Delhaize likely to move into Spain or Italy, says IGD

Citation

(2003), "Delhaize likely to move into Spain or Italy, says IGD", International Journal of Retail & Distribution Management, Vol. 31 No. 9. https://doi.org/10.1108/ijrdm.2003.08931iab.002

Delhaize likely to move into Spain or Italy, says IGD

Delhaize likely to move into Spain or Italy, says IGD

Keywords: Retailing, Delhaize, Spain, Italy

Delhaize has said that it aims to be in a position to make a major acquisition from 2004 onwards but has not said where or whom. In its new report on the Belgian retailer, IGD predicts that this will be a move into Spain or Italy to increase its presence in the key Western European markets.

Delhaize is currently only present in one of IGD's five key markets (UK, Spain, Italy, France, and Germany) in Western Europe, with just one store in Germany, and the region has a number of medium-sized retailers which would provide a good fit. Delhaize left France, the only other key market in which it had a presence, in 2000, as it had limited growth prospects and was unlikely to meet its target of reaching a leading position.

Spain and Italy are likely targets as they are fragmented in comparison with the other three key markets and so would offer a more realistic opportunity to achieve a top three position (which is one of Delhaize's stated aims).

Spain

The Spanish market is still fragmented in comparison with other developed European markets but this is changing rapidly as consolidation increases. Delhaize must therefore move decisively if it is to gain significant presence. Market leader Carrefour and fellow French retailer Auchan dominate the hypermarket and discount sectors, while Ahold is building up a presence in the supermarket sector.

The most attractive candidate in Spain would be domestic operator Mercadona, a privately-owned soft discounter which is currently achieving one of the highest rates of growth in the market and has 686 stores, giving it almost national coverage. Mercadona's format is similar to Delhaize's with an emphasis on fresh produce and an Always Low Price commercial policy. It also places a higher value on service and staffing levels than other discounters, an aspect important to Delhaize.

This merger would give Delhaize access to a successful company with excellent growth prospects in the Spanish market. However, it is worth remembering that any deal would need the consent of the family owners of Mercadona.

Italy

Esselunga is a privately-owned Italian player with 112 supermarkets and superstores in Northern Italy. It is perceived to offer quality and value for money, and therefore high customer satisfaction. Selex is a retail organisation with 22 affiliated retail groups (including Esselunga). Esselunga and Selex together have formed a joint purchasing and marketing company, ESD Italia (Efficienza e Servizi per la Distribuzione) which represents 3,057 stores throughout Italy. Esselunga also focuses on service and quality, has a developing home delivery service and many similarities in format to Delhaize. Any partnership would benefit both retailers as they are already engaged in joint buying through ESD.

A merger with Esselunga alone would give Delhaize a solid 3 per cent share in the fragmented Italian market. However, this would not be enough for Delhaize to be able to compete effectively in the national market, but the combined buying power that would be acquired through a merger with ESD would give Delhaize access to twice that market share. The ESD alliance is the only non-co-operative alliance not to feature a major international player and so is a highly attractive option. However, Delhaize may have to compete with interest from Auchan, Rewe, Ahold, Casino and Tesco.

Germany

Delhaize opened its first supermarket in Aachen, close to the Belgian border, in early 2003 and will open another convenience store later in the year. Discounters have a growing command of the German market; nonetheless Delhaize is confident of providing a successful alternative with its offer of high quality fresh food and a convenient shopping environment.

IGD predicts that expansion in Germany will be gradual as Delhaize will focus its activities in this cross-border region and will need to assess whether German consumers will respond positively and swap from discount shopping to its more upscale format. The question is also whether Delhaize can take customers from supermarket operators Edeka and Rewe.

For further information on this press release please contact: Catherine Ellwood, Tel: +44 (0) 1923 851916; Mobile: 07718 580103; E-mail: catherine.ellwood@igd.com. Or contact Sarah Harper. Tel: +44 (0) 1923 851922; Mobile: 07785 257974; E-mail: sarah.harper@igd.com