Ahold and Tesco – a marriage made in heaven?

Citation

Roberts, B. (2003), "Ahold and Tesco – a marriage made in heaven?", International Journal of Retail & Distribution Management, Vol. 31 No. 7. https://doi.org/10.1108/ijrdm.2003.08931gab.003

Ahold and Tesco – a marriage made in heaven?

Ahold and Tesco – a marriage made in heaven?

Ahold's ongoing woes resulting from accounting irregularities in the USA and Argentina have led to a barrage of speculation that some or all of the business will be up for grabs at some stage this year. Possible scenarios range from rivals cherry-picking chains in Asia, Latin America, the USA and Eastern Europe to a full takeover inspired by Ahold's ravaged share price.

At the forefront of this speculation have been UK market leader Tesco and its French counterpart Carrefour. Carrefour has already noted that it is not considering a bid for Ahold, but that it would be interested in securing selected parts of Ahold's operations in certain markets, most likely to include Brazil, Argentina and Spain. Tesco, on the other hand, has not yet made a comment on the Ahold situation, but is reportedly assessing potential opportunities. Given that market speculation over the last few years has linked Tesco and Ahold as possible merger partners, Tesco making a predatory approach for all of the beleaguered Dutch business is an eventuality that is unlikely but cannot be ruled out.

Despite a Tesco bid seeming fairly unlikely at present, there are a number of compelling factors that could encourage the UK business to make a move:

• •

  Due to its dominant position in the UK, further acquisitive growth in that country's supermarket sector is virtually impossible. Tesco's current approach for UK number four Safeway is a speculative and opportunistic move with little real hope of success. As a result, Tesco must look overseas for new avenues of growth.

• •

  Tesco and Ahold have a highly complementary geographical spread (see Table I). In markets in which they are dominant, there is little significant overlap, while in markets in which both companies operate, a combination of the two retailers would provoke very little regulatory comeback.

• •

  In addition to augmenting Tesco's existing operations in Eastern Europe and Asia, Ahold could provide an entry vehicle into several key markets, such as the Nordic region, The Netherlands and the USA. Tesco is thought to have been casting an eye at the USA for some time now; its toe in the water so far consists of an e-commerce venture with Safeway Inc. Ahold would provide Tesco with a credible and successful portfolio of grocery retail operations in the USA, dovetailing well with Tesco's expertise in hypermarkets, superstores, supermarkets, gas station c-stores and e-commerce. A move for Ahold would also expand Tesco's operations into North-West mainland Europe, a region in which it is notable by its absence.

• •

  The two businesses enjoy a close cultural and operational fit. Both are highly respected as top-notch grocery retailers with impressive track records in international growth (Ahold's recent record excepted!), private label development, adaptive multi-format store operations, innovative marketing and merchandising and impressive e-commerce initiatives.

• •

  A takeover of Ahold would not necessitate too many divestments. In the USA, the troublesome foodservice division could be sold off, while the Etos, Jamin and Gall & Gall units in The Netherlands might also be vulnerable. There would also be no shortage of possible buyers for unwanted Latin American business units.

So, what would a combined Tesco/Ahold look like? Table I summarises the scale and reach of the combined businesses, assuming no forced or voluntary disposals. The most striking observation concerns just how little overlap there is between the two companies –’they compete in just five markets, namely the Czech Republic, Malaysia, Poland, Slovakia and Thailand. A combination of the two companies would lead to a market share (and market leadership) of 20.8 per cent in the Czech Republic, 17.1 per cent (and market leadership) in Thailand, 10.3 per cent (and market leadership) in Slovakia, 6.2 per cent (and second-place) in Poland and 1.9 per cent in Malaysia. In comparative terms, Ahold's overlap with Carrefour is much more pronounced, encompassing activities in ten countries with combined market shares ranging from 1.6 per cent (Indonesia) up to 23.4 per cent (Spain) and 27.4 per cent (Argentina).

Bryan RobertsM+M Planet Retail. Tel: +44 (0) 20 7704 9951. E-mail: bryan.Roberts@planetretail.net