Mergers key to supermarket survival: analyst

Sales from alternative formats and e-commerce will increase to capture 44.9% of food at home spending in the next five years, up from 30.4% currently, according to an estimate from Karen Short, an analyst at Barclays, in a report this week.

She suggests that mergers and acquisitions to drive efficiencies and better compete on price will be key to the survival of conventional food retailers over the long term.

“Without bold action, food retailers could end up following the path of department stores where they slowly lose relevance, cut labor to lower costs, and poor service exacerbates the traffic decline because service is so weak,” Short wrote in the report.

Conventional retailers’ challenges in evaluating potential mergers are exacerbated by outdated views of market share that do not factor in enough non-traditional competition, she said.

Amazon’s acquisition of Whole Foods will dramatically impact the food retailing landscape, Short said, and “no retailer selling food will be unscathed” as Amazon seeks to dominate the online grocery space.

Grocery executives expressed similar concerns at the Wall Street Journal Global Food Forum in New York on Tuesday, the newspaper reported.

"They are one of our first competitors who doesn't really care about making money," Thomas Parkinson, co-founder of Peapod, the online grocery arm of Ahold Delhaize in the U.S., was quoted as saying at the event.