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Investor Sees Potential in Metropolitan Market

&ldquo;It has a wonderful combination of high quality and being a local brand.&rdquo; &mdash; Stephen Babson, managing directo, Endeavour Capital

SEATTLE — Metropolitan Market here, an upscale chain operating five stores, has what it takes to compete in today’s food-retailing marketplace, according to the investment group that recently took a stake in the privately owned company.

“It has a wonderful combination of high quality and being a local brand, which we think increasingly is going to be important for non-everyday-low-price-leaning grocery retailers,” said Stephen Babson, managing director in the Portland, Ore., office of Endeavour Capital. “If you are not in that [EDLP] category, we think you need to be doing what Metropolitan is doing.”

Endeavour has long had a focus on investing in food and consumer companies, and in fact also currently has stakes in Portland-based New Seasons Market and in Carson, Calif.-based Bristol Farms, two small, local chains that share some things in common with Metropolitan Market.

“In Metropolitan, we see very much the same things we saw in Bristol Farms — a highly differentiated, local brand, with a superior product offering, very high-touch with the consumer, and an employee base of great longevity,” Babson explained.

He also praised Metropolitan’s merchandising acumen, its local reputation and its strong site locations.

“Bristol Farms and Metropolitan Market have what we consider an affiliation,” Babson said. “They are kind of like cousins, in terms of their similarity and their ability to work together on projects, and potentially scale together on projects.”

And while New Seasons has less in common with Endeavour’s other two food-retail holdings, it does share some attributes that the investment firm finds attractive, Babson explained.

“We think New Seasons is a very valuable brand, and offers a unique solution in the Portland market,” he said. “It is a unique crossover that offers a selection of both natural and organic and conventional products, but what it shares in common with Metropolitan Market and Bristol Farms is that it really owns being ‘local,’ and like Metropolitan, it walks the talk in terms of supporting local causes, and hiring people from the local community. Each New Seasons store, I think, very aptly reflects the neighborhood that it is located in.”

SN blog: Small Chains Evolve to 'Own Local' in Their Markets

All three chains also have what Babson described as a group of “extremely loyal core customers.”

At Metropolitan Market, Babson said he believes the company has room to open more locations in the Puget Sound area. In connection with the Endeavour investment, Metropolitan revealed that it has agreed to acquire Magnolia Thriftway, which it plans to begin operating in September. It will seek to remodel the store over the next 18 months.

“There is ample opportunity to find additional sites over time in their own region,” Babson said of Metropolitan’s expansion potential.

Asked if the chain would consider expansion to additional markets, Babson said he thinks the company’s merchandising skills and its brand are “very exportable.”

Babson declined to discuss the terms of Endeavour’s investment in Metropolitan, other than to say it was a “material” infusion of capital that will result in Endeavour having representation on Metropolitan’s board of directors. The current management at Metropolitan Market will continue to run the chain, he said.

'Business as Usual'

A spokesman for Metropolitan could not be reached for comment on the investment. Brad Halverson, vice president of marketing at the chain, was quoted in the Puget Sound Business Journal saying that it was “business as usual” at the chain.

“The capital that we put into the company gave the owners some liquidity, but they are all continuing shareholders in the business, and they continue to operate the business,” said Babson. “We are pleased about the new store opening, and expect that our capital will enable them to pursue attractive sites as they become available, more rapidly than they have in the past. But I will also say they have been very disciplined about committing to the right kind of sites.”

In addition to its investments in New Seasons, Bristol Farms and Metropolitan Market, Endeavour also previously had a stake in WinCo Foods, the Boise, Idaho-based price-impact format.

Endeavour in 2010 sold its stake in WinCo back to the employee stock ownership plan (ESOP) that owns the company. It had acquired a minority share in WinCo as part of a financial restructuring at the chain in 2004. Likewise, Endeavour also sold its stake in Bi-Mart, a membership discount club chain in the Northwest, back to the employees in 2004.

SN blog: Small Chains Evolve to 'Own Local' in Their Markets

“We don’t have a rote plan for how companies should operate,” Babson explained. “Our general approach is to let the management operate the business, with us providing the bench strength where it is needed. In each case we believe there are opportunities for continued growth at a reasonable rate that doesn’t threaten the company.”

He said Endeavour hopes that its investments in strong local brands on the West Coast “will bring value to the whole affiliation.”

“Whether that’s realized through a public offering of the company, or bringing in a new partner with more capital resources than we have down the road, or whether it’s realized through a sale to employees — we’re agnostic about how these things end up,” Babson said.

Sidebar: Endeavour's Food Retail Holdings

• New Seasons Market

Endeavour invested in Portland, Ore.-based New Seasons in 2009 “to facilitate a transition to the next generation of leadership, provide partial liquidity to the existing shareholders, and ultimately broaden the employee ownership of the company,” the investment firm explains on its website. New Seasons operates 12 stores that emphasize natural and organic product and competitive pricing. It sources 30% of its product locally. The company was founded in 1999 by “three families and 50 friends,” according to its website. Lisa Sedlar is chief executive officer.

• Bristol Farms

Endeavour partnered with management to purchase Carson, Calif.-based Bristol Farms from Supervalu in 2010, with plans to expand the chain’s store baser in California. The chain now operates 13 locations in the Los Angeles area, other parts of Southern California and San Francisco. Founded in 1982 in Rolling Hills, Calif., it has an upscale positioning with a focus on gourmet and specialty items and an attractive decor. Kevin Davis is the chief executive officer.

• Metropolitan Market

Endeavour invested in Metropolitan Market this year, hoping to expand the five-store, upscale chain in the Seattle area. The company was founded in 1971 with a goal of being “the area’s leading progressive, independent grocer to always be the first to bring [customers] the best,” according to its website. “Our specialists travel the world to find unique products of the highest quality that will satisfy even the most discriminating palate,” the company explains.

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