The Mergers & Acquisitions Puzzle

The Hiatus: Recession and Notable Failures
After this busy, near-decade spell of M&A activity came a plateau in 2005. The next five to seven years was a fallow period, caused by several factors but dominated by the industry’s need to regroup after so much consolidation. The global recession, beginning in 2008, prolonged the stasis. Another factor was the failure of some of the mergers. “Synergies that look good on paper,” comments McLaughlin, “are very difficult to realize in the real world.”

Schoeder points out that when a supermarket operator buys a poor-performing store, it can see strong increases in volume almost immediately after an acquisition. But the reverse is also true: the purchase of a solidly performing store can suffer an immediate drop in volume after an acquisition. This is often due to a poorly executed integration plan and the implementation of changes before the purchaser has a complete understanding of the store, its operations, and employees—which made it an attractive shopping destination to consumers in the first place.

Many seemingly perfect matchups fell apart for a very simple reason. “Most mergers that failed were because the operators bought something and turned it into something else,” Schoeder says. “They didn’t listen to the customer and radically altered what was in the box.”

Experts consider SuperValu’s acquisition of Albertson’s in 2006 and Safeway’s double play for Dominick’s in 1998 and Genuardi’s in 2000 what-not-to-do scenarios. “When the larger chain takes over, it introduces technology and efficiencies,” explains McLaughlin, and though this is a positive, there can be negative consequences: “The brand quality and reputation can be diluted.”

Peterson agrees, citing Safeway as an example. “In the case of Safeway, it eliminated regional brand names that shoppers really related to.” Further, he notes, cultural, operational, and market differences between the purchasing and acquired companies can be difficult to align. “Just because two companies merge doesn’t mean they’ll be better.”

The Aftermath: Transitions, the Expected, and Unexpected
Supermarkets, of course, have not been the only industry engaged in merger activity since the late 1990s.

“Every sector of nearly every industry has become more consolidated over the past 25 to 30 years,” McLaughlin says. This includes all levels of the produce supply chain: retailers, wholesalers, processors/manufacturers, and growers.

Impact on Vendors
Mac Riggan, director of marketing at Chelan Fresh Marketing, a Washington state tree fruit grower, agrees. “Consolidation on the retail side has mandated that shippers also consolidate,” he says. “You can’t be fragmented on the vendor side either; you have to up your service game and look for economies of scale.”