Royal Ahold isn't exactly a household name, at least outside the Netherlands. But the Dutch food retailer, operating some 8,500 stores on its own or through joint ventures in 24 countries, happens to be a tough competitor in an industry whose low margins make it difficult to succeed even in one country.

Until 1999, the company had grown rapidly by acquiring super-markets in Europe, Asia, Latin America, and the United States, which delivers almost two-thirds of its operating profits. It picked up the giant Stop & Shop

chain in March 1996, making it the fifth-largest supermarket company here. Then the Federal Trade Commission blocked the company's acquisition of the Pathmark chain in 1999, raising serious questions about Ahold's ability to continue buying supermarkets in the United States. The company quickly shifted gears. Soon thereafter, it announced plans to diversify into the wholesale food-service industry, which provides services for restaurants, hotels, hospitals, and the like. It acquired U.S. Foodservice for $3.6 billion last winter and PYA/Monarch for $1.6 billion a few months later.

Initially at least, investors were skeptical. The credit agencies, unhappy because Ahold had borrowed heavily to finance the PYA/Monarch deal, cut Ahold's debt ratings two notches, to barely investment grade. But for Ahold's executives, the virtues of its new food-service strategy are abundantly clear. "Everyone in this building is convinced that we have reduced [our exposure to the cyclicality of retail consumer demand]," says CFO Michiel Meurs, in an interview at the company's headquarters near Amsterdam.

Fortunately for Ahold, it wasn't long before equity investors began to warm to the move, helping the stock rebound sharply in the months following the deals.

But the jury is still out. If Ahold can't grow rapidly without increasing its debt load, it may find itself in that awkward middle ground, needing to buy or be bought.

FOOD FOR THOUGHT

Ahold's experience is particularly instructive given that it is, of course, not the only company facing a more-challenging global environment. Some companies are retrenching. Others are retooling their business models. Still others are abandoning global initiatives entirely. Whatever the response, it's clear that CFOs have reason to rethink the strategies that worked so well just a few years, or even months, ago.

In Meurs's case, rethinking global strategy will take all of his traditional prudence and discipline. For one thing, he needs to help Ahold prove it can do as well in food service in the United States as it has in retailing. He must also find a way to improve the company's operations in Asia, the only region where it has been losing money. Finally, Meurs's finance team needs to reduce Ahold's debt level.

And along the way, admits Meurs, he must also demonstrate that Ahold's actions remain directly aligned with its most important constituency: the customer. For companies with global ambitions, this has proved difficult. Witness the recent woes of such giants as DaimlerChrysler, Wal-Mart, and Enron.

To understand Ahold's ability to focus on its customers, it's important to look back at the company's disciplined approach to acquiring supermarkets and integrating them, a strategy it has honed over the years. Indeed, Ahold's acquisition strategy began long before Meurs's arrival as vice president of finance in 1992 (he became CFO in 1997), after a 16-year career with Dutch bank ABN Amro. Ahold's cross- border ambitions took off in 1977 when it acquired Bi-Lo, a South Carolina­based chain. Since then, the E34 billion (around $31 billion) Dutch firm has never looked back. But it wasn't until then­board member Cees van der Hoeven's appointment as CEO in 1992 that Ahold's global business really accelerated.

Its approach to global operations emphasizes local controls. With all its acquisitions in foreign markets, Ahold makes sure it maximizes the know-how of local management, relying on local managers to determine their own product assortment, pricing policies, and store formats, while also having them take responsibility for human resources and real estate. On a global basis, meanwhile, its supermarkets jointly procure, source, and deliver products, and work from standardized IT networks.

Today, the firm derives less than a third of its sales and operating profits from Europe--primarily from the Netherlands, Scandinavia, and Spain--and can count itself among the top five food-retail firms in the world. Granted, it's still dwarfed by the likes of America's Wal-Mart and France's Carrefour, the number one and number two retailers in the world, respectively, but what it lacks in relative size it makes up for in agility. "They don't take a cookie-cutter approach," says Ira Kalish, a retail industry consultant with PricewaterhouseCoopers in Los Angeles. And while to date Ahold has managed to avoid direct competition with such hypermarket companies in its key areas, it's gaining experience in that sector in Eastern Europe.

To ensure that Ahold remains among the global retail giants, Meurs and his colleagues are ready to take the company in a new direction, focusing on two important areas. The first is organic growth. After buying a total of 5,900 supermarkets worldwide over the past nine years, Ahold now wants to hold off on making any new purchases in Asia, and will slow down new purchases in the United States. Second, of course, is Ahold's move into the food-service industry so that the company can, as Meurs puts it, "follow whatever our customers do." So investors can expect Ahold to do more deals like U.S. Foodservice and PYA/Monarch.

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