Consolidation Protocol

Don Harris - Retail Perspective

Over the years‭, ‬our industry experienced a series of consolidation Don Harris - Retail Perspectiveamongst various retailers into stronger units‭. ‬We may be entering another one of those phases‭. ‬During these times‭, ‬management is constantly challenged with incorporating various aspects of‭ ‬different philosophies into one strategy‭. ‬In more than one occasion‭, ‬the acquiring entity forgets to realize the value of the company that it is acquiring‭.

Having been involved in a number of these types of situations‭, ‬it is obvious that there is a right way and a wrong way to handle‭ ‬the situation‭. ‬Sometimes the acquiring company takes an arrogant stance that is not conducive to a smooth transition‭. ‬In fact‭, ‬I was once involved in a meeting where various ideas of consolidation protocol were being discussed‭. ‬When any challenges came up‭ ‬to management’s approach to the integration‭, ‬the reply was‭, ‬“Who bought who‭?‬”‭ ‬This is just another occurrence of where management‭ ‬“just doesn’t get it”‭!‬

Consolidations‭, ‬by nature‭, ‬tend to have one side that is in control and the other side subservient to the wishes of the bigger party‭. ‬It is how the relationship between these two parties is handled and the strategic advantages developed from the union that‭ ‬determines the overall success‭. ‬Many times‭, ‬the party with the upper hand forces its culture and operational philosophy upon the one being acquired‭. ‬This is done for no better reason than the ego of the acquiring company‭. ‬A response such as‭, ‬“Who bought who‭?‬”‭ ‬is a reflection of the feeling of superiority by the acquiring company‭.

To simply dismantle successful programs and enforce different guidelines to fit the acquiring company’s operational philosophy is inherently‭ dangerous‭…‬

This feeling of superiority allows management to make ill-advised changes to the smaller operation‭, ‬which has negative consequences‭. ‬It must always be remembered that the entity being acquired had some measure of recent success‭, ‬or it would not have been a‭ ‬target for acquisition‭. ‬To simply dismantle successful programs and enforce different guidelines to fit the acquiring company’s operational philosophy is inherently dangerous to the successful incorporation and continued growth of the combined organization‭.‬

There have been good examples of consolidations by utilizing a more measured approach to the incorporation and mutual benefits of the organizations‭. ‬Forward-thinking companies do a better job of documenting and exploring the successful aspects of their acquisition‭. ‬They learn what the company does well and what the customers believe make it the retailer-of-choice‭.

An enlightened retailer uses the integration to reinforce and continue the successful‭, ‬consumer-friendly behaviors and to confine the initial consolidation to backstage activity‭. ‬In this manner‭, ‬consolidation can be accomplished with minimal change and/or‭ ‬controversy from the customers and employees‭. ‬Most importantly‭, ‬customers perceive there is no change in their favorite store‭. ‬The consumer may not perceive the benefits of backstage improvements in economies of scale in the immediate future‭; ‬however‭, ‬over‭ ‬time‭, ‬these benefits will be exposed to improve efficiency at store level and to create competitive pricing‭.‬

There is a pitfall to this approach if there is a lack of follow-through after the investigation of the positive attributes of the acquired company‭. ‬In this case‭, ‬new management largely ignores and modifies these concepts to fit its philosophy‭. ‬This leaves‭ ‬the customer feeling that while the new company asked for their input and preferences‭, ‬the acquiring company goes ahead and does what it wants to do anyway‭. ‬This type of decision-making causes more damage than simply going ahead and changing everything for change sake‭. ‬Essentially‭, ‬new management betrayed the goodwill of the customer by taking their input‭, ‬ignoring it‭, ‬and modifying it to their own purpose‭.‬

We only need to look back to the large wave of consolidation in the late 90s to find examples where the ego of the acquiring company‭ ‬‮—‬‭ ‬and its actions to modify the acquired company‭ ‬‮—‬‭ ‬led to retail disaster‭. ‬The ironic part of this is that‭, ‬instead of taking advantage and learning concepts that would help the larger entity move forward‭, ‬these positive aspects were lost‭, ‬along with‭ ‬the reputation of perception of the smaller companies‭.

On the other hand‭, ‬those companies that displayed the more enlightened approach enjoyed the fruits of labor by moving the larger‭ ‬combined operation forward by driving successful operations and sales growth‭. ‬Many economists believe that consolidation has a‭ ‬number of advantages‭, ‬both operationally and financially‭. ‬However‭, ‬in the world of retail‭, ‬such advantages are only available if‭ ‬management checks its ego at the door‭.

Don Harris is a 41-year veteran of the produce industry, with most of that time spent in retail. He worked in every aspect of the industry, from “field-to-fork” in both the conventional and organic arenas. Harris is presently consulting and is director of produce for the Chicago-based food charity organization, Feeding America. Comments can be directed to [email protected]

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