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2012 Food Retail Acquisitions: Tip of the Iceberg?

2012 Food Retail Acquisitions: Tip of the Iceberg?

Read more of SN's Year in Review: 2012 Rewrites Script for Many Food Retailing Companies

Mergers and acquisitions remained a part of the supermarket industry during 2012, although as the year neared an end there was a feeling more was still to come.

While a few big deals were completed — namely the Winn-Dixie/Bi-Lo merger, Sprouts’ deal to buy Sunflower Markets, and the takeover of Genuardi’s stores in Philadelphia led by Ahold’s Giant-Carlisle division — Supervalu’s announcement that it would seek strategic alternatives including a potential sale was the year’s biggest merger story, even if a deal had yet to be consummated. Industry watchers were also awaiting potential action at A&P’s Food Emporium and Tesco’s Fresh & Easy banners, with parents of both chains indicating they would look to sell.

And after years on the acquisitions sideline, Kroger in October took a decidedly more aggressive posture on growth, leading some to believe it could alter the buying and selling landscape.


In late December of 2011, Bi-Lo announced it would merge with its neighboring Southern chain Winn-Dixie, in a deal that would create a $10 billion Southeast chain. The deal became official in March, when shareholders of Winn-Dixie voted to approve the $560 million transaction, which was sponsored by Bi-Lo’s private-equity owner, Lone Star Holdings.

The deal combined two chains in the process of recovery following respective brushes in Chapter 11, operating nearly 700 stores between them in eight Southern states.

Read more: Bi-Lo Takes Over Winn-Dixie

While sources expected the companies would take up to a year to fully integrate, the entity took shape when Randall Onstead — an industry veteran who had been serving as Bi-Lo’s chairman — took the chief executive role for the combined company, known as Bi-Lo Holding, which settled in Winn-Dixie’s headquarters in Jacksonville, Fla. Winn-Dixie’s CEO Peter Lynch left the company while Michael Byars, who was engineering a revamp that brought new sales momentum to Bi-Lo, remained in Greenville, S.C. as Bi-Lo’s president.

One industry analyst estimated the combined companies could realize around $120 million in savings by eliminating duplicate functions, and provide resources to invest in store renovations and pricing programs, which both companies credited toward their respective sales momentum. Questions still remained as to how the companies would resolve distribution: Winn-Dixie continues to self-distribute while Bi-Lo contracts with C&S Wholesale Grocers for its products.

SN Blog: N.C. Faceoff Will Test Publix, Harris Teeter

Elsewhere in the South, North Carolina rivals Harris Teeter Supermarkets and Lowes Foods agreed to an unusual deal in which Matthews, N.C.-based Harris Teeter acquired 10 stores from Lowes in the metro Charlotte market in exchange for six Harris Teeter stores in Western North Carolina and $26.5 million.

Observers said the swap provided additional muscle for Harris Teeter as it prepared for an expected invasion of Publix Super Markets, the Lakeland, Fla.-based retailer which opened stores outside of Charlotte for the first time this year. Publix subsequently announced its intention to establish a new division and build multiple new stores in Charlotte.

Genuardi's for Sale

Ahold’s Giant-Carlisle division took the lead in the acquisition of Genuardi’s stores from Safeway, which exited the Philadelphia market. Giant in January announced it would buy 16 stores for approximately $106 million — a federal antitrust review subsequently required Giant give up one of those stores, in Newtown, Pa., to McCaffery’s Supermarkets. Weis Markets, based in Sunbury, Pa., separately purchased Genuardi stores in Conshohocken, Doylestown and East Norristown. Five additional Genuardi’s stores that went unsold closed during the year as Safeway directed investment toward markets where it had larger shares.

For Giant, the Genuardi’s deal continued its growth in the changing Philadelphia market, providing access to the demographically attractive but difficult to penetrate Main Line suburbs where Genuardi’s operated its most successful stores.

Read more: Giant Closes on Genuardi's Buy

Natural and organic retailers were also looking to buy new growth this year. In March, Phoenix-based Sprouts Farmers Market acquired its smaller rival Sunflower Farmers Markets, Boulder, Colo., for undisclosed terms. It was the second large acquisition for Spouts which in 2011 bought out Henry’s Farmer’s Markets. And according to Sprouts’ majority owner Apollo Global Management, additional opportunities to grow by acquisition remain as Sprouts continues expansion from its Southwest base.

The category’s largest player also found opportunity, when Whole Foods Markets acquired six Johnnie’s Foodmaster stores in the Boston area. The Austin, Texas-based retailer said it hoped to reopen the stores under the Whole Foods banner by the end of its fiscal year in September.

John DeJesus, who operated Chelsea, Mass.-based Foodmaster, said it was a “tough decision” to give up the family business but said shoppers and employees would be in good hands. Foodmaster separately sold a seventh store to Stop & Shop while closing three unsold stores.

Read more: Whole Foods Buys Six Boston-Area Sites

Buffalo, N.Y.-based Tops Friendly Markets grew through three acquisitions in 2012. The company in July said it would buy 21 stores in New York and Vermont from GU Family Markets, a division of supplier C&S Wholesale Grocers. The portfolio consisted mainly of small stores in “one-store towns” doing business under the Grand Union banner, but were “good performers” despite relatively small volumes, according to Frank Curci, Tops’ chief executive officer. Tops in separate deals bought an independent store from a single-store operator in North Boston, N.Y., and in December said it would buy three independently run Big M stores from the Farrugia family. The additions helped Tops to expand to 151 stores overall.

Industry analysts participating in SN’s annual financial Analysts Roundtable this summer had mixed feelings on the subject of consolidation. Some suggested the Bi-Lo deal and the Supervalu announcement as an indication that dealmaking was again heating up; others said the combination of a challenging macroeconomic environment and a buyer’s market would introduce more caution. Much, they said, could be affected by Kroger’s appetite for deals.

Read more: Analysts Ponder: Is Kroger All It Can Be?

The Cincinnati-based chain for years has been a cautious shopper — particularly for stores outside its existing markets — citing high prices and a distaste for executing turnarounds. However Kroger adopted a more aggressive growth goal late this year and by year-end had already made one acquisition — the specialty pharmacy firm Axium Pharmacy.

The industry in the meantime is awaiting resolutions to ongoing discussions around stores for sale by Supervalu and A&P. The former was said to be weighing offers from private equity groups including Cerberus Capital Management for at least some of its divisions. A&P in September said it would market its Manhattan-based Food Emporium stores “to a variety of prospective buyers.”

One source told SN he expected that Angelo Gordon Supermarket Holdings — parent of Kings and Balducci’s stores — would likely take a look. Kings demonstrated a willingness to expand this year, buying its first store in Connecticut, Porricelli’s Market in Old Greenwich.

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