European grocery giants with U.S. stores announce $29B merge
Royal Ahold NV, the Dutch retailer that operates U.S. supermarket chains Giant and Stop & Shop, has agreed to merge with its Belgian counterpart Delhaize Group, the parent of Food Lion. (Algerina Perna / Baltimore Sun)
June 24, 2015
The $29 billion merger of the European owners of Giant, long the Baltimore region's dominant supermarket chain, and Food Lion would make both grocery brands more competitive with nontraditional grocers such as Wal-Mart, analysts said Wednesday.
A marriage of Dutch retailer Royal Ahold, which owns Landover-based Giant and other East Coast chains, and rival Delhaize Group of Belgium, parent of low-cost operator Food Lion, would create the fourth-largest U.S. grocer and be the latest in a series of supermarket buyouts and mergers.
The combined company, Ahold Delhaize, would have more than 6,500 stores around the world with 50 million customers a week in the U.S. and Europe, generating about 61 percent of its sales in the United States. The merging companies offered little guidance on plans for their many U.S. banners, and analysts suggested that the deal wouldn't result in significant closings, particularly in Baltimore.
Giant, with 158 stores and 20,000 workers in Maryland, Virginia and Washington, retained its No. 1 rank last year among Baltimore-area food retailers, according to trade journal Food World. But the chain, which traces its roots to a grocery store opened in 1936 in D.C., has lost market share in each of the past five years.
n this year's ranking, Giant was joined in the top 10 by such nontraditional food retailers as Wal-Mart, Rite Aid, CVS and Target. Food Lion, which ranked 11th in the Baltimore area, has about 79 stores in Maryland, with about 40 to 50 employees per store.
"The market is shifting," said Jeff Metzger, publisher of Columbia-based Food World, a trade publication. "There's a less compelling reason to shop at a Giant than 10 or 15 years ago, or more choices for you to pick and choose from."
And while older shoppers are more likely to stick with a preferred store, he said, "for millennials and Gen Y'er's, there's not a lot of loyalty."
Analysts said shoppers might be the biggest winners from the planned merger as the two companies' bargaining power grows along with their size.
"The better business power will allow Giant to lower prices to shoppers, and even though Food Lion is already a low-price [retailer], it can lower prices even more," said Burt P. Flickinger III of the Strategic Resource Group, a consumer industry consulting company.
The grocery sector has become fragmented, with stores like Whole Foods hitting the high end, and Wal-Mart and Dollar General coming in low.
That has left more traditional grocers fighting for the huge customer base that lies in between. As those grocers grow and their leverage increases, they can demand more from food and beverage suppliers, said Tim Barrett, a retail analyst with Euromonitor. Those savings will likely be passed through to customers in a bid to take back market share from Wal-Mart, dollar stores and other discount retailers, he said.
The deal announced Wednesday contributes to the industry's continuing consolidation. It is expected to be completed by mid-2016.
Earlier this year, the owners of the Albertsons chain bought Safeway, and Dollar Tree is in the midst of buying Family Dollar. Cerberus acquired the Albertsons stores it didn't already own from Supervalu two years ago, along with four other Supervalu-owned chains. Kroger bought the regional chain Harris Teeter early last year.
In the U.S., in addition to Giant, Royal Ahold owns Stop & Shop in New England, Carlisle, Pa.,-based Giant Food Stores and Martin's, and online grocer Peapod. In Europe, it owns Albert Heijn stores. Food Lion and Hannaford are Delhaize's best-known U.S. brands. It operates the Delhaize and Tempo chains overseas.
Last year, Ahold and Delhaize had combined sales of $60.6 billion. The companies said that the deal will create annual savings of about $560 million after three years.
"This is a true merger of equals, combining two highly complementary businesses to create a world-leading food retailer," Jan Hommen and Mats Jansson, the chairmen of Ahold and Delhaize, respectively, said in a statement.
At a time when traditional supermarket revenue is growing slowly, one of the combination's biggest opportunities lies in online sales and deliveries by expanding Ahold's Peapod operation, said Phil Lempert, a food industry analyst and editor of SupermarketGuru.com.
"What Ahold and Delhaize have gotten is a bigger geographic footprint for Peapod," Lempert said. "There's some huge opportunities here.
"I don't think this move is being done just to cut cost. This merger is bigger than just cutting costs. Do I think costs will be taken out of the system because of the merger? Absolutely, whether it's store footprints or back end or warehouse, but that's not why they're doing it."
Flickinger also said he does not expect it to result in store closures and layoffs.
"If it was five to 15 years ago, that may have happened," he said, "but I don't expect store closures and don't expect any layoffs because both Giant and Food Lion have lost such a meaningful amount of market share in the last two years."
Combined, the companies should be able to lower prices to attract shoppers and increase sales, though it's likely market share erosion will continue, Flickinger said.
But others said cutting costs, while not a primary objective of the merger, would likely occur to eliminate duplicate functions and store locations.
"In this merger, the Giant stores definitely have the upper hand," said Jeremy Diamond, a Baltimore-based food retailing consultant. "I would look for Food Lion stores either to be closed if they are too close to Giant stores, or the banners will change."
Whether or not stores need to be closed or sold will depend in part on federal regulators, who may require a certain number of stores in a given area to close or be sold but would typically let the company decide which banner to shed.
In the U.S., Ahold and Delhaize stores may overlap most in the Richmond, Va., area and least in the Baltimore area, Metzger said.
"Baltimore will be minimally affected, if it's even affected at all," he said.
The unions that represent Giant workers did not respond Wednesday to requests for comment. Food Lion is nonunion.
But to stave off competition, the companies will need to do more than achieve operating efficiencies, Metzger said
"How are those retailers connecting with the consumer?" he said. "There's no indication yet that this deal was directed toward making this consumer connection. ...That may be a priority, but both companies have a long way to go."
The Associated Press contributed to this article.
The merging companies