A New U.S.-European Grocery Giant Is Born
Forget Tesco and Carrefour; the merger of Ahold and Delhaize creates Europe’s most reliable grocery group
Customers browse the chilled meats cabinet inside a Delhaize supermarket in Wezembeek, Belgium, on May 26, 2014. PHOTO: BLOOMBERG NEWS
Ahold Delhaize is probably the largest U.S. supermarket group you’ve never heard of. It may also be the best European grocer to trust with your money.
One reason the retailer is little known is that it has only just been born. The cross-border merger of Royal Ahold and Delhaize Group,for years a subject of speculation and finally announced in June 2015, completed Saturday. Shares in the combined entity are due to start trading on the Amsterdam and Brussels exchanges on Monday.
The other reason Ahold Delhaize is less familiar than similarly sized peers Tesco and Carrefour is that it operates under multiple aliases.
On the U.S. East Coast, the group will inherit the Stop & Shop and Giant chains from Ahold and Food Lion and Hannaford from Delhaize. In the Netherlands, Ahold’s key asset is Albert Heijn, by some distance the country’s largest retailer. Only in Belgium, where Delhaize is the No. 3 grocer, does the retail brand match the corporate name.
This fragmented structure will remain in place even after the all-share deal. The company hopes to save €500 million ($549 million) a year by trimming head-office costs and buying goods in greater volumes. But it won’t cut brands or stores unless forced to by antitrust officials. In the U.S., it has agreed the sale of 86 stores, accounting for roughly 3% of sales, to keep the Federal Trade Commission happy.
Despite its Benelux origins, headquarters and listing, Ahold Delhaize will be more American than European. Its U.S. chains will account for 63% of sales this year, reckons brokerage Jefferies. An investment in the company is therefore a bet on U.S. grocery, in which it will become the fourth-largest player after Wal-Mart, Kroger and Albertsons.
This isn’t an easy business. U.S. margins at Ahold and Delhaize fell for years as Wal-Mart expanded aggressively and nonfood players such as Costco and Home Depot entered the market. Both European groups have reacted with costly investments in store refurbishments and lower prices.
Delhaize’s turnaround has been more convincing so far: Thursday’s second-quarter results showed like-for-like U.S. sales growth of 2.9%, despite ongoing food-price deflation.
German retailers Lidl and Aldi, which have disrupted the U.K. market and plan to expand in the U.S., pose future threats. Yet Ahold and Delhaize are experienced at competing with them in Europe. Amazon’s much-hyped ambition to sell food is less worrying given the dubious economics of e-grocery. Ahold also owns its own U.S. online supermarket, Peapod.
These are risks to monitor. Yet relative to Europe’s other big grocers, Ahold Delhaize looks comfortably placed. Tesco’s profitability is impaired by the same vicious price war that has undermined Wal-Mart’s U.K. operation, Asda. Carrefour has to contend with the weakness of emerging-market currencies as well as a morose home market. By comparison the combination of dollar-earning grocery and some blue-chip European operations looks a haven.
