The proposed $29 billion merger of two European grocery store operators may position Ahold NV and the Delhaize Group to compete more effectively in the United States.
The companies generate roughly two-thirds of their sales in the United States, and the combined Ahold Delhaize would have a 4.6% share of the U.S. grocery market, making it the fourth-largest player by revenue, according to research firm Euromonitor International. Their U.S. assets include the Stop & Shop, Giant, and Food Lion chains.
The merger “adds scale, allows us [to invest more] in innovation, and provides opportunities to develop our store formats in a highly competitive market,” Ahold chief executive Dick Boer told The Wall Street Journal.
The WSJ noted that the companies mostly operate conventional supermarkets and have been “caught in a squeeze between heavy discounters on one side and then the higher-end brands, such as Whole Foods Market Inc., that appeal to U.S. consumers increasingly seeking out foods perceived as fresher and healthier.”
Delhaize’s overall operating profit fell 21% to 423 million euros ($474 million) last year, while Ahold’s was up 0.9% at 1.25 billion euros ($1.4 billion). The two companies have a combined 54.2 billion euros in revenue.
“They haven’t really lit any fires lately,” said Craig Rosenblum, a grocery consultant at Willard Bishop. “This gives them a chance to reset a little bit and figure out what their strategy is going to be.”
The companies expect to generate annual savings of 500 million euros ($560 million) after three years. Such “savings are vital in a flat market,” said Kurt Jetta, founder of the TABS Group, a business analytics firm.
The New York Times said the merger was “yet another sign of the malaise hanging over the grocery business in the United States,” noting that it follows a string of grocery store mergers across the country.
”All this activity is a product of what is just a very flat business in terms of sales growth,” Jetta said. “If you can’t grow the top line, you need to find synergies and efficiencies that will help the bottom line.”