What's the buzz concerning the future of retail players, especially those in flux for one reason or the other? That's the key question the news article, referenced on Page 1 of this week's SN, seeks to answer.
To a large extent, the news article -- written by SN reporter Elliot Zwiebach -- focuses on speculation concerning what may be ahead in terms of merger and buyout activity. We'll take a look at what some of the buzz is about in a moment, but first let's take a look at the forces behind consolidation, past and future.
In recent years, food retailers -- among many other forms of commerce -- struck upon the fact that since they were in a flat-to-no-growth industry, a good way to win quick top-line growth was to buy a like enterprise. And it was seen as a way to grow without exposure to the risk that building numerous new stores poses.
Naturally, at some point, there has to be an end to growth by acquisition: When all the chains that could possibly merge have done so, that's the end of it and the real work of increasing sales with what's in hand begins. We're now in the latter phase. The best indicator is that merged chains are looking at the assets they have to make sure they are properly melded, and are weeding out what doesn't fit. An example of that is Albertson's decision to close 165 underperforming stores.
Another indication that buyout prospects are on the wane is that some companies have decided to trim assets without a clear indication of a buyer for all the assets on the horizon. Included in that camp are Fleming and Supervalu. Additionally, it's instructive to consider that the entire Jitney Jungle and Grand Union chains couldn't be sold as one. Nonetheless, the buzz about big changes ahead for many chains persists. Here's a quick look at some of the talk, and a sample of the companies it concerns:
SAFEWAY: This chain is a frequent topic because it has been a successful consolidator of several moderately sized chains, and has driven good growth in that manner. Some observers say Safeway's revenue growth is beginning to flatten and that same-store sales aren't all they should be. Some predict that Safeway will ameliorate that situation by means of a buyout. It might be argued just as well, though, that it's time for Safeway to fine-tune what it has and make sure that organic-growth initiatives perform.
PATHMARK: There can't be much discussion about possible transactions without the name of this chain surfacing, especially since it has been in play before. Ahold's buyout bid of a couple of years ago never came off. Indeed, many believe it's Safeway that might well buy Pathmark to shore up Safeway's orphan operation in the mid-Atlantic. Delhaize could eye the chain for similar reasons. Interestingly, in recent days Pathmark has expressed interest in buying a chain itself, Big V Supermarkets.
AHOLD: One of the more instructive situations around concerns Ahold's move away from being a retail consolidator and toward being a food-service consolidator. This is a strategy that could ultimately boost synergies between retail and food service, although that hasn't happened up to now. It also gives a view into what could be the next phase of consolidation: If retailers can't combine, they can look to other related forms of enterprise, such as drug, convenience and food service.