Aldi bulks up with deal to buy banners Winn-Dixie and Harveys

Aldi, a Germany-based supermarket chain, has agreed to acquire the bulk of Southeastern Grocers stores, including the Winn-Dixie and Harveys banners.

Why it matters: Grocery, historically a low-margin business, continues to consolidate, faced with growing competition from the likes of hypermarkets such as Walmart, club stores such as Costco, and Amazon.

Details: Under the merger agreement, Aldi will acquire all of Southeastern's stock for cash, though no purchase price was provided.

• That encompasses all of the target's operations under Winn-Dixie and Harveys, including about 400 stores in Alabama, Georgia, Louisiana, Mississippi and Florida.
• Separately, Southeastern is selling its Fresco y Más banner, which includes 28 stores and four pharmacies, to Fresco Retail Group.
• The deal is expected to close in the first half of 2024, subject to regulatory approvals.

Zoom in: The acquirer will continue operating the stores as it evaluates which to convert to the Aldi format.

• Those that are not converted will continue to operate under their existing banners.

Zoom out: Aldi has been one of the fastest-growing U.S. grocers for years, says an industry insider.

• In 2003, it had 670 stores and $3 billion in grocery sales in the U.S.
• Currently, Aldi has over 2,300 stores and $20 billion in grocery sales, without incorporating Southeastern's sales of between $7 billion and $8 billion, the insider says.
• Aldi plans to have more than 2,400 stores by the end of this year, also prior to this transaction.
• Adding 400 stores would give it more than 2,800 stores — more than Kroger, Albertsons, Ahold Delhaize, Publix or H.E.B., the source adds.

Of note: The Albrecht family in Germany that owns Aldi also owns Trader Joe's, which together have 12,500 stores globally.

Catch up fast: Southeastern has struggled financially over the years, filing for bankruptcy in 2018.

• It continues to be owned by its lenders since emerging from Chapter 11.
• It planned to go public but shelved its IPO in 2021.

• It previously sold 62 Bi-Lo locations to Ahold Delhaize's Food Lion in 2021.

Between the lines: "Over the coming months, we suspect that the market will refocus attention on the potential disruption that the rise of the hard discounters, including ALDI and LIDL, might have on the marketplace," said UBS analysts in a report yesterday.

• "ALDI tends to offer very low prices of mostly private label grocery products. In the past, retailers like Walmart have responded to investments from these discount chains," UBS went on to note.

What they're saying: "Aldi is one of a series of national discount grocers — including Walmart, Target, Costco, Amazon, Dollar General and Family Dollar — that have transformed US grocery after marginalizing supermarket grocers for the past two decades, in this case, literally taking one over," the industry insider says.

The bottom line: Walmart, Costco, Amazon and Kroger and Albertsons have been dominating news headlines, while Aldi and Lidl have been flying under the radar — but this deal could change that.

Aldi did not respond to a request for comment, while Southeastern Grocers declined to provide further comment.