Dean Best

Comment: Organic growth priority for prudent Ahold

By Dean Best | 13 February 2013

Ahold's exit from its ICA retail venture in Scandinavia and the Baltics looks set to net the Dutch company a cool US$3.4bn - but don't expect the Albert Heijn and Giant Food owner to go on an acquisition spree.

Almost a decade to the day since the accounting scandal that rocked Ahold became public - and which, according to industry watchers, changed the mentality at the business - the retailer announced a deal to sell its 60% stake in ICA to venture partner and Swedish investment fund Hakon Invest.

Ahold first announced in September that it was weighing up its options for ICA. In a sign of its more pragmatic nature ten years after the accounting saga, the retailer said it wanted to focus "on businesses it controls".

Speaking to just-food at the time, an Ahold spokesperson acknowledged ICA's strengths, particularly in Sweden. However, he said the company wanted to implement its strategy across its businesses and saw a possible disposal of its stake in ICA as a way to spend resources elsewhere.

Those resources will be spent carefully. CEO Dick Boer is pursuing a measured strategy of, among other things, expansion in existing markets, entering neighbouring countries (like Belgium and Germany) and investing in building its multi-channel capability. This strategy of incremental expansion has won plaudits. There have been some concerns over long-term growth but do not expect, for instance, Ahold to suddenly plump for a giant stride in, say, the US by buying Tesco's Fresh & Easy unit.

Some of the ICA proceeds could go back to shareholders but, focusing on Ahold's expansion priorities, they will largely be based on Boer's strategy. Ahold is building its store network in Belgium and Germany. Meanwhile, in its core markets of the Netherlands and the US, Ahold is keen to rapidly beef up its presence online through services like click and collect.

Of course, with 2013 set up to be another challenging year of cost pressure and thrifty consumers, it does no harm for Ahold to have the resources in reserve to invest in areas such as price to lure shoppers away from rivals in the Netherlands and the US. M&A seems, especially for a company as prudent as Ahold, less of a priority.

The retailer could make bolt-on acquisitions in the US, which it has done in the past. Ahold's identical-store sales in the US, excluding fuel, inched up by only 0.5% in 2012. The retailer could choose to use M&A to boost its business in the country. In recent years, Ahold has snapped up stores in the US through smaller deals; last year, it acquired 16 Genuardi outlets from Safeway Inc. In 2010, it bought five Shaw stores from Supervalu Inc. A year earlier, it snapped up regional retailer Ukrop's. Ahold could pounce and snap up batches of stores but large pieces of business are unlikely.

Such a strategy of incremental expansion may disappoint investors wanting bold action to shore up the prospects for long-term growth but Ahold's current management seem unlikely to plump for investments in markets such as, say, India or South Africa, which have been speculated in the past.

That is not to say such moves would not happen. It's just that the new Ahold is a different beast to the globally ambitious retailer of old.

Sectors: Emerging markets, Mergers & acquisitions, Multichannel, Retail

Companies: Ahold, Tesco, Fresh & Easy, Safeway Inc, Supervalu Inc

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