EG Group, a privately held convenience store retailer based in the UK, will buy Kroger’s 784 U.S. convenience stores for $2.15 billion. The deal is expected to close during Q1 of Kroger’s fiscal year, which ends in May 2018.
Kroger had hired Goldman Sachs to explore options for its convenience stores in October 2017, just as the retailer’s “Restock Kroger” initiative, which focuses on the retailer’s full-line supermarkets, was ramping up. The c-store division, which includes stores in 18 states, employs 11,000 associates and generates $4 billion in annual revenue.
EG Group, which operates 2,600 sites in several European countries, plans to establish its North American headquarters in Kroger’s home town of Cincinnati, Ohio. The acquiring company will continue to operate the stores under their existing brands, which include Turkey Hill, Loaf ‘N Jug, Kwik Shop, Tom Thumb and Quik Stop. Kroger’s supermarket fuel centers and its Turkey Hill Dairy are not included in the sale.
“Our convenience store business has been a part of our company for many years,” said Mike Schlotman, EVP and CFO at Kroger in a statement. “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.”
“The entry into the U.S. market presents a fantastic opportunity to deliver a successful retail offer to consumers across the various states,” said EG Group Founder and Co-CEO Mohsin Issa in a statement. “We are committed to investing in the Kroger network, partnering with leading retail brands and working with the exceptional management team and associates transferring across to deliver a comprehensive retail offer.”
Some analysts question Kroger’s decision to sell a healthy division operating in a growing retail segment. The Kroger c-store business was a “crown jewel” of the company, according to Burt P. Flickinger III, Managing Director at Strategic Resource Group, as reported in Supermarket News.
“It is too bad that Kroger gave in to activist pressures to sell the convenience stores because they are very good money-makers and offer very good tie-ins with the Kroger stores with their fuel programs, as well as having a tremendous multiplier effect as convenience-and-gas is one of the hottest and most successful formats in the country,” said Flickinger.
EG Group will get a major revenue boost from the acquisition. Its European business pro forma revenue is $14.5 billion without the Kroger c-store business, but it will rise to $18.5 billion with the acquisition.