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Transitions at the Top

Kroger Co., Cincinnati, remained the industry's leading retailer at the dawn of the new millennium, but its hold on the No. 1 spot on SN's Top 75 list is tenuous at best.w supercenters and convert existing discount stores to supercenters at a rate approaching 150 per year, Wal-Mart is poised to eclipse Kroger as the industry leader in the next few months.Kroger's primary attention for the next few

Kroger Co. , Cincinnati, remained the industry's leading retailer at the dawn of the new millennium, but its hold on the No. 1 spot on SN's Top 75 list is tenuous at best.

w supercenters and convert existing discount stores to supercenters at a rate approaching 150 per year, Wal-Mart is poised to eclipse Kroger as the industry leader in the next few months.

Kroger's primary attention for the next few months will involve trying to digest Fred Meyer Inc., the Portland, Ore.-based giant whose acquisition it completed last May.

Albertson's, Boise, Idaho -- the industry's other acquisition leader -- fell out of second place with Wal-Mart's growth, and its attention this year will also be turned inward as it seeks to digest last May's acquisition of American Stores Co., Salt Lake City.

Safeway, Pleasanton, Calif., held on to the No. 4 spot on the Top 75 on the strength of its mid-year acquisition of Randall's Food Markets, Houston (No. 30 on last year's list).

Supervalu, Minneapolis, moved up one spot to No. 5 with its acquisition of Richfood Holdings, Richmond, Va. -- last year's No. 21 company -- passing Ahold USA, Chantilly, Va., which did not complete any acquisitions last year -- although it was moving forward on its acquisition of Pathmark Stores, Carteret, N.J., until late December, when it broke off talks with the Federal Trade Commission and called off the deal, leaving No. 23 Pathmark up for grabs.

Fleming Cos., Oklahoma City, held on to the No. 7 spot, but Delhaize America, Salisbury, N.C. -- the successor company to Food Lion -- moved up to No. 8, from No. 12 last year, as a result of its pending acquisition of Hannaford Bros. Co., Scarborough, Maine (last year's No. 24).

Loblaw Cos., Toronto, moved up one notch to No. 9 on the strength of its acquisition of Provigo in late 1998, while Winn-Dixie Stores, Jacksonville, Fla., fell back two notches to No. 10, mainly resulting from the pending sale of its 74-store Texas division to Kroger.

Industry observers told SN they believe the pace of industry consolidation will slow down this year, at least in the early going.

Gary Giblen, New York-based managing director for Banc of America Securities, San Francisco, said the tougher stance taken by the FTC in the proposed Ahold-Pathmark merger and in the Albertson's-American Stores deal -- where it ordered 147 stores divested -- could have a negative effect on consolidation during the first half of the year.

In addition, the process of digesting the two megamergers by both Kroger and Albertson's -- and the initial short-term indigestion both are experiencing -- could slow the consolidation pace, he said.

"Certainly companies will continue to make smaller acquisitions because those are easy enough to do. But anything larger would likely be deferred because of what's left to digest, and the synergies yet to be achieved, from previous merger activities," Giblen said.

"On the other hand, there are properties that are or will become available, particularly Pathmark and Weis Markets, which are openly soliciting bids, and that could make it necessary for interested companies to pursue those deals."

Jonathan Ziegler, San Francisco-based managing director for Deutsche Bank/Alex Brown, New York, told SN that companies that might be interested in Pathmark or Weis may prefer stepping back from additional acquisitions as they try to achieve synergies from earlier deals. "And by taking their time and waiting till the second half of the year, they may get a better price," he said.

Ziegler also said he anticipates the possibility of consolidation between supermarkets and drug stores or between supermarkets and on-line food companies.

"Rite Aid is the most likely drug chain that could get together with a supermarket operator," he said.

But he said he also sees the possibility that a brick-and-mortar retailer could explore a merger with an e-commerce company. "There are so many on-line food companies out there whose stocks are languishing, and that might be a way for some B&M companies to get into Internet selling.

"The question they must answer is, if on-line operators are losing money, how much will it affect a company's stock if it gets involved with e-commerce?"

The two analysts also noted that consolidation could come from retailers outside the United States, with European players like France's Carrefour and the United Kingdom's Tesco potential buyers of U.S. companies; in addition, they said, overseas players like Delhaize from Belgium, Ahold from the Netherlands and Casino from France (owner of Smart & Final, Vernon, Calif.) could seek additional holdings in the United States.

Comparing this year's Top 75 list with last year's, five companies are missing: Randall's, United Grocers and Richfood, all of which were acquired; Hannaford Bros., which is being acquired; and Fairway Foods, Bloomington, Minn., which disclosed plans to sell off its distribution assets at year's end.

Taking the place of those companies on this year's list are Foodarama Supermarkets, Freehold, N.J., at No. 66; Inserra Supermarkets, Mahwah, N.J., at No. 67; Bozzuto's, Cheshire, Conn., at No. 69; Super Target, Bloomington, Minn., at No. 74; and Brookshire Bros., Lufkin, Texas, at No. 75.

Several companies showed considerable movement up and down during the year, including the following:

Unified Western Grocers, Los Angeles -- the successor company to Certified Grocers of California -- which moved up 13 spots to No. 27 from No. 40 a year ago following its merger last fall with United Grocers, Portland, Ore. (No. 57 on last year's list).

Penn Traffic Co., Syracuse, N.Y., which fell to No. 32 from No. 27 a year ago after reducing its store count by nearly 30 units as it emerged from Chapter 11 bankruptcy protection in June.

Bruno's Supermarkets, Birmingham, Ala., which dropped to No. 43 from No. 39 a year ago following the sale or closing of more than 60 stores over the past two years prior to emerging from Chapter 11 bankruptcy earlier this year.

Associated Food Stores, Salt Lake City, which jumped to No. 55 from No. 64 last year after acquiring 15 member stores during the year.

K-VA-T Food Stores, Abingdon, Va., which moved to No. 62 from No. 68 a year ago on the strength of an aggressive store-opening program and the acquisition of seven stores in Knoxville, Tenn., from Winn-Dixie last summer.

Pueblo International, Pompano Beach, Fla., which fell 10 notches to No. 75 following ongoing problems related to the effects of Hurricane Georges in late 1998.

The Top 20

The Top 75 industry companies accounted for combined volume in 1999 of $420.5 billion.

Here are percentages of the combined top-75 volume for each of the 20 highest-volume companies:

Kroger Co. 10.8%

Wal-Mart Supercenters 10.7%

Albertson's 8.9%

Safeway 6.8%

Supervalu 4.9%

Ahold USA 4.8%

Fleming Cos. 3.5%

Delhaize America 3.4%

Winn-Dixie Stores 3.2%

Loblaw Cos. 3.2%

Publix Super Markets 3.1%

A&P 2.4%

Meijer Inc. 2.3%

Sobeys Canada 1.8%

H.E. Butt Grocery Co. 1.8%

C&S Wholesale Grocers 1.5%

Wakefern Food Corp. 1.3%

Super Kmart 1.1%

Shaw's Supermarkets 1.1%

Giant Eagle 1.0%