Dutch food retailer Royal Ahold NV said income from its U.S. retail operations plunged 30 percent in the second quarter, blaming sluggish performance at Giant Food and Stop & Shop Stores, its two biggest American chains.
Ahold said Giant of Landover and Stop & Shop of Quincy, Mass., have suffered from growing competition, costly sales promotions and an ongoing effort to merge the management of the two grocers.
Executives said the merger, which has shifted control of Giant to Stop & Shop, cost Ahold $15 million during the quarter and had diverted executives' attention from the day-to-day operation of the stores. "That had a big impact on us," Ahold spokesman Fritz Schmuhl said.
For the quarter, Royal Ahold said it earned 32 million euros ($38.7 million), compared with 3 million euros a year ago, when the company restated earnings in the wake of an accounting scandal at its Columbia-based U.S. Foodservice unit. Revenue fell 4.9 percent, to 12.32 billion euros ($14.9 billion) from 12.95 billion a year ago.
Operating income in the United States dropped 29.9 percent, to 209 million euros ($253 million). U.S. Foodservice, a wholesale food distributor, had income of 30 million euros ($36 million), up from a loss of 20 million euros a year ago.
Analysts said the decline in U.S. operating income is worrisome because Ahold generates 75 percent of its sales here. The company owns six U.S. supermarket chains, mostly on the East Coast and in the Midwest.
"This is clearly a step backward," said Jeff Metzger, publisher of Food World, a trade publication based in Baltimore.
Chief executive Anders C. Moberg said Ahold's U.S. retail business "continues to be impacted by strong competition" from other supermarkets and discount chains that have moved aggressively into the grocery market.
In New England, Stop & Shop is battling Shaw's Supermarkets Inc., which was recently bought by supermarket chain Albertson's Inc. In the Washington area, Giant is facing off against several fast-growing challengers, including Safeway Inc., Shoppers Food Warehouse Corp. and Harris-Teeter Inc.
Still, Stop & Shop and Giant remain the top-selling supermarket chains in their respective markets.
Metzger said cost-cutting efforts at Giant, which has pared down staff in stores and its Landover headquarters, has driven away consumers. "What Giant has left on the table, Shoppers and Safeway have picked up," he said.
Giant has vowed to beef up service in its stores by bringing back baggers to quicken the checkout process, replacing old cash registers and installing scanners in the grocery aisles to allow shoppers to check product prices.