It will be very interesting to see if Cincinnati-based The Kroger Co. can revive the Pick ’n Save stores in southeastern Wisconsin.
Kroger announced recently that it had acquired Milwaukee-based Roundy’s Inc., the parent company of Pick ’n Save, for $824 million, including $178 million in cash and $646 million in existing Roundy’s debt. The cash purchase price was worth about $3.60 per share. The company went public in 2012 with an IPO of $8.50.
Pick ’n Save’s market share in the region has dipped from about 65 percent in 2006 to about 40 percent this year, according to grocery industry analyst David Livingston. That has occurred as Walmart, Sendik’s, Woodman’s and others have added numerous stores in the region in recent years.
Despite southeastern Wisconsin’s modest population growth, even more stores are being added to the region’s grocery marketplace. Meijer entered the market this year with four stores and plans to open more. Costco recently opened stores in New Berlin and Menomonee Falls. Whole Foods will open a store in Wauwatosa. Fresh Thyme Farmers market will open stores in Milwaukee, Brookfield and Kenosha.
Pick ’n Save has struggled to compete with the growing number of competitors and has been challenged by its high level of debt, high labor costs for its unionized workers and rental costs, because it typically rents its space, Livingston said.
Roundy’s reported a third quarter net loss of $8.8 million. In fiscal year 2014, the company reported a net loss from continuing operations of $2.1 million.
So why does Kroger want to buy Roundy’s? The deal gives Kroger a strong foothold into Chicago and Wisconsin. The company’s chairman and CEO, Rodney McMullen, says he likes the urban Mariano’s concept Roundy’s has in Chicago and Kroger may replicate it elsewhere.
McMullen says Kroger will reinvest in Roundy’s Wisconsin stores and that there are no plans to close any of them. Roundy’s will remain headquartered in Milwaukee as a subsidiary of Kroger.
Kroger plans to refinance the Roundy’s debt and the deal with Roundy’s will bring its store count to 2,774, offering economies of scale to help lower prices and improve operations at the Pick ’n Save stores.
Hopefully Kroger lives up to its promises here, but I’m skeptical. It seems likely the Roundy’s headquarters will shrink as some administrative functions are handled at Kroger headquarters.
More Pick ’n Save store closings seem inevitable given the growing number of competitors and the slow population growth in the region. Roundy’s closed three Pick ‘n Save stores in the region last year and two this year.
Livingston, a former market research manager for Roundy’s, predicts Kroger will eventually close 50 Pick ’n Save stores. Some Pick ’n Save stores are located too close to each other and need to be consolidated, he said.
Roundy’s has “a lot of low volume, money losing, redundant stores all over (the) Milwaukee (area),” Livingston said. “(Kroger) can’t turn them around with all of the new stores coming in.”
