Dutch wholesale market leader Sligro Food Group has announced plans to strategically partner with Heineken Nederland. Through this partnership, Sligro will carry out Heineken’s logistics operations for the Dutch hospitality sector (excluding tank beer). In addition, Heineken will sell its wholesale operations for the rest of its food and non-food range – including soft drinks, waters, spirits, wines, tea and coffee – to Sligro.
This transaction will boost Sligro’s wholesale sales by some EUR150mn. The partnership is intended to be long-term, with an initial agreement for a period of 15 years. Completion of this transaction is scheduled for this autumn.
The announcement reinforces that Sligro is increasingly focusing on its wholesale division – not only in its Dutch home territory, but also in Belgium. Just last week, the company completed the acquisition of the Belgian wholesaler ISPC, one year after making a similar move on Belgian Java Foodservice. Both of these takeovers will further support Sligro’s expansion in Belgium, not only in the delivery business, but also in the cash & carry sector.
Growing its wholesale business is an imperative for Sligro as it seeks to achieve an average annual growth rate of 3%, which is twice the level of inflation forecasts. We note however that to achieve this goal, the company cannot rely on its retail business – at least not currently. Its Emté supermarket division not only has a relatively low market share, but also posted a sales decline in 2016. A change in fortunes for the supermarket banner will take more time, as the Q1 results for this year were not promising. In line with this, LZ Retailytics data currently forecasts like-for-like growth of -2.12% for 2017 for the banner.
This leads us to wonder about the role that the retail business will play in the ongoing strategy of Sligro Food Group. Emté faces a more formidable market leader in Ahold Delhaize, while at the same time discounters are increasingly upgrading their concepts and infringing on supermarket territory. We believe it will be a challenge for Emté to maintain its current market share going forward. That said, we do nonetheless acknowledge and support the retailer's decision to reposition its stores. It has started to refurbish its network to the latest concept 3.0 – which has enhanced the shopper experience, whilst also using sustainability and healthy food as a point of difference against price-aggressive competitors. Based on these initiatives, we think that if Sligro has the patience, its supermarkets can reap the rewards in a few years.