In a signal of just how weak the growth of the grocery sector has been, two of the largest international chains have announced their proposed merger. The Dutch Ahold company, which owns Hannaford, Stop & Shop, and Giant stores, plans to collaborate with the Belgian Delhaize Group, which is the parent company for Food Lion. The planned merger ideally would improve economies of scale and scope and help the combined entity compete better against other large chains, such as Safeway and Albertson’s. It also represents a likely response to relatively newer and more diverse forms of competition, from private-label grocers such as Aldi and Trader Joe’s, to online grocery ordering options, to dollar and convenience stores, to high-end and organic-oriented grocers such as Whole Foods. In such competitive settings, profit margins tend to be tiny, and expanding market share is particularly difficult. Rather than increasing sales, the merger thus aims to cut costs and enable the survival of all the involved parties.

 

Source: Stephanie Strom and Chad Bray, The New York Times, June 24, 2015