The Struggle is Real for Grocery Chains as Mergers Persist
The prevalence of grocery store mergers is bringing about quite a change in the food retail industry.
One such merger has moved closer to fruition this week. Pending shareholder and regulatory approval, Delhaize’s Food Lion and Hannaford stores will merge with Ahold’s Stop & Shop and Giant chains--taking 4.6 percent share of the American grocery market and ultimately creating one of the world’s leading food retailers. If it goes through--likely about one year from now--the two would be known as Ahold Delhaize--a $29.5 billion company with more than 6,500 stores and 375,000 employees in the U.S. and Europe. By combining advertising and promotions, along with consolidating their distribution and warehousing, Delhaize and Ahold expect to save half a billion dollars within 3 years of merging.
This move follows the joining of multiple retailers over the past few years--Spartan Stores with Nash Finch, Safeway with Albertson’s and Kroger with Harris Teeter. While some might expect extreme makeovers following such major unions, it is believed that maintaining each store’s identity and name will not disrupt the customer loyalty each has earned over time.
The reason for these mergers is simple--sales are flat and retailers need to get an edge on the competition. Increasingly, these chains are competing with warehouses that sell in bulk such as Costco and Sam’s Club. But there’s also rivalry against stores like Target and Walmart super centers--the latter of which is the largest grocery chain in the U.S.--that have expanded product offerings. Then there’s consumers’ love affair with dollar stores--particularly since the recession--discount chains and the ever popular natural food stores like Whole Foods and Sprouts. In Europe, there’s been a spike in consumers preferring to buy groceries online.
While maintaining store identities seems to work, altering other strategies has proven to be detrimental. After Food Lion implemented an “everyday low pricing” structure much like Walmart’s, the chain saw a drop in sales, likely losing customers who prefer weekly advertised sales and promotions.
Delhaize and Ahold continue to make progress with their pending merger, their traditional stores persevering between the fame of affordable stores and more upscale retailers. Their dreams of gaining market share and saving money is no new phenomenon, though. The companies are said to have first discussed merging back in 2006.