New York (CNN Business)Ahold Delhaize, the Netherlands-based owner of US supermarket chains Stop & Shop, Giant and Food Lion, is buying the online grocery service FreshDirect as demand for online grocery shopping accelerates in the pandemic.
The two companies announced the agreement Wednesday, but did not disclose terms of the transaction. The deal is expected to close next year. FreshDirect will retain its name and continue to operate out of New York City, where it was launched in 2002.
Ahold Delhaize (ADRNY), which was formed in 2016 from a merger of Ahold and Delhaize Group, is one of the largest grocery operators in the United States. It said that FreshDirect will help it reach new customers and drive sales in the lucrative New York market. FreshDirect said gaining access to the Dutch company’s size and scale will allow it to grow.
“Ahold is determined to get bigger to compete with the heavyweights like Amazon (AMZN) and Walmart (WMT),” Jon Springer, executive editor of Winsight Grocery Business, an industry trade publication, wrote in an email. “FreshDirect gets a parent with real buying power and the means to further expand in East Coast markets.”
The agreement comes at a moment when the pandemic has reshaped the grocery industry.
Leading grocers such as Kroger (KR), Albertsons, Publix and others have logged booming sales in stores and online as consumers eat more food at home with restaurants shuttered and many people skittish about going out for dinner.
Ahold’s US sales at stores open for at least one year grew 12.4%, excluding gasoline, during its most recent quarter compared with the same stretch last year, the company said earlier this month. Online sales increased 114.7%. The company said the growth was “due largely to the COVID-19 outbreak.”
Shopping for groceries online had been slower to develop in the United States than buying electronics, clothing and other goods, but the coronavirus has prompted a surge of new customers with shoppers looking to limit their trips to physical stores.
“Covid was kind of a wake-up call for us,” Ahold chief financial officer Natalie Knight told The Wall Street Journal in August.
Brick-and-mortar grocers and online delivery services have strained to keep pace with demand, leading to canceled orders and lengthy delays for customers.
FreshDirect was not staffed to handle the flood of orders from existing customers and shoppers when the pandemic first hit, CEO David McInerney told CNN Business in an interview last month.
“The barriers to online grocery got absolutely obliterated” in March, he said. “We couldn’t take” the surge in demand. The company’s systems were overwhelmed because people were buying two and three times as much per order as they typically did, buying for a longer period of time than usual and ordering for friends and relatives.
Fresh Direct has planned for a busy winter with coronavirus cases on the rise. It secured holiday items, such as canned pumpkin, baking supplies, and spices earlier than usual this year and is storing greater quantities of them in warehouses.
“We’re expecting a really, really busy winter, and it’s going to be filled with a lot of first time customers getting acclimated to online food buying,” McInerney said last month. “The colder weather is just going to push that along.”
