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Key development: Returned as a major industry player with purchase of 40% of Pathmark Stores.

What's next: Reviving Pathmark's performance and consolidating in the Northeast.

Burkle's back. Ron Burkle, who nearly singlehandedly consolidated the supermarket business in the western U.S., may be ready to do the same in the Northeast, using Pathmark Stores, Carteret, N.J., as the fulcrum.

Burkle resurfaced on the industry's radar screen in March, when he said his investment firm, Yucaipa Cos. in Los Angeles, would acquire 40% of Pathmark and invest $150 million to reposition the chain for improved sales and profitability -- the same week he disclosed an investment of $25 million in Wild Oats Markets, Boulder, Colo.

Talking about Pathmark, Burkle told SN earlier this year, "We buy companies and execute a simple business plan with low risk. At Pathmark we think we can get cash flow of $140 million to $150 million a year back up to $200 million, with the stock rising to $20 a share. With that as a base, we would hope we could acquire other companies and lead consolidation in that part of the country. We've done add-ons everywhere else we've invested, and we love doing that."

Burkle presided over the consolidation in the West during the 1990s, as Yucaipa acquired Ralphs Grocery Co. in Southern California, Fred Meyer Inc. and QFC in the Pacific Northwest, Smitty's in Arizona and Smith's Food & Drug Centers in Utah and sold the group, operating as Fred Meyer Inc., to Kroger Co. in 1999 for $13.5 billion.

Observers anticipate Yucaipa will seek to follow a similar pattern of consolidation in the Northeast. According to Jonathan Ziegler, an analyst with J.M. Dutton & Associates, Eldorado Hills, Calif., "Ron has established a track record that makes it clear he acquires companies, uses Elmer's glue to put them together to add value, then packages and sells them to someone else. That's likely to be the case with Pathmark."

Companies with a potential interest in Pathmark could include Ahold -- which owns Stop & Shop in New England, Giant Foods in Carlisle, Pa., and Giant Foods in Landover, Md., which tried to acquire the chain in 1999; Delhaize America, which owns Hannaford Bros. in New England; Albertsons, which operates Shaw's in New England and Acme Markets in Philadelphia; or Safeway, which operates Genuardi's in Philadelphia.

Ziegler offered an alternative scenario. "Pathmark used to be a drug store operator, and since food and drug go together so well, I can see the possibility of combining Pathmark with CVS or Duane Reade," he said.

Burkle told SN he was drawn to Pathmark "[because] its prime locations, high store volumes, talented associates and loyal customer base make it a key asset in that market and a viable platform for future consolidation. We believe a de-levered Pathmark, with increased resources to invest in existing and new stores, will have a significant competitive advantage. With [Yucaipa's] capital and guidance and the efforts of its 26,000 associates, I am confident Pathmark will realize its full potential."

Eileen Scott, chief executive officer of Pathmark, told SN she is excited by the prospect of Burkle's involvement. "Ron epitomizes the spirit of entrepreneurship, a trait every Pathmark store manager will embrace. His vast knowledge and experience in our business will help make Pathmark an industry leader once again."

Commenting on Yucaipa's involvement with Wild Oats, a chain spokeswoman told SN, "It's a strong testament to Wild Oats that someone of Ron Burkle's stature and experience in the grocery industry would make such a sizable investment in our company."

Burkle told SN his interest in Wild Oats stemmed from his personal interest in natural foods and its growth prospects. "We've gone all over and looked at buying other companies in that [natural foods] space, but most are five- to 10-store operators. Wild Oats has management issues, focus issues and integration issues, but we like the fact that Bob Miller [former chairman and CEO of Fred Meyer] is there [as non-executive chairman]."

In a government filing Yucaipa said it believes Wild Oats "should have substantial opportunities for future growth, [as] recent developments in the supermarket and general retail sectors are likely to create attractive opportunities for the company to acquire new stores and expand into new geographic locations."

Yucaipa said it will hold its Wild Oats shares for investment purposes only but "intends to closely monitor its performance and may modify its plans in the future" by discussing its concerns with the company's directors, management and other interested parties.

Before pursuing Pathmark, Burkle had concentrated for the last few years on making investments quietly in retail food stocks, and he remains one the largest single shareholders in Kroger.

He made a stab at getting back in the acquisition game in 2003, when Safeway put Chicago-based Dominick's on the market. Yucaipa, which acquired Dominick's in 1995 and sold it to Safeway in 1998, offered to buy it back at a lower price than Safeway had paid.

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