From the Publisher: Food fight
By Seth Mendelson
Merging suppliers can have a plethora of different meanings. Tyson Foods is the proud parent of a new baby. Of course, it cost a cool $8.55 billion in cash to fend off other suitors and acquire Hillshire Farms and its deli and meat products in early June. It was certainly an arduous process. To recap for the weary, Hillshire made a play to purchase Pinnacle Foods, which led to a move by Pilgrim’s to buy Hillshire, which somehow got Tyson involved and they made their own bid for Hillshire. Next Pilgrim’s raised their offer for Hillshire, but backed away when Tyson increased its bid. Are you following this? More importantly, however, why is this happening in the first place and what impact is it going to have on retailing in the months and years ahead? Many argue that Hillshire started the ball rolling by making what they say was too extravagant an offer for Pinnacle. Some say that move opened the floodgates, allowing other players to get involved after seeing how receptive the financial community was to the bid. Others say that this is a testament to an economy that is about ready to kick into high gear. An uptick in mergers and acquisitions has a history of helping start an economic resurgence. At a minimum, it shows that many of the dealmakers in the world think that things are about to improve measurably, or at least enough to pay back the enormous debt that almost always accompanies these types of deals. It should be noted here that recent data—including consumer spending, consumer confidence and housing sales—does show a big improvement in the economy. Of course, there is a third school of thought. There are those industry observers and Wall Street gurus who think this round of mergers could actually be a plea for help by some of the biggest names on supermarket shelves. It seems that many in this group feel that these suppliers have lost the battle between themselves and the retailer for control of store shelves. A fragmented industry would do that, especially in the world of grocery store retailing. Leverage is extremely important for any operation, particularly those companies fighting for space on some very crowded store shelves. Back in the day, suppliers ruled the grocery store aisles. With huge promotional dollars, intense advertising and immense market shares, the major manufacturers and suppliers in the grocery store industry were pretty much able to dictate terms to most retailers. Times have changed and now, with suppliers more fragmented than ever, and with fewer, but larger, chains, retailers have firm control over what goes on their shelves. Merging companies together to create a larger entity—not to mention one that has more market share and power—can help move the pendulum back. What this does prove is that the supermarket is an intense battleground, not only between retailers, but between retailers and their suppliers. As retailing becomes more competitive, we can expect more positioning by retailers and suppliers to gain an edge in an industry that seems to be doing just fine, thank you.