Kroger Rounds Out Its Midwestern Footprint with Roundy's Purchase

Kroger this morning said it plans to purchase regional grocer Roundy's. The deal is valued at $800 million, including the assumption of $646 million in debt.The board of directors of both retailers unanimously approved the deal. The purchase will give Kroger a foothold in Wisconsin, where Roundy's operates under the Pick 'n Save, Copps and Metro Market banners, and expand Kroger's reach in Chicago – which is currently limited to 10 Food4Less discount grocery stores – by giving the retailer ownership of 34 Mariano's supermarkets.“We admire what [Roundy's chief executive officer Robert] 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," Kroger ceo Rodney McMullen said in a media release. "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. 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.”Roundy's operates 151 stores, 101 of which have pharmacies. It reported revenues of nearly $4 billion in fiscal year 2014. Roundy's' headquarters will remain in Milwaukee, and its current senior management team will retain control of operations. There are no plans to close stores. The combined company would operate 2,774 stores in 35 states and Washington, D.C., employing more than 422,000 people.“Kroger’s scale, knowledge and experience allows us to accelerate the strategic initiatives we have invested in and makes us a more formidable competitor in the marketplace," Mariano said in the release. "This is a great win for our customers, communities, employees and our shareholders, and I personally look forward to continuing to exceed customer and employee expectations.”It's likely that Kroger will treat Roundy's similarly to Harris Teeter, which it acquired in 2013. The Matthews, NC-based supermarket chain, which operates approximately 230 stores in seven states and Washington, D.C., has maintained its own private labels and promotional calendar. Rather than change the banner, Kroger has instead focused on incorporating the things Harris Teeter does well into its larger corporate strategy, using Harris Teeter's "Express Lane" grocery pickup service as a model for the "ClickList" program that Kroger is piloting at 19 stores in four markets. The excellent reputation the Mariano's banner has built for prepared foods and experiential shopping could lead to growth in those areas at the retailer's other banners.

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