Kroger Expands in Midwest With Roundy’s Deal

The $178 million transaction continues Kroger's strategy of acquiring regional supermarket chains to further growth.
Katie Kuehner-HebertNovember 11, 2015

Grocer Kroger on Wednesday agreed to acquire Midwestern supermarket chain Roundy’s for about $178 million in cash, picking up another regional operator to fuel growth.

Milwaukee-based Roundy’s operates 151 stores in Wisconsin under the Pick ‘n Save, Copps and Metro Market banners and 34 stores in the Chicago area under the Mariano’s banner.

Kroger will pay $3.60 a share for Roundy’s, a premium of 65% to Tuesday’s closing price. The stock was trading Wednesday at $3.58, up 64%, while Kroger shares added 2.2% to $38.08.

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As The Wall Street Journal reports, Kroger has been increasing its share of the food-retail market recently by acquiring regional chains. Last year, it bought Harris Teeter, with stores in the Southeast and Mid-Atlantic areas, for about $2.5 billion.

“Kroger has turned in revenue growth for six straight quarters, helped by acquisitions as well as its growing natural and organics business,” Bloomberg said.

Roundy’s has had its struggles in the competitive supermarket industry, posting a $309.9 million loss last year. It generates about 65% of its sales in Wisconsin.

Cincinnati-based Kroger operates 2,623 supermarkets in 34 states, but has only Food 4 Less stores in Chicago. “It’s a good opportunity for Kroger to expand their footprint in the country,” Darren Tristano, president of Technomic, told the Chicago Tribune.

“[Chicago] is not far away from their headquarters, and I think it’s a sweet spot for them,” he added.

“The Mariano’s stores in Chicago are phenomenal shopping experiences,” Kroger CFO Mike Schlotman told Bloomberg. The company will invest in the Milwaukee and Madison markets by lowering prices, adding hours in certain departments and offering different products, he said.

Kroger plans to finance the acquisition with debt, and refinance Roundy’s existing debt of $646 million. No stores would be closed after the deal closes, expected by the end of the year.

“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,” Rodney McMullen, roger’s chairman and chief executive officer, said in a news release.

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