Analysis: Delhaize torn between AMS and Coopernic

Analysis: Delhaize torn between AMS and Coopernic

The decision to merge with Ahold will probably have far-reaching consequences for Delhaize's earlier decision to leave AMS and head to Coopernic: the merger blows the door for a return to AMS wide open, but the imbalance within the purchase alliance will only grow.

Delhaize had just left Ahold

Looking at it from a European purchase collaboration perspective, the Ahold-Delhaize merger's timing is remarkable to say the least: Delhaize announced in September 2014 it would join Coopernic on 1 January 2015, which consists of French retailer Leclerc, Coop Italia and recently-joined (again) German REWE.

 

That move meant Delhaize turned its back on Ahold as it would leave the AMS purchase alliance. Officially, it is called the Associated Marketing Services, but is often referred to as the Ahold Marketing Services as the Dutch company not only founded the organization, but also dominates its day-to-day working.

 

On the back burner in Coopernic

If it was indeed Delhaize that reached out to Ahold in the first quarter of 2015, it would seem a dumb move to trade in AMS for Coopernic. One explanation could be that the approach was an impulsive move and that Delhaize had not planned to reach out to Ahold mid-2014.

 

It now seems that way because it seems very unlikely that Delhaize's AMS retreat to become a desirable bride for Ahold was the company's idea behind the move. "Playing hard to get" is a strategy that only works if you have an undisputed number of advantages to offer. In the proposed merger between Ahold and Delhaize, most of the advantageous synergies are for Ahold, which is also why the merger is often called a take-over in disguise.

 

As Coopernic's newest member, Delhaize had to take a backseat in June when it divulged it was in talks with Ahold about a possible merger. Delhaize spokesperson Nicolas Van Hoecke said the Ahold talks had no influence on Delhaize's Coopernic membership. "In the interest of Coopernic and its members, Delhaize will no longer be physically present during negotiations, but Coopernic can speak on Delhaize's behalf during those talks", Van Hoecke said on 9 June.

 

Delhaize will stick with Coopernic despite proposed merger

The spokesperson emphasized a month ago that this cannot lead to any misinterpretation. "The fact that Delhaize is currently not present at the negotiations, does not mean it will no longer take part in projects or that it will no longer be a member", Van Hoecke said.

 

Even the fact that Delhaize and Ahold had reached a merger agreement a mere 2 weeks later, doesn't change anything he feels. "We have publicly declared our intent to enter a 'merger of equals", he said on 24 June. "This move will need to be approved by stock holders later on. Delhaize Group is part of Coopernic and positive about its collaboration. It is much too early to comment any further about such topics."

 

The confirmation Delhaize was in talks with Ahold has consequences, but the announcement that it would merge with Ahold, if it were up to Delhaize, does not change anything about the current situation: Until further notice, Coopernic will purchase on Delhaize's behalf. Whether that is actually the case, is something that is still up in the air as spokespeople for both Rewe and Leclerc refused to comment. Coopernic itself has also refrained from any comment. "Our code of conduct does not allow us to answer that question", is the short and formal answer given by Coopernic's general manager, Laurent Collot.

 

Will Delhaize head back to AMS?

If the merger is approved, which should happen mid-2016, then Delhaize's participation in Coopernic is irreverably over, as it makes much more sense than Ahold leaving AMS behind. "Until the merger is approved, we will be two separate companies acting as such", Ahold spokesperson Tim van der Zanden said. "That means it is business as usual, including upholding current agreements with partners."

 

There are many different scenarios, although Delhaize leaving Coopernic sooner or later seems inevitable. Once that has been done, the question is what Ahold Delhaize could mean to AMS. Stacking up purchase volume seems the logical thing to do: not only will Delhaize's volume return to AMS, Ahold's dominance within the purchase alliance will become even greater.

 

Ahold and Delhaize have a combined 54.1 billion euro turnover, with some 39 % (21 billion euro) generated in Europe. Only the Swiss market leader Migros, with 26 billion euro, can present higher turnover numbers within AMS' ranks. The fourth largest British retailer, Morrisons, also comes close with a 2014 turnover of 16 billion pounds sterling (20 billion euro). All other AMS members are much smaller turnover-wise. 

 

Balance of power within AMS will change

The merger will definitely change the balance of power within AMS and it remains to be seen how that will impact the internal structure. Another purchase alliance, Core, did not fare too well when the balance between the larger REWE and many other smaller groups led to problems. The German retailer then decided to approach Leclerc, a company that is much closer to REWE's turnover.

 

AMS has a much longer history however and as long as the other members keep adding value to Ahold Delhaize and vice versa, it will still be business as usual - even after the merger. Even despite the merger, Ahold Delhaize is much too small on a European level to consider its own purchase alliance.

 

Conclusion: the Ahold - Delhaize merger brings back a lost sheep into the AMS fold, something which all AMS members will appreciate. The fact that the merger company would have a bigger impact at the negotiation table is something the other parties will have to accept.

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