• by Thom Forbes  @tforbes, May 12, 2015

The parent companies of Stop & Shop and Hannaford and other U.S. supermarkets — Netherlands-based Royal Ahold NV and Belgium-based Delhaize Group, respectively — confirmed this morning that they are in the early stages of merger talks that would create the fifth-biggest supermarket chain in the States.

The talks come “amid increased competition from Wal-Mart Stores,” Bloomberg’s Elco Van Groningen and Thomas Mulier report, and “would create a business with sales exceeding 54 billion euros ($60 billion) and more than 4% of the U.S. grocery market, according to analysts at Natixis. In Europe, the merged business would become the fourth-biggest food retailer, Natixis said.”

“Speculation about a merger of the two supermarket chains dates back to at least 2006, but shares in each company rocketed Monday after new rumors appeared in the Belgium and Dutch media over the weekend,” according to CNBC’s Katy Bernardo. She reports that both parent companies also have substantial operations in their home countries but, as Sanford C. Bernstein senior analyst Bruno Monteyne points out, their operations tend to be “neighboring” rather than “overlapping” in both regions.

“I think there's very little merit in the deal in the past and today,” Monteyne tells CNBC. “Large food retailers rarely ever do successful mergers. In this case of Delhaize and Ahold, it is probably the worst kind of combination.” 

“Each have flags firmly planted in New England,” Boston.com’s Adam Vaccaro writes. “Stop & Shop is headquartered in Quincy [Mass.] and was acquired by Ahold in 1996. Hannaford’s headquarters are in Scarborough, Maine, and the chain found its way under Delhaize’s ownership in 2000.”

“Stop & Shop is the No. 1 food retailer in the Northeast, with an 11.43% market share and 394 stores from Massachusetts to New Jersey,” according to the Griffin Report of Food Marketing, writes the Boston Herald’s Donna Goodison. “Hannaford is 11th, with a 3.4% share and 186 stores from Maine to New York.”

Ahold USA is organized into four regional divisions — Giant Carlisle, Giant Landover, Stop & Shop New England, and Stop & Shop New York Metro — along with Peapod, the online grocery shopping and delivery service. All told, there are 770 supermarkets and 210 pick-up points in 14 states and the District of Columbia, according to the to company’s website.

Delhaize America delivers the highest contribution to Delhaize Group revenues, according to the company’s 2014 brochure, which it pegged at 63%. “Through Food Lion and Hannaford, the company operates with two different store formats” — combining for a total of 1,295 stores in 15 states in New England and the mid-Atlantic regions. It also has operations in Indonesia.

The Wall Street Journal’s Peter Evans observes that it’s a “time of upheaval in the retail industry on both sides of the Atlantic. Consumers used to shopping in discount stores during the recession haven’t switched back to more traditional retailers, while many are choosing to buy groceries online.” They also are “caught in a squeeze between discounters like Costco and high-end grocers like Whole Foods Market Inc.”

 “The big obvious benefit, especially in the U.S., is the scale advantage the combined group will have in terms of purchasing power,” Pradeep Pratti, an analyst at Citi, tells Evans.

Then there’s Wal-Mart. Although “the retailer isn’t known for having the best groceries,” Charles Allen, an analyst at Bloomberg Intelligence tells Bloomberg’s Matt Townsend, “it’s able to offer lower prices at a place where many Americans already shop. And now Wal-Mart’s U.S. business is under new management. Its executives are pushing to add more higher-quality fresh foods while also keeping prices low.”

Kroger — “the biggest stand-alone U.S. grocery chain” — also has bulked up in recent years, including its acquisition of Harris Teeter, which closed in January 2014.

“We assume a 50/50 chance of a deal materializing,” wrote London-based Jefferies analyst James Grzinic in a note cited by Bloomberg. “This may appear optimistic, given the early nature that potential negotiations could be at. However, we do not see material strategic alternatives for Ahold, while we suspect that Delhaize shareholders would be willing to entertain an exit at a suitable control premium.” 

Patrick Roquas, an analyst with Amsterdam-based Rabobank, tellsSupermarket News’ Elliot Zwiebach there’s “a fair chance” the deal will get done. “We regard both CEOs as true retailers, aware of the threats the industry is facing and the need to act accordingly, and both CFOs have an excellent track record,” he explained. “Secondly, we perceive that family shareholders in Delhaize are now more than open to a deal.”

Adding to the retail fray: It’s true that the big just seem to get bigger, but they are now getting bigger by getting smaller, too.