Opinion: More worries about Colruyt than Ahold Delhaize

Both Ahold Delhaize and Colruyt suffered blows on the stock exchange as it seems like investors have completely lost faith in supermarket shares. However, they are not all alike, because Ahold Delhaize seems to bounce back, unlike Colruyt.

Price war

Both chains suffered stock market issues because of varying reasons: Ahold Delhaize had to deal with the aftermath of an altered US market, which represents two thirds of its turnover. Lidl’s arrival sparked a price war, with Aldi and Walmart fully engaged. Investors fear this may have its impact on the merger group’s margins. The final blow came from Amazon, turning the entire industry upside down with its Whole Foods acquisition.

Suddenly, every traditional supermarket chain became a target for failing to innovate as much as a technology player. Food seemed to have sidestepped the eCommerce threat, but that is no longer the case. The overall consensus is that once Amazon starts moving, playtime is over. But still, that does not always seem to be the case: the infamous cash register-free Amazon Go store still hasn’t launched, showing that even Amazon is not impervious to failure.

Acquision target

Reality seems to have returned: reports on the supermarket’s demise are highly exaggerated and ING indicated the fire sale of Ahold Delhaize shares was “disproportionate”.  The bank feels the group has a leading market position, with a large size and solid operational performances. The merger group can also fully benefit from its synergy. The share target has been lowered, but analysts still advise people to buy the share.

Beursfoon’s director, John Beijer, also maintains his faith in the company and says the current dip only represents an excellent opportunity to buy. Besides, some gambled on the fact that the events would trigger another acquisition spree across the United States, turning Ahold Delhaize’s American branch into an interesting target. Investors could get a nice bonus if there were to happen, but the share is now recovering from those devastating blows. 

Smaller margins

However, things are different for Colruyt: the discounter is not a global player, which is both a strength and a weakness. It is a strength because no one knows the Belgian consumer better than Colruyt. Belgium is also a small market, which means that there is no change Amazon will consider it to be a priority. The market will remain out of sight for quite some time.

It is also a weakness, because Colruyt is a major player in a small market, limiting its growth potential. Its French activities are not convincing and there is increased competition in the Belgian market from plenty of international companies with superior purchasing abilities. Aldi, Lidl and Ahold Delhaize are also pressuring Colruyt’s lowest price model, which in turn is damaging its margins.

Worthless price guarantee

People are now openly questioning Colruyt’s strategy and how long it can last. eCommerce growth will not help its cause, because how can Colruyt react to foreign web shops’ lower food prices. Just look at Amazon.fr’s price level. Its lowest price guarantee worked very well in the closed-off Belgian market, but with increasing border purchases (both online and offline), that guarantee becomes worthless. That realization must have been hard to take in Halle.

Insiders are not as positive about Colruyt’s future: its growth potential is highly doubtful and its share is too expensive. Most of the stock exchange analysts will advise to sell Colruyt’s share, according to De Tijd, and only one company (Morgan Stanley) has expressed optimism, which is actually worrisome. Or is that an understatement?