FITTING THE PIECES TOGETHER

DAVID ORGEL

NEW YORK -- Supermarket executives are staying focused on the details of merger integration despite numerous challenges and the disappointment of falling stock valuations.

That's the picture that emerged from company presentations at the Donaldson, Lufkin & Jenrette Annual Food & Drug Retailing Conference here.

The difficulty of making large corporate marriages work was one of the major factors causing investors to drive down the prices of supermarket stocks in recent months. But top executives of the industry's leading distributors said their companies' hard work appears to be paying off with some hefty projections about cost savings.

"We don't know how difficult it will be for companies to put the pieces together," said Edward Comeau, vice president of DLJ. "I think the worst is over with regard to indigestion from acquisitions, but it's hard to predict." But, looking beyond integration, "there's potential for companies to have streamlined infrastructures, real procurement clout, best practices and growing store brands," Comeau added.

Kroger, Cincinnati, is identifying synergies from its purchase of Fred Meyer that will amount to $380 million over three years, Joseph Pichler, chairman and chief executive officer, told the conference. Some of the savings are simple, such as $1.5 million from pooling purchases of aluminum foil ware for its divisions. Likewise, "We will have private-label growth by bidding on a corporate-wide basis, driving down costs," he said.

Also finding post-merger synergies is Albertson's, Boise, Idaho, whose integration with American Stores has been placing first emphasis on store conversions in California. Albertson's has found many "plus-ups," the store's term for best practices, said Michael Reuling, vice chairman. "Our Quick Fixin' Ideas meal programs have been well received in [the acquired] Lucky stores," he said. "There's a big incremental business."

Joseph C. Hall, president of Food Lion, a unit of Delhaize America, Salisbury, N.C., said "The integration of Hannaford is our top priority for the year 2000." He was referring to the company's purchase of Hannaford Bros., Scarborough, Maine, a deal which still has to be completed.

The company is expecting synergies of $75 million a year over a three-year period, said Laura Kendall, chief financial officer of Delhaize America.

Safeway, Pleasanton, Calif., has completed a string of acquisitions in the last two years, including Vons Cos., Arcadia, Calif.; Dominick's Finer Foods, Northlake, Ill.; Carr Gottstein Foods, Anchorage, Alaska; and Randall's Food Markets, Houston. While none of these were blockbuster deals in terms of size, they have been contributing significantly to Safeway's financial performance, said Steven Burd, president, chairman and chief executive officer.

"Our efforts to date are small-scale," Burd said. "Because they were spaced out over time, the integrations were done with relative ease."

At A&P, Christian Haub, president and CEO, said the company "is entering a new growth phase,"pursuing organic store growth and synergistic acquisitions.

Wholesalers addressing the DLJ audience outlined growth strategies that included acquisitions, integrations and corporate retailing, including a focus on price-impact formats. A case in point is Supervalu, Minneapolis, whose substantially completed integration of its Richfood acquisition is expected to bring more than $40 million in synergies by 2003, said Mike Wright, Supervalu's chairman, president and CEO. Wright also cited Supervalu's new supply agreement with Kmart and its focus on price-impact retail formats, including Save-A-Lot, Shoppers Food Warehouse and Cub Foods.