RECENT CONSOLIDATION BENEFITS FROM PRIOR MISTAKES

Consolidation: 1. To unite or combine into a single whole 2. To make or become firm or secure. -- Random House Webster's DictionarySupermarkets long ago figured out how to merge companies into a single whole. It's the other aspect of consolidation, making the combined retail entity firm or secure, that has created so many problems recently.Yet, this year supermarkets are showing signs that they have

Consolidation: 1. To unite or combine into a single whole 2. To make or become firm or secure. -- Random House Webster's Dictionary

Supermarkets long ago figured out how to merge companies into a single whole. It's the other aspect of consolidation, making the combined retail entity firm or secure, that has created so many problems recently.

Yet, this year supermarkets are showing signs that they have learned from the past as they steadily increase the pace of consolidation.

Few activities in the supermarket business have spawned more important lessons than consolidation. Supermarket executives got a rude wake-up call when their 1990s-era conventional wisdom of bigger means better was disproved. That decade spawned some giant supermarket mergers, but also created challenges for integrating the goliath companies that resulted. The lesson was that size should not be an end in itself.

Another consolidation lesson from that period involved local marketing, with Safeway as the case study. That retailer acquired regional chains and subsequently ran into big problems by launching merchandising programs that did not fully take into account the unique local positioning of those chains. The important takeaway for the industry was to keep intact the special nature of acquired franchises.

So how have operators been applying the learnings of the past? No longer are mega-mergers on the table as possible consolidation options. Instead, the spotlight is on medium- and small-sized transactions that bring specific value to acquiring chains. For instance, earlier this year Shaw's was acquired by Albertsons in a deal that gave Albertsons a viable position in New England.

On the smaller transaction side (remember, it's not about size anymore), late last month Bristol Farms, an 11-unit upscale chain in Southern California, was acquired by Albertsons, which hopes to benefit from Bristol's niche in the gourmet sector. Shortly afterwards, 19-unit Victory Super Markets, which operates in Massachusetts and New Hampshire, was claimed by Delhaize America (see story, Page 4), which will rebanner these units as Hannafords. As a result, Delhaize's Hannaford division will gain a bigger foothold in southern New England.

The acquirers of 2004 also seem to recognize the paramount importance of local marketing. Albertsons said it will maintain the Bristol Farms banner on its newly acquired chain and operate the retailer independently from the rest of Albertsons' food and drug businesses. Likewise, Albertsons appears to be maintaining the local marketing edge of Shaw's, according to some reports. Indeed, it hopes to learn from Shaw's through reverse synergies. The jury is still out on the ultimate wisdom of Albertsons' recent acquisitions, but the company deserves credit for its attempts to protect local marketing.

There will be more to watch on the consolidation front this year. Ahold's Southeast chains, Bruno's and Bi-Lo, are on the block and likely to be sold before the end of this year. Winn-Dixie is continuing its attempts to sell a large number of units. There's also more speculation about whether Pathmark may again fall into play, with Albertsons and Delhaize mentioned as possible suitors. The healthiest way for all parties to proceed on the industry's merger track is to avoid being derailed by past errors.