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Would an Ahold/Delhaize merger create a stronger grocery company?

May 12, 2015Written by George Anderson

Rumors of a merger between Ahold (Giant Goods, Stop & Shop) and Delhaize (Food Lion, Hannaford) have floated around for years, but if reports out of Belgium are true, the two supermarket chain operators are sitting down to discuss in earnest the possibility of the two companies coming together.

The combined company would account for just over four percent of U.S. grocery sales, making it the fifth largest grocer in the U.S. The parties would likely avoid having to sell off large numbers of locations due to regulatory concerns since there is very little geographical overlap between the two chains along the East Coast.

"The big obvious benefit, especially in the U.S., is the scale advantage the combined group will have in terms of purchasing power," Pradeep Pratti, an analyst at Citi, told The Wall Street Journal.

While the combined companies would have more buying power, bigger doesn't necessarily amount to better. "We struggle to think of any proven successful big M&A deal in food retail," unnamed analysts at Bernstein were quoted as saying by Reuters.

ahold Delhaize merger

Both companies have struggled, along with other conventional supermarket operators, to improve sales and margins in light of price competition from the low (Aldi, dollar stores, Walmart) and high ends (Whole Foods). Delhaize has also faced increased competition, particularly in its North Carolina home, with Kroger's acquisition of Harris Teeter.

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