It's never easy being #3
That's why Spanish retail chain Eroski recently announced the purchase of a controlling stake in Spanish rival Caprabo. It is buying 75% of the stock for $1.3 billion. That's a relatively small deal these days, but it is illustrative of a trend.
The deal will give Eroski a total of 2,348 stores, including supermarkets, gas stations, drug stores, hypermarkets, perfume shops, and travel agencies. Eroski is based in the Basque region, with Caprabo is based in Barcelona. Caprabo, which grosses around $3 billion, will boost gross income at Eroski to $9 billion.
The Spanish retailing is led by a company called Mercadora SA ($12 million in annual revenues), while French supermarket giant Carrefour is #2 (just below $12 billion). The purchase of Caprabo will not change Eroski's rank in Spanish retailing, but it will be a closer competitor. And it will outdistance Carrefour in the midsize supermarket category. Interestingly enough, Eroski had to outbid both Carrefour and a private equity firm to snatch up Caprabo.
#3 companies are ta risk in any oligopoly. They lose leverage with suppliers, government, and eventually customers. Doubtless Eroski paid "too much" for its rival. On the other hand, getting big enough to sit shoulder-to-shulder with the segment leaders is the best way to keep your market position from eroding.
