Ahold USA Inc., the parent company of Giant Food Inc. and five other U.S. supermarket chains, has mounted a campaign to reassure suppliers and customers in the wake of a major accounting scandal at parent company Royal Ahold NV.
Since the Dutch parent company announced it had overstated earnings by at least $500 million in the past two years, a small number of suppliers that do business with Ahold's U.S. grocery chains have asked for changes in their payment plans, said Barry Scher, Ahold USA's vice president of public affairs.
Ahold USA has sent a letter to its vendors that may be worried about fallout from the scandal and has told store managers to answer any concerns of shoppers.
"The letter was sent to our vendors because we wanted to be proactive, to keep them in the loop," Scher said. "Out of thousands of vendors, only a handful have called us back to address the terms of their payment" even though the grocery store chains have not been implicated in Ahold's problems.
The bulk of the problems had to do with "irregularities" at another U.S. subsidiary, U.S. Foodservice Inc., a wholesale food distributor based in Columbia. Last month, Royal Ahold cited irregularities in the way that subsidiary accounted for bonuses it got from its suppliers.
U.S. Foodservice distributes food from those suppliers to restaurants, schools and other institutions. It does not do business with grocery stores. But at least a few vendors are worried that the problems can spill over into the supermarket side of the business.
In a letter to suppliers dated Feb. 28, William J. Grize, president and chief executive of Chantilly-based Ahold USA, tried to calm those fears about the retailers, including Giant Food of Landover; Giant Food Stores of Carlisle, Pa.; Stop & Shop Supermarket Cos.; Bi-Lo; Bruno's Supermarkets Inc.; Tops Markets; and Internet grocer Peapod Inc.
"Royal Ahold as a whole, and Ahold USA Retail specifically, are strong cash generators," Grize wrote. "No irregularities were found at Ahold USA Retail, and no changes have taken place in the Ahold USA Retail management team."
In closing, Grize said that the retail side of the business was "surprised" and concerned by the accounting problems. "However we believe that they present only short-term challenges," he wrote.
Last week, Royal Ahold obtained a vital new bank loan but had to pledge as collateral its highly prized chains, including Giant Food, the Washington area's dominant supermarket chain. But Gary Giblen, an analyst with CL King & Associates in New York, said Royal Ahold would be loath to let go of Giant. The parent company is more likely to stop expansion at other chains, sell off its weaker units, or raise food prices if it needs quick cash.
"To sell Giant would be tantamount to dismembering the whole company," Giblen said. "If you ever see Giant put up for sale, you know Ahold is being liquidated. It would take the ultimate level of distress for that to happen."
In the Washington-Baltimore region, Giant has captured 40 percent market share, with 162 stores generating $4.63 billion in annual sales through March 31, according to the trade publication Food World. Its largest competitor, Safeway, has captured 21 percent of the market.
Jeff Tryka, an analyst who follows the grocery business for Delafield Hambrecht in Seattle, said vendors are not likely to turn away from Giant Food and other Ahold stores because the chains are entrenched along the Eastern Seaboard.
In the first three quarters of 2002, Ahold USA had sales of $20 billion, less than the $39 billion for Kroger Co. and $48 billion in grocery sales for Wal-Mart Stores Inc., but huge nonetheless.
"Vendors might be a little more cautious and they won't be as willing to let accounts go unpaid," Tryka said. "Maybe they'll say you have to pay in 30 days . . . but they won't stop selling to" the chains.
Stop & Shop is moving ahead with plans to open 20 to 25 new or replacement stores this year, said Faith Weiner, director of public and government affairs. The Quincy Mass.-based chain has asked store managers and customer service officials at its 335 stores to spend extra time on the retail floor listening to and reassuring customers, she said.
"We've talked to our vendors, we've talked to our real estate partners and we've talked to our [sales] associates. . . . We tell them that Stop & Shop stores are healthy and cash generators," Weiner said.
In the Netherlands, Michiel Meurs, ousted as Royal Ahold's chief financial officer, resigned yesterday from an unrelated corporate post at a Dutch financial services company. Meurs, who resigned from Ahold last month when the accounting scandal became public, had been a member of the supervisory board of Van der Hoop Effektenbank NV since 1996.