Columnist: No Sense in Ahold/Delhaize Deal

Discussion
Sep 27, 2006

By George Anderson


Jay Hancock, a columnist with the Baltimore Sun, doesn’t get it. What about a rumored merger between Ahold and Delhaize makes any sense at all?


For one, who knows what the combined company would look like after the Justice Department’s antitrust group got finished paring the company back?


Even if the Justice Department were to require minimal changes, the cultures of the two companies would make a merger’s success highly unlikely.


Food Lion (Delhaize), Mr. Hancock writes, “has Southern roots, smaller stores, short inventory lists and a long history of hostility to unions.” Ahold’s supermarket chains in the U.S. are all organized with employees belonging to the United Food and Commercial Workers (UFCW) union.


As with other rumored and actual merger, the S word (synergies) has been used with the suggestion that the combined companies would find savings in logistics, distribution and store operations.


According to Mr. Hancock, “It’s true that some sort of half-sensible deal could be sketched on a napkin.”


What is more likely to happen, he writes, is “cost saving from combining the operations (and probably closing some stores) would be disappointing.” The reason, as he sees it, is the amount of time and resources required to fix what is broken (especially at Ahold) would make the synergies seem inconsequential in the final analysis.


Ahold, he writes, has been looking to find a strategy that will help the various chains it owns regain some of their past glory. Unfortunately, innovation has been in short supply.


Food Lion, on the other hand, has made some encouraging deviations from its standard cookie cutter store concept with the recent development of its Bloom (upscale) and Bottom Dollar (limited assortment) formats.


Mr. Hanock expressed concern that the “energy consumed by melding the units might cause the Delhaize merchants to take their eyes off the customer… The danger for shoppers is that a merger might transfer Ahold’s drift and lack of focus to Delhaize rather than infuse Ahold with Delhaize’s discipline.”


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14 Comments on "Columnist: No Sense in Ahold/Delhaize Deal"


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M. Jericho Banks PhD
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M. Jericho Banks PhD
15 years 7 months ago

As a veteran of the BI-LO (Ahold) vs. Food Lion (Delhaize) sales wars across the NC/SC border, this development blows my mind. Like, totally, you know? But the Dutch and French are all furriners so what can you say? They march to the beats of different cheese-eating surrender-monkeys.

Has everyone been suitably offended? Good. Let’s move on. My thought regarding this deal is that a proven American supermarket company should buy the stores. Could a purchase by Winn-Dixie save all three companies? How about Publix or Kroger? Ahold and Delhaize never understood American shoppers in those necks of the woods (an interesting turn of phrase, right?). The Atlantic coast is our country’s birthplace, and deserves homeboy supermarkets.

Jean Forney
Guest
15 years 7 months ago
When Delhaize acquired Hannaford, there were many reverse synergies. Most of the executive staff at Food Lion is Hannaford people. If you look at the performance of Food Lion now vs. then I think you will have to note a marked improvement in company performance. The new concepts, including the Bloom stores and Sweet Bay, are prime examples of what exactly Food Lion bought with this acquisition. Hannaford is definitely a strong Northeastern player and has done well against the Ahold banners. This would not only strengthen their presence and add to their purchasing power but also allow them an opportunity to acquire some top talent from the operating companies to further strengthen the talent pool corporately. I remember all of the criticism when the Food Lion/Hannaford deal went through, especially noting Hannaford’s lack of success in their own Southeastern stores…but I’ll tell you they have accomplished a lot of positive things, including finally dragging the tarnished image of the Food Lion Company up and out of the 20/20 mud. It was a long time… Read more »
Bernie Slome
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Bernie Slome
15 years 7 months ago
Sometimes columnists are able to offer a cogent, top-down, unbiased view. Sometimes they are reporters and, not being on the inside, are unaware of the big picture. I prefer when the columnist or reporter asks the questions that need to be asked. Perhaps it would have been more beneficial to ask questions about the rumored merger than to come to a conclusion. The questions to be asked (not necessarily in this order) would include…”where will the company be headquartered?”…”who will run the company?”…”will the various brands (Food Lion, Stop & Shop, etc.) be merged or still be separate?”…”will there be a consistent store format?”…”will all stores include a pharmacy?”…”how will this increase shareholder value?”…”how will this be better for their respective customers?”…”how does each view the customer experience” And without answers to those questions, how can anyone decide whether this type of merger makes sense or not? My company, who has dealings with both entities, doesn’t have the answers to those questions. So I can’t offer an opinion. Perhaps Mr. Hancock has those answers. If… Read more »
Gene Hoffman
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Gene Hoffman
15 years 7 months ago

If this rumor should ever materialize, would it be the strong Dutch culture of Ahold or the chauvinist French/Flemish culture of Delhaize that would dominate the store aisles? Food industry history reveals that all corporate marriages are hardly made in Heaven, as some of your panelists have indicated, but hope is eternal so maybe this one could possibly work.

Bill Akins
Guest
Bill Akins
15 years 7 months ago

Whatever the outcome may be, many more mergers of this magnitude are going to have to be considered in order for other retailers to compete head-to-head with the growth of Wal-Mart. Offering niche products and customized product assortments according to regions may work in the short-term (consider HEB’s success in the central southwest), but supply chain efficiencies and information systems have to be on par with Wal-Mart to compete long-term.

The Neighborhood Market concept is not a “test” to see if the model can be successful. It is merely a “test” for what format fits in different markets! With Wal-Mart’s dedicated emphasis on serving six flagship demographic groups (Hispanics, African Americans, Empty-Nesters, Rural Americans, Affluent Shoppers, and Suburbanites), its major competitors must work out the kinks of corporate culture differences for the sake of survival.

Len Lewis
Guest
Len Lewis
15 years 7 months ago

I’d like to know how Mr. Hancock came to his conclusions. Sometimes columnists, yours truly included, fall too much in love with their own voices and ideas of what will and won’t work.

Food Lion hasn’t been a little Southern company since its legendary founder Ralph Ketner found himself at odds with the European ownership and stalked off.

The fact is that cultures can be melded into one as long as there is someone at the helm guiding things along. It didn’t happen at Albertsons under Larry Johnston, but probably will under Jeff Noddle at Supervalu.

Let’s not forget that we are looking at the melding of two European cultures, despite what some feel are U.S. roots. And there will always be synergies between merger partners as long as the senior staff doesn’t allow turf battles to get in the way. Mergers fail when sacred cows are worshipped above all else.

Billy Watkins
Guest
Billy Watkins
15 years 7 months ago

The Hannaford Brothers acquisition by Delhaize did not make sense either – especially given the premium they paid for the company. However, several years after the deal, things seem to be working out, so the differences in store formats will not be an issue. When you look at the Ahold Operating companies and consider what they have been through the past three years, I think most would agree these are well run companies. Gaint of Carlisle and Stop & Shop are very strong regionally as is Hannaford’s. A merger would not change this, but the real issue or question is “who will be in charge?” I don’t think the deal will happen because neither side will be willing to relinquish their leadership powers.

David Livingston
Guest
15 years 7 months ago

Cultures don’t mix? Give me a break. Ahold couldn’t get the cultures of the two Giants, Bi-Lo, Tops, and Stop & Shop to mix. When did culture stop two large grocery companies form merging? Ask Safeway, A&P, or Albertsons about the difficulties of mixing different corporate cultures with all their ill fated acquisitions. Just because it doesn’t make sense and that it’s potentially a bad move does not mean it won’t happen.

George Anderson
Guest
15 years 7 months ago

I don’t think Jay Hancock was saying that the merger wouldn’t go through because of the differences in corporate cultures. Instead, he was giving that as one of the reasons a merger wouldn’t work if it were to take place.

Craig Sundstrom
Guest
15 years 7 months ago

Although I’m finding fewer co-passengers on the “Hail Hancock” Bandwagon than I expected – perhaps because the other respondents are more familiar w/ the particulars of the proposal – I still say “amen.” Even if it ends up being a false alarm, I think the right questions are being asked…indeed it’s refreshing that questions are even being asked, rather than blind acceptance of the wishful thinking of someone all too happy to experiment with someone else’s money.

Justin Time
Guest
15 years 7 months ago

What will become of this merger of European grocery giants will be an interesting gumbo, at best, spiced with enough drama of how Delhaize/Food Lion will be able to tame the savage beast which is, Giant/Landover/Stop & Shop.

The fallout of store selloffs by the new Delhaize/Ahold in suburban DC/MD/VA as well as Hannaford selloffs in NY, CT, and MA will enable the rest of the pack, namely A&P, to pick up stores in markets where it now operates.

Whatever the consequences, these new consolidations will enable Delhaize to roll out their Bloom and Bottom Dollar concepts in former Giant-Landover-Carlisle stores as well as Stop & Shops in metro NY as well as NJ, CT and MA.

I don’t think that even after this, the dust won’t be settling. More players such as A&P and Pathmark have to merge, and seeing this battle play out, SuperValu may be all too glad to unload Acme to A&P. An interesting scenario all in pursuit of market share.

steve ferris
Guest
steve ferris
15 years 7 months ago

Has Food Lion escaped its ABC 20/20 image? It is still seen as a low-end store to many. While I’ve read about the Bloom concept, can’t say that I’ve ever been to one. Seems Ahold just can’t get their US operations in order, though Giant Landover and Stop & Shop seem to be well run markets themselves — though I’ve only been to the DC-MD-DE and NY-NJ-RI locations.

Mark Lilien
Guest
15 years 7 months ago

Five years ago Ahold stock was $30 and Delhaize was $60. Today, Ahold is around $10.66 and Delhaize is around $83. Mergers work best when 2 strong competitors combine. At first glance, it would appear that Delhaize is certainly more appreciated by investors, although both companies have substantial businesses outside the US, so the US-only picture is not so clear, financially.

The big picture: major retail segments have too many competitors. Investors love Federated because the department store channel had too many similar competitors and Federated rolled them up into just 2 brands, Macy’s and Bloomingdale’s. Supermarket retailing needs a similar rollup consolidation. It’s a very mature business with too many similar competitors. The strongest players need to merge and let the weak players decline.

vicki johnson
Guest
vicki johnson
15 years 4 months ago

This is all very interesting since now the entire TOPS market chain is up for sale and rumors abound that Delhaize is going to buy it to bring their chain(s) to Upstate and Western NY, which would not be competition to Ahold since TOPS is the only, solely NY based chain they have. Their main competitor would now be the #1 retail food chain (according to Forbes) in the US – Wegmans. This is going to be very interesting. From what can be deciphered, a sale to Price Chopper was struck down because they did not want to buy all the stores and it is known that Price Chopper will not hire TOPS employees.

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