MINNEAPOLIS — Two family-founded grocery chains that have competed for decades across the upper Midwest said on Monday they would combine in a deal valued at about $2.1 billion, creating a regional supermarket company with 310 stores and roughly 38,000 employees.
Harvest Lane Markets, based in Minneapolis, will acquire FreshWay Foods of Des Moines, Iowa, in a cash-and-stock transaction. The combined company will keep the Harvest Lane name for its corporate parent but will continue to operate stores under both banners for at least three years, executives said.
Scale to compete
Executives said the merger is designed to help two mid-size grocers hold their ground against national chains, warehouse clubs and online delivery services that can spread costs over far larger sales. The companies expect to save about $140 million a year by the third year, mostly through combined purchasing, shared distribution centers and a single loyalty program.
“We are not trying to become the biggest grocer in America,” said Harvest Lane chief executive Daniel Brandt. “We are trying to be big enough to buy produce and dairy at the same prices our largest competitors pay, so we can keep our prices fair and keep investing in our stores.”
The companies pledged to spend $600 million over five years remodeling older stores, adding pharmacy counters in some locations and expanding fresh prepared-food sections. They said no store closures are planned as a direct result of the deal, though about a dozen locations in towns where both chains operate side by side will be reviewed.
- 310 stores in seven states
- 38,000 employees, with union contracts honored
- $140 million in expected annual savings by year three
- $600 million pledged for store remodels over five years
Concerns about competition
The deal requires approval from federal antitrust regulators, who have scrutinized grocery mergers closely in recent years. Analysts said regulators are likely to focus on roughly 20 smaller markets where the two chains together hold a large share of local grocery sales.
In a big city, shoppers have plenty of options. In a town of 9,000 where these two stores face each other across Main Street, a merger can mean the only real choice disappears.
Lydia Chen, retail analyst, Prairie Street Research
Some local farmers and food producers who supply both chains said they were cautiously watching. “Right now if one buyer says no, I can pitch the other,” said a cheesemaker in southern Wisconsin who sells to both companies. “After this, there is one door to knock on.”
FreshWay chief executive Monica Albright said the company would keep its local-sourcing program, which features products from about 900 small regional suppliers, and expand it to Harvest Lane stores. The unions representing workers at both chains said they had received commitments that existing contracts would be honored and were seeking more details on staffing plans.
Shareholders of FreshWay will receive $41 in cash plus a fraction of a Harvest Lane share for each share they own, a premium of about 27 percent over Friday’s closing price. The companies expect the deal to close in the second half of next year, pending regulatory review and a FreshWay shareholder vote.
Shoppers interviewed outside a FreshWay store in Des Moines had mixed reactions. “As long as they keep the bakery, I’m fine,” said one retiree. Another said she worried about prices: “Usually when there’s less competition, nothing gets cheaper.”
