A decade ago, Dutch retailer Ahold was present in 25 markets around the world.
As one of the first grocery retailers to embark on a major globalisation programme, Ahold soon recognised bigger is not always better and has since divested operations in most of its markets to focus on Europe and the US, the latter of which now accounts for 60% of group sales.
Despite a few further hiccups in the form of accounting scandals and high debt levels, Ahold is now showing true signs of recovery from its streamlined operations. Last week, the retailer reported a 3.4% rise in net sales for the fourth quarter and an 11% hike at constant exchange rates.
Its US division, which trades under the Stop & Shop and Giant banners across the Northeast, performed exceptionally well, adding $588m (£364m) to the top line. This comes as many of its stateside grocery competitors, including Belgium-based Delhaize, SuperValu and A&P are reporting negative sales growth.
So what is Ahold doing right? While many retailers only began implementing cost-cutting measures at the onset of the recession, Ahold had been doing this for years as part of its reorganisation programme. Last year, the retailer hit its target of reducing operating costs by E500m (£437.8m) and is now embarking on a further E350m (£306.5m) in reductions.
The cost-cutting has helped improve Ahold’s overall price positioning, giving the grocer a headstart once the recession struck. Investment in store layout, technology and private label has also helped the retailer gain share in a difficult economy.
Now that Ahold is in better financial shape we are likely to see some mergers and acquisitions activity in the near future. “The past three years, we focused on repositioning ourselves, now it is time to grow,” chief executive John Rishton said last November.Ahold has since acquired Ukrop’s, a 25-store chain in Virginia, with more small-scale acquisitions likely to be on the horizon.
However, the retailer may find itself an acquisition target in the US thanks to its strong cash pile and low levels of debt. Tesco or Delhaize would be obvious fits.
For Tesco, an Ahold acquisition would give it immediate access to the lucrative Northeast through a big-box format. Meanwhile, provided they could get it past the Federal Trade Commission, a merger with Delhaize would make perfect geographic sense, creating a regional powerhouse covering most of the Eastern seaboard.