Dive Brief:
- Casey’s General Stores has submitted a bid for Kroger’s convenience store business, according to CNBC. The Kroger division includes more than 780 stores, with $1.4 billion in revenue. The news outlet reported that Casey's submitted an initial bid worth about $2 billion.
- Iowa-based Casey’s, with more than 2,000 locations, is under pressure from activist investor JCP Investment Management, which has called for the convenience store chain to explore strategic alternatives, including a potential sale, merger or similar transaction to maximize shareholder value.
- A sale would provide Kroger with capital it will need for new strategic initiatives, such as its Restock Kroger program, which includes a mixture of cost cutting and strategic investments in data, digital innovation, store updates and pricing.
Dive Insight:
As the convenience store industry consolidates and competitive pressure in the grocery business intensifies, Casey’s General Stores and Kroger are weighing a transaction that may help both companies confront their respective challenges.
By acquiring more than 780 of Kroger’s convenience stores — they operate under several banners, such as Kwik Shop, Turkey Hill and Tom Thumb — Casey’s hopes to ease pressure from investors like JCP to sell the company.
Acquisition activity in the convenience store space has been hot. In 2017, Canada’s Couche-Tard, operator of Circle K stores, bought CST Brands, adding 1,300 locations. And last week, 7-Eleven acquired 1,030 Sunoco convenience stores.
By hiving off its c-stores, Kroger will gain operating capital that it can allocate to improve its competitive position. Tough competition is an old story for grocers, and Kroger has long prospered where others have failed.
But with new threats on the horizon, such as low-price retailers Aldi and Lidl, the continuing growth of online sales from the likes of Amazon and Walmart, even a smart operator like Kroger needs the means to get smarter. Although convenience, fresh items and snacks are priorities for supermarkets, the c-store division was seen as peripheral and bringing a potentially good price if it was sold.
The far-reaching Restock Kroger Plan includes more investments in data and personalization, digital, space optimization, store brands and pricing strategies, as well as a transformation of the front-end, building an Internet of Things sensor network and investing in store associates. The retailer also is reportedly interested in acquiring online bulk retailer, Boxed.
Kroger said it would conduct a strategic review of its c-store division last fall, and has received a “high level of interest” from possible buyers. Casey’s clearly is not the only offer on the table; more are likely to be announced in the coming weeks. Kroger c-stores have been doing well, generating 62-consecutive quarters of same-store sales growth, $4 billion in annual sales, and $1.4 billion in non-fuel revenues, according to Grocery Business.
Kroger has a lot of places it is looking to grow to keep its core supermarket operations competitive, and with cash a key component, it makes sense to jettison its c-store business for capital that can pay even bigger dividends down the line.