Stop & Shop and King Kullen announced June 10 that they have terminated their merger agreement through which Stop & Shop was to acquire King Kullen. A joint decision was made not to proceed with the acquisition because of significant, unforeseen changes in the marketplace that have emerged since the agreement was signed in December 2018, largely driven by the COVID-19 pandemic.
“Both companies have put forth an incredible amount of effort to work through unanticipated challenges that have arisen, and we regret that we’re not able to move forward. King Kullen has a strong legacy on the island, and we wish them continued success,” said Gordon Reid, president of Stop & Shop. “Stop & Shop remains committed to the Long Island community, to serving our customers in the market well, and to investing in our associates and our stores in Nassau and Suffolk Counties.”
Brian Cullen, co-president of King Kullen, stated, “We look forward to continuing to focus on what we do best — serving our great customers across Long Island and supporting our hard-working store associates. We are enthusiastic about the future and well-positioned to serve Nassau and Suffolk Counties for many years to come. In short, we are here for the long term.”
However, multiple sources have told us that the role of the Federal Trade Commission, which reportedly sought to force Stop & Shop to divest more stores than the company had originally intended (due to anti-competitive concerns), was a factor in the final decision.
In a memo to the trade, SVP and chief merchandising officer for King Kullen Joe Brown said, “As you may be aware, King Kullen has decided not to sell our company. Our public statements address all that is needed in regard to our decision to remain in business as a family and management owned company for the foreseeable future.” He continued, “The intent of this memo is to directly inform our vendor partners of our intent to build and strengthen the equity of the King Kullen brand. We understand that it is no longer ‘business as usual,’ it is something far different than that. Along with the technological, cultural, and social changes we see from consumers, we see our need for internal structural and cultural changes in our approach to how we run our business.”
The deal, originally announced by Ahold Delhaize in early January 2019, was for Stop & Shop, its largest brand in the United States, to acquire King Kullen’s 37 Long Island stores, which included 32 King Kullen supermarkets and five Wild By Nature units, as well as its corporate offices located in Bethpage, NY.
The news came as a bit of a surprise as a memo from King Kullen emerged in April indicating that the deal would close by the end of the month.
The company’s internal memo, which was issued on April 17 and referenced a prior memo from March 13, stated: “In our memorandum to you dated March 13, 2020 we advised you that the merger agreement between King Kullen and Stop and Shop had been extended to April 17, 2020 in order to resolve some outstanding issues which would allow us to complete the FTC approval process.
“Those issues have been largely resolved, and now final negotiations with the FTC toward completion of the approval process have begun. At the same time, however, the COVID-19 pandemic has had a substantial impact on supermarket operations in our region, raising issues that need to be considered carefully between Stop & Shop and King Kullen so that we can complete this merger successfully. Accordingly, the parties have agreed to amend, and have amended, the merger agreement to call for an outside completion date of April 30, 2020. This additional time will give representatives of both parties the opportunity to meet and begin to develop and implement a plan to coordinate the merger from an operations standpoint in consideration of these COVID-19 related issues.
“Stop & Shop continues to express enthusiasm about completing the merger. We are confident that with that commitment, and the diligence of both the Stop & Shop and King Kullen teams, we will meet this new challenge presented by the COVID-19 pandemic and complete this merger successfully.”
Additionally, as recently as May 7 at the Ahold Delhaize annual general shareholders meeting, CEO Frans Muller said his company expected to finalize the deal in the second half of 2020.
In Food Trade News’ 2020 market study, to be published June 29, Stop & Shop remains the share of market leader on Long Island with 52 stores, claiming 21.33 percent of all channel food and drug business in the $10.5 billion market. King Kullen, which has shuttered two stores since the deal with Stop & Shop was originally announced, continues to lose share in an area where competitive activity over the past three years has been volatile. The Bethpage, NY-family-owned regional chain ranks number five on Long Island with 6.48 percent of the all-channel food and drug business in the two-county market.
“I’m not surprised by this announcement,” said a senior VP for a food broker based in the Metro New York area who calls on King Kullen. “This soap opera has gone on for far too long and it’s adversely affected the culture and the momentum of the Kullen organization. It’s going to be challenging to restart their engine. As for Stop & Shop, whether it was COVID-related, or became an FTC problem that they couldn’t overcome, or the fact their parent firm Ahold Delhaize USA just agreed to acquire 62 Bi-Lo and Harvey’s Supermarkets and a distribution center from Southeastern Grocers, they seemed ready to move on.”