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Johnny Johnson, president and CEO of Marketplace Holdings Inc. (No. 26 on the be industrial/ service 100 list this year) won’t be growing his supermarket franchise in Virginia anytime soon.
This summer, the Federal Trade Commission approved the merger of two major grocery store chains in the Richmond area, and mandated the parties divest some of their local concerns. Johnson, a 37-year-old Virginia native, said he wasn’t given an opportunity to receive any part of the $3.4 billion deal.
Under the terms of an FTC consent order, Delhaize America, a French-owned company that operates 1,200 supermarkets across the country as Food Lion or Kash n’ Karry, and its new partner, Hannaford Bros., were required to divest or sell off 37 of their supermarkets in Virginia and North Carolina.
Johnson wanted to purchase 10 of the stores located in the Richmond area, but he lost out to Kroger, the Cincinnati-based grocery giant that has more than 2,300 stores in 31 states. In fiscal year 1999, Kroger had sales of $45.4 billion.
Johnson’s company already owns five stores in Richmond called Community Pride and three stores in the suburbs called Rack & Sack. Combined, the eight stores did close to $100 million in sales in 1999.
“We submitted several bids and Food Lion never returned my calls,” says Johnson. “Food Lion never submitted my bid to the FTC.”
But Tawn Earnest, spokesperson for Delhaize America, said Johnson wasn’t sold the stores because he didn’t qualify under FTC antitrust guidelines.
“There are strict guidelines from the FTC. In this particular case, Mr. Johnson was already too big in Richmond,” explains Earnest, referring to the fact that Johnson already had stores in Richmond and Kroger didn’t. “The FTC doesn’t want any store to be too big. We would have been delighted to sell the stores to Mr. Johnson, but he simply was already too big in Richmond.”
While Earnest says FTC guidelines prevented Food Lion from selling the stores to Johnson, FTC spokesman Eric London maintains, “We did not review Mr. Johnson’s suitability. It was a decision by Food Lion based on their interpretation of FTC guidelines.”
Richard Parker, director of the bureau of competition for the FTC, says the Federal Trade Commission’s only role is to approve or disapprove potential buyers and preserve competition. “That’s why we stepped in and signed a divestiture agreement as a condition for the deal.”
Food Lion had 40 stores with $417 million in net sales and Hannaford Brothers had 11 stores and $142 million in net sales in 1999. Johnson lobbied the FTC to be part of the merger agreement on the grounds that “independent grocers should have the opportunity to grow also.”
“In most of these merger deals, the small guy is not even considered, and the next thing you know, you are out of business,” says Johnson.