor stores, a chain of confectioners, a wholesale pharmaceutical company, health and beauty care stores, and is a major share-holder in Schuitema, a leading Dutch grocery wholesaler and supplier.

Early History

In 1887, Albert Heijn and his wife opened a small grocery store in Oostzan, the Netherlands. Holland was in the midst of an economic boom sustained by its colonial network. Heijn's grocery store prospered and soon became a chain, under the name Albert Heijn. By the end of World War I, Heijn was running a bakery and a confectionery to help supply his chain of 50 grocery stores.

Steady growth continued throughout the 1920s, as the company added new stores each year. In 1923 Heijn branched into the restaurant trade, providing his company with a new source of income. By the end of the decade, Albert Heijn was in a very solid position. As a result, the company was able not only to weather the worldwide Depression of the 1930s, but even to grow.

In 1941, the Nazi occupation of the Netherlands brought economic turmoil to the country. Dutch wealth was drained to fuel Germany's war machine. But, as during the Depression, the nature of the food business insulated Albert Heijn from the ruin faced by companies in other industries throughout Holland. By the end of World War II the chain had nearly 250 stores in operation.

In 1948, the company went public in preparation for the challenges of the postwar era. Self-service shopping was clearly the trend. In 1952 the company opened its first self-service store, followed three years later by its first supermarket. Albert Heijn emerged from the 1950s as a leader in its industry, and expansion continued in the 1960s through diversification and the addition of new stores. In 1966 Albert Heijn acquired the Meester meat-packing plant, which produced a wide variety of processed meat products, delicatessen items, and sausages, among other things. In 1969 the company opened the first of its Alberto liquor stores.

Expansion in the 1970s

As the company began the 1970s it had a firm grip on about 20 percent of the Dutch market, and was poised to expand. In 1971 Albert Heijn opened the first Miro hypermarket. A year later the company acquired the Simon de Wit chain, bringing 137 new supermarkets under the Albert Heijn banner. In 1973, the company changed its name to Ahold N.V. It also entered the health and beauty care market that year with the purchase of the Etos chain.

A number of adverse conditions combined to slow growth just as Ahold digested its new acquisitions: the energy crisis of 1973 softened consumer demand somewhat, labor costs rose considerably, and the government removed artificial price supports. Ahold's management, accustomed to the often cyclical nature of the food retailing industry, rode out the storm. The company stepped up discount store activities and its roadside restaurant operations. By 1975 Ahold was enjoying rapid growth once again, and was poised to make a major thrust overseas.

After carefully researching European markets, Ahold decided to establish a chain of supermarkets in Spain. Spain had a relatively undeveloped industry and Ahold believed its expertise would go the farthest there. In 1976 the company opened the first Cadadia store near Madrid. Ahold planned to develop a major chain in the country, but the Spanish subsidiary got off to a sluggish start, hindered in part by a slow-moving Spanish bureaucracy and a depressed economy.

In 1977 Ahold made a major purchase in the United States when it acquired the Bi-Lo chain for $60 million. Bi-Lo operated 98 stores throughout North and South Carolina and Georgia. The Bi-Lo chain got off to a strong start within the Ahold group, returning a 3 percent profit margin, compared with 1.7 percent for Ahold's Dutch operations. Ahold retained Bi-Lo's management in the belief that local autonomy would best serve the company's interests. In 1981, however, the president of Bi-Lo resigned when the chain followed its competitors and began selling beer and wine.

Ahold continued its program of diversification when it purchased ten restaurants from the struggling Jacques Borel group of Belgium in 1978. The acquisition strengthened Ahold's network of AC restaurants, located on roadsides throughout Europe. Ahold's Ostara holiday parks in West Germany and Holland provided strong earnings outside of the retail food sector for the company in the late 1970s.

In 1978 the company set up a foundation to hold Dfl 100,000 in preferred stock as protection against hostile bids, after watching a number of hostile takeover attempts, including a particularly bitter battle between Heineken and Lucas Bols. To the company's relief, no hostile bids for Ahold actually materialized.

International Growth in the 1980s

In 1981, Ahold made its second major U.S. purchase: the Giant Food Stores chain, of Carlisle, Pennsylvania, for $35 million. Giant had 29 stores, mostly in Pennsylvania, and Ahold planned to add four or so new stores each year. As with the Bi-Lo purchase, the company's management remained autonomous.

That same year Ahold bought 50 percent of the Spanish sherry producer Luis Paez. By the end of the decade Ahold was producing one-third of all sherry sold in the Netherlands. In addition, the company's Alberto liquor store unit had grown to 89 stores in its first 20 years, and continued to improve its share even in a shrinking market.

Ahold recorded vigorous profits in the early 1980s largely on the strength of its American operations. Growth slowed a bit around 1984, as vicious competition in the Netherlands shaved already thin margins and the Spanish chain Cadadia reported a loss. In 1985 the company sold the 38 Cadadia stores to the British Dee Corporation (now Gateway), having decided not to undertake a major expansion in Spain. It kept its winery holdings, however. The company also acquired the Van Kok-Ede company, a major wholesale foods supplier in Holland, in 1985.

Ahold purchased 80 percent of the American First National Supermarkets chain in 1988, an acquisition which doubled the size of its U.S. operations. First National ran the Finast, Pick-n-Pay, and Edwards Food Warehouse chains. The deal gave Ahold a footing in New England, Ohio, and New York. Ahold slowed the expansion of its Giant and Bi-Lo chains in order to concentrate its resources on the First National stores.

Meanwhile Ahold increased its holding in the Dutch supplier Schuitema to 55 percent. Schuitema, Holland's largest supplier of independent supermarkets in the country, gave Ahold an even stronger grip on the industry in Holland.

Ahold had always been committed to using the latest technology in its stores. In the late 1980s the company piloted a program which allowed customers to self-scan the items they wish to purchase. At the Albert Heijn store in Tilberg, the Netherlands, customers were offered the choice of self-scanning or traditional shopping. Self-scanning shoppers selected a cart equipped to scan each item before they put it in the cart; the scanner also kept a running total on an electronic readout. When customers were finished shopping, they proceeded to a special line, where the cashier entered the data from the cart's scanner into the register. Customers liked the shorter lines at the checkout and the idea of a running total displayed at all times. But self-scanning was still considered experimental through the early 1990s, and was not tested at one of Ahold's U.S. supermarkets until 1995.

In 1989, Pierre J. Everaert, formerly head of the company's overseas operations, replaced Albert Heijn, grandson of the company's founder, as president of Ahold. Heijn had reached the company's mandatory retirement age of 62, and so the company passed out of the direct control of the Heijn family for the first time in three generations.

Ahold was well-positioned for the integration of European markets in 1992. The company enjoyed substantial market share in the Netherlands and in 1991 it founded a food retail and distribution company in the Czech Republic, called Euronova. Ahold bought 49 percent of a Portuguese food retailer in 1992. By 1995, Ahold ran four "supercenters" or "hypermarkets" in Portugal--70,000 square foot stores selling groceries and other household goods.

But Royal Ahold's expansion into the American market was its most dramatic. After acquiring Finast in 1988, Ahold purchased the Buffalo, New York-based Topps Markets in 1991. The chain had 168 stores, and sales of $1.6 billion. Three years later Ahold purchased the smaller Red Food Stores chain, based in Chattanooga, Tennessee, for about $125 million. Red Food had sales of $400 million, and 55 stores. Ahold quickly merged Red Food into its larger Bi-Lo chain. The acquisition gave Ahold more than 600 food stores in the United States. Sales from its American group were $6.6 billion before the purchase of Red Foods, making Ahold the ninth-largest grocery operator in the United States. And when Ahold bought the Tennessee chain, the company announced its ambitious plan to become the biggest supermarket group on the East Coast within 10 years.

Though its U.S. chains retained separate management, the Ahold group was able to work as a unit and cut costs. The different chains cooperated with joint buying and distribution departments in some cases, and management shared marketing strategies and information systems. To some extent different chains shared advertising campaigns. But Ahold wanted its chains to keep their own identity. Each benefitted from economies of scale and sharing of resources, but regional differences persisted, as local managers tailored their stores to unique customer needs. Royal Ahold was content to let its American firms run in American ways, and not hold them to Dutch models. This contributed to the great success of Ahold's U.S. acquisitions, according to Robert Zwartendijk, president of Ahold USA. He noted in a 1995 interview in Advertising Age that other European supermarket companies had entered the U.S. market and then withdrawn. Applying European formulas to the highly competitive U.S. market did not work. But Ahold did not operate that way.

Ahold did work to build up sales of private label items at all its stores. Private labels saved the company money. So when approximately 15 percent of sales at its American stores were of private label products by 1995, the company estimated it was able to lower prices overall by 7 percent. Sales at Ahold's Dutch supermarkets were close to 40 percent private label goods, and increasing the private label share at its American markets was one way Ahold brought its European experience to bear on the American market. But for the most part, Ahold left management of its U.S. chains in local hands. In fact, Ahold USA, as the company's American division was called, had 65,000 employees in 1995, but only two were Dutch.

In accord with its U.S. growth plan, Ahold bought a New Jersey chain, Mayfair supermarkets, in 1995. Mayfair operated 28 stores, with sales of $575 million. This purchase made Ahold the third-largest Eastern chain, close behind second-place Winn Dixie. Ahold was bringing in $8.3 billion in 1995 from its 650 stores. The next year, Ahold made its largest purchase in the U.S. when it bought Stop & Shop Companies Inc., the largest supermarket chain in New England. Stop & Shop had 1995 sales of $4.1 billion, brought in from its 116 Superstores, 43 Stop & Shop supermarkets, and 17 Mel's Foodtown supermarkets. The company also owned another chain of 28 Purity Supreme supermarkets and 64 convenience stores called Li'l Peach. The acquisition of Stop & Shop made Royal Ahold one of the top five supermarket operators in the U.S. Ahold was very close to attaining its goal of being the largest supermarket operator in the East.

Principal Subsidiaries: Albert Heijn; Albert Heijn Franchising; James Telesuper; Alberto; Etos; Albro Bakkerijen Zwanenburg; Marvelo; Meester Wijhe; AC Restaurants; AC Restaurants (Belgium/Germany); Grootverbruik Ahold; Ahold Recreational Activities; Ahead Advertising; Pensioenfonds Ahold; Ahold Financieringsmaatschappij, Curacao (Netherlands Antilles); Luis Paez (Spain); Ahold USA Inc.; BI-LO Inc. (U.S.); Giant Food Stores Inc. (U.S.); FNS Holding Company Inc. (U.S.); First National Supermarkets, Inc. (U.S.); J.M.R.-Gestâo de Empresas de Retalho (Portugal, 49%); Stop & Shop Companies, Inc. (U.S.); ABS Development Company (U.S.).

Further Reading:

• Ahold Corporate Profile, Zaandam, The Netherlands: Koninklijke Ahold N.V., 1993.
• Bowes, Elena, "Applying the Dutch Touch to Running U.S. Chains," Advertising Age, May 8, 1995, p. S-8.
• Browning, E. S., "Ahold's Supermarkets 'Go Native' to Succeed in U.S.," Wall Street Journal, October 4, 1994, p. B4.
• Coupe, Kevin, "Innovation Is the Key," Progressive Grocer, January 1995, pp. 29-33.
• Rosner, Hillary, "Dutch Retailer Ahold's U.S. Masterplan Unfolds," Brandweek, July 17, 1995, p. 5.

Source: International Directory of Company Histories, Vol. 16. St. James Press, 1997.

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