CINCINNATI — Kroger Co. has agreed to sell its convenience store business to EG Group, a privately held c-store retailer based in Blackburn, Lancashire, United Kingdom. The transaction, which is valued at $1.25 billion, is expected to close during the first quarter of Kroger’s financial year, or by May 26. Kroger had announced last October that it intended to “explore strategic alternatives” for its c-store business, including a potential sale, in connection with its Restock Kroger initiative, which aims to redefine the food and grocery customer experience in this country. The company plans to use the net proceeds from the sale to buy back stock shares and to lower its net total debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) ratio.
“Our convenience store business has been a part of our company for many years,” says Mike Schlotman, executive vice president and chief financial officer. “As part of our regular review of assets, it has become clear that our strong convenience store business unit will better meet its full potential outside of our business.”
As part of the agreement, EG Group will establish a North American headquarters in Cincinnati and continue to operate the Kroger c-stores under their established banner names.
“One of the most important considerations in our decision-making process was continued operations to ensure minimal disruption to our associates,” Schlotman continues. “We are very pleased the EG Group plans to establish their North American headquarters in Cincinnati. EG Group is also a recognized international petrol forecourt convenience operator and they have a commercial model which clearly looks to enhance the consumer offer by working with leading retail brands customers know and trust. … Throughout the process we were impressed with the EG Group’s professionalism, investment commitment and, more importantly, their understanding of the U.S. convenience retail market.”
Kroger operates five c-store divisions under the following banners: Kwik Shop (129 stores at the end of fiscal 2016), Loaf ’N Jug (170 stores), Quick Stop (101 stores), Tom Thumb (117 stores) and Turkey Hill Minit Markets (267 stores). As of early February, the c-store unit encompassed 783 stores in 18 states.
The network consists of 715 corporate stores and 69 franchised units. Fuel is sold at about 726 of the locations. During fiscal 2016, the c-store segment generated 4%, or approximately $532 million, of Kroger’s total sales of $115.34 billion.
Kroger opened six c-stores and closed six during fiscal 2016 while remodeling the interior of 59 outlets. The fuel centers of four locations were also remodeled.
The grocer’s newer c-stores typically range from 1,130 square feet to 6,110 square feet, averaging 2,954 square feet at the end of fiscal 2016. They are situated on parcels of one to two acres, and in most cases the operation includes a large fuel offering with six to eight pumps, typically covered by a large, well-lit canopy.
Inside, the average store carries about 3,600 items, with approximately 75% of non-gas sales coming from five categories: packaged beverages, beer, snacks, candy and tobacco products. Food service accounted for 12% of non-gas sales in fiscal 2016, while fuel operations represented about 65% of the c-store total.