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Yields and Deals

As November closed, U.S. Foodservice (USF), Columbia, MD, a subsidiary of Netherlands-based Royal Ahold, completed its acquisition of Alliant Foodservice, Deerfield, IL, creating a $19-billion broadliner. The expanded USF is second only to Sysco in size, which it trails by a few billion dollars. The national distributor now consists of approximately 100 locations with access to some 95 percent of the U.S. population, and a sales force of 6,000.

The closing came earlier than anticipated (originally pegged for the first quarter of 2002). Ahold President and CEO Cees van der Hoeven commented that the earlier timeframe will enable USF to incorporate Alliant's December 2001 results in full-year consolidated numbers. "For our business, December is one of the strongest months of the year," he said.
The Dutch conglomerate now holds strong positions in both U.S. foodservice distribution and supermarket businesses. (The retail business is grouped in five supermarket companies along the U.S. eastern seaboard, with combined annualized sales of approximately U.S. $22 billion.)

It is interesting to note that European companies like Ahold are "infiltrating" Maryland companies, according to a recent headline in a Maryland-based online business publication, SunSpot.net, an arm of the Baltimore Sun. While the article was not primarily about Ahold, columnist Jay Hancock observed that Europeans in general are lured by this nation's economic advantages. "If you think zoning restrictions under Gov. Parris N. Glendening's Smart Growth program are tough, try building a supermarket in France or Britain," he comments. "Are you outraged about U.S. taxes? Move to Germany, where top income tax rates approach 50 percent."

Thanks to the U.S. Constitution's commerce clause, which bans states from levying tariffs and interfering with internal trade, the U.S. "beckons Europeans with a rich, seamless and relatively hassle-free playing field," he concludes.

Meanwhile, some U.S. analysts are expressing concern about the impact of Sept. 11 and a recessionary economy on foodservice business in general and consequently on Ahold's considerably enlarged share. Fernand de Boer, an ING Barings analyst, for example, was cited by Reuters as saying he expects USF to miss about $100 million in sales in the last quarter, as compared with a year ago. "The questions regarding how cyclical these activities are and how, in the short term, they reacted to Sept. 11, will have to be answered," he told the news organization.

However, another analyst familiar with foodservice distribution, George S. Dahlman of Piper Jaffrey, Inc., Minneapolis, points out that, for USF, $100 million is not a "huge" amount as a percentage of overall and that the company is not experiencing anything that any other distributor is not. "The question is how well are they coping, in comparison with a Performance Food Group (PFG) or a Sysco," he told ID.

PFG, Dahlman adds, may be better positioned than many distributors in the economic downturn, as it does a large share of casual restaurant business--a mid-range commercial segment not as impacted as others.

USF cites operating earnings gain

Meanwhile, Ahold has reported healthy third-quarter results for USF. Sales increased 39.2 percent to $2.8 billion in the quarter ended Oct. 7, mainly reflecting acquisition at year-end 2000 of PYA/Monarch, Greenville, SC, and to a lesser extent the acquisitions of Mutual Wholesale Co., Lakeland, FL, and Parkway Foodservice, Inc., Clearwater, FL, in 2001. Organic sales gains amounted to 9.0 percent. After Sept. 11, organic sales growth came to about 7 percent.

Operating earnings increased 38.3 percent to $113.3 million, through USF's performance, as well as synergies and cost savings. The operational margin dipped slightly from 4.1 percent in 2000 to 4.1 percent, reflecting consolidation costs. The full-year margin is expected to equal that of last year.

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