YEAR IN REVIEW 2000-12-25 (5)

JON SPRINGER

The trend toward consolidation in the supermarket industry continued in 2000, albeit at a slower pace and with few of the so-called "megamergers" that rocked the industry in 1998 and 1999.

While Kroger Co., Cincinnati, and Albertson's, Boise, Idaho, largely devoted themselves to digesting the major assets they acquired last year, other companies turned their focus toward regional chains. As the year ended, Seaway Food Town, Maumee, Ohio; Grand Union, Wayne, N.J.; and Genuardi's Family Markets, Norristown, Pa., were among the chains sold or in the process of being acquired.

While Genuardi's was snapped up by a major retailer, Safeway, Pleasanton, Calif., wholesalers were also important players in the consolidation game, acquiring retailers to maintain their hold on these retailers' usually troubled business. C&S Wholesale Grocers, Brattleboro, Vt., made a play to save one of its largest customers by agreeing to acquire most of Grand Union's stores.

Other wholesaler acquisitions included Spartan Stores, Grand Rapids, Mich., which took over Seaway-Foodtown, and URM, Spokane, Wash., which picked up Rosauers Supermarkets, another Spokane-based company.

Moving in the other direction, Dallas-based Fleming this year announced plans to leave the conventional supermarket field entirely to focus on its wholesale and price-oriented warehouse businesses. In December, Fleming sold off Baker's Supermarkets, Omaha, Neb., to Kroger, giving that company its first entry into the Nebraska market. As the year was ending, Fleming also said it was close to reaching agreements for the sale of 53 Abco Desert Markets in Arizona and 24 Sentry Supermarkets in Wisconsin.

The Federal Trade Commission continued to be a significant brake on consolidation in 2000, as it had been in 1999, when antitrust concerns caused Ahold, Zaandam, Netherlands, to abandon its acquisition of Pathmark, Carteret, N.J. This year, the FTC blocked Kroger's efforts to acquire the holdings of Winn-Dixie Stores, Jacksonville, Fla., in Texas and Oklahoma. Meanwhile, in order for Delhaize America, Salisbury, N.C., to acquire Hannaford Bros., Scarborough, Maine, the FTC required Delhaize to divest itself of all Hannaford stores in the Southeast. Kroger and several other operators were the principal beneficiaries of the government agency's action.

Meanwhile, the Belgium-based Delhaize Group sought to take over Delhaize America through a stock deal. Delhaize Group currently controls 45% of Delhaize America through ownership of Delhaize's Class A and B stock. Based on the price of its stock on Nov. 15, Delhaize Group said the aggregate value of the exchange would be approximately $1.9 billion. The parent group said the deal would benefit Delhaize America through best practices sharing and synergy savings.

Although 2000 was a year when consolidation was discussed more than practiced, analysts told SN they expect an uptick in merger activity in 2001. The reasons they cited include a potentially less aggressive stance by the FTC under the Bush administration and a potentially more aggressive stance by the big supermarkets, who will be further along with integrating the large mergers of 1998 and 1999.

The industry in 2000 also saw some cross-channel acquisitions, led by Ahold, which this year acquired a food-service business, a convenience store chain and an Internet grocery company. By midyear, Ahold was calling itself a "multi-channel food retailer."

Following are capsule summaries of some of the major consolidation stories of 2000:

Safeway in December agreed to purchase Genuardi's Family Markets, a 39-store, Philadelphia-area chain, in a deal estimated by analysts to be worth around $550 million. Steve Burd, Safeway's president and chief executive officer, said the Genuardi's deal (set to close in the first quarter of 2001) would be consistent with Safeway's strategy to focus on building its asset base east of the Mississippi and in contiguous -- but not overlapping -- trade areas with existing businesses. The comments kept alive rumors of Safeway's interest in Pathmark.

Kroger, which announced in November 1999 it would buy 74 Texas and Oklahoma stores from Winn-Dixie, was treated to bad news in June, when the Federal Trade Commission filed a preliminary injunction to block Kroger from buying all 41 Winn-Dixie stores in Texas. According to an FTC official, the proposed deal meant that "consumers would lose the benefit of more than 20 years of head-to-head competition between Kroger and Winn-Dixie." Kroger at first said it would challenge the commission, then quietly acquiesced.

Kroger in the meantime was one of three chains that picked up sites as a result of FTC-mandated spinoffs of Hannaford Bros. stores in the Southeast, related to Delhaize America's purchase of Hannaford, which closed in August. Hannaford wound up selling 20 stores to Kroger; 12 stores and one site under construction to Lowe's Foods, Winston-Salem, N.C.; and five stores to Richlands, N.C.-based Sylvester/Floyd Group, a Piggly Wiggly operator.

Kroger in December said it would enter Nebraska by agreeing to buy 15 Baker's supermarkets and one Food 4 Less store in Omaha from Fleming for an undisclosed sum. Fleming spent much of the year divesting its conventional supermarkets. It recently said it was close to agreements on the sale of 53 Abco Desert Markets in Arizona and 24 Sentry Supermarkets in Wisconsin. Both chains were expected to be sold in pieces. Fleming expected to raise around $200 million from sales of its conventional stores.

Kroger and Albertson's spent much of the year digesting large acquisitions, with mixed results. Kroger reported it was ahead of schedule on synergy savings from its merger with Fred Meyer, while Albertson's struggled much of the year to regain sales and earnings momentum in the wake of its megamerger with American Stores. Partially as a result, Albertson's stayed out of the buying game for the year, though it was rumored to have been interested in Rainbow Stores, a Minneapolis-area division of Fleming.

In the natural foods arena, Whole Foods Markets, Austin, Texas, and Wild Oats Markets, Boulder, Colo., eased on their aggressive buying in 2000. Wild Oats cited the integration of numerous chains acquired in 1999 as one factor in its disappointing year for earnings.

Ahold made the first of its "multi-channel" U.S. purchases in March by buying Columbia, Md.-based U.S. Foodservice for $36 billion. "The synergies between food service and food retail are many, and we intend to exploit these to the highest degree possible," Cees van der Hoeven, president and chief executive officer of Ahold, said. Ahold later in the year would come to the rescue of ailing Internet grocer Peapod, Chicago, with a $73 million buyout that helped speed rollout of Internet shopping at Ahold's Stop & Shop and Giant stores before year-end.

Ahold's Tops division also acquired a 87-unit convenience store chain, Sugar Creek Convenience Stores, Rochester, N.Y., as well as Golden Gallon, a 134-unit convenience store and gas station chain based in Chattanooga, Tenn.

A number of smaller suppliers made moves to secure business by purchasing their retail customers. Spartan Stores topped a number of small acquisitions over the previous two years with its $179 million takeover of Seaway Food Town's 47 stores in Ohio and Michigan. Spartan used the Seaway deal as a springboard to an initial public offering and pushed a strategy to become an even more active consolidator in the future. Its goal, according to an SEC filing, was to become "the exit strategy of choice for independent grocery retailers operating neighborhood markets."

In other deals:

URM Stores acquired 19 Rosauers Supermarkets from an employee stock-ownership plan in a move some observers said helped hold onto customers in an increasingly competitive wholesaling environment.

Homeland Holdings, Oklahoma City, acquired three existing Baker's Stores from Fleming and a fourth under construction in Oklahoma.

Nash Finch Co. acquired Hinky Dinky Supermarkets, Omaha, Neb.

Whole Foods acquired three Food for Thought Natural Food Market & Deli stores in California.

Despite a major restructuring involving closing stores and shrinking operating regions, Winn-Dixie said it would buy nine Orlando, Fla.-area stores from Gooding's Supermarkets, Apopka, Fla.

Marsh Supermarkets, Indianapolis, said it would purchase five-store operator Ross Supermarkets, Muncie, Ind.