Consolidation leads to change, opportunity

12/19/2013 05:08:00 PM
Don Goodwin

Don Goodwin, Golden Sun MarketingDon Goodwin, Golden Sun MarketingAs the economy improves we are beginning to see a dramatic upswing in merger and acquisition activity at retail and foodservice.

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.

Private equity is showing more interest than ever in fresh produce companies. Much like the perishable forward retailers, new innovative grower-shippers will emerge.

I envision seeing more growth in unique products, stronger branding and marketing programs and more emphasis on effective supply chain efficiencies. Seed breeders are also consolidating at a very rapid pace.

They clearly understand that having a strong base of unique varieties is a winning strategy with the big breeders willing to acquire anyone with strong genetics.

Parallel to the consolidation trend is a sharp reduction in the real world experience of many buyers. Large companies are far more willing to place bright, energetic buyers with no produce experience in key roles to help drive their produce categories.

This is a challenge for sellers but also an opportunity. Sellers must adapt their strategies to gain the confidence of these buyers. Now, more than ever, these retailers need deeply knowledgeable suppliers to help them move their categories forward.

You should be teaching as much as you are selling when interacting with these buyers. Using data is important. Demonstrating a keen understanding of the consumer is critical.

Retail and foodservice consolidation will likely continue as will the delayed but real impact on all areas of the supply chain. Suppliers will be challenged more than ever to provide meaningful value to their customers.

Some companies will look for “strategic alternatives” by seeking to be acquired while others will buy up their competitors.

For those who choose to go it alone, it is critically important that they adapt to the changing marketplace to thrive.

Don Goodwin is the owner of Golden Sun Marketing. Since 2004, Golden Sun Marketing has provided strategy and marketing services to the fresh produce supply chain from seed to retail. He is also an adviser to Verdant Partners, which specializes in mergers and acquisitions in all sectors of agriculture.

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