Dutch supermarket and wholesale retailer Sligro is gearing up for a period of consolidation in the wholesale sector.

The firm booked a 22.6% drop in first-half net profit this morning (19 July), as margins came under pressure from intense competition in both the wholesale and supermarket businesses and the group’s wholesale business was hit by a shift in customer mix. Sales increased 2.1% in the period as the group invested heavily in pricing to attract customers.

Speaking to just-food following the results release, Sligro CFO Huub van Rozendaal said the group expects the tough trading environment to result in increased sector consolidation in the Dutch wholesale market.

“It is a very tough environment today. We see that many of our competitors are much more hurt than we are. The difficult times in the foodservice [wholesale] market have lasted for several years now. We see that many of them are also in financial distress. So that might lead to further consolidation in the market.”

According to van Rozendaal, while Sligro’s wholesale profits dropped in the first six months of the year, the group has faired better than many of its competitors. During the period, Sligro’s like-for-like wholesale sales rose 1.8% against a 2% decline in the overall market – meaning the group was able to grow its market share.

Sligro is therefore well-positioned to capitalise on consolidation opportunities as and when they are presented, van Rozendaal suggested.

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“We are a consolidator in the industry – we are the market leader and despite that we have lower earnings compared to last year, our absolute earnings are much higher than our comptitors and we have a market share of approximately 20% but we get about 50% of the profits of the foodservice industry. Our job is to be a consolidator ourselves and we are focused on doing acquisitions. We expect that the likelihood that it will happen to increase, but on the other hand it always takes two to tango so we are seeking tango partners.”

Any potential acquisition targets would need to offer Sligro opportunities to grow sales and improve margins through synergies, van Rozendaal said.

“On the one hand, you acquire companies to buy customers and through buying customers and integrating acquisitions into our network we save on costs and improve margins and improve our market position.”

On the supermarket side of the business, van Rosendaal said Sligro does not expect further consolidation in the market following Jumbo’s acquisitoin of C100 last year because the smaller supermarket chains have “healthy balance sheets” due to their association in buying cooperative Superunie.

However, van Rosendaal added that the supermarket sector in the Netherlands is facing a “very tough pricing environment”, which is putting margins under considerable pressure throughout the industry.

“These are times that consumers are cutting down their spending. They are keen on promotions, keen on prices and volumes at the same time are under pressure. That is the climate where price is a very important issue. We expect that the pricing environment will still be very tough for some time to come,” he predicted.

In this environment, Sligro is attempting to balance its margins by cost reduction and improvements to its product-mix.

“It is important in these times to be aware of costs but there are other ways to work on your margins: transferring brands to private label, selling more fresh produce, selling products that are higher margin. So it is a matter of cost savings and margin management.”

Sligro has increased its private label offering in recent years and the group has been growing private label sales through in-store communication, direct mailings and promotional activity. According to can Rosendaal, private label sales are increasing by 50-100 basis points each year as a result.