More than a year after Morrisons announced its intention to merge with the Safeway chain, the retailer has finally completed the process. This is only the latest development in the ongoing rationalisation of the food and drinks market.

The initial bid for Safeway by Morrisons attracted offers from several other major retailers, leading to a review by the UK’s Competition Commission of the potential takeover of Safeway. Morrisons was eventually cleared to bid for Safeway, on the condition it divest around 50 stores. Despite rumors of last-ditch attempts by other retailers to block the merger, Morrisons launched a second bid of around £3bn (US$5.4bn) for Safeway just before Christmas and the bid was later accepted by both groups of shareholders.

Although the number of deals in the UK food sector dropped off from a peak in 1999, things started to pick up again in 2003, with a raft of merger and acquisition activity in both the retail and food manufacturing sectors. Britain has been the most active market for consolidation, generating 72 transactions worth a total of €1.6bn (US$1.9bn). France has the highest aggregated deal value with €5.7bn generated from 54 transactions.

The market has seen some mega deals in the recent past, such as Unilever‘s acquisition of Bestfoods in 2000. However the trend will be towards smaller deals, most likely in growing markets, such as functional foods and new-age beverages, or in developing markets where the market shares of local producers are still high.

Brand consolidation seems to be the logical result, as market leaders seek to narrow the expanded brand portfolios acquired during recent M&A activity. Unilever has led the way in reducing the proliferation of brands it owns, cutting its brand portfolio from 1,600 to 400 brands. With this move, the company wants to strengthen its remaining brands as well as rationalise the operations behind them. It is indicative of the trend towards less high-profile restructuring in the food industry – a process which is set to continue for some time to come.

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