Within the past two years we have seen transactions involving Supervalu, Albertsons, Fresh & Easy, Harris Teeter, Kroger, Dominick’s, Roundy’s, Spartan and Nash Finch on the retail side.
Just recently, Sysco announced a mega-deal with US Foods that is sure to change the landscape of foodservice distribution in this country.
Why are these deals happening now?
The rapid increase seems startling, but here is why.
First, the economy has improved. The Great Recession created pent up demand as buyers became very cautious and held on to their cash. Sellers waited for a time when their results would improve along with their valuations.
Second, private equity groups have shown a lot more interest in food retailing. Their interest in Harris Teeter spurred the process that ultimately led to Kroger’s acquisition of it.
Finally, retail stores have seen a drop in revenue per building. Consumers are shopping in more places than ever — some studies show that consumers now shop in 10 separate locations, in-store and online, to fill their pantries.
When topline revenues decline, retailers will look to create efficiencies elsewhere — and consolidation is a natural path to efficiency.
Consolidation has the potential to homogenize retail. Time will tell whether Kroger can maintain the special character of Harris Teeter while driving costs out of the system.
Can Albertsons and Supervalu effectively adjust their strategies to compete in the long term? Or will their new owners clean up their balance sheets and then offer them back to the industry for sale?
With these changes comes opportunity. It is very exciting to see recent IPO’s by Sprouts Farmers Market and Fairway Market.
Both of these retailers share a focus on strong perishables and clear differentiation when compared to traditional retail.
What other retail concepts will emerge? I see great potential for growth in these “perishable forward” concepts. They will be driven by true entrepreneurs and not the chains.
Retail and foodservice consolidation will also have an impact on the rest of the supply chain. Fewer buyers, buying larger volumes, will ultimately lead to fewer sellers.
A common efficiency strategy of the acquiring companies is vendor consolidation. We have already begun to see signs of this with some of the recent transactions. It is likely we will see a wave of grower-shipper consolidation over the next few years.