Retail consolidation is moving right along, as a glance at the front page and other pages of this week's SN will show quite vividly.
All this raises two questions: How long will consolidation strings play out, and what are the various effects consolidation will have on the food-retailing industry?
First, it appears as though megamergers are on the wane, not withstanding the fact that last week brought news of Safeway's proposed acquisition of Dominick's Supermarkets in a deal valued at about $1.8 billion. It seems as though deals of this magnitude will become less frequent because of growing uncertainties in equity markets and because targets of opportunity simply will be used up.
The Safeway-Dominick's deal may prove to be one of the final flywheel-effect mergers: transactions now coming on stream because they represent the fulfillment of processes set in motion some time ago. In the current instance, it has been well known for a while that Dominick's could be purchased and several companies, including Kroger Co., were thought to be actively interested.
Now, what about the ultimate effect of all the consolidating that has been going on this year?
The crystal ball becomes cloudy at this point, but it looks as though many of the consolidated companies will step up efforts aimed at efficient operations. Doubtless that would feature the application of category management, stockkeeping-unit rationalization, private-label combinations and the centralization of logistics and buying.
This assumes consolidated companies will eventually be operated as true chains, not as independent entities in the mold of a holding company. Should true consolidation eventuate, it would sharply jolt the industry.
New companies would move technical expertise from the unit that knows most to the unit that knows least, resulting in a highly competitive proposition. That could set off a battle of the titans, with supercenters also stepping into the ring as chief protagonists. Smaller retailers would not be left unscathed.
Manufacturers too will see change. More than one vendor has already expressed fears that megachains will be able to better track deals and other incentives over wide territory, with the effect that net margin production will be lowered. Many are also worried that fewer facings, and fewer SKUs altogether, will result in new profit pressures.
Already, many are thinking of what they need to do to stay ahead of increased price demands, perhaps by pouring resources into product development, or by developing unassailable logistical or technical advantages that would shift attention from price.
But, through it all, it's important to remember that food retailing is a local business. Too much centralization results in confusing and charmless merchandising styles that aren't rewarded by consumers, as a couple of chains discovered earlier this decade.
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