And the saga is far from over. Earlier this week, Chilean regulators suspended stock trading in Ahold's Santa Isabel chain, after it failed to post its 2002 earnings within the established deadline. Ahold had previously announced it would sell its holdings in Chile. Then as The Grocer went to press it also put operations in Brazil, Argentina, Peru and Paraguay up for sale.
Coming just weeks after the shock disclosures of a $500m overstatement in the accounts of its US-based foodservice business, it all poses the question: how could the group's demise have been so swift and dramatic?
In fact trouble had been brewing for some time, says Philip Dorgan, pan-European analyst at WestLB Panmure.
In a recent note, Lambs to the Slaughter', he commented: "Ahold has finally unravelled, a state of affairs which should surprise no one, although the fall has certainly been spectacular."
What no-one foresaw was where the cracks would emerge. A European retail expert says: "No-one thought it would come from the foodservice area and that it would happen so quickly."
The overstatement certainly pushed the company over the edge when it was already struggling to handle its growing mountain of debt an unwieldy E12.5bn at the last count created during its worldwide acquisition spree that built it into one of the world's largest food conglomerates.
Andrew Fowler, food analyst at Merrill Lynch, says: "It was a business that was troubled before this but straw and camel's back springs to mind and it was a large straw."
The overstatement related to promotional prepayments from suppliers. These are perfectly legal and take place throughout the retail industry as well as the foodservice sector. What differed with Ahold was the magnitude of these payments.
One analyst says: "It's not like a Ron and Reggie type of thing where they'd do you over to get cash. They were behind budget so they thought, why not get shed loads of stock in, even if we can't sell it all, to make next quarter's numbers'. It was madness."
Unlike other companies, it also brought forward promotional payments rather than accruing them over the period of the contracts. With its foodservice division, where contracts to supply establishments such as hospitals and schools would typically be for two or three years, Ahold would roll supplier payments into the current year to bulk up the accounts. It was a recipe for disaster. "Here was a company whose sales were falling but its margins were going up,'' says one food analyst bluntly.
"To do that you'd have to control your costs down, but with wages and insurance going up it was difficult to believe what the company was saying."
Justin Scarborough, marketing analyst at WestLB Panmure, adds that Ahold's difficulties in the US were compounded by the tough retail climate and the increased requirements in the US for companies to disclose how their profits are made up. As an example, the accounts of Albertson's supermarkets in the US now show how much its suppliers are supporting the margin.
Some analysts are now warning that the trend for retailers to rely on supplier funding as a margin prop is a time bomb because of the pressure to increase sales or watch promotional payments from suppliers fall. In the UK, Safeway has been under fire from Mike Dennis, food analyst at CAI Cheuvreux, on its supplier payments. In a research note entitled Not a Penny More', which refers to the current bid battle for the company, he accuses it of being heavily reliant on such payments. Safeway has denied any wrong doing.
But the prospect of a spate of sons of Ahold' in the UK food retail sector is unlikely, says one retail expert. "It would be a surprise if it were repeated in the UK especially post-Enron."
Instead, the main interest in the UK is likely to be from retailers looking to buy businesses from Ahold, he says. "I'm sure Tesco will be looking at its operations in Eastern Europe.''
Scarborough does not expect Ahold to have to sell its core retail businesses in the US and the Netherlands to pay its debts. He suggests that its US foodservice operation is the only likely candidate for an enforced sale. And even if it could sell the whole business for E5bn a 50% discount to its purchase price it would make little impact on its debt mountain.
A more pressing issue for Ahold is to get its accounts in order for the period of overstatement 2000-2002 as this will pave the way for it to secure long-term debt financing. What is not going to happen, according to Scarborough, is for the group to be driven into bankruptcy. Its debt is trading at around 70p in the pound, not the expected 15p for a company on the verge of filing for Chapter 11. Ahold may yet survive with its core retail businesses intact if major suppliers are satisfied that the retail operation is sufficiently removed from the foodservice business. "As long as the big suppliers support Ahold's retailer business it will not collapse," says one analyst.
It is ironic that van der Hoeven developed the foodservice division to tap into what he called "share of stomach", which gave Ahold exposure to the trend to eat out. Ultimately this move has contributed to a bout of severe indigestion at the very least.
{{ANALYSIS }}
Coming just weeks after the shock disclosures of a $500m overstatement in the accounts of its US-based foodservice business, it all poses the question: how could the group's demise have been so swift and dramatic?
In fact trouble had been brewing for some time, says Philip Dorgan, pan-European analyst at WestLB Panmure.
In a recent note, Lambs to the Slaughter', he commented: "Ahold has finally unravelled, a state of affairs which should surprise no one, although the fall has certainly been spectacular."
What no-one foresaw was where the cracks would emerge. A European retail expert says: "No-one thought it would come from the foodservice area and that it would happen so quickly."
The overstatement certainly pushed the company over the edge when it was already struggling to handle its growing mountain of debt an unwieldy E12.5bn at the last count created during its worldwide acquisition spree that built it into one of the world's largest food conglomerates.
Andrew Fowler, food analyst at Merrill Lynch, says: "It was a business that was troubled before this but straw and camel's back springs to mind and it was a large straw."
The overstatement related to promotional prepayments from suppliers. These are perfectly legal and take place throughout the retail industry as well as the foodservice sector. What differed with Ahold was the magnitude of these payments.
One analyst says: "It's not like a Ron and Reggie type of thing where they'd do you over to get cash. They were behind budget so they thought, why not get shed loads of stock in, even if we can't sell it all, to make next quarter's numbers'. It was madness."
Unlike other companies, it also brought forward promotional payments rather than accruing them over the period of the contracts. With its foodservice division, where contracts to supply establishments such as hospitals and schools would typically be for two or three years, Ahold would roll supplier payments into the current year to bulk up the accounts. It was a recipe for disaster. "Here was a company whose sales were falling but its margins were going up,'' says one food analyst bluntly.
"To do that you'd have to control your costs down, but with wages and insurance going up it was difficult to believe what the company was saying."
Justin Scarborough, marketing analyst at WestLB Panmure, adds that Ahold's difficulties in the US were compounded by the tough retail climate and the increased requirements in the US for companies to disclose how their profits are made up. As an example, the accounts of Albertson's supermarkets in the US now show how much its suppliers are supporting the margin.
Some analysts are now warning that the trend for retailers to rely on supplier funding as a margin prop is a time bomb because of the pressure to increase sales or watch promotional payments from suppliers fall. In the UK, Safeway has been under fire from Mike Dennis, food analyst at CAI Cheuvreux, on its supplier payments. In a research note entitled Not a Penny More', which refers to the current bid battle for the company, he accuses it of being heavily reliant on such payments. Safeway has denied any wrong doing.
But the prospect of a spate of sons of Ahold' in the UK food retail sector is unlikely, says one retail expert. "It would be a surprise if it were repeated in the UK especially post-Enron."
Instead, the main interest in the UK is likely to be from retailers looking to buy businesses from Ahold, he says. "I'm sure Tesco will be looking at its operations in Eastern Europe.''
Scarborough does not expect Ahold to have to sell its core retail businesses in the US and the Netherlands to pay its debts. He suggests that its US foodservice operation is the only likely candidate for an enforced sale. And even if it could sell the whole business for E5bn a 50% discount to its purchase price it would make little impact on its debt mountain.
A more pressing issue for Ahold is to get its accounts in order for the period of overstatement 2000-2002 as this will pave the way for it to secure long-term debt financing. What is not going to happen, according to Scarborough, is for the group to be driven into bankruptcy. Its debt is trading at around 70p in the pound, not the expected 15p for a company on the verge of filing for Chapter 11. Ahold may yet survive with its core retail businesses intact if major suppliers are satisfied that the retail operation is sufficiently removed from the foodservice business. "As long as the big suppliers support Ahold's retailer business it will not collapse," says one analyst.
It is ironic that van der Hoeven developed the foodservice division to tap into what he called "share of stomach", which gave Ahold exposure to the trend to eat out. Ultimately this move has contributed to a bout of severe indigestion at the very least.
{{ANALYSIS }}
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