Ahold CEO Willing to Wait Out the Competition
Ahold CEO John Rishton doesn’t see the U.S. economy improving
markedly this year and thinks that could work to his company’s advantage.
Mr.
Rishton, who spoke at the Reuters Consumer and Retail Summit, said, "I’m
quite happy, in many ways, if the current environment continues for longer.
The pressure is increasing and I think a number of our competitors are feeling
the pain."
Ahold, which owns Stop & Shop, Giant-Landover, Giant-Carlisle,
Martin’s and Peapod in the U.S., may be in the market for acquisitions in this
country, but is not going to make a deal simply because it can. Mr. Rishton
said, "The
cynics would say that the only people that benefit out of an M&A transaction
are the shareholders of the acquired company. So the trick is getting the timing
right and the price right."
According to Reuters, Mr. Rishton didn’t
appear anxious that the chains Ahold owns would be among those most adversely
affected by tough competitive conditions. He said that Giant-Carlisle, which
competes directly with Wal-Mart, grew its share of market in the first quarter.
Discussion Questions: What is your assessment of Ahold’s operations in the
U.S.? What competitors do you think would make a good fit for Ahold to acquire?
Do you see any potential that some or all of Ahold’s divisions in the U.S. could
be acquisition targets?
Ahold seems to be operating within a unique culture, solvent, patient and ready to pounce, now that it has its U.S. house cleaned up. Hardly any other chain appears so satisfied to have the economy stay tepid to chilly. That projects that Ahold is a fat cool cat waiting for some weakened mouse to become its lunch.
Ahold would like to expand its U.S. operations. It already operates in U.S. metro areas. Doesn’t that make the uncertain Chicago market a jewel of a possible target? Could it be a super value opportunity during the current downturn?
Ahold has strong conventional supermarkets with significant banners. When the shopper thinks of their stores, they rarely get excited or speak in animated tones about them. On the other hand, their name is rarely mentioned among the retailers struggling or those that are at death’s door. They are a strong player in a middle of the road way.
They could grab some of the smaller players or stores from competitors and spread out more broadly than the East Coast and eastern part of the Midwest as some competitors feel the pinch (not unlike Ukrop’s situation).
Rumors are flying that Ron Burkle might want to put into play most if not all Great A&P. If that is the case, this would be something Royal Ahold might be interested in.
Also SuperValu is looking at possible spinoffs. Shaws would be an interesting target, but there is a lot of overlap with Stop & Shop in New England. Also there is Acme in Philly and S. Jersey, as well as Farm Fresh in Tidewater VA. The later would make a nice fit with Martins holdings in Richmond/Central VA.
Now with Walmart in play to build at least two dozen new entries in the Chicago market, I don’t think Ahold would be interested in Dominick’s or Jewel. They would have to see how all this plays out.
California makes a lot of sense. Raley’s/Bel Air/Nob Hill stores would be a good fit for them. They’re in financial trouble, their stores are in good areas. It would not take much for Raley’s to take over their market share again like they did in the ’90s when they ruled.
Mediocre has a place in the market. Apparently, so does arrogance.
Now here is a CEO who knows something about M&A. Yes, most mergers and acquisitions are failures in terms of increasing stockholder value. Statistics suggest that anywhere from 55% to 80% of these activities cause loss of shareholder value. Many suggest that the problems come from a clash of cultures. While that is sometimes the cause, more often than not it is because company executives or Board members decide to make an acquisition (or do a merger) then justify why it is good for the company.
The reality is that few acquisitions or mergers provide the entity with any sustainable competitive advantage. M&A good is not opportunistic. It is well thought out. A company critically determines what its strengths and weaknesses are, where the markets are going, and then acts only to improve their position in the long term.
The most common M&A rationale also carries the highest failure rate. That is the market share play. Companies tend to make this move in a market that is stagnant and/or declining. They combine, close various operations, lay off workers, and get a short-term bump. But, in the long term, the market forces bring the company right back to where it was originally. Retailing has been notoriously guilty of this strategy.
Ahold seems to understand these. There is no ego or bravado in their decision making. They have a good European business outlook. Whatever decision they make will be interesting and it will have a SUSTAINABLE competitive advantage.
When a CEO is out glad-handing at a retail conference cheerleading for his company, it tells me things are not going so well back in the office.
Ahold to me is still just another large sterile grocer that moves too slow. There are a number of acquisitions that could be made but will they just end up being like Tops and BI-LO and forced to close or sell off? Sure there are a lot of troubled grocers out there to be acquired such as the SuperValu banners, Winn-Dixie, Marsh, Roundys, A&P, and the former Ahold banners Tops and BI-LO. Now that the economy is rolling again, perhaps they will make a play for one of them.
An outgoing tide lowers all boats. It is hard to move forward if you are stuck in the mud with the the rest of the fleet.
My take on this is it reads like the predator is on the prowl waiting for the weaker, slower members of the group to show weakness.
Most acquisition deals in the retail industry pursue scale in the name of operating economy, buying clout and market share, but the dirty not-so-secret is that the resulting operational complexity usually more than offsets the benefit.
Sure, every acquisition earns somebody some gains in the short term, but the bigger the agglomeration of banners and geographies, the further headquarters gets from effective store compliance and implementation. Shareholder-focused deals too often weaken companies where it counts most, leaving them less operable, less nimble and less distinctive or relevant to shoppers.
So here I offer some words for retail CEOs to live by: “You can’t push a chain.” It that’s too cryptic for you, then perhaps you shouldn’t occupy the corner office.
I’m with Scanner on this one – hoping the difficult economy continues and saying it in a public forum show a lack of empathy, at a minimum. It may be true on some level, but lots of things are true that shouldn’t be said. Reminds me of some of the BP comments early on about the lack of significance of the oil spill, although those were clearly more egregious.