Should Banners Be United for Efficiency's Sake, or Not? 2007-04-02

David Merrefield VP, Editorial Director [email protected]

One of the more puzzling issues that food retailing presents has to do with banner management; specifically, when a company finds itself with multiple banners, is it a good idea to unify those banners, or not?

As is the case with most puzzling issues, the answer depends on the situation. In a few instances, such as the failure of a banner, it makes good sense to unify banners. Often it doesn't.

But let's start at the beginning. Why might a food retailer find itself with more than one banner? In broad outline, here's why:

Before we consider this further, let's take a look at what the history of the industry suggests. In years past, many food retailers expanded largely by building stores from the ground up and entering new, and similar, territory incrementally. To the extent that locations were acquired, it would be to get stores for real estate, and convert them to the main banner. Although exceptions could be cited, it seems that historically, the tendency was to operate under a single banner. That style of operation is the friend of efficiency.

In more recent times, the growing diversity of the population has mitigated against this. To cite one example, Food Lion was long the prototypical cookie-cutter operator. It stamped out a single format across the land with little localized customization. The format was characterized by limited assortment, few services and low prices.

At the present time, Food Lion, in the shape of its parent company Delhaize, could hardly be much further from that model. Delhaize operates several banners in this country in addition to Food Lion, namely Hannaford, Sweetbay, Bloom, Harvey's, Bottom Dollar Food and Reid's. Delhaize credits much of the recent success it has enjoyed to the development of, or acquisition of, this banner portfolio. Delhaize is an unlikely candidate for banner consolidation.

In much the same realm is Supervalu, which expanded its retail holdings through the years by acquiring and, for the most part, maintaining a large number of banners. Indeed, when it acquired Albertsons last year, not only did it maintain that flag, but so did a separate company that also acquired a number of Albertsons locations. Albertsons is destined to survive, even though the number of such stores in the non-Supervalu group will continue to shrink. While on the topic of Albertsons, that company provides a fine example of why it's unwise to stamp out an entire chain. In 1999, Albertsons, which owned Lucky, decided to put that name to sleep and re-flag Lucky as Albertsons. The move was widely regarded as a disaster. On the other hand, in more recent time, an independent operator saw enough remaining equity in the Lucky name to try to revivify it under its own aegis. When that effort failed a legal test, current owner Supervalu itself decided to operate several locations in Las Vegas and Southern California under the Lucky name.

The bottom line is that notwithstanding of the siren sound of efficiency, banner unification isn't the wisest course of action right now.