A year ago, consultant David Schoeder suggested the era of the mega merger in grocery retailing was over.
From a decade high of 2,000- to 4,000-store transactions annually between 2013 and 2015, acquisitions by the big national supermarket chains subsequently petered off, his slides showed.
Instead, “it’s a new world” in which more modest independents look to acquire other independents, Schoeder said during the 2020 annual webinar on the outlook for food retail mergers hosted by The Food Institute, a trade group.
And lo and behold, last week upstate regional grocers Tops Markets and Price Chopper/Market 32 announced their planned combination.
Tops, based outside Buffalo in Williamsville, and Price Chopper, headquartered in Schenectady, said they would unite under a new corporate umbrella that would be based locally.
The companies, with similar family grocery roots and store counts, said they would bring together their “almost perfectly contiguous footprints” of nearly 300 locations across New York and into New England and Pennsylvania to become more competitive both in the marketplace and with suppliers.
I’ve listened to Schoeder, principal at The Food Partners, a suburban Washington, D.C., investment banker to the food industry, on the annual mergers webinar for several years. So I contacted him for insight into the Tops/Price Chopper deal.
“It makes good business sense,” he said of the combination.
Both in an interview and in his 2020 presentation, Schoeder noted the changing landscape for supermarkets. Whereas several years ago a regional grocer could count on interest from the larger chains if it wanted sell, “there’s no buyers today,” he said.
Once-active acquirers such as Albertsons and Kroger are focused nowadays on building their store-plus-online business or “maintaining what they have” in the face of ever-growing competition. “The days of mega mergers are over,” Schoeder said.
He indicated that Tops and Price Chopper broached a combination about four years ago, but Tops’ heavy debt load then was off-putting. Tops filed for Chapter 11 bankruptcy reorganization in early 2018, emerging before the year was out with some debt converted into equity and additional money to fund ongoing operations.
Schoeder anticipates a public stock offering might be in the combined companies’ future, as holders of Tops’ converted debt look to cash out. Neither company on their own would be attractive as an IPO, but together they might.
Schoeder sees the Tops/Price Chopper deal as “driven by the need by two parties to do something. … They were both stuck in place.”
That may drive other regional chains to consolidate, too.
“I think that we’re going to continue to see a consolidation of independent operators,” he noted in the 2020 webinar. “The only place where we’re consolidating stores are with the independents.
“… People are questioning whether or not independents will survive in the new world order. I believe they will.”
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]