A good merger’s like a good marriage

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Transatlantic miles of column inches have been inspired by the recently announced merger of Alliance Boots and Walgreens.

Many, with some disquiet, have focused on the differences between British chemists and American drugstores; others, on the perceived threat to the cherished Boots brand, if control were to pass over there.

Inevitably, there have been endless references to the well-chronicled failures of British retailers abroad (whose track record, sadly and too often, all too successfully mirrors that of our national football teams).

The compelling logic of this deal lies in the fact that Alliance Boots is neither just a retail business nor, simply, a chemist. Its expertise lies as much in wholesaling as in retailing – and in beauty products as well as health; pharmacy and perfumery are two different markets and wholesale and retail two different channels, but none is perforce an unlikely bedfellow with the other, as Stefano Pessina and his team conclusively have proved.

It’s the very complexity of this business that underwrites its global potential. As Stefano Pessina observed in these pages last week, certain regulatory environments, not least in emerging markets, initially might require a wholesale not a retail solution. And there’s no conglomerate better positioned than this new powerhouse to construct one.

He also referred to the technological know-how and software that Walgreens brings to the party. The back-office propels the front foot for many successful international retailers. Walmart has achieved its giant stature through the rigorous, systematic application of EDLP (and its hand-maiden EDLC) around the world.

The operating model is the key to success; far more than the name above the door – even when it has the genuine brand credentials of Boots. Costco and Aldi, for example, with the unique (respectively big and small) limited assortment, no-frills formats they’ve pioneered, have succeeded in the highly competitive UK grocery sector where other, less differentiated but equally powerful, incoming supermarket operators have failed. Carrefour tried twice.

Mergers, rather than joint ventures or acquisitions, can also be key. Carrefour has just announced another exit, from its Greek partnership, and Tesco has confirmed the start of withdrawing from its Japanese acquisitions.

At the same time, Casino consummated its merger with Pão de Açúcar, the much admired premier retail group in Brazil, assuming majority control as principal investor.

Mergers are no guarantee of connubial bliss – Messrs Naouri and Diniz have become increasingly fractious fiancés – but the chances for a clearly staged merger to secure a happy, lasting union are far higher than those that attend either a shotgun marriage or a more casual concubinage agreement.

“Une alliance” (in French, a wedding ring) has just been presented by Kesa to Darty to consolidate their new betrothal in the French subsidiary’s maiden name.

Stefano Pessina’s Alliance, another golden band, has now brought Boots and Walgreens to the altar and the vows, it seems, chime well.