WHY CONSOLIDATE NOW?

ELLIOT ZWIEBACH

Disclosures of new industry consolidations are occurring almost weekly, or so it seems. Jeff Noddle, executive vice president of Supervalu, Minneapolis, said he believes the trend toward consolidation is partly the result of a me-too syndrome. "Consolidations feed off one another," he said. "When one company sees a competitor acquiring someone, he feels the need to balance that with an acquisition of his own." Phillip St. Georges, managing director of retail ventures for KPMG Peat Marwick, Washington, D.C., expressed similar thoughts. "As prices are pushed upward, it prompts more people to look at more opportunities, and they snowball on each other," he said.

According to one retailer, who asked not to be named, consolidation is a healthy and appropriate trend "that recycles tired companies.

"It's a case of out with the bad air, in with the good, because it takes companies with tired strategies or ones that are overleveraged and aren't doing enough for customers and replaces them with a more aggressive, creative, growth-oriented attitude."

According to industry observers, there are a host of reasons why so much consolidation is taking place, including the following:

Sluggish sales growth resulting from overcapacity, minimal population growth in most areas and low inflation.

Tougher competition, which promotes more sellouts than buyouts.

Difficulties acquiring adequate real estate, because of intense competition for sites in saturated markets and the risks involved with entering new markets.

Investments in sophisticated technology, which allows larger parent organizations to keep tabs on businesses scattered over a wider geographic range while still engaging in regional or local merchandising.

The health of the economy.

The willingness of Wall Street to invest in the industry because of its belief that higher earnings growth follows consolidation.

The shortage in labor and the difficulty of finding enough employees to staff a store.

Interest by overseas retailers in getting into U.S. markets now that most European markets are overstored.

Aggressive leadership by supermarket owners, "who are no longer characterized by the early, more conservative entrepreneurs but are now more professional managers who aren't afraid to accept risks," Harvey Gutman, senior vice president, store development, for Pathmark Stores, Carteret, N.J., said. "And they have credibility with financial institutions to make big deals."

A shrinking market, which Jim Wisner, vice president, Willard Bishop Consulting, Barrington, Ill., said is the result of more food dollars being dispersed to category killers, mass merchandisers and other businesses.

Year 2000 issues, with some smaller players who can't or won't invest in the software necessary to make the conversion for the next century becoming likely candidates for acquisition.

Consolidated Concerns

Following is a chart that reflects some of the supermarket industry's major consolidation activity since the beginning of 1996:

Acquirer Acquiree

Volume at Time Volume at Time Acquisition Combined

Of Acquisition Of Acquisition Date Volume

Ahold USA Giant Food Pending $18.5 billion

$14.3 billion $4.2 billion

Albertson's Buttrey Pending $15.4 billion

$15 billion $368.1 million

Supervalu Tidyman's Pending $17.5 billion

$17.2 billion $300 million

Albertson's Smitty's 4/98 $15 billion

$14.9 billion $100 million

Fred Meyer Ralphs Grocery Co. 4/98 $14.3 billion

$7 billion $5.5 billion

and QFC/Hughes

$1.8 billion

Richfood Holdings Shopper's 4/98 $4.2 billion

$3.8 billion Food Warehouse

$378.6 million

Richfood Holdings Farm Fresh 1/98 $4 billion

$3.4 billion $660 million

Albertson's Seessel's 1/98 $14.9 billion

$14.7 billion $181.6 million

Raley's Nob Hill Foods 12/97 $2.4 billion

$2 billion $400 million

Jitney-Jungle Delchamps 11/97 $2.3 billion

$1.2 billion $1.13 billion

Fred Meyer Smith's Food & Drug 9/97 $7 billion

$3.7 billion $3.3 billion

Giant Eagle Riser Foods 8/97 $3.6 billion

$2.3 billion $1.3 billion

Nash Finch United-A.G. Co-Op 6/97 $4.6 billion

$4.2 billion $400 million

Safeway Vons Cos. 5/97 $22.7 billion

$17.3 billion $5.4 billion

Lund's Byerly's 5/97 $450 million

$100 million $350 million

KKR Randalls 4/97 $2.4 billion

(Non-retailer) $2.4 billion

QFC Hughes 3/97 $1.8 billion

$1 billion $800 million

Kohlberg & Co. Schwegmann's 1/97 $400 million

(Non-retailer) $400 million

Food Lion Kash n' Karry 1/97 $9.2 billion

$8.2 billion $1.02 billion

Nash Finch Super Food Services 11/96 $4.1 billion

$2.9 billion $1.2 billion

QFC Keith Uddenberg, Inc. 11/96 $1.1 billion

$800 million $300 million

Bashas' Megafoods 10/96 $870 million

$800 million (est.) $70 million (est.) (est.)

Richfood Holdings Norristown Wholesale 9/96 $3.4 billion

$3.3 billion $120 million

Whole Foods Fresh Fields 7/96 $710 million

$496.6 million $213.5 million

Wild Oats Alfalfa's 7/96 $250 million

$160 million $90 million

Ahold USA Stop & Shop Cos. 7/96 $12.4 billion

$8.3 billion $4.1 billion

Nash Finch T.J. Morris 7/96 $2.9 billion

$2.8 billion $110 million

Bruckmann, Rosser,

Sherrill & Co. Jitney-Jungle 3/96 $1.2 billion

(Non-retailer $1.2 billion

Smith's Food & Drug Smitty's Super Valu 2/96 $3.6 billion

$3 billion $600 million

Sources: Corporate financial reports, SN research.