RETAIL MANAGEMENT CASE STUDY

Royal Ahold: The Biggest Supermarket Retailer You Have Never Heard Of

SUBMITTED BY: Shubha Brota Raha EMBA 2011-14, SIBM Bangalore

SUBMITTED TO: Prof. K Venkat

Case Background Ahold is a large global supermarket chain headquartered in the Netherlands. It is the second largest food retailer in the world with sales of over $60 billion in 2002, but its name does not appear on any of the several supermarket chains it owns and operates in countries around the world. The case describes Ahold's global and U.S. strategies and competitive strengths vis-vis other large food retailers such as Wal-Mart and Carrefour.

Discussion Questions

1. What are the advantages and disadvantages of the growth strategies pursued by Ahold, Carrefour, and Walmart? Answer: Growth Strategies of Royal Ahold, Walmart and Carrefour The business and growth strategies followed by the retail giant Ahold is totally different than that of Walmart and Carrefour. The main strategies of Ahold are: Multi-local Multi-format Multi-Channel Local Operating Company The main strategy of Ahold is to maintain a multi-local, multi-format, multichannel aspect of its entire operations throughout the world. Their first and foremost culture is to be a local operating company where their customers perceive them as the local guy. Most of their customers all over the world hardly know that their local retail store is a part of a global retail giant. Walmart and Carrefour maintain one global brand throughout the world, having the similar strategies, style of operations, supply chain and human resource management. They use their names in most of stores all over the world and to that extent they even have identical store layouts throughout the world. The main strategies of Walmart and Carrefour are: Global Brand Generate Loyalty Removes Confusion Clarity in operations & format Aholds main business is food retail and Walmart and Carrefour does business through not only food but also general merchandise. While Ahold follows an inorganic growth strategy, mostly through mergers and acquisitions, Walmart and Carrefour have an organic growth strategy by opening their own stores throughout the world. Even if they acquire any organisation they change its name to its own whereas Ahold does not change the name of the local brand. So we see that following two distinctly different strategies the organisations have been successful, while Walmart and Carrefour are the

1st and 3rd largest food retailer in the world, Ahold has managed to become the 2nd largest food retailer. Lets now delve on the advantages and disadvantages for both the types of strategies. Advantages in Aholds growth strategy: Because of their inorganic growth strategy, their growth is very fast and rapid which provides them with faster returns thus minimising the payback period. The risk is also much lower because they acquire an already running business and ready infrastructure. Their acquisition strategy helps in quicker access to new markets and by holding the local brand name they ensure customer retention. Since they do not change the local name they may not face any difficulties due to cultural differences and diversification and the most of the customers are unaware of the acquisitions. It helps in maintaining their local guy image. Whenever they acquire any organisation they not only acquire its name but also their management style, infrastructure, technology, human resource, the distribution channel etc. So they get all this without paying anything for it. Since they do not change the brand name of the acquired stores the marketing activities cost and sales promotion and advertisement cost also turn out to be very low Bringing all the acquired brands under one roof helps in bringing in different ideas for business growth and innovation Because of their unique format their product lines and mixes are more flexible catering to the needs of the local customer in much more efficient manner. One of the major advantages of their format is that if any brand or store under them fails, only that brand name would suffer the damage and not the entire holding group because most of the customers are unaware of the parent company.

Disadvantages in Aholds growth strategy: Most of the investments require shelling out large sums of money at one go because acquisitions come at a high cost. Since they do not promote the mother brand, they lose out on the large-scale awareness and publicity which they could have got due to economies of scale. Acquisitions are easier said than done. Very often mergers and acquisitions bring along with them a complete set of new, diversity related problems. It is very difficult to maintain a singular organization culture or to visualize a single mission statement or to imbibe a feeling of togetherness among employees in such type of a structure.

The local store model is difficult to manage as each store needs to operate in its own peculiar way to satisfy its own set of local customers. Strategy formulation in such a structure becomes a challenge

Advantages of Walmartsand Carrefours growth strategy: Since they mostly rely on organic growth they have a strong and robust singular business strategy which is same all over the world. Even if they acquire a new company, their strategy remains the same. They have a strong single global brand in terms of presence, awareness and recall value. They kill the competition by taking away the inherent brand name during acquisition and rendering it their own brand name. They follow a uniform work culture all over the world thus ensuring much fairer and transparent management practices. They operate in large economies of scale and their singular brand power helps in providing their customers better quality products at much more cheaper rates. Their style of operation is same is all the countries with respect to infrastructure, technology, supply chain and logistics etc. There is long enduring uniformity in policies which helps in customers and employees, associating themselves with the company.

Disadvantages of Walmarts and Carrefours growth strategy: Because of its organic growth strategy it has a longer payback period and high risk factor. They need to create a whole new customer base whenever they venture into an unknown territory which pushes the marketing costs higher and also adds up to the overall risk factor. They have to incur the high cost of creating new distribution channels and build a good rapport with the suppliers in order to ensure high quality product at a cheaper rate. Because they maintain same work culture all over the world they also have to train their staff in accordance with that which would incur a training cost keeping in mind the cultural diversity of a particular area or country. They also may face problems due to cultural differences and diversifications where both the employees and consumers are not comfortable with their organisations central work culture. With their singular policies, it becomes difficult for them to know, attract and retain local customers and similarly it is difficult for the local customers to associate themselves with unfamiliar brand names and an unfamiliar store culture. As one brand, they face a big problem of running into a controversy even if a single store anywhere in the world fails or runs into some controversy

2. Should Ahold use its name on all of its stores like Walmart and Carrefour? Why or why not? Answer: Ahold may or may not use its name on all of its stores like Walmart and Carrefour depending on certain factors. Factors why they should use the brand name: To build the brand image and identity in market by using a common name across all nations with better brand recall and awareness and thus creating a strong global brand It will help them to enhance their market share by increasing the customer loyalty toward the brand and help in creating customer value by customer retention. A global brand will certainly attract more investment from shareholders from all over the world thus adding value to the company. It will help them to enter new markets and other emerging markets and create new customer bases and help them in global expansion and market penetration. It will help them to build good customer relationship and attract new employees and customers because of better communication between the brand and the customers. A strong brand name will build trust based relationship with consumers maintaining a constant brand promise throughout the global market. A global brand name may be very useful in segmentation, targeting and positioning techniques. A global brand will present a much fairer and transparent picture of the work culture and management practices followed by the organisation in the minds of the consumers. If they use the same brand name all over the world they can even develop their own private label brands

Factors why they should not use the brand name: Aholds main strategy was always to be projected as the local retail store and thats how they wanted their customers to perceive them and that is the main reason that all their acquisitions did not bear their name instead they kept brand name of the existing business. Their current strategy has been very successful till now so why change it now. Their main business model is based on the idea of Multichannel, Multi-format and Multi-local idea which helped them in attaining greater customer flexibility in terms

of wider product mix and product line and also cater to the localised need of the customer. So changing their strategy might hamper their business model. The emergence of the Ahold as a brand name for all their brands will certainly attract a lot of customer attention because the customers were simply unaware of the brand name creating a lot of confusion in their minds. This fact might have a positive or negative impact which may harm the overall business growth The emergence of the Ahold as a brand name for all their brands may also cause a lot of problems due to cultural differences and diversifications because till now what was the customers local brand may suddenly seem to be a foreign brand making the customer nervous about the brand. There may also be problems related to different organisational cultures in the minds of the employees as well as the customers. Also simply adopting a new business strategy is itself risky enough because in the first place they have been quite successful using their old tested and tried strategy and there is no guarantee that new strategy will reap positive results.

3. What are the advantages & disadvantages of Walmarts and Carrefours more centralized decision making compared with Aholds decentralized decision making? Answer: Advantages of Centralized Decision Making for Walmart and Carrefour: There is uniformity throughout the organisation in managing the store as well as pattern of day to day management is highly standardized thus ensuring there is minimal risk of discontent between various parts of the organization. Due to a single vision and mission of the head of the company, the organization can work towards the goal in a much better way, which would not be possible in a decentralized organization due to individualised goals of each department. Easier to implement common policies and practices for the business as a whole. Prevents other parts of the business from becoming too independent. Easier to co-ordinate and control from the centre e.g. with budgets, plans and policies. Economies of scale and overhead savings easier to achieve. Greater use of specialisation in every aspect. Quicker decision-making (usually) easier to show strong leadership.

Disadvantages of Centralized Decision Making for Walmart& Carrefour: Lack of authority down the hierarchy may reduce employee motivation making employees feel alienated or isolated from the management.

More bureaucratic often extra layers in the hierarchy. Time for rapid action is extremely slow in this type of system during crisis situations Organizations tend to be rigid, non-flexible and less adaptive to changing times, tastes, and preferences of the customer. Centralized system is a hindrance to open communication within the company Local or junior managers are likely to much closer to customer needs. Customer service does not benefit from flexibility and speed in local decisionmaking.

4. Do you think Royal Ahold should have divested its food service divisions? Why or why not? Answer: In 2002, Royal Ahold had hit bumps along the path of it business. The company charged its CEO and CFO with fraud. The image of Royal Ahold had been majorly hit had it been a single brand. But Ahold group belives in inorganic growth through mergers and acquisitions and not changing the local brand name of the company acquired. But this strategy has its own loopholes. The employees dont understand the mission and vision, the values and the organization culture of the parent company, which ultimately results in unfavourable results like what was done by the CEO and CFO. Thus Ahold undertook a new financing plan and strategy, called "The Road To Recovery," which was aimed at rebuilding the value of the company over the next three years. The company shifted its focus from inorganic growth strategy to organic growth strategy. Organic growth is the process of businesses expansion due to increasing overall customer base, increased output per customer or representative, new sales, or any combination of the above, as opposed to mergers and acquisitions that are examples of inorganic growth. And this meant a rise in Aholds operational and marketing expenses. Where would these funds come from? Ahold was already under a lot of debt so the best possible way out was to sell of a few businesses in order to strengthen the other existing businesses. Adopting organic growth strategy cannot be termed wrong as organizations need to change their strategies depending upon the market situation. Market is shifting towards organized and standardized stores rather than local stores. Customers also tilted towards e commerce and e-tailing. So in the present scenario Aholds umbrella brand needs to be strengthened and its Peapod business needs to be nurtured and focussed at. To do this Ahold tried to maximize cash flow and reduce debt by generating significant proceeds from disposal of the food service business which is no more that attractive a business as it used to be earlier. Market situations and tastes change and in order to keep up with the market trend, businesses need to change their

strategies and tweak their plans. This is exactly what Royal Ahold did by divesting food service business for generating funds to cater to the operational requirements of the other important businesses.