News

Kroger expands Wisconsin presence with Roundy’s acquisition

BY Michael Johnsen

CINCINNATI  — Kroger and Roundy’s on Wednesday morning announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Roundy's for $3.60 per share in cash in a deal valued at $800 million, including the assumption of debt.  
 
“We are delighted to welcome Roundy's to the Kroger family,” Kroger chairman and CEO Rodney McMullen said. “We admire what Bob Mariano has done with the Mariano's banner in Chicago, where he has created an urban format that is resonating with customers and we expect to apply Roundy's experience to our stores in urban areas around the country.”
 
Roundy's — which had revenues of nearly $4 billion for the 2014 fiscal year — brings to Kroger an expanded footprint with a complementary base of 151 stores and 101 pharmacies in new geographies including Milwaukee, Madison and Northern Wisconsin, which are served under the Pick 'n Save, Copps and Metro Market banners. The merger also expands Kroger's presence with an innovative store format in the Chicagoland area, where Roundy's operates 34 stores under the Mariano's banner. Roundy's also operates two distribution centers in Oconomowoc and Mazomanie, Wis., and a commissary in Kenosha, Wis.
 
“Kroger's scale and strong financial position will enable Roundy's to reinvest in its home state of Wisconsin while continuing to grow in Chicago,” McMullen said. “Together, we are committed to investing in Roundy's people, communities, stores and merchandising to deliver a fantastic customer experience that will create opportunities for associates, grow customer loyalty and revenue, and create value for shareholders.”
 
Together Kroger and Roundy's will operate 2,774 supermarkets across 35 states and the District of Columbia. Following closing, Roundy's will continue to operate its stores as a subsidiary of Kroger and will continue to be led by key members of Roundy's senior management team. There are no plans to close stores, and associates will have employment opportunities with both companies. Roundy's headquarters will remain in Milwaukee, Wis. 
 
The transaction price represents a premium of approximately 65% to the Roundy's closing share price on Nov. 10. The terms of the agreement were unanimously approved by the boards of directors of both companies, and the transaction — which contains a 30-day go-shop period — is expected to close before the end of the 2015 calendar year. 
 
Kroger plans to finance the transaction with debt and refinance Roundy's existing debt of $646 million based on market conditions. Kroger said it planned to continue its quarterly dividend and share repurchase program while managing free cash flow to reduce the leverage taken on from this merger. Although the company's net debt to EBITDA ratio will increase at the time the merger closes, Kroger said it expects the ratio to remain in the 2 to 2.20 range upon closing of the merger. Kroger is committed to maintaining its current investment grade credit rating.
 
The deal is subject to Roundy's stockholders tendering at least a majority of the outstanding shares of Roundy's common stock in the tender offer, certain regulatory approvals and other customary closing conditions. Willis Stein & Partners and its affiliates, holders of approximately 7% of the outstanding shares of Roundy's common stock, have agreed to tender their shares.
keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

Polls

Which area of the industry do you think Amazon's entry would shake up the most?
News

Report: Albertsons looking to buy stores from Haggen

BY DSN STAFF

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

Polls

Which area of the industry do you think Amazon's entry would shake up the most?
News

Walgreens shares 4 strategies, Rite Aid rationale at Credit Suisse conference

BY Michael Johnsen

SCOTTSDALE, Ariz. — Alex Gourlay, Walgreens Boots Alliance's EVP and Walgreens president, on Tuesday provided a snapshot of Walgreens U.S. market strategy, including how the proposed Rite Aid acquisition folds into that strategy, during the Credit Suisse 2015 Healthcare Conference here. 
 
Following are four key points Gourlay made that could impact your business as well as a recap of Walgreens' thinking behind the Rite Aid deal
 
1. New beauty experience
Walgreens plans to roll out its new beauty experience, currently in 400 stores across the Phoenix and New York markets, to 1,600 additional stores next year. “[The beauty experience] is about introducing three things," Gourlay said. "First of all the brands – No7, Botanics [and] our new brand Soap and Glory. Secondly, a new consultant model, which allows us to really get across a differentiating experience. And thirdly enhancements to the look and feel [of the beauty fixtures],” he said. 
 
“[Customers in the U.S.] don't always see us as a beauty retailer,” Gourlay said, suggesting there is significant upside in converting those shoppers who are already picking up their prescriptions into Walgreens beauty shoppers. 
 
2. Rationalizing the merchandising mix
Walgreens may be de-emphasizing consumables and general merchandise in favor of health and beauty, Gorlay said, especially as those stores where that has been tested are delivering optimal results. “We have a lot of space in Walgreens, and we can use that space better,” Gourlay said. “We are the most productive drug store chain out there, but we think we can do even better. This means moving more toward a health and beauty model.”
 
Another boost to front-end operating margins over the past few months has been a more disciplined promotional strategy, Gourlay said, noting Walgreens has carefully analyzed the data “in terms of the customer and what they want in their individual store.”
 
3. Investing in the omnichannel experience
However, one space-friendly category not associated with health and beauty that has proven to be a great success is photo, Gourlay said. While just about everyone else has left the photo business for dead, Walgreens has reclaimed that business as a profit generator by incorporating photo printing capabilities into a number of smartphone apps. “It's a great innovation that is really allowing us to … personalize that category,” Gourlay said. 
 
Walgreens’ recent incorporation of Apple Pay into its Walgreens Balance Rewards loyalty program is another example of how the retailer is investing in omnichannel engagement. "There is an opportunity to connect that more holistically into the whole of the Walgreens stake going forward," he said. 
 
4. Walgreens’ “One Plan” progress
“We've made good progress since we announced this plan in April,” Gourlay said. Walgreens has closed roughly half of the 200 stores it has earmarked for closing, Gourlay said, and a reinvigorated cost-control culture has yielded significantly positive results. 
 
Walgreens has also reorganized its field management structure to provide greater support to stores with more direct line management and by combining pharmacy and retail operations under “one box.” It has also invested in improving its speed-of-service across the pharmacy, Gourlay added. 
 
And out-of-stocks have improved across the chain, Gourlay said, as Walgreens has worked toward consolidating its network of distribution centers to realize greater efficencies across the chain. Distribution frequency has even increased across several higher-volume locations.
 
“All of these changes are reducing costs and working capital, and giving customers a cleaner exprience in the store,” he said. “We're feeling pretty good about that across the front-end and also in the pharmacy.”
 
Rite Aid
According to Gourlay, Walgreens will be able to deliver these differentiated front-end shopping experiences to a greater degree across the Northeast and California markets with the Rite Aid acquisition.
 
“Walgreens is very strong in the middle of the country [and] Rite Aid has a really complementary footprint, which allows us to become strong in all these most-important markets,” he said. “We think that will be important given the consolidation of other channels and given also the consolidation in other parts of the supply chain.”
 
Gourlay added that Rite Aid possesses an innovative corporate culture that will complement Walgreens' marketing and merchandising initiatives.
 
“We've also got some great ideas from the Rite Aid team,” Gourlay said. “We think that the best from Europe, the best from the Walgreens team here in the USA and the best from Rite Aid in the USA will truly give us a new model going forward that will sustain growth into the future.”
keyboard_arrow_downCOMMENTS

Leave a Reply

R.HAMMERLE says:
Nov-11-2015 12:02 pm

This is a public description of a sophisticated strategy that sets Walgreens apart from its current-- and future-- global competitors. Its beauty strategy does more than introduce U.S. customers to Walgreens as a beauty retailer. Women are also the purchasers of an overwhelming percent of healthcare services, buying not only for themselves but for others in their families. Its recognition of health and beauty as far more profitable than general merchandise is more than just recognition of what others have told them for many years. It lead them to redesign their future store environment and redefine the company itself. It's multi-channel experience positions it to become a 21st century--as well as a 20th century--retailer across product, generational and now international boundaries. While other retailers have been challenged by the likes of Apple, Google, Amazon and Alibaba, Walgreens is already put a flag down in virtual, international, online markets. Finally, its Boots and Rite Aid acquisitions brought innovation and global expansion to a century old company that was shocked into the 21st century when CVS came along and bought MinuteClinic and Caremark, threatening to make Walgreens--like other fading retailers--a company of the past. Ron Hammerle, Chairman Health Resources, Ltd.

TRENDING STORIES

Polls

Which area of the industry do you think Amazon's entry would shake up the most?