This week’s announcement of the planned merger of European based retail supermarket market chains Royal Ahold and Delhaize Group has implications for consumer product goods supply chains.

This proposed combination would amount to €29 billion in total revenues and in excess of 6000 retail stores with what are described as strong local identities. It further brings together Netherlands based Ahold’s existing European retail and online shopping brands, along with Giant and Stop & Shop in the U.S., together with Belgium based Delhaize’s European retail outlets along with Food Lion and Hannaford retail brands in the U.S.

Business media reports that this combination of equals would create the fourth largest U.S. retail supermarket chain with an especially high concentration in the northeastern portion of the United States. According to the announcement, the combined businesses will have the name of Ahold Delhaize. The announcement further states:

From providing a broader selection in own brand products to having a wider range of store formats, customers will have more and easier ways to shop, whether they are visiting stores, or shopping online with pick-up points and home delivery, both in food and non-food.”

Ahold alone boasts that it provides an omni-channel presence offering its customers their channel of choice for shopping options including retail supermarkets, convenience stores, gasoline stations, specialty stores and online food and merchandise delivery options. It further positions its brands as offering responsible and more healthy products with a commitment for environmental responsibility.  Since the current CEO of Royal Ahold will assume leadership of the new combined company, these tenets are likely to continue  Delhaize has its own innovations to add.

As Supply Chain Matters has noted in prior commentaries, the retail supermarket industry has undergone significant change during the post-recession years and margins remain slim. Consumers demanding both more healthy and convenient food choices have impacted both supermarket chains as well as packaged consumer goods providers. A merger of this size provides opportunities for additional buying scale and the ability to influence a greater selection of natural and specialty convenience based foods among existing or new producers. Due to minimal geographic redundancy, this combination provides added opportunities to take advantage of added efficiencies in logistics, distribution and transportation costs.

From our lens, the most significant implication is the additional buying influence that can be brought to bear on consumer product goods producers. The notion that this combined entity spans both European and U.S. retail markets adds additional impetus to breakdown the different pricing, merchandising and promotional strategies that CPG producers maintain as separate and distinct in both markets. More importantly, as major supermarket chains continue to merge into larger entities, the balance of buying and merchandise selection power will continue to swing back to chains themselves.

This combination is expected to be completed by mid-2016, subject to regulatory clearances and shareholder approval.

Bob Ferrari