Royal Ahold NV said yesterday that it is breaking its U.S. Foodservice Inc. subsidiary into two separate units and is contemplating layoffs in an effort to shore up profits at the troubled Columbia-based food distribution giant.
Rob Meyne, a spokesman for U.S. Foodservice, said the company had not decided how many, if any, of its 29,000 employees might be subject to layoffs. He said, however, the company has no plans to close or move its Columbia headquarters, where about 600 are employed. An additional 650 work at a separate unit in Severn, near Baltimore.
In a release, U.S. Foodservice chief executive Lawrence S. Benjamin said he expected cost reductions to be "a more significant driver of our future profit improvement, starting with an aggressive right-sizing of our administrative costs in 2006."
The restructuring is part of Ahold's broader effort to fix continuing problems at U.S. Foodservice, at $18 billion its largest U.S. unit. On Monday, the Dutch food conglomerate announced that it had agreed to pay $1.1 billion to settle a securities-fraud class-action lawsuit stemming from accounting irregularities at U.S. Foodservice. The accounting scandal, which has roiled the unit since Ahold first disclosed problems in February 2003, has led to criminal charges against 16 former U.S. Foodservice executives and suppliers.
Ahold also owns the Stop & Shop and Giant grocery store chains.
U.S. Foodservice, the nation's second-largest food distributor behind Houston-based Sysco Corp., provides about 250,000 restaurants and institutions with supplies. It carries about 45,000 products, including tubs of mayonnaise from Kraft Foods Inc., chicken and other meat from Tyson Foods Inc., and paper products from Georgia-Pacific Corp., as well as distributes the company's own private-label brands. U.S. Foodservice operates a network of about 100 warehouses and distribution centers nationwide.
Of the two new units, one will serve independent restaurants, hospitals, educational institutions, hotels and government agencies -- business that accounted for about $16 billion in 2004 sales, roughly 85 percent of U.S. Foodservice's total, and all of its profits.
The other will serve fast-food and casual-dining chains and has been the source of many of U.S. Foodservice's financial problems. This lower-margin part of the industry, which serves Quiznos Master LLC, Waffle House Inc., KFC Corp. and many other chains, posted an operating loss of 0.9 percent through the first three quarters of 2005, and sales have trended down. Ahold said it planned to bring the unit to profitability within two years in part by combining sales and operating functions and trimming costs.