Hema - Jumbo rumours

All,

Following an interview given by To van Veen, CFO of Jumbo supermarkets in a Dutch Dagblad, the market is speculating just how many stores Hema would be selling to Jumbo.

The deal:

- Little is known at this stage, other than that HEMA's originally announced partnership with Albert Heijn (AH) has been replaced by a thus far unannounced alliance with AH’s competitor Jumbo. Jumbo has some 650 stores in the Netherlands, but is growing faster than 950 store Albert Heijn.

- Two angles for HEMA:

1) As in the AH deal, Hema is to place its products into Jumbo stores. The precise format is not known, but we imagine a section (more than a corner) that will be HEMA branded.

2) Jumbo are looking to aggressively expand into city centres with its latest format “Jumbo City”. Jumbo are looking to take that format from seven stores to 100 stores in the long term.

Thoughts:

- The deal seems young and will be next year’s business. The part where HEMA place their products into existing Jumbo stores seems the easier part and in the form of a deal originally agreed with AH had already been part of investor expectations. As regards Jumbo City’s expansion into A and AA locations, these locations are smaller and both sides will probably first need to test a few such joint stores before Jumbo would agree to buying such stores - including a new master franchise - at an accretive price to Ramphastos. Note also that these stores are Hema’s most profitable.

- It is hard to imagine HEMA striking a deal with a supermarket chain without having thought of its bakery business. HEMA’s bakery chain would compete with Jumbo City or - more likely - be part of the deal. The Jumbo City akin to a take-away only Pret a Manger and may even benefit from an additional HEMA-style bakery corner. Moreover, Jumbo have been very acquisitive and Hema’s bakery might make sense in its other formats too.

Conclusion:

It’s positive. Jumbo seem like a good partner for HEMA and maybe the bakery sale and dutch partnership idea (previously AH) are finally coming together. However, both of these projects are already on the radar screen and all we have so far is a new name.

What may be new is the speculation of a sale of some of Hema’s city centre stores to Jumbo. But before that happens both sides will have to approach such a switch very carefully and that should take time. Perhaps a scenario in which Jumbo would take over all of HEMA’s owned stores on a franchise basis is also conceivable, but we’d have to discount that as pure upside for now.

Wolfgang

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Wolfgang FelixHEMA