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

Discussion
May 12, 2015

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.

Do you think a merger of Ahold and Delhaize would make sense in terms of its implications for the U.S. market? What do you see as the potential pros and cons of a deal to merge the two companies?

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Braintrust
"The only benefits I see in this merger would be in the efficiency of backroom operations (Accounting, HR, etc.) and some purchasing savings as the companies consolidate. The larger issue is how does the new company approach the consumer to avoid making the new company a bland, efficiency-driven face to their customers."
"When you look at past mergers, many of them had the same thought of increasing their buying power to compete against the giants. The problem is it hasn’t worked. Jobs were lost, along with a disruption of unique services that made the original stores successful in the first place."

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5 Comments on "Would an Ahold/Delhaize merger create a stronger grocery company?"


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Ryan Mathews
Guest
7 years 6 days ago

Bigger isn’t the same thing as stronger.

I have sadly seen a large number of mergers in this industry and never once have I seen the merged company be equal to — let alone greater than — the sum of its parts. Take a chain with a 3 percent share and add a chain with a 5 percent share and you are more than likely to end up with a combined chain enjoying a 6 to 7 percent share (if everything is optimized).

I’m sure at some point dinosaurs mated swiftly, who knows, perhaps even between similar species, but it didn’t save them in the end.

Paula Rosenblum
Guest
7 years 6 days ago

Grocers in general have had a hard time with M&A. It is always challenging to subsume one banner under another. I don’t think it makes a lot of sense.

Theoretical pros are elimination of organizational redundancies. Practical cons are that these redundancies rarely get eliminated (think Albertsons!).

J. Peter Deeb
Guest
7 years 6 days ago

The only benefits I see in this merger would be in the efficiency of backroom operations (Accounting, HR, etc.) and some purchasing savings as the companies consolidate. The larger issue is how does the new company approach the consumer to avoid making the new company a bland, efficiency-driven face to their customers. The best way to grow the new entity is to review best practices in all areas, especially consumer insights, and strengthen
the offerings to their customers.

Tony Orlando
Guest
7 years 6 days ago
When you look at past mergers, many of them had the same thought of increasing their buying power to compete against the giants. The problem is it hasn’t worked. Jobs were lost, along with a disruption of unique services that made the original stores successful in the first place. All of us, especially smaller markets like mine, would love to have the buying power of a Walmart or Costco, but it just isn’t going to happen. Bigger isn’t always better, and the solutions are the needles in a large haystack of ideas, many of which don’t work anymore. We as small markets have the advantage of quickly changing to the wide variety of offers from many regional wholesalers, who are always offering excellent deals, and it takes almost a full-time person to sort through them every day. Put someone in charge who knows the business inside-out and create some great promotions that are targeted more locally, offering products made in your area, for starters. If a merger makes sense from a synergy standpoint then I’m… Read more »
David Livingston
Guest
7 years 6 days ago

This would be similar to Albertsons and Safeway. Both Ahold and Dehaize are made up of plain, sterile, plain vanilla grocery stores. Both companies generally perform below market average in sales per square foot. Delhaize in particular with their failing Food Lion stores. Delhazie can’t seem to close stores fast enough with the failure of Sweetbay and Bottom Dollar. Ahold failed with BI-LO and Tops and was forced to sell those divisions off. Very similar to the way Safeway was forced to sell off Canada and shut down Chicago. Albertsons pulled out of Florida along with shuttering stores across the country.

By merging, Delhaize and Ahold can continue to close stores and reduce redundancy. They operate middle of the road conventional stores which are quickly becoming dinosaurs. The pros: A merger would buy both companies more time. Then perhaps down the road they can merge with Safeway-Albertsons. Cons: Mediocrity times two equals twice as much mediocrity.

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Braintrust
"The only benefits I see in this merger would be in the efficiency of backroom operations (Accounting, HR, etc.) and some purchasing savings as the companies consolidate. The larger issue is how does the new company approach the consumer to avoid making the new company a bland, efficiency-driven face to their customers."
"When you look at past mergers, many of them had the same thought of increasing their buying power to compete against the giants. The problem is it hasn’t worked. Jobs were lost, along with a disruption of unique services that made the original stores successful in the first place."

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