HANNAFORD BROS. GETS VICTORY IN SOUTHERN NEW ENGLAND MARKET 2004-10-04 (2)

ELLIOT ZWIEBACH

SALISBURY, N.C. -- Delhaize America's pending acquisition of 19 Victory Super Markets in Massachusetts and New Hampshire will reinforce and strengthen the company's Hannaford Bros. division in southern New England, analysts told SN last week.

Delhaize Group, the Brussels, Belgium-based parent company of Delhaize America here, said it will acquire 19 of Victory's 20 stores for $175 million, with the deal expected to close before the end of the year, in a transaction that will be accretive to earnings in fiscal 2005.

"Until a few months ago, Hannaford was not a big player in southern New England, with only three stores," Edouard Aubin, an analyst with Deutsche Bank Securities, N.Y., said, "which left Shop & Shop and Shaw's as the major players there.

"But with this acquisition, Hannaford will have a larger presence in southern New England, and the duopoly that Stop & Stop and Shaw's have enjoyed in that area -- and the high profitability that Stop & Shop has enjoyed -- will change."

Bryan Hunt, a high-yield analyst with Wachovia Securities, Charlotte, N.C., said the acquisition of Victory "will open up opportunities for Hannaford to get a foothold in new markets in southern New England, though it will need to make a couple more tuck-in acquisitions or begin a major store expansion program for this deal to have a big impact."

Internally, Hunt also said the deal will provide synergies for Hannaford "because Victory has been buying from an outside wholesaler [C&S Wholesale Grocers, Keene, N.H.], while Hannaford is self-distributing. The merchandising between them is quite similar, and they can probably learn a lot from each other. And since they both operate in the same area, the integration appears to be low-risk."

Gary Giblen, senior vice president and director of research for C L King Associates, New York, said the price "appears to be decent at 45% of sales and 6 to 6.5 times operating cash flow.

"This deal also makes it clear Delhaize is looking for acquisitions and raises the possibility it could go after other chains, including Pathmark."

Delhaize was reportedly the second-highest bidder for Pathmark when Netherlands-based Ahold won the right to acquire the Carteret, N.J.-based chain in 1998 -- a purchase Ahold subsequently canceled when the Federal Trade Commission said it had to sell or close more stores than it was willing to divest.

"The Victory acquisition fits perfectly in our strategy to reinforce our presence in existing or contiguous markets through organic growth and fill-in acquisitions with strong synergies," said Pierre-Olivier Beckers, president and chief executive officer of Brussels-based Delhaize Group.

Delhaize engineered a similar fill-in acquisition late last year for its Food Lion division in the Southeast when it acquired Harvey's Supermarkets, Nashville, Ga., a 43-store chain operating in southern Georgia and northern Florida.

Caren Epstein, a spokeswoman for Hannaford, said the company plans to phase out the Victory name by the end of 2005 and rebrand the stores with the Hannaford banner. "This will be an easy transition and a perfect fit," she told SN.

Victory's 20 stores -- 18 in Massachusetts and two in New Hampshire -- do annual volume of $395 million. The 19 stores Delhaize is acquiring account for sales of $385 million; Victory said it will allow the lease on the 20th store to expire in March.

Hannaford operates six stores in Massachusetts, with two under construction, and 23 stores in New Hampshire; after the acquisition is completed, it will operate 25 stores in each state.

Epstein said Hannaford stores average 49,300 square feet, while Victory stores average 45,000 square feet. Both chains have an upscale orientation, with similarities in strategic positioning and customer service, she added, "and the synergies are really wonderful in terms of facilities and quality perishables."

Asked about future fill-in acquisitions, Epstein said Hannaford "always keeps its eyes open for any opportunities," though she declined to say whether any other deals were likely in the near future.

The two chains compete at only one location, in Athol, Mass. -- where the Victory store's lease will expire in March, Arthur P. "Jay" DiGeronimo Jr., president and chief executive officer of Victory, and a grandson of one of the chain's founders, told SN. That lease has been extended on a year-to-year basis for four years, he said.

At 21,000 square feet, the Athol store is Victory's smallest, with a volume of $9.6 million a year, "which is the second-lowest volume among our stores and is below the company's average," DiGeronimo told SN.

Among Victory's locations, five stores in Massachusetts and one in New Hampshire operate under the Market Square Victory banner -- an expanded format with all perishables departments grouped in one area.

Victory began opening the Market Square stores in the early 1990s as a response to Wal-Mart Stores supercenters, DiGeronimo said. "We decided to go upscale [at all stores] to differentiate ourselves from supercenters because you can never win customers on price, whereas you can by offering value-added services and more variety with an emphasis on fresh."

Victory, which is based in Leominster, Mass., was founded in 1923 by brothers James and Louis DiGeronimo.

A Family Legacy

LEOMINSTER, Mass. -- The family that is selling the 81-year-old Victory Supermarkets chain to Delhaize America said it sees its legacy continuing, despite Delhaize's plans to rebanner the stores with its Hannaford Bros. name.

Arthur P. "Jay" DiGeronimo, president and chief executive officer, Victory, and grandson of one of the chain's founders, said Hannaford has made commitments to staff the Victory stores "with the same philosophy as a family business -- to take care of the people and to take care of the customers."

"They've agreed to hire 12 of the 15 members of our supervisory staff," he said, "and they're committed to honoring seniority among employees. Plus, we do an annual wage review in October, and Hannaford told us to go ahead and do it, and they would honor those increases.

"We believe they will take our family history to the next level and will succeed wildly."

Asked how the family history can continue if the stores are rebannered, DiGeronimo replied, "The name is not important -- it's the people who are with us. We believe we have the greatest salesforce in history, and that's what we're entrusting to Hannaford. We believe in Hannaford's commitment to our people."

DiGeronimo said Victory has attracted a lot of interest from suitors.

"Any good strategic plan always considers an exit strategy," he said. "Because there are so few independents left in New England, we've shown up on everyone's radar screen, and people have been asking us about selling for the last 10 or 12 years.

"The family decided it made sense to sell now, given the current economy, after growing a lot over the last 10 to 15 years, so we could go out on top."

DiGeronimo said the family liked the "nature and character" of Hannaford. "We see them as a New England company who knows how to go to market here, and they have the resources to grow faster than we could. With the two new stores they're already building in Taunton and Easton, Mass., plus our stores, they can grow more aggressively in southern New England."