So the financial world is filled with titillating talk that Ahold and Delhaize may merge. There have been talks in the past and they failed, so perhaps, nothing will happen. From a financial point of view, we could see doing a merger and then immediately selling off the American division or doing a public offering. Based on different valuations in different places, it might be some financial machination that would produce a profit.
But, from a retail and vendor perspective – really, what is the point?
The chains barely overlap, so probably not too many divestments would be required — perhaps a few stores in Belgium and a tiny number in America.
Doubtless they will project synergies, but whatever savings are realized through combining some back office and top management functions will probably be lost by having a more distant management team. We wrote all these pieces just about the difficulties of trying to merge buying responsibilities between Hannaford and Food Lion:
Though Stacked With Talent, Can A Consolidated Delhaize With Diverse Banners Meet Its Overall Strategic Goals?
Delhaize Advises Vendors Of Plan To Consolidate Procurement: Is This A Win Or A Loss For Delhaize…And For The Broader Industry?
Amidst Procurement Angst From Wal-Mart And Delhaize, Kroger Makes Changes More Transparent To Vendors
Then Wall Street analysts, who have never worked in the industry a day in their lives, will explain that because the combined chain is bigger, they will be able to buy less expensively.
This is mostly a chimera.
First, take produce… to have any hope of achieving this, there has to be a very sophisticated organization. When we interviewed Gé Happe, European Sourcing Director at Ahold in Pundit sister publication PRODUCE BUSINESS, he explained that the European and American divisions of the company did not have a unified procurement system:
Does having a large American division help you in any way? Does Ahold’s American division ever procure for you in the U.S., or do you always procure directly?
So far, the European and U.S. arenas of Ahold are not working together on an operational level.
Second, once one reaches a certain size, having to buy more is not an advantage; it is a disadvantage. Think logically. How is it possible for Wal-Mart, Costco, Kroger, Safeway/Albertsons, Sysco and US Foods to all buy “under the market”? They ARE the market!
And when supplies are tight, loyalty plays out in surprising ways. Imagine there is weather and supplies have to be cut across the board by 50%. So all buyers will be screaming. But you know what happens? The intelligent vendor cuts Wal-Mart by 51% and then completely fulfills the orders for Dave Corsi, Vice President of Produce and Floral at Wegmans. Why? Wal-Mart won’t be any more unhappy than they would have been with a 50% cut, and Dave Corsi is the vendor’s new friend for life.
This whole proposal may be a way to make a quick killing, but it doesn’t provide any likely pathway for growth.