Further shake-up of Netherlands food sector expected


Recent publications[1] by both analysts of ING Bank and ABN AMRO Bank suggest that, following the takeover of the Super de Boer supermarket group by Jumbo[2] and the creation of “Bijeen”, a new purchasing organisation between Jumbo and C1000, the Netherlands food sector is at the eve of further mergers and alliances.

The creation of the Bijeen organisation has resulted in a retail purchase market dominated by three big players; Bijeen, Albert Heijn and Superunie with respective market shares[3] of 23.1%, 32.8% and 29.6%.

The further increase in scale of the food retail side and retailers shifting from using a wide range of suppliers for generic products, such as vegetables, to using a limited number of preferred suppliers, is expected to result in a demand for more focused suppliers that can deliver bigger volumes. Furthermore, the concentration of the level of retailers is likely to put more pressure on the already unstable balance of power between retailers and suppliers. A logical counter reaction would be more concentration on the side of suppliers.

Although current interest rates are relatively low, the appetite for takeovers is also still on the low side. Therefore it is expected that increases in scale on the suppliers side shall mostly occur through strategic alliances and other forms of cooperation.

Typical examples of the challenges to be overcome in creating such alliances and other forms of cooperation were highlighted in the recent collapse of the merger talks between ZON, a cooperative association of vegetable suppliers and Koninklijke Fruitmasters, a cooperative association of fruit suppliers. The difference in business models and compensation of individual members proved an impregnable obstacle.

Notwithstanding these challenges, according to analysts the increasing pressure on suppliers is likely to result in more announcements of merger and alliance negotiations in the coming months. The second half of 2010 shall prove whether the analysts are right. 

[1] Dutch food sector report ABN AMRO Bank and report ING Economic bureau, February 2010
[2] Completed as per December 2009
[3] Source: www.distrifood.nl, http://www.distrifood.nl/web/Onderzoek/Marktaandelen.htm.