THE FUTURE OF CONSOLIDATION

ELLIOT ZWIEBACH

The shopping spree is likely to continue.

After speaking with industry analysts, SN has created a list of ten key companies to watch over the next 12 to 18 months; five likely acquirers and five likely sellers.

The analysts told SN they foresee little let-up in the pace of consolidation over the near term.

Potential buyers and sellers are assessing the market and their own strategies at a time when company valuations and the antitrust climate are changing.

Despite the transactions already concluded, many players are still interested in making deals. In this issue financial analysts assess the prospects for each of the five most likely buyers and sellers, plus a few others.

On the buying side, retailers checking out potential bargains include some of the key companies in the industry. Listed alphabetically, the probable acquirers are: Ahold USA, Albertson's, Delhaize America, Kroger Co. and Safeway. And there could be some unexpected developments if France's Carrefour decides to enter the U.S. market or if Wal-Mart opts to become a consolidator, according to analysts.

On the selling side, the likely sellers are: Fleming, Grand Union, Pathmark Stores, Shaw's Supermarkets and Weis Markets. The list could have easily been extended because, according to analysts, any number of small, medium or regional chains that haven't merged yet could be willing targets.

According to analysts, the reasons for ongoing consolidation include the following:

For potential buyers, consolidation enables them to achieve ongoing economies of scale and easy sales growth to strengthen their competitive abilities against the encroachment of supercenters and each other.

For independent operators, whether public or private, consolidation offers an exit strategy in an increasingly competitive environment where size is a virtue in purchasing and logistics -- a virtue that simply cannot be equalled by a retailer doing business in a single marketing area, no matter how long a history it has nor how loyal its customer base.

"Virtually any local or regional chain has to be thinking about where it might fit in the grand scheme of things because the economies of scale of the larger chains make it very difficult for a regional to stand alone without a unique merchandising niche," one analyst told SN.

Chuck Cerankosky, an analyst with McDonald & Co., Cleveland, said regional or local operators looking at their larger competitors "can't help being impressed by the economies of scale they're able to achieve, which will be tough for them to match. As a result, there will probably be a considerable number of companies with 30 stores or less that will be calling their wholesalers to see if there's any interest in talking to some of the larger players.

"And Kroger and Albertson's, both of which are digesting earlier deals, are probably going to be a little more selective and more willing to jump on small deals quickly because they will be easier to assimilate."

Debra Levin, an analyst with Morgan Stanley Dean Witter, New York, also said she expects most consolidation in the next year to involve smaller operators -- companies with 10 to 50 stores "who are generally privately owned and increasingly feeling competitive hits in their immediate operating environments."

In contrast, most of the larger privately owned chains "still have a great pride of ownership" and aren't likely to have an interest in selling in the short term, Levin noted -- though that could change over the next few years, she added.

Gary Giblen, director of research for C. L. King Associates, New York, said he anticipates a slowdown in merger activity, at least through the end of the year, as the major chains continue to digest earlier acquisitions.

"Right now we're at a stalemate between sellers who look at the kind of high valuations the chains used to command and buyers who know those valuations aren't in effect anymore, now that the difference between the best players and the middle-ground players has widened because of the ability of the best companies to buy better and become stronger," Giblen said.

"The hyper-rigorous anti-trust enforcement of the Federal Trade Commission is discouraging more merger activity," he pointed out -- a situation he said he believes could change if the Republicans win the election in November, "which could result in changes in antitrust enforcement.

"In addition, tax laws might change to be more advantageous to acquiring companies. And by the end of the year, Safeway, Albertson's and Kroger will be further along in their digestions and raring to go."

Cerankosky also said the role of the FTC will be a key consideration as deals are contemplated. "There are a lot of combinations I could envision if the FTC were not a consideration," Cerankosky said.

According to Jonathan Ziegler, San Francisco-based managing director of Deutsche Banc Alex. Brown, New York, the next few years could see the demise of almost all the major U.S. chains, if predictions by Cees van der Hoeven are accurate. Van der Hoeven, president and chief executive officer of Netherlands-based Ahold, said a last year that ultimately Ahold will be one of only three global operators left, along with Carrefour and Wal-Mart.

That theory is based on several assumptions, analysts told SN, including Carrefour's entry into the U.S. -- because it couldn't be a global player otherwise; the willingness of one of the big three players in the U.S. -- either Kroger, Safeway or Albertson's -- to ultimately merge with Ahold, and the ongoing international growth of Wal-Mart -- the likeliest of the three assumptions, according to the analysts.

Long before the playing field is reduced to three, however, a lot of consolidation will take place, including the possibility of some unusual combinations, Ziegler said.

For example, he said it's conceivable the industry could someday see a three-way merger of Wegmans Food Markets, Rochester, N.Y.; Ukrop's Supermarkets, Richmond, Va., and Harris Teeter, Charlotte, N.C., which would create a chain from upstate New York through the Carolinas "that would be able to achieve economies of scale, better buying and more negotiating clout with vendors, as well as geographic diversity," Ziegler said. "All three chains go to market in similar ways, so their cultures are similar enough to be easily consolidated."

Ziegler said he also could see a merger occurring between H. E. Butt Grocery Co., San Antonio, and Publix Super Markets, Lakeland, Fla., to create a powerful chain across the Sun Belt -- a combination that may have been discussed and dismissed by the two independently owned chains a year ago, he pointed out.

Although the analysts were in general agreement on the industry's potential buyers are, their opinions varied on who the sellers might be, with some noting that a likely short-term buyer like Delhaize America could become a potential seller in the long term

Following is an in-depth analysis of key companies to track for upcoming consolidation developments.

AHOLD USA

Chantilly, Va.

1999 volume: $20.3 billion

No. stores: 1,210

Operating area: 16 states in the Northeast, New England, Mid-Atlantic, Southeast

Ahold USA -- a division of Ahold, Zaandam, The Netherlands -- is definitely interested in continuing to grow through acquisition, analysts said, though it has not yet made it clear whether it wants to remain an East Coast chain or is willing to make the trek westward.

According to Meredith Adler, an analyst with Lehman Bros., New York, what Ahold is looking for is "the same high quality, mostly privately held companies that Safeway goes after."

But even more than Safeway does, "Ahold wants a company with good existing management because it doesn't have the people to go in and redo the executive team," Giblen added.

According to Giblen, geography is a primary factor in Ahold's expansion plans. "They'd rather find something east of the Mississippi because of their infrastructure," he said, "though this could be the time to take a big step and go west."

If Ahold does decide to seek acquisitions beyond the East Coast, Giblen suggested it might have an interest in three California chains -- Stater Bros. Markets, Colton, Calif., in southern California; Save-Mart, Modesto, Calif., in central California, or Raley's Supermarkets, West Sacramento, Calif., which operates in northern California, Nevada and New Mexico.

Alternatively, according to Giblen, Ahold could make its westward move through buying one of two Texas chains -- Minyard Food Stores, Coppell, Tex., or Fiesta Markets, Houston.

"But Ahold is not looking at retail acquisitions right now," Giblen said. "It's looking at food service, where there are no potential FTC conflicts as there would be with East Coast retailers and because that's a business it's already in in the Netherlands."

According to Ziegler, Ahold's willingness to explore non-retail acquisitions makes it a more adventurous buyer than some of its peers. "Acquiring U.S. Foodservice was very smart," he said.

"I also think Ahold is reaching the conclusion it doesn't need to stay east of the Mississippi," Ziegler added. "Cees [van der Hoeven] is always talking about acquiring thoroughbreds, and if he and Steve Burd could work together, I can see an Ahold-Safeway merger someday, with Burd responsible for all U.S. stores.

"There'd be some antitrust problems in the Washington, D.C., area, but that wouldn't be enough to quash the deal, which I think has a one-in-four chance of happening."

According to another analyst, "Ahold wants to be in Florida, and if Publix were available, it would certainly pursue an acquisition there. But it would be more likely to seek out smaller acquisitions -- perhaps companies of 20 units -- along the East Coast, because the Big Three are strongest outside the East Coast, and Ahold is unlikely to make any major acquisitions in areas in which those chains operate in case it's able to put together a merger with one of them somewhere down the line."

Cerankosky said he believes Ahold is still interested in making retail acquisitions, despite its recent interest in food service. "It probably still has its eye on regional chains, probably companies that are contiguous with its East Coast operating area, such as Giant Eagle [Pittsburgh], which is a strong player in Pittsburgh and Cleveland," he said.

ALBERTSON'S

Boise, Idaho

1999 volume: $37.5 billion

No. stores: 2,509

Operating area: 36 states in West, Midwest, Northeast, South, Southeast

Albertson's said late last month, in the wake of disappointing earnings, that it does not intend to enter any new territories.

While that resolve may take it out of the running to acquire Pathmark, analysts said, it would not necessarily preclude Albertson's from shoring up existing markets with acquisitions of smaller chains.

"Until the integration of American Stores is closer to being done, Albertson's may not be interested in looking at another big deal but only in acquiring smaller local or regional chains," Cerankosky said.

What Albertson's is looking for, another analyst told SN, are good strategic fits that are immediately accretive to earnings. It is not likely to look at companies that are turnaround candidates, he said. "Since it bought American Stores Co. [in mid-1998], it has had significant integration problems, which have hurt earnings the last few quarters."

Giblen also said Albertson's is looking for companies that are doing well. Among the chains it might have an interest in, he said, are Dallas-based Fleming's upper Midwest properties (Rainbow Foods, Minneapolis, or Sentry Foods, Milwaukee); Furr's Supermarkets, Albuquerque, N.M., or Save-Mart, "which is in a part of California where Albertson's stores are sparse."

According to Ziegler, Albertson's could look more aggressively at in-market acquisitions of drugstores as a way of building market share to shore up or establish a base for its supermarket operations. For example, he noted, Albertson's has a handful of Osco drugstores in New England -- "an area where there's no room for it to build supermarkets because of limited real estate. That's why a deal with Shaw's Supermarkets, [an East Bridgewater, Mass.-based division of the U.K.'s Sainsbury] could work out well. And acquiring some Rite Aid or Eckerd drugstores in Philadelphia would enhance Acme, whose stores have very few pharmacies."

DELHAIZE AMERICA

Salisbury, N.C.

1999 volume: $14.3 billion

No. stores: 1,409

Operating area: 16 states in Southeast, South, Mid-Atlantic, New England

Delhaize America, analysts said, is probably too tied up integrating Hannaford Bros. to consider another acquisition before the end of the year.

However, if Pathmark Stores becomes available, as most observers expect, Delhaize probably wouldn't pass up the opportunity to try to buy it, Giblen said. "The company was in the finals several years ago, before losing Pathmark to Ahold [which ultimately terminated the transaction in late 1999 in the face of FTC opposition] -- though it would probably lose out again, this time to Safeway, since Safeway has said in the past it would be willing to pay more if it has high confidence of achieving high synergies."

For Delhaize America -- which operates Food Lion, Kash n' Karry and Hannaford -- the major consideration in acquisitions is expanding its geography, Giblen said. "Even more than being a good company, Hannaford's geography was important in that deal."

He said Delhaize might have some interest in central Pennsylvania's Weis Markets, Sunbury, Pa.

Analysts said Delhaize is unlikely to look at potential acquisitions in non-contiguous areas. Some also said that, in the long term, Delhaize Le Lion in Belgium, which owns the largest stake in Delhaize America, might become a buyout candidate itself to another operator with global ambitions and deeper pockets.

KROGER CO.

Cincinnati

1999 volume: $45.4 billion

No. stores: 2,319

Operating area: 31 states in Midwest, West, South, Southeast

Kroger has been making a series of smaller acquisitions -- to flesh out markets in which it has low market shares -- since it acquired Fred Meyer, Inc., in mid-1998.

"Kroger is willing to look at store groups that complement nearby contiguous markets," Cerankosky said. "And if it were to contemplate a bigger deal -- considering what it went through in Texas, when the FTC negated a deal for it to acquire some Winn Dixie stores -- it would probably be less willing to spend a lot of time on a complex deal if the FTC were likely to get involved."

Adler also said Kroger's primary interest is making smaller acquisitions in contiguous markets. "It isn't interested in adding new geography at the moment, and it's probably three years away from having any interest in doing so because it already covers a lot of geography -- though if Publix became available, Kroger would certainly be interested, despite some overlap in Georgia."

According to Ziegler, Kroger wants to be in the Northeast and would probably pursue a buyout of Shaw's in New England if Sainsbury puts it up for sale; or of Wegmans or Giant Eagle if either of those companies become available.

Giblen said Kroger's pursuit of small acquisitions "makes sense and is likely to continue." However, if it were to consider larger transactions, he said Kroger might be interested in some Winn-Dixie divisions where the two companies do not compete.

More likely targets, he said, would include Giant Eagle, "which would be perfect because it would put Kroger back into two markets -- Pittsburgh and Cleveland -- that it quit in the 1980s because of union issues"; Homeland Stores, Oklahoma City, which would be a medium-sized acquisition, or Furr's, where Kroger would have to deal with some overlap from its Smith's operation, "though it's a natural fill-in area."

SAFEWAY

Pleasanton, Calif.

1999 volume: $28.9 billion

No. stores: 1,665

Operating area: 18 states in West, Southwest, Midwest, Mid-Atlantic

Safeway believes in growing by acquiring companies whose operating profitability it believes it can improve, analysts said.

Safeway has probably got more rigorous acquisition criteria than the other major chains, Adler told SN. "It wants companies that are No. 1 or No. 2 in the markets in which they operate. It wants unionized companies in union markets, and non-unionized companies anywhere. It wants companies that are of sufficient size to be self-distributing or that are contiguous with an existing Safeway distribution center. And it wants companies with momentum, not turnaround situations."

Publix or H-E-B would probably be at the top of Safeway's wish list, Adler added, followed by any number of regional players, including Big Y Supermarkets, Springfield, Mass.; Giant Eagle; Harris Teeter; Hy-Vee, West Des Moines, Iowa; Schnuck Supermarkets, St. Louis; Ukrop's, and Wegmans.

"Steve Burd says Safeway does not want any critical-care patients," Giblen said. "It wants companies that have decent store conditions. And if it's in a new operating area for Safeway, he wants it to be large enough to have critical mass and sufficient size or at least be a good add-on to an existing group of Safeway stores."

The list of companies Giblen said Safeway would be interested in include Pathmark, "which would meld perfectly as an add-on to its Washington D.C. geography"; Weis, "which has contiguous geography and could be serviced from Safeway's Maryland distribution center," or Winn-Dixie, "which would be a great fit but would be unlikely to be acquired before the second half of 2001, by which time Winn-Dixie might get itself turned around."

According to another analyst, "Safeway probably has the largest appetite of all, but it hasn't yet done a mega-merger because geography precluded it from purchasing Fred Meyer or American Stores without severe concessions. So it might be willing to look at larger regional players where it has no geographic presence."

What Safeway is looking for, Ziegler said, is companies that are in good shape, with a strong market share and a good reputation, but that could benefit from a stronger focus on operations. "Safeway doesn't want fixer-uppers -- what it looks for are companies that need some interior design work."

Chains that Safeway would feel comfortable with, he said, would include Pathmark, Giant Eagle or Schnuck. In addition, with Fleming offering several conventional chains for sale, Sentry in Wisconsin "would be a natural geographic expansion" for Safeway's Chicago operation,"as would Rainbow in Minneapolis," Ziegler said.

And the wildcard:

WAL-MART STORES, Bentonville, Ark., which could become a buyer if it needs to find sufficient real estate quickly to roll out its Neighborhood Markets format, analysts said.

"If Wal-Mart is to grow in food retailing, it needs to hire people and find real estate, so you can't rule out an acquisition," Ziegler said. "For Wal-Mart, the accelerator is only halfway down. If it gets the Neighborhood Markets format right and then decides to acquire a retailer to expand the format more quickly, then it's really going to put the pedal to the floor."

Ziegler said he believes a likely acquisition candidate could be Delhaize America. "The Food Lion stores are non-union and operate the right size box in the right part of the country. And it wouldn't be surprising if Wal-Mart went after the parent company, Delhaize, in western Europe, since that's also one of Wal-Mart's geographic areas of focus."

The Texas-Oklahoma division of Winn-Dixie could also be another acquisition possibility, Ziegler added.

Cerankosky expressed similar thoughts. "I still think Wal-Mart might find it easiest to get into stand-alone food retailing by way of an acquisition," he said.

One unknown possibility:

CARREFOUR, the French operator that is the No. 2 retailer in the world, "which has aspirations to be a global player -- though it can't be a global player without doing business in the U.S.," Ziegler said.

Carrefour operated a handful of hypermarkets in the Philadelphia area in the late 1970s.

Jerome Samuel, an analyst with Commerzbank Securities, London, told SN any acquisition by Carrefour in the U.S. is unlikely to happen for at least a year, while Carrefour focuses on its merger with French rival Promodes.

But in the long-term, Carrefour will most likely reenter the U.S. "because the No. 2 chain in the world cannot afford to be absent from the first market in the world if it wants to reduce the gap with [No. 1] Wal-Mart. Even if Carrefour is No. 1 in Europe, Latin America and Asia, it would still be well behind Wal-Mart."

According to Samuel, "Carrefour will probably focus its attention on a chain of 50 to 100 stores that has a good expertise in the market and a competitive advantage, probably in a hypermarket concept with a 50-50 split of food and nonfood and a minimum size of 100,000 square feet.

"However, Carrefour could adapt its concept to smaller stores, with a higher proportion -- up to 70% -- of food," he added.

In any acquisition, Carrefour would want to have a majority stake in the company and control of management, Samuel said. However, the price Delhaize paid for Hannaford -- 12.5 times earnings -- "seems very high," he said, "and I don't believe Carrefour would be ready to pay such a high premium."

Companies that Carrefour might look at, Ziegler said, could include Meijer, Grand Rapids, Mich.; Target Corp., Minneapolis; Costco Wholesale Co., Issaquah, Wash.; Kmart Corp., Troy, Mich., and Kroger.

According to Giblen, "If Carrefour does decide to enter the U.S., the whole country is open to it, though it would only be worthwhile if it did something pretty big," Giblen said. "It might be interested if Publix were available because that would give it a large, high quality operation with existing management expertise. And it would probably leap at the chance for Meijer, and Target would be a good buy, if either one were for sale."

Asked about potential sellers in the next 12 to 18 months, analysts mentioned the following:

FLEMING

Dallas

(4 conventional chains)

1999 volume: $2.5 billion (estimate)

No. stores: 148

Operating area: Arizona (Abco), Nebraska (Baker's), Minnesota (Rainbow), Wisconsin (Sentry)

Fleming put its four conventional chains, along with -- plus Thompson Food Basket, Peoria, Ill. -- up for sale in April when it disclosed plans to get out of conventional retailing in favor of expanding its Food 4 Less franchise.

Fleming sold six of the 13 Food Baskets to an independent operator in August, with plans to close six others and to continue operating one location -- which could be converted to a Food 4 Less at some point, observers said.

Schultz Sav-O Stores, Sheboygan, Wis., had expressed an interest in Sentry, but those talks ended last month, reportedly when the companies could not agree on a price. Reports have persisted that Bashas', Chandler, Ariz., is interested in acquiring crosstown rival Abco, and Safeway and Albertson's have been mentioned as possible buyers for Rainbow and/or Sentry.

GRAND UNION

Wayne, N.J.

1999 volume: $2.3 billion

No. stores: 197

Operating area: New Jersey, New York, Connecticut, Pennsylvania, Vermont

Grand Union has already disclosed plans to explore strategic alternatives for its stores, including a possible sale.

Although the company has said it's possible for it to move forward "with the proper strategy and the proper execution and implementation of that strategy," few observers expect that will be the case. According to one analyst, "Grand Union needs to act sooner rather than later because with Stop & Shop coming into the New York metropolitan area, a deleveraged Pathmark increasing its strength and A&P spending money on remodeling, the company doesn't have much time to play with."

He also said it's unlikely Grand Union will put all of its stores up for sale "because it's not an attractive target. But parts of the company are attractive, particularly some locations in Vermont and New Hampshire, where it's so hard to find any real estate."

Grand Union has already sold a handful of stores in the New York metro area to other operators.

PATHMARK STORES

Carteret, N.J.

1999 volume: $3.8 billion

No. stores: 137

Operating area: New Jersey, New York, Pennsylvania, Delaware

Pathmark Stores emerged from a pre-packaged Chapter 11 earlier this month as a publicly held company that's been freed of $1 billion in debt.

Pathmark is a company with a strong customer franchise but one that's long been without the capital to do what it needed to do, Giblen said. "More capital and more buying power would be a powerful combination. But it's hard to fix a company that doesn't have the capital to improve its buying and store spending."

Noting that Safeway is a leading contender to buy Pathmark, if and when it goes up for sale, Giblen said, "Pathmark is a lot like Dominick's before Safeway acquired it. Dominick's had a strong identity in Chicagoland and was well-managed, but it couldn't optimize its buying power because it didn't have a lot of capital."

According to another analyst, "Pathmark has struggled for so long, and as it emerges debt free, it will be in a better position to be sold. And while Pathmark does not quite fit Safeway's pattern of acquisitions -- most of which were stronger operators -- it does have a healthy market share and is therefore in line with what Safeway likes to purchase," he explained.

Besides Safeway, A&P could be an interested buyer "if the company is divided up for sale. And even Supervalu could have some interest," the analyst said.

SHAW'S SUPERMARKETS

East Bridgewater, Mass.

1999 volume: $3.9 billion (estimate)

No. stores: 167

Operating area: Massachusetts, Rhode Island, Connecticut, Vermont, New Hampshire, Maine

Shaw's Supermarkets is a division of London-based Sainsbury, which has sent mixed messages over the years about its intentions in the U.S.

"It sold Giant Foods [Landover, Md., to Ahold] and bought Star Markets [in the Boston area]," Ziegler said, "and now it's selling Homebase, its do-it-yourself chain. Plus, it's feeling competitive pressures from Tesco and Wal-Mart's Asda in the U.K."

According to one analyst, "When Sainsbury entered the U.S. in 1983, it said it didn't want to pay high prices to grow but it wanted to build critical mass of about $10 billion in sales. With Shaw's doing close to half of that, Sainsbury has pretty much given up on achieving its goal because of competitive issues in the U.K.

"If Sainsbury were to acquire Pathmark, with nearly $4 billion in sales, that would certainly move the company closer to its U.S. sales goal. But there's a real possibility Sainsbury will pull out of the U.S. altogether, which would make Shaw's a candidate for sale."

In an apparent effort to allay reports Shaw's is for sale, Sainsbury recently indicated it is deriving a variety of synergies from Shaw's, particularly in the perishables area. It's also possible that Shaw's could have an interest in some of Grand Union's New England locations, industry sources noted.

WEIS MARKETS

Sunbury, Pa.

1999 volume: $2.04 billion

No. stores: 166

Operating area: Pennsylvania, Maryland, New York, New Jersey, Virginia, West Virginia

Weis Markets backed off seeking a buyer earlier this year when one group of family members sought a sale and another didn't.

"Weis is typical of the kind of medium-sized companies today that don't necessarily have to sell but are facing a tougher competitive environment," one analyst told SN. What makes Weis so attractive, he added, is its strong market share, its broad geography and its profitability, "which makes it a candidate that would fit in very well with what Ahold is looking for, or Safeway, or Albertson's."

According to Giblen, there was a faction at Weis "that clearly wanted to sell because the company has pretty much maxed itself out on what it can achieve. It has a high market share in central Pennsylvania and a modicum of success in the outer suburbs of Philadelphia, but that's about all it can hope to achieve on its own."

"Weis sought strategic alternatives, but no one was interested," Ziegler pointed out, though he was not sure why.

And the wildcard:

MEIJER, Grand Rapids, Mich., which Ziegler believes is a prime acquisition candidate for Carrefour. "With sales approaching $10 billion and strong expertise in food and general merchandise, it would be the No. 1 choice for Carrefour if Carrefour decides to come back to the U.S.," he said.

Ziegler also said Meijer would be "a great acquisition" for Kroger, Albertson's or Safeway "because it would allow them to pick up a strong food and nonfood competitor with a strong gasoline operation."

Another analyst said Meijer's balance sheet is "fantastic, but it is apparently happy to do its own thing and is not interested in selling."

The analysts said other acquisition candidates include the following:

Giant Eagle, whose strength in both Pittsburgh and Cleveland makes it less vulnerable to competitive pressures. If Giant Eagle sought to grow on its own, an acquisition of Marsh Supermarkets, Indianapolis, would make a nice fit, "though Giant Eagle has to realize its best future lies in becoming part of a larger company," Giblen said.

H.E. Butt Grocery Co., San Antonio, whose plans to expand into Dallas and to build full-sized stores in Houston "could enable it to stay independent for some time," Ziegler said. "But it will still feel pressure from Wal-Mart, and as good as H-E-B is, it must have staying power, which Wal-Mart has. And with Wal-Mart already saturating Texas with supercenters, the spread of Neighborhood Markets could be the coup de grace for H-E-B."

Homeland Stores, Oklahoma City, which faces increasing pressure from Wal-Mart supercenters, "and which could use deep pockets to ensure its future," one analyst said.

Hy-Vee, West Des Moines, Iowa, which could look at a chain like Schnuck in St. Louis as a possible avenue for acquisition itself, or it could be a seller that would fit with Safeway or Kroger, one analyst said.

Marsh Supermarkets, "which seems like an ideal company to become part of something bigger," one analyst said. "It has a strong market share in a sizeable metro area and a good physical plant, and it would make a nice fit for Ahold, Safeway or Albertson's."

Publix Super Markets, which is successful and well-positioned, "but which still must look forward," Ziegler said, "and looking forward, it is seeing more intense pressure from Wal-Mart, which might make it receptive to seeking a buyer." He also said Publix may have had talks a year ago with H-E- B about a merger, "and Publix is certainly on Ahold's wish list of targeted companies."