Tesco’s woes appear unprecedented but there are lessons we can draw from the crisis that engulfed Dutch-based Royal Ahold ten years ago.

Tesco’s woes appear unprecedented but there are lessons we can draw from the crisis that engulfed Dutch-based Royal Ahold ten years ago.

There are a number of commonalities. Both were part of the 1990s era of insatiable global expansion.

Ahold had initially forged a presence in Spain and the US before embarking on a remarkable bout of flag-planting that saw it take on operations as far afield as Eastern Europe, Asia, Latin America and Central America.

Crucially, and this proved to be its undoing, Ahold started venturing outside of its main competencies and started acquiring non-core operations, in this case the giant HoReCa operation US Foodservice.

At the time, this was seen by Ahold as a means of achieving greater ‘share of stomach’ in the US food market and also generating buying synergies – hoping to achieve greater sway over food suppliers by combining the buying clout of its American supermarkets with that of its new foodservice business.

Huge accounting irregularities

While the logic of the deal was questionable, what was beyond any doubt was that the huge accounting irregularities discovered within its US Foodservice acquisition, together with some debatable treatment of promotional money in one of its supermarket businesses, was the catalyst for remarkable change within the business.

With further accounting flamboyance discovered in Argentina and with the astonishing realisation that Ahold had somehow been claiming all of the sales from 50:50 joint ventures, the senior management of the business were soon ex-senior management (many of whom later faced fraud charges) and the house of cards began to unravel.

A raft of international retail operations in South America, Eastern Europe and Asia were sold (as was the US Foodservice poisoned chalice a few years later).

This left Ahold with a slimmer international portfolio (concentrating on supermarkets in the eastern US, the Netherlands and the Czech Republic), a new management team, a recovery strategy and a bit of a besmirched corporate reputation. Sound familiar?

Shopper at heart of business

So what did Ahold do next? It set about improving its proposition – using its greater sense of focus to put the shopper back at the heart of the business.

Product ranges were optimised and private labels were improved. Prices were sharpened, not with the intention of being the lowest (bearing in mind competition from Walmart in the US and the discounters in Holland) but by being appropriate against a backdrop of improved quality and service levels.

And where are we today? A stable business generating decent profits in the face of strong price-led competition. A business that combines innovation, service and value in pleasant store environments.

So, while the tunnel / light ratio in Cheshunt might currently appear to be fairly dismal, there is a brighter future for Tesco. Difficult decisions will have to be made, but there is a world-class retailer waiting to be reawakened. Ahold has proven that it can be done.