AHOLD CLOSES STOP & SHOP DEAL; MARKET EFFECT MULLED

JENNIFER L. BALJKO

NEW YORK -- Ahold last week closed its acquisition of Stop & Shop Cos. amid growing industry speculation that its planned divestiture of 31 supermarkets could trigger competitive shifts in the New England market.

Representatives from Ahold and Stop & Shop, Quincy, Mass., signed the final acquisition agreement here, making the Zaandam, Netherlands-based food retailer the chain's 100% owner. Several days earlier, Ahold had completed a global share offering to finance the $2.9 billion deal, announced March 28.

Securities analysts and New England food brokers told SN effects of the acquisition and divestitures -- to Shaw's Supermarkets, East Bridgewater, Mass.; Star Market Co., Cambridge, Mass.; Big Y Foods, Springfield, Mass.; and wholesaler Bozzuto's, Cheshire, Conn. -- could include the following:

Stiffer competition in New England for Stop & Shop and Ahold's Edwards Super Food Stores, Windsor Locks, Conn., both of which will now be facing off against some of their former units.

Possible adoption of a common name for Stop & Shop and Edwards stores.

A surge in promotions and customer-service pitches, as the New England chains scramble to lure more shoppers under the new ownerships.

To proceed with the acquisition, Ahold two weeks ago agreed to divest 26 Edwards stores, three Stop & Shops and two planned Edwards sites in gaining consent from the Federal Trade Commission and the Connecticut, Massachusetts and Rhode Island attorneys general.

Pending a 60-day public comment period and 30-day window to close the transactions, Shaw's stands to gain 14 units, Star would get seven (six in Rhode Island, its first stores there), and Big Y and Bozzuto's each would get five. Most of the stores to be divested are Edwards units in central and southern Connecticut.

With so many stores slated to change hands, observers are watching the New England market closely to gauge potential competitive shifts.

Stop & Shop will feel the brunt of any changes because it already agreed to sell stores to rivals in connection with its acquisition of the Purity Supreme chain last year, said Gary Giblen, managing director at Smith Barney, New York.

"Basically, I think it will create another challenge for Stop & Shop," Giblen explained. "Stop & Shop already had one wave of selling stores to its competitors. It looks like they will have another wave created by their own devices."

In acquiring Purity Supreme, Stop & Shop agreed to divest 31 Purity and Stop & Shop stores, whose buyers included Shaw's, Star and area independents. "The other thing well-known in the trade is that Connecticut was Stop & Shop's gold mine. That gold mine has been discovered by other gold diggers that want to mine it," Giblen added. Under the Ahold divestiture, Shaw's Connecticut presence would balloon from five stores to 18. Big Y's store count in the state would rise from 14 to 18 stores, and the total for Bozzuto's, which operates eight corporate stores there, would climb to 13. The sales would leave Stop & Shop and Edwards with a combined 72 stores in Connecticut.

Giblen noted that A&P, Montvale, N.J., also was interested in acquiring some stores from Ahold to fortify its Connecticut base. However, an A&P spokesman declined to comment on that prospect.

According to Robert Testa, vice president of Marino Marketing Group, a North Haven, Conn.-based food broker, "The big loser in all of this will be Edwards because its parent company is buying Stop & Shop, and they have to sell off some of its Edwards stores."

Despite store transfers, regional supermarket competition may remain status quo, with only minimal shifts, according to Jonathan Ziegler, a San Francisco-based analyst with Salomon Bros., New York.

"I don't know if it changes [the market] a lot. It will just be different names on the stores," he said. "You're not adding to or subtracting from the market. It will just change the players who are running the stores. The stores are already in operation."

However, Ziegler noted, the New England chains will be busy trying to keep and lure customers to their new stores. "Whenever there is a change in the market, the customers are considered being in play. You would think there will be contests, giveaways, coupons, advertisements and special buys. Whatever the industry does [to promote itself], you'll see it here."

Whatever happens in New England, Ahold will be ready for it, a company spokesman said. "We feel that we are in a very strong position to be competitive and benefit consumers," Hans Gobes, Ahold's senior vice president of communications, told SN. "Stop & Shop and Edwards are really in an excellent position to do very well and be very competitive and continue to go forward."

Officials from Shaw's, Star and Bozzuto's declined to comment on possible competitive shifts. Big Y did not return calls for comment.

Ahold's bigger problem may not be external competition but the sibling rivalry that may surface between Edwards and Stop & Shop.

The question of how Ahold will operate the two chains may be answered next month, Gobes told SN. Though declining to be specific, he said adoption of a common name for Stop & Shop and Edwards is a possibility. "It is one of the options we have to come to a decision on. We are looking for the best ways for the two chains to continue there," he said. "Customers are very attached to Stop & Shop and Edwards. In August, we may be in a better position to inform you of a decision. We have various options we have to come to a decision on."

Mark Husson, vice president at J.P. Morgan Securities, New York, said a name change in New England is likely. "Most of the stores [being divested] are smaller Edwards stores. They are not the larger Stop & Shop stores," he explained. "Ahold will not run two names in one market. I expect to see some change in the names. Stop & Shop, I believe, is a stronger name. I expect to see Edwards turn over to Stop & Shop." Ziegler, however, thinks the two chains will run side-by-side because Edwards has everyday low pricing and Stop & Shop has a high-low pricing strategy.

"They may be able to compete against each other. One is everyday low pricing, and one is promotions. I don't envision Edwards becoming a Stop & Shop or a Stop & Shop becoming an Edwards," he said. "The issue is since they have spent so much money developing an image in a market, will they go and change it? If both were high-low or everyday low, I might change what I am telling you. But now they appeal to different customers."

Giblen said any rivalry between Stop & Shop and Edwards likely will dissipate now that they share the same parent company.

In divesting stores, Ahold would have preferred to avoid selling to its rivals but had limited options because of FTC and state constraints, analysts said.

"The antitrust authorities played an active role in this and knew the stores had to be turned over to vigorous competitors," Giblen said. "There was also a very tight time line on selling the stores. It was more feasible for the bigger stores to move quickly on this than the small ones."

Ahold had to protect its shareholders, Husson noted. "Ahold would have clearly been looking to sell the stores to someone who would complement what Stop & Shop is doing rather than sell it to someone who will directly compete for Stop & Shop customers in its core market," he said. "I am sure they talked to everyone. The decision of who to sell to is a combination of price and competitive attitude.

"Shaw's is one of their most aggressive competitors and one they share a lot of competitive characteristics with," he added. "I am sure they are not keen with Shaw's getting several of the stores. But if the number is right, they have to go ahead with it. It is protecting the shareholders. These things are trade-offs."

Ahold offered the stores to several parties and approached chains that previously expressed an interest in purchasing the units, Gobes told SN. The potential buyers, whom he declined to name, were required to meet a certain price, he said. Terms of the proposed sales have not been disclosed.