Flying the Flag

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Flying the Flag

By Ed Avis - 03/01/2016

When Kroger acquired the Hiller's chain of supermarkets in suburban Detroit in 2015, it converted them to Kroger stores. But when Kroger bought Harris Teeter Supermarkets Inc. in 2014, it kept that venerable banner alive. Why change one banner
and not the other?

Kroger chose to preserve the name of most Harris Teeter stores after acquisition.

"It comes down to strategic vision," says Phil Davis, principal of Tungsten Branding. "If the goal is to create a national footprint, to march from shore to shore and create a national brand–but possibly cause some disruption along the way–they rename the stores. But if the goal is to create a constellation of brands, where each stands on its own and performs at its highest level, they are not concerned with one unified brand. There's a case to be made for either approach."

The circumstances surrounding each rebranding situation are different. A combination of local market strength, competitive pressure, budget and growth strategy all should be considered during the post-merger naming strategy session.

"Do your research, and then match that with your corporate strategy," Davis says.

Many factors go into the decision to change or keep a banner after an acquisition, but many of those factors are related to one thing: The original reason the company made the acquisition.

Grocers acquire other grocers for a variety of reasons. Sometimes it's done to fill in gaps, demographic or geographic, in the store's market area. Other times, it's to eliminate a competitor. And in many cases, it is done just to expand the company's footprint and market share. Each of these reasons plays into the banner decision.


"It doesn't make sense to send ads for a hundred stores of your one banner, and then do a whole new ad for one other store that you own in the market."

–DAVID LIVINGSTON,
DJL Research


FILLING HOLES

For example, if a company acquires stores in a market in which it already has stores, and is making the acquisition to fill in geographic holes, changing the banner to match its existing brand typically makes sense.

"If you're buying a retailer because you're not filled in in the market, you must consider unifying the brand," says James Tenser, principal of V.S.N. Technologies, a retail analyst firm. "Doing that makes your advertising and other marketing more efficient."

This seems to have been the case with Kroger when it acquired the Hiller's chain in Detroit. Kroger already had 123 stores in Michigan, including several in the Detroit area, so adding Hiller's seven locations simply expanded its footprint in that metro area.

Post acquisition, Hiller's Markets in Michigan now carry the Kroger banner.

"When Kroger purchased Hiller's, they had stores all around Hiller's, so there was no problem in just absorbing them," says retail analyst David Livingston, principal of DJL Research in Milwaukee.

As Tenser notes, among the advantages of switching banners when a company is making a "fill-in" acquisition is the economy of scale they achieve in marketing. Advertising, delivery vehicle design, public relations, and other marketing functions do not need to be duplicated when all the stores are called the same thing.

"You want to make sure your advertising is all in sync, so you can send out one ad and not two," Livingston says. "It doesn't make sense to send ads for a hundred stores of your one banner, and then do a whole new ad for one other store that you own in the market."

Davis adds that the marketing economies of scale may compel a retailer to retire an acquired store's banner even if it's well known and respected in the market. Spending double the money to keep two retailers alive just doesn't make sense.

"There are certain strategic business drivers that have nothing to do with branding. Take a store with a great brand name that is surrounded by existing Kroger stores. It might just not make sense to keep that brand because there are so many separate things–trucks, labels, uniforms–that could be made the same if the brands unified," Davis says. "So there are times when a good brand just has to go away, just because of economic reasons."

FINDING A NEW DEMOGRAPHIC

However, sometimes an acquisition is made not to necessarily fill in geographic holes, but rather demographic holes.

For example, when Albertsons acquired Texas-based United Supermarkets in 2013, it kept United's four banners intact, even though Albertsons already had 76 stores in Texas. United's strategy was different from Albertson's–generally lower prices but fewer promotions–and at least in some cases, such as with its Amigos banner, United targeted a focused demographic that Albertsons did not. So it made sense to keep those brands alive rather than convert them to Albertsons stores.

In fact, in an unusual turnabout, eight Albertsons stores in Texas converted to United stores in order to better take advantage of United's existing distribution system.

"All things being equal, the reason you want to keep a name is if the acquisition represented a group of customers that your brand does not attract, or does not serve well," Davis says. "And if you killed that name, you would lose that entryway into a market you previously didn't have."

Tenser agrees.

"If the acquired company has a distinctly different positioning–it's more upscale or it's more discount–you may have acquired it in hopes of covering a wider demographic," he says. "In that instance, you probably want to be more conservative in choosing a brand."

When Haggen made the giant leap from being an 18-store chain to a 164-store chain by acquiring 146 stores that Albertsons and Safeway divested after their 2014 merger, it renamed all of the stores Haggen, even though Haggen stores, to a certain extent, served a different demographic than Albertsons and Safeways. Haggen was known as a "fresh" market, whereas Albertsons and Safeway are more general grocery retailers.

While many other factors in the Haggen expansion played a role, the decision to rebrand was likely one factor in the rapid collapse of the company post-acquisition. Haggen filed for bankruptcy in 2015. Ironically, Albertsons is now poised to buy the remaining 34 Haggen locations, some of which were among the stores it sold to Haggen two years ago.

"The customers didn't like the changes Haggen made," Tenser says. "An acquiring retailer has to ask, ‘Is the brand image, or price image, that we want to project from the parent brand compatible with the customer base we want to assimilate?' I think that assessment was incorrect in the Haggen case. They misread the market, or didn't bother to read it. Pretty sad story."

COMBINATION GEO/DEMO

Kroger's 2013 acquisition of Harris Teeter could be viewed as a combination of a geographic and demographic acquisition. Harris Teeter was viewed as more upscale than Kroger, especially in the area of fresh food, so in that regard, the acquisition was a demographic move for Kroger. And most of Harris Teeter's 212 stores were in areas with little Kroger presence, including three states where Kroger had no stores at all, so geography also played a role. No surprise then that Kroger did not change the Harris Teeter name–the newly acquired stores gave Kroger entrée to a higher demographic and a different geographic market, so switching the banner to Kroger would not have had much benefit.

Kroger's operating structure is well suited to acquiring stores that it does not rebrand. It divides the market into Kroger Marketing Areas that allow for local leadership.

"It's hard to argue with Kroger's success," Tenser says. "I believe the key is their willingness to decentralize decision-making to make it fit the market. That's a distinct competitive advantage."

Sometimes an acquisition is designed neither for geographic or demographic expansion. For example, a grocer may acquire another simply to eliminate a competitor in the market. In such a case, changing the name seems logical.


"I believe the key is their [Kroger]willingness to decentralize decision-making to make it fit the market. That's a distinct competitive advantage."

–James Tenser,
V.S.N. Technologies


UNCLEAR SITUATIONS

In many situations, the decision to change or keep an acquired banner is not clear-cut. For example, if a grocer acquires a retailer in a market in which it has no presence, but its own reputation is strong, should it keep the name to maintain the local reputation or switch to the acquirer's admired name?

"A question to ask is, ‘How entrenched is the existing brand in its local markets?'" Tenser says. "If loyalty is strong, trying to convert the faithful may undermine the value."

Tenser cites Kroger's 1998 acquisition of Fred Meyer, and its subsequent decision to keep the Fred Meyer name, as an example of a strong brand being kept alive. "Fred Meyer was a pretty potent operation on its own," Tenser says. "I suppose you don't mess with that kind of success."

Determining the level of loyalty is not simple, Tenser adds, and may involve market research.

Davis concurs. He suggests a survey about the attitudes toward the existing brand, and what associations exist in customers' minds about the brand.

"I would survey the existing and potential customers who are non-customers," he says. "Ask the non-customers, ‘Why do you not shop there?' You might find out that a lot of people hate the store for some reason, so if you switched the brand you might get rid of that problem."

A survey might also help the acquiring retailer gauge the true breadth of customer loyalty, as opposed to anecdotal perceptions in the market, Davis notes.

"Maybe you have a diehard group of people who love the store, and they are extremely vocal about it because it carries a few products they really want," he says. "But maybe 80 percent of the potential market thinks your prices are too high or something, so if you roll in your own brand, you may find that you'll do better, even if you do make the die-hard group unhappy."

ANCILLARY ELEMENTS

Other factors besides the obvious play into the naming decision. For example, if the retailer being acquired has a strong house brand, that may push the decision toward keeping the overall banner, especially if that house brand is connected to the banner (think of the private brands at specialty grocer Trader Joe's, almost all of which include "Joe" in their names).

Another factor is a loyalty program. If the acquired retailer has a solid loyalty program and the acquirer does not, does it make sense to change banners and eliminate the loyalty program?

The bottom line, Davis says, is that leaders of the acquiring company should do their research, consider their long-term strategy, and listen to their intuition.

"Think with your right brain and your left brain," he says. "The decision to rebrand shouldn't be just an economic decision. Think with your heart."