CINCINNATI -- Kroger Co. here has agreed to buy five family-owned Hilander Foods stores in Rockford, Ill. -- a move some analysts say could signal the company's intent to return to the Chicago market.
Kroger said it plans to keep the Hilander banner on the stores, which range in size from 30,000 to 88,000 square feet, and to retain the chain's approximately 950 employees. Rockford, the state's second-largest city, is about 60 miles west of Chicago. These stores would be closer to Chicago than other existing units of Kroger, which also operates 45 stores in central and southern Illinois. The proximity to Chicago makes analysts wonder if any expansion plans by Kroger include an advance into that city.
A spokesman for Kroger declined to comment.
Kroger's expansion into Rockford comes at a time when the local market is getting more competitive. Less than two months ago, Logli Supermarkets, a division of Schnuck Markets, St. Louis, opened what it claims is the largest freestanding supermarket in Illinois -- a 145,000-square-foot megastore in the nearby Rockford suburb of Loves Park.
While Kroger's latest move is consistent with the retail giant's pattern of small acquisitions, the company may be setting the stage for a big-time return to the coveted Chicago market. The most likely scenario, according to some analysts, would be Kroger making a bid for the 111-store Dominick's Supermarkets chain in the Greater Chicago metropolitan area. Dominick's recently hinted it was ready to court prospective buyers when the company retained an investment banking firm, analysts said.
Mark Husson, an analyst with J.P. Morgan Securities in New York, said "Dominick's is for sale and Kroger's been looking at it. I'm sure Kroger will do some due diligence on Dominick's."
He said the fact that Kroger has been out of the Chicago market for nearly 30 years indicates it was less than enamored over its former presence there.
"I don't think they particularly enjoyed the experience," he said. On the other hand, Husson told SN, he sees a clear reason why the company may be willing to give the city another go: "Chicago is an attractive market," he said. "There are only two chains" operating there now -- Dominick's and 188 American Stores Co.-owned Jewel stores.
Gary Giblen, managing director at FAC/Equities in New York, said that Kroger's move into Rockford is "a typical Kroger, pint-sized acquisition that fits into what they're doing." But he added, "There's no reason why they couldn't" draw a bead on Chicago.
"Rockford is, what, an hour away? Certainly, the general belief is Kroger has been in serious talks with Dominick's. It would fit in with that possibility. Chicago is a gaping vacuum in Kroger's Midwest geography."
Not only that, Giblen added, "it makes perfect sense. Kroger has proven to be very, very effective in running metro-area stores. They do a fantastic job in Columbus, Ohio, a major Midwest city. Chicago certainly makes sense."
If Kroger's purchase of the Hiland stores does foreshadow an advance into Chicago, the Dominick's route would make the most sense, Husson said. "History teaches us that going into a new market and starting out by building stores is a good way to lose money," he said.
However, not all analysts see it the same way. Chuck Cerankosky, McDonald & Co., Cleveland, told SN, "A Dominick's deal is a big deal. Five stores as a stepping stone into buying 100? I would think it would be the other way around."
Cerankosky said, "I'm sure Kroger and others are looking at the Dominick's property." But he added, "How does it fit into what Kroger would be willing to pay?"
In the meantime, Kroger may have its work cut out competing head-to-head with Logli's in Rockford. According to Schnuck, the new Logli's includes the company's first in-store pharmacy. The store also includes two in-store dining facilities -- Logli's Pasta and Pizza and the Second Aisle Cafe Restaurant -- and a juice bar, all of which are featured at Logli's other two stores.
The company said the store also features expanded varieties in all departments, including groceries, perishables (meat, seafood, deli, produce, bakery, dairy, frozen food and a full-service floral department), liquor, health and beauty care, cosmetics, housewares, video and general merchandise.
Logli said it also plans to offer an in-store bank and a family optical center within a few months.
According to a spokeswoman, Schnuck had planned to enter the Rockford marketplace with two stores, but after studying the region, it decided an acquisition of Logli would be preferable. The new Logli is a half-mile east of the site where Schnuck planned to open one of its two stores, she said.
Schnuck operates 89 stores in Missouri, Indiana and Illinois. The Logli acquisition moved it into northern Illinois; the closest Schnuck store is located in Bloomington, Ill., about 125 miles south of Rockford in central Illinois.
"We wanted to provide our customers with the convenience of being able to shop in a supermarket that makes it easy to pick up everything they need in one spot," said Joseph W. Logli, president of the three-store operation.
The company said the Loves Park store had been scheduled to open before Schnuck acquired the company last March, to replace a 65,000-square-foot Logli located about a mile away in Machesney Park. Logli also operates stores of 140,000 square feet and 65,000 square feet in Rockford.