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Lure of consolidation entices supermarketers

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Executives at Delhaize Group and Royal Ahold earlier this month confirmed that they are exploring a potential merger of the European supermarket operators.

Executives at Delhaize Group and Royal Ahold earlier this month confirmed that they are exploring a potential merger of the European supermarket operators.

Combining the two companies, each of which derives the bulk of its sales from the American market, would result in a retailer generating some $60 billion a year in revenue through stores and e-commerce channels stretching from the eastern United States to Indonesia.

While several financial analysts have questioned the wisdom of such a transaction, one that has been the subject of on-again, off-again discussions for more than a decade, the deal would yield some distinct advantages. In the increasingly fragmented grocery market, where a diverse array of retailers is vying for a piece of the business, the significantly enlarged scale of Ahold-Delhaize would provide a competitive edge, especially in terms of purchasing power. The combined entity would be the fourth-largest food retailer in the U.S., behind Walmart, Kroger and Albertsons.

In addition, Delhaize and Ahold have complementary geographic footprints, in both North America and Europe. Together, the former’s Hannaford and Food Lion stores and the latter’s Stop & Shop and Giant chains would blanket the eastern U.S. with some 2,000 outlets from Maine to Georgia, extending as far west as Kentucky and Tennessee. A post-merger enterprise would also greatly benefit from Ahold’s Peapod division, the leading online grocer in the nation, and synergy savings that could exceed $1 billion a year.

The apparent seriousness of the negotiations between Ahold and Delhaize after years of desultory engagement clearly indicate that, faced with changing market dynamics in the U.S., Europe and beyond, executives believe bold steps are needed if their companies are to secure a spot in the front rank of food retailers. Moreover, the talks say something important about the supermarket business as a whole — consolidation is here in a big way. The allure of capitalizing on economies of scale and the other benefits that accrue from forging larger entities, which over the past several decades has transformed the discount and drug store sectors, is clearly at work among grocers. Kroger’s acquisition of Harris Teeter in 2013, Albertsons merger with Safeway earlier this year, and now the very real possibility of the unification of Ahold and Delhaize are harbingers of more deals to come.


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