In the competition for market supremacy among the country’s big retailing chains, a major strategy used is consolidation.Industry consolidation is a situation in which separate companies become one. It is sometimes described as a merger, although technically these are two different situations. In a merger, a new business is formed when one company absorbs the other; in a consolidation, companies join forces on relatively equal terms to form one new company. However, the two terms are often used interchangeably.
SM seems to be most active in using this strategy, judging from its recent moves.
Consider the following, as reported by Franz Jonathan C. de la Fuente in an article in the Business World:
SM Retail, Inc. has bought out and taken over several Glo-ri and Makro stores in Metro Manila.
Other SM-related firms include: Watson’s Personal Care Stores, International Toy World (Toy Kingdom), Ace Hardware Philippines, Star Appliance Center, Surplus Shop, Sports Central, Baby and Co., Homeworld, Our Home, and SM Storyland.
At present, the retail chain is looking at small supermarkets it can acquire in Luzon.
Joey Mendoza, president of SM Retail’s supermarket division, confirmed with Business World, that opportunities to acquire other retailing establishments are being seriously explored, with several stores already identified and in the process of being studied. “”It is always a possibility for us. … If there are stores that, say, have had enough of running on their own and would like to sell, we will anticipate those.”
However, no final negotiations have been made with any of these smaller supermarkets, he added.
He explained the process and criteria for acquisition this way: “We look at the historical performance of a particular store. If it jibes with what we’ve set our performance to be given the SM treatment, then we look at it.”
Meanwhile, other retailing giants also pursue the expansion-through-acquisition (or consolidation) strategy.
Puregold Price Club has merged with S&R Membership Shopping and began negotiations with the Gant Group of Companies, which runs Parco Supermarket.
Rustan Supercenters, on the other hand, has tied up with Dairy Farm International Holdings, Inc. of the Jardine Matheson Group, a move meant to bolster Rustan’s position among the country’s major retailers.
Another company taking the consolidation route is the Hortaleza store chain which has recently acquired Savemore Drug, Inc., a pharmaceutical retailer and convenience store.
SM remains to be the retailing giant to beat, with a portfolio consisting of 43 department stores, 34 supermarkets, 73 SaveMore stores, and 33 hypermarkets, as of the end of June. Before the year ends, it will open 12 new retail outlets: nine SaveMore stores and three hypermarkets.
Why do businesses consolidate?
Consolidation is not new. Businesses have been acquiring other businesses or merging with each other since time immemorial.
It may be that one company has something that the other doesn’t have or lack. One rationale for mergers is to complement and strengthen each other and achieve a synergy from the alliance: One plus one equals three.
In acquisitions, the acquired company is typically a smaller one, a newer one – compared with the company buying it — but it is also usually one that has begun to establish its name and begun to build its own market following. Otherwise, it would not be attractive to the other company seeking to acquire it.
When businesses consolidate, they can expect to grow their market share, reduce operating costs and improve customer service. Consolidation can also serve to expand companies’ marketing reach and take advantage of the expanded customer network to create new enterprises.
Company consolidations can also lead to strategic business development, even if the core operations remain distinct. “ For instance, when Amazon.com purchased apparel retailer Zappos and e-commerce website Woot, company leaders disclosed that the acquisitions were made to prevent competitors from snapping up the successful, smaller companies.”
Consolidation is a major decision and companies should go slow in implementing it.
Photo: “SM SUPERMARKET LOGO, SM MEGAMALL” by Michael, c/o Flickr. Some Rights Reserved