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Consolidation continues to have an impact on the food retailing industry, although a survey by SN of top executives at regional chains around the country indicated that companies have become far more selective about transactions to pursue."News stories I've read suggest there's going to be more consolidation in business in general, but I don't see much happening in our part of the country or the industry

Consolidation continues to have an impact on the food retailing industry, although a survey by SN of top executives at regional chains around the country indicated that companies have become far more selective about transactions to pursue.

"News stories I've read suggest there's going to be more consolidation in business in general, but I don't see much happening in our part of the country or the industry in [Northern California]," said Bob Piccinini, chairman and chief executive officer, Save Mart Stores, Modesto, Calif. Industry consolidation will be less of a factor going forward for regional chains "because an awful lot of consolidation has already taken place," he added.

Although some industry observers predicted an increase in merger activity following Albertsons' acquisition last year of Shaw's Supermarkets in New England and Bristol Farms in Southern California, for the most part industry consolidation since then has consisted of fill-in acquisitions through the purchase of small groups of stores in individual markets. With several dozen Winn-Dixie stores still on the market in the Southeast and more expected to join them soon, plus the recent decision by A&P to exit the Midwest, operators looking to expand in those areas are expected to have plenty of available sites to choose from.

"We've seen some store closings in the Southeast by Winn-Dixie, and there may still be some consolidation from that activity," said Steve Smith, president and chief executive officer, K-VA-T, Abingdon, Va. "But I don't see a whole lot of mergers or acquisitions, especially in our three-state market."

Still, some analysts continue to predict that eventually the industry will see some of the major chains become active again in mega-consolidations. In a recent Web-based conference sponsored by The Food Institute, Elmwood Park, N.J., one analyst projected that both Safeway and Albertsons could be under different ownership in five to 10 years. (See Page 49.)

In addition, recent industry reports from England have said that Tesco, the U.K.'s largest retailer, may be looking to purchase a presence in the U.S. The reports said the company was recently scouting Southern California for opportunities and might also be considering purchasing Grand Rapids, Mich.-based Meijer, although Tesco last week said no U.S. entry was imminent.

"We continue to look everywhere for opportunities," a spokeswoman for Tesco told SN, "but as far as an acquisition in the States, there are no immediate plans to move into the States at all."

While retail executives that SN spoke to are taking ongoing acquisitions and mergers in stride, they are closely monitoring and acting on real estate opportunities.

Success in Recent Deals

Piccinini of Save Mart has himself directed some consolidation in the region. Save Mart purchased 25 Food 4 Less stores in the Bay Area from Fleming in 2003, which boosted its store base by about 20%, to 123 stores currently, "and it's been a very successful acquisition," he said. "We took the stores and reinstituted the programs that had made them successful in the past, and we had double-digit growth at those stores last year, and this year we're way above the industry and company average, so it continues to be a great story."

Save Mart also acquired a couple of stores from Ralphs in Bakersfield, Calif., "but we took those over only within the last month or so, so it's too early to say how they're doing."

John Catsimatidis, chairman, president and CEO, Red Apple Group, New York, parent of the Gristedes chain, said he doesn't see any "big effect" from retail consolidation. He said he expects more major consolidations over the next decade, although he declined to speculate as to what companies may be next.

"It's a matter of survival for the ones that are doing it," he said. "They are trying to get more efficient. It's the same thing the banks are doing. You try to make two plus two equal six. Maybe in the '90s it was two plus two equaled five, but now you are trying to make two plus two equal six."

Catsimatidis, who made several attempts in 2002 and 2003 to buy Kings Super Markets, Parsippany, N.J., as did D'Agostino's, Larchmont, N.Y., said he would consider acquisitions if they had "synergistic value" for the company.

For now, Catsimatidis said the acquisition of Kings, owned by London-based Marks & Spencer, is a dead issue. The 28-store chain was taken off the selling block when the two bidders' financing fell through.

Jack Clemens, chairman, president and CEO, Clemens Markets, Kulpsville, Pa., said the rash of retail consolidation has put Clemens into the competitive arena with larger companies. "We didn't used to have the national players in our marketplace that we do now. It makes everything more competitive," he said.

Over the last two years, Clemens has bought out several independent operators "one store at a time," Clemens said. "We look for locations in our geographic area where it makes sense."

Clemens expects the pace of consolidation to remain consistent going forward. "Sales are harder to come by, and basically sales are the life blood of retail. You get more synergies out of being bigger and buying profitable players that can add to your portfolio."

Few Opportunities Left

Jack Brown, chairman and CEO of Stater Bros. Markets, Colton, Calif., said he doesn't expect ongoing industry consolidation to affect his business "because there are limited opportunities left in Southern California."

"However, there are several consolidation opportunities in other parts of the country, and as the larger chains are able to generate greater market shares, they will grow in strength and that will make them stronger adversaries on a local basis," he added.

Most acquisitions going forward are likely to involve small groups of stores, Brown said, as with Albertsons' acquisition of Bristol Farms. "Bristol Farms is a fine chain but not a large, high-volume chain. It's an acquisition that was motivated not by volume but by its go-to-market strategy, and that's the pattern most acquisitions may follow -- acquisitions made for the uniqueness of an operation but not for its size."

Brown said he doesn't anticipate any major consolidation this year, "though there are probably two or three larger companies that might be acquired, including two that are in financial difficulty."

Pat Raybould, president of B&R Stores, a 20-store operator based in Lincoln, Neb., said recent consolidation in his marketing area has been a plus because it has enabled his company to add management talent in the form of displaced workers. He said he expects more consolidation in his area, "and we would be an acquirer because we're always seeking out opportunities when they occur." B&R acquired three Food 4 Less stores from Fleming in 1996 in the Lincoln market and two more in 2000 in Grand Island and Columbus, Neb.

He said he anticipates more consolidation in the industry, but more likely next year rather than this year.

Neil Golub, president and CEO of Price Chopper, Schenectady, N.Y., said his company does not intend to be part of any industry consolidation. "We are privately owned, and we are in it for the long haul," he told SN. "We're not selling our business, and we expect to be a player for years to come. The fourth generation of the family is being groomed now, and we plan to be here for awhile."

Golub said he does not see many prospects for consolidation among the strong, privately held regional operators. "While we can't speak for any of them, we believe they will all be around for a while," he said. "For most companies that fit that mold, with substance in terms of numbers of stores, I don't see a lot of movement."

He said he hasn't seen much competitive consolidation in Price Chopper's operating area, though he said the company did purchase two P&C stores from Penn Traffic in Utica and Rome, N.Y.

Rich Parkinson, president and CEO of Associated Food Stores, Salt Lake City, said he doesn't see consolidation having much impact on his business this year. "[Our customers] are content to be where they are," he said.

"But we'll probably see more activity in the next year or so as companies continue to rationalize their markets, especially some of the chains, who say that if they can't be No. 1 or No. 2 in a market, they don't want to be there," he said.