2016 Top 75: Consolidation transforms food retailing
This year’s list reflects M&A impact as alternate formats make strong showing
Jan 4, 2016
While supermarkets continue to consolidate, sales of food and consumables at alternate formats
continue to take a bigger slice of the competitive pie, according to SN’s annual list of the Top 75
retailers and wholesalers in North America.
Four of the top 10 companies are not traditional supermarket operators — two are discounters
Walmart and Target and two are drugstores, whose sales of food and household items surpass the
volumes of dozens of conventional operators.
Drugstores and dollar stores are “stealth competitors” that have been taking volume from
supermarkets for years, Neil Stern, senior partner at McMillanDoolittle, Chicago, said, “and while it’s
a big amount when you look at it in total, most supermarkets see it on an individual-store basis and
have been slow to react. But that’s going to have to change.
“Those formats are taking business based on convenience, and supermarkets are going to have to
find ways to offer goods more conveniently — possibly by doing what they do in the U.K., where they
set aside areas of 1,000 square feet or so at the front of the stores and sell milk and eggs and other
basics.”
2016 TOP 75: CLICKABLE LIST
The Top 75 list, from Walmart to Northgate Gonzalez Market
According to Chuck Cerankosky, an analyst with Northcoast Research, Cleveland, sales at
alternative formats are likely to continue to grow, even as the economy improves. “While operators
like Kroger and Costco are seeing people trading up, it’s not unusual to think those retailers and
others might lose a handful of items to an alternate format. Even with the economy improving, not
every purchase will be bundled together with a trip to the supermarket.”
CVS Health, Woonsocket, R.I., landed at No. 5 on the list, with estimated consumable sales of more
than $44 billion at approximately 7,911 drugstores, while Walgreen Co., Deerfield, Ill., was No. 10,
with 8,173 stores accounting for estimates exceeding $28 billion in consumables. With Walgreens in
the process of acquiring Camp Hill, Pa.-based Rite Aid Corp., it could push that figure close to $36.5
billion.
Dollar stores also continue to be effective competitors, with Dollar General, Goodlettsville, Tenn., at
No. 19 (compared with No. 17 last year) with $15 billion in consumable sales, and Dollar Tree,
Chesapeake, Va., at just under $11 billion (moving up to No. 24 from No. 36 last year following its
acquisition of Family Dollar).
Online operations
Online competition from Amazon.com, Seattle, is also on the rise, with sales of consumables moving
the company up to No. 53 on this year’s list from No. 62 a year ago.
Stern said he believes Amazon will remain “a behemoth” that supermarkets will have to continue to
deal with. “Because Amazon is so well capitalized, it can continue to spend and grow while losing
money,” he noted.
Though supermarkets will continue to expand their online businesses, that growth is likely to parallel
Amazon’s growth rather than replace it, Stern said. “It’s unlikely anyone will be able to slow down
Amazon, other than possibly Amazon itself,” he noted.
AmazonFresh delivers in Brooklyn, N.Y.
According to Cerankosky, what conventional retailers need to do “is get people into their stores for
food and let them buy other stuff online. Even as retailers become increasingly involved in the digital
universe to deliver food as part of an omnichannel approach, there’s nothing like buying fresh food at
the store. That’s the epitome of quality food retailing.”
Supriya Chaudhury, CMO for Clavis Insight, Boston — which helps businesses understand online
opportunities — said Amazon is likely to continue to gain additional customers by driving innovations
in delivery systems.
“Supermarkets have not yet developed as many innovations to capture consumers’ interest in
convenience, and Amazon will probably hold the lead it has for some time,” she said.
“Walmart is making a huge investment in building an online operation with enough categories to
have an impact and capture consumers who are active with Amazon, but most pure supermarket
operators are less developed in the space,” Chaudhury noted. “Instacart certainly helps bridge the
gap on delivery logistics, but there is still a lot the large supermarkets need to do to get to the level of
some of the other players.”
Jim Hertel, senior partner at Willard Bishop, Chicago, said he believes brick-and-mortar retailers
have an advantage over Amazon for at least three to five years “because of two huge advantages:
They are closer to customers — with a supermarket within two-and-a-half miles of 80% of the
population — and they have built long-term relationships with consumers.
“What Amazon is investing in is ways to get closer to customers, and if it can leverage that, then it
will be an even bigger factor for supermarkets in five to 10 years.
“The key area is fresh. Amazon can deliver packaged foods, but it hasn’t solved the problem of
delivering on its fresh promise, and that’s the window supermarkets have to take advantage of.”
Andrew Wolf, managing director for BB&T Capital Markets, Boston, offered a similar opinion. “The
world of grocery shopping is increasingly built around perishables, and that’s not a category a
business can make money on delivering to people’s doors in the suburbs. A click-and-collect system
works much better for perishables, and I don’t think the threat of Amazon will grow — not in the
perishables area — because there’s no compelling business model to get fresh food to people and
still make money.”
Consolidation matters
Even as alternate formats chip away at supermarket volumes, the industry continues to change with
ongoing consolidation.
While some things remain pretty much the same — with Walmart, Kroger Co. and Costco Wholesale
Corp. continuing to top the Top 75 list, as they have for over a decade — consolidation has removed
four significant chains from the list, opening the way for four newcomers to join.
Gone are Safeway, which was acquired by Albertsons early in 2015; Family Dollar, which was
acquired by Dollar Tree at mid-year; A&P, which liquidated its assets late in the year; and Roundy’s,
which agreed to be acquired by Kroger Co. in a transaction scheduled to be completed early in
2016.
In their place are four geographically diverse companies, who appear in the last four spots on this
year’s list: Fareway Stores, Boone, Iowa; Inserra Supermarkets, Mahway, N.J.; Lowe’s Market,
Littlefield, Texas, and Northgate Gonzalez Market, Anaheim Calif., with volumes ranging from $1
billion to $1.3 billion.
While the Roundy’s deal will simply cement Kroger’s position as the leading conventional player on
the list and the A&P volume was dispersed among many buyers, the Safeway merger moved
Albertsons up the list to No. 4 from No. 9 a year ago, while the Family Dollar acquisition pushed
Dollar Tree to No. 24 from No. 36.
Finishing out the top 10, CVS and Target were Nos. 5 and 6, with Canada-based Loblaw Cos. No. 7;
Publix Super Markets, Lakeland, Fla., No. 8; C&S Wholesale Grocers, Keene, N.H., No. 9; and
Walgreens, No. 10.
Among changes on the horizon for next year’s Top 75 list is the pending merger of the Europeanbased parent companies of Delhaize America, Salisbury, N.C., and Ahold USA, Carlisle, Pa. — a
combination with the potential to create a company whose volume will exceed $41 billion, which
would be enough to surpass Publix on this year’s list.
Observers told SN overall industry consolidation is likely to be a constant factor going forward.
“Some consolidation will be strategic, like the Delhaize-Ahold merger, which came about when those
companies realized they needed to grow sales on the East Coast after the Kroger-Harris Teeter
merger,” Cerankosky said.
“We’re also likely to see more smaller, in-market consolidations that enable mid-level operators to
gain scale. Companies like Kroger and Costco use scale to deliver value to customers, and more
companies will realize that’s something they can’t do by remaining small.”
Stern said he expects a slowdown in larger deals — like Albertsons-Safeway and Ahold-Delhaize —
“because those just don’t happen that often. But we’re likely to see more smaller deals of the
Kroger-Roundy’s size.”
Hertel said he anticipates more consolidation “because companies want to grow. But if their top lines
aren’t growing, many believe they can achieve more bottom-line growth by consolidating to achieve
greater economies of scale,” he explained.
He also said he anticipates more deals involving midsized companies. “There is a drive for grocery
chains to operate 2,000 stores and up, and it’s easier to get there through acquisition than building
new stores,” he said.
Wolf said consolidation will be driven by the desire of retailers to offer value, which can encompass
quality as well as pricing. “Value is what exacerbates the gap between good and bad operators,” he
explained.
ADDENDUM:
IGA accounts for worldwide sales of approximately $37 billion from 5,451 stores. Of the total, 1,121
stores in the U.S. account for $7.8 billion (21% of the total) and 4,330 stores in 32 other countries
and territories, including Canada, account for $29.2 billion (79% of the total).
Read More: http://supermarketnews.com/retail-financial/2016-top-75-consolidation-transforms-foodretailing#ixzz3wfH0K9Ie