Ahold and Delhaize merger to create U.S. grocery force

The long rumored merger between Ahold (Giant Foods, Stop & Shop, Peapod) and Delhaize (Food Lion, Hannaford) is finally coming to pass as the two companies have agreed to a stock deal valued at $10.4 billion. Once completed, the combined company, to be known as Ahold Delhaize, will become the fifth largest grocer in the U.S.

Ahold will control 61 percent of the company while Delhaize will own the remaining shares. The merger is projected to save the companies more than $560 million annually three years after it is completed. The combined companies are also expected to benefit from the increased buying power that goes with operating a much larger concern. The two companies are looking to close the deal by the middle of next year.

"The proposed merger with Delhaize is an exciting opportunity to create an even stronger and more innovative retail leader for our customers, associates and shareholders worldwide," said Dick Boer, CEO of Ahold, in a statement. "With extraordinary reach, diverse products and formats, and great people, we are bringing together two world-class organizations to deliver even more for the communities we serve."

Ahold Delhaize

BrainTrust

"They will need to upgrade a lot of Food Lions for step one and then help them compete by keeping their low-price image. The best management team is at Stop and Shop so let than take charge."

Frank Riso

Principal, Frank Riso Associates, LLC


"Looked at from strictly an American market perspective, this merger doesn’t seem to offer much except cost-cutting, which admittedly isn’t all that bad."

Roy White

Editor-at-large, RetailWire


Discussion Questions

What will it take for Ahold Delhaize to succeed in the U.S.? How do you see the company’s management being organized following the completion of the merger?

Poll

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Tom Redd
Tom Redd
8 years ago

Balance and the right assortments down to the local levels. They have the structure and the teams to do this. The management needs to have a team mode of operation and a common desire to beat Kroger and Whole Foods. Avoid Walmart-based strategies — they will fail. Also, Costco owns their turf and shopper mindshare as Walmart does. Take the open space — Kroger and Whole Foods. Localize to win.

David Livingston
David Livingston
8 years ago

Succeeding is defined as surviving. I doubt they will invent a new way to sell groceries and will just keep on having the same sterile, plain, vanilla grocery stores that have been open for decades. Keep in mind that the bar for plain vanilla does get raised over time but overall I see their sales per square foot continuing at the minus 20 percent of market average rate.

To keep their sales per square foot from declining they will need to close down several hundred stores that are redundant, low-volume, or in too close proximity. As with Albertsons/Safeway, they will most likely sell off the excess to a retailer with minimal chance for success, which in turn will be good for the new company.

As outlined in the news, Ahold will be in control. Which tells me Delhaize will be the stepchild. Most likely the Food Lion stores will be the first round of closures.

Frank Riso
Frank Riso
8 years ago

They will need to upgrade a lot of Food Lions for step one and then help them compete by keeping their low-price image.

The best management team is at Stop and Shop so let than take charge.

Hy Louis
Hy Louis
8 years ago

The combined company will probably end up being about 75 to 80 percent of the current combined store count. Ahold has been the most successful of the two and has had more experience with larger stores. In places where there is overlap with Hannaford and Stop and Shop, or Giant/Martin’s and Food Lion, I speculate Stop and Shop and Giant/Martin’s will be the stores that stay open. Management redundancies can be eliminated as well. The question in the instant poll about growing market share misses the point. The overall combined market share will go down. The merger is about improved efficiencies, not growing sales and market share.

Roy White
Roy White
8 years ago

Looked at from strictly an American market perspective, this merger doesn’t seem to offer much except cost-cutting, which admittedly isn’t all that bad. Ahold USA continues to struggle to develop sales, and Food Lion and Hannaford are not having an easy time either.

Delhaize’s U.S. operations generated a 3.2% sales increase in the opening quarter of this year. Moreover, Ahold’s U.S. underlying operating income sagged at constant exchange rates, while that of Delhaize increased in dollars only about 2.4%. Both generate a 3.7-3.8% ratio of underlying operating income, and that hasn’t changed much.

And while there is not excessive overlap of the two American operations, they both specialize in conventional supermarkets, a format that has been having a great deal of trouble generating sales and earnings growth, as well as a sizzle to attract increasing numbers of shoppers. There doesn’t seem to be an innovation on the horizon here, just lower costs. T

he brightest spot is Peapod. This Ahold division has been in an expansion mode with plenty of resources being put into it. Average order size is around $160, so perhaps this division is the key to the merger in the American market.

Martin Amadio
Martin Amadio
8 years ago

Once again, a grocery merger based on projected operational savings. More evidence that the merchant is again taking a back seat to the operator.