Business

New rivals spur Stop & Shop, Hannaford merger

The owners of supermarkets agree to merge amid an intensifying battle for market share

Competition has ramped up with the expansion of such regional chains as Market Basket, which opened a Waltham store late last year, and Roche Bros.
Wendy Maeda/globe staff/File 2014
Competition has ramped up with the expansion of such regional chains as Market Basket, which opened a Waltham store (above) late last year, and Roche Bros.

For more than a decade, Stop & Shop and Shaw’s dominated the local grocery market with middle-of-the-road prices.

Now both companies are in the midst of an all-out supermarket war
as new competitors, from high-end Wegmans to low-priced Walmart superstores, move in on their business.

Two industry giants responded Wednesday with a plan to grow even bigger. The Dutch parent company of Stop & Shop struck a $10.4 billion deal to acquire the conglomerate that owns Hannaford Bros. Co. Royal Ahold NV’s purchase of Delhaize Group could further increase buying power and reduce costs to help preserve profit margins.

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“It’s never been more competitive for supermarkets,” said Rajiv Lal, a retail professor at Harvard Business School. “Everyone is trying to get a piece of the supermarket business because it has some attractive characteristics. It’s top of mind with consumers, there’s lots of traffic, and it’s not going away.”

Long-established supermarket chains still dominate, but they are trying to further expand buying power and reduce their costs to preserve profit margins in an increasingly competitive market.
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Stop & Shop is the grocery leader in the Northeast, with 11.4 percent of total sales and more stores than any other supermarket in Massachusetts. Hannaford ranks 11th, with 3.4 percent of total sales in the Northeast, down from 3.9 percent two years ago, according to the Griffin Report of Food Marketing.

The merger of their parent companies would come during a time of slow growth for the traditional supermarket industry, as more retailers enter the market and eat away at grocery sales. Ahold reported just 0.5 percent revenue growth last year. Delhaize sales edged up 1.2 percent.

Lal said department store and pharmacy chains such as Target Corp. and CVS Health Corp. added grocery aisles during the recession to increase store traffic and sales.

Conventional supermarkets are also pinched by chains that recognize the growing income disparity among American households and are targeting low- and high-end niches of the market.

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“Competitors like Wegmans and Walmart smell opportunity at the edges,” said Edward McLaughlin, director of the food industry management program at Cornell University.

Walmart Stores Inc. takes advantage of its vast supply chain to offer lower prices.

Wegmans Food Markets Inc., a powerhouse in New York state, has opened three stores in Massachusetts, drawing hordes of affluent shoppers in such places as Chestnut Hill and Burlington with giant sections of premade meals.

Meanwhile, Whole Foods Market Inc. bought six Johnnie’s Foodmaster locations a few years ago. The brand’s aisles of organics appeal to customers with higher incomes.

Over the past decade, competition from traditional grocers has also increased as Market Basket, Trader Joe’s, and Roche Bros. all expanded in New England.

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For some customers, the variety that comes with the growing number of grocery options is a welcome change.

Tracy Chase, 47, of Lexington said she does more than half of her shopping at Market Basket. Since a Wegmans opened in Burlington in October, however, Chase has become a fan of its large international foods selection.

Diversified retailers such as Walmart and Target have moved into the food business in a big way. Meanwhile, other grocery chains like Whole Foods have targeted the higher end of the market.

“It’s like Whole Foods, but on steroids,” Chase said about Wegmans as she loaded groceries into her car. “I love the feel of the store, and I love that it sells beer and wine.”

Despite the changes and new options, some shoppers remain loyal to the longstanding local brands.

Janice Linehan said she occasionally buys food on impulse when she picks up prescriptions at pharmacies. She said hot-food bars at places like Wegmans might be nice for quick meals, but she mostly sticks to Stop & Shop in Lexington.

“I always come here because Market Basket is a zoo,” said Linehan, 62. “I know where everything is here.”

Ahold’s plan to acquire Delhaize will influence markets beyond New England. It would create one of the country’s largest grocery conglomerates, with more than 6,500 stores and 375,000 employees. Together, the grocers recorded sales of more than $60 billion last year.

“That’s clearly a competitive size,” said Dick Boer, who is chief executive of Ahold and would lead the merged organization. “That gives us scale and benefits the customers with lower prices, more private label, and better quality.”

Ahold expects the merger to create annual savings of $560 million by 2019 and to boost the new company’s earnings in its first year.

Boer said it’s too early to determine whether the corporate merger would lead to job cuts or headquarters moves. Stop & Shop’s US business is based in Quincy, and Hannaford’s in Scarborough, Maine.

Wegmans has opened three Massachusetts stores and plans others in Westwood and Boston’s Fenway neighborhood.

The two chains would continue as separate brands, Boer said.

“They are strong local brands,” Boer said Wednesday. “There’s no way that you’re going to change that.”

But he said the new company might have to sell some of the overlapping locations if the Federal Trade Commission raises antitrust questions about the merger plan.

Grocery deal
A comparison of Delhaize Group and Royal Ahold
Delhaize Group Royal Ahold NV
Headquarters Brussels, Belgium Zaandam, Netherlands
CEO Frans Muller Dick Boer
Supermarkets worldwide 3,402 3,206
Supermarkets in New England 183 214
Supermarkets in Massachusetts 25 131
Market value $10.2 billion $17.6 billion
2014 revenue $23.9 billion $36.7 billion
Stock price (US) $24.55 $21.16
Ticker symbol (US) DEG AHONY
Employees 150,000 227,000
Major chains Food Lion,Hannaford, Delhaize, AD Delhaize, Proxy Delhaize, Shop 'n Go, Alfa Beta, Mega Image, Maxi, SuperIndo Stop Shop, Giant, Gall Gall, Albert, Albert Heijn, bol.com, etos, pingo doce, Peapod
Year founded 1867 1887
Website www.delhaizegroup.com www.ahold.com
2014 revenue $23.9 billion $36.7 billion
SOURCE: The companies

Taryn Luna can be reached
at taryn.luna@globe.com. Follow her on Twitter @TarynLuna.