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Ahold Versus Tesco Analyzing Performance Case Solution

Solution Id Length Case Author Case Publisher
1624 888 Words (4 Pages) Suraj Srinivasan, Penelope Rossano Harvard Business School : 113040
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Mary King, equity analyst at Alpha Plus Asset Management, is tasked with analyzing two retail companies as potential investment targets. The two retail companies are Koninklijke Ahold and Tesco PLC. Though the two companies belong to the same sector, they are inherent differences in their financials and management strategies.

Following questions are answered in this case study solution

  1. Introduction

  2. Industry Dynamics

  3. Strategies of Ahold and Tesco

  4. Major Differences between Financial Statements of Ahold and Tesco

  5. Investment Decision

Case Analysis for Ahold Versus Tesco Analyzing Performance Case Solution

2. Industry Dynamics

Using the Porter model of five forces, the primary characteristics of the industry can be pinpointed. First of all, the competition between the existing firms is intense. The nature of the rivalry is such that the firms, within the industry, are actively involved in price wars. Therefore, the margins in the industry are on the low side. Moreover, pressures from customers on healthy products are resulting in the growth of organic grocery shops.

Also, the barriers to entry are high since the nature of the industry is characterized by low margins. Additionally, the brand name matters in the industry. As a result, new stores would find it difficult to compete in the market. Substitutes do exist in the industry in the form of organic grocery stores and farmer markets. Therefore, the threat of substitutes is high too.

The, customer bargaining power is low in the industry. Since the products are such that they are used by customers on daily basis, brand name matters a lot. Additionally, the supplier’s power in the industry is low as well due to long term contracts and economies of scale. These factors add pressure on the suppliers to adhere to the industry demands on a timely basis.

3. Strategies of Ahold and Tesco

Tesco has various stores at diverse locations and their business is well diversified. Currently, Tesco aims to augment its service to customers while at the same time lowering its cost. Also, Tesco plans to expand its product offerings in the near future.

However, Ahold was mainly focused on reducing its costs. Recently, Ahold has added the element of growth to its strategy. Particularly, Ahold will be looking forward to opening stores in new locations.

4. Major Differences between Financial Statements of Ahold and Tesco

Ahold has reported an increase in its total revenue. However, its net income had suddenly dropped by more than 200 million in 2010. On the other hand, its revenue as well as its earnings before interest and taxes has steadily improved over the course. The financial data of Ahold is reported according the U.S. GAAP rules.

On the other hand, Tesco has reported an increase in its revenue, as well as its EBIT and net income, over the years. There is no inconsistency between revenue and net income. Overall, Tesco financial statements and its status of profits seem more stable.

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