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What Will the Deal With Delhaize Mean for BI-LO Holdings?

May 30, 2013

There was a split in the RetailWire community back in late 2011 when BI-LO Holdings announced it was acquiring Winn-Dixie. Some thought the combination of BI-LO and Winn-Dixie would provide the company with added purchasing power needed to compete in the marketplace. Others thought that the combination of two chains, which had struggled in recent years (BI-LO emerged from Chapter 11 in 2010, Winn-Dixie in 2006), would result in one larger, but not stronger organization. With this week's announcement that BI-LO Holdings has reached a deal to acquire 165 stores operating under the Sweetbay, Harveys and Reid's banners from Delhaize America, it appears as though the company is satisfied enough with the progress from the earlier deal to move on to others.

"We are pleased to announce this transaction, which will build on the strength of our BI-LO and Winn-Dixie stores and allow us to extend our great products at great value to a broader customer base," said Randall Onstead, president and CEO of BI-LO Holdings, in a statement. "Sweetbay, Harveys and Reid's are well-recognized and trusted businesses that share our passion for exceptional service."

BI-LO Holdings currently operates 686 stores in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee. The 165 new locations being acquired will increase store counts for the company in Florida, Georgia and South Carolina.

"This [acquisition] does allows us to go into different areas of the Southeast," Brian Wright, a spokesperson for Winn-Dixie, told The Florida Times-Union.

Earlier this month, BI-LO Holdings announced it had reached a deal to have C&S Wholesale Grocers supply Winn-Dixie's stores. C&S has supplied BI-LO since 2005. It appears likely the company would use C&S to supply the stores being acquired from Delhaize.

FINANCIALS:     [NYSE:DEG] [ ]

Discussion Questions:

What will the deal with Delhaize mean for BI-LO Holdings? What do you see as the challenges and opportunities for the company as a result of the acquisition?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Will the deal to acquire the 165 stores from Delhaize America make BI-LO Holdings a stronger or weaker competitor in the grocery market?

Comments:

The biggest challenge is that Winn-Dixie is one of the worst sales per square performing grocers in the country. Even worst is Sweetbay. BI-LO is operating post bankruptcy. So what we have here is sub mediocre buying sub mediocre. Therefore, we are not going to magically see well-operated supermarkets emerge from this.

What I see are lots of store closures and consolidation in order to raise the sales per square foot at the existing stores. The announcement in the press release is one of most empty messages I've ever read.

David Livingston, Principal, DJL Research

Having worked for Randall Onstead a few years back, I can tell you that he will be "all in" when it comes to the commitment needed to make these acquisitions work. But specifically with regards to Sweetbay, the same issues that forced the closure of 33 of those stores recently, will continue to be a barrier to success for the "new" ownership.

In Sweetbay's trading area, Publix has a firm lock on the "traditional" grocer position. I'm sure Randall is well aware of this, as they are currently competing with Publix under their Winn-Dixie banner. With that traditional grocer position comes an effective hi-lo pricing and promotional program, clean and well stocked stores, and strong customer service reputation. Publix also have locations out the "wazoo," making them ultra convenient. On the "price" end of the business, Walmart, Costco, Sam's and Aldi are firmly entrenched. On the "specialty fresh" side of the market, Whole Foods, Trader Joe's, and Fresh Market are all doing well.

Accordingly it will be imperative that whatever synergies Winn-Dixie and Sweetbay can build and sustain, that they be devised to carve out a niche with a distinct competitive advantage compared to the other aforementioned players.

As one possibility, Randall has extensive background in making a run at the "high end" of the market. His Randall's Flagship stores in Houston in the late '90s, (before the sale to Safeway) touted some of the best deli-bakery shoppes, fresh market-type produce departments I have seen anywhere since. In the locations that have the right demographics for such, would not be surprised to see some new Winn-Dixie-Sweetbay prototype stores emerge that re-visit the 'Flagship' approach. Nevertheless, it will be interesting to see how his leadership will manifest at Sweetbay and the other newly acquired banners.

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Mark Heckman, Principal, Mark Heckman Consulting

It seems like BI-LO Holdings is bulking up for battle against Walmart's supercenter and Publix, and a possible new entrant like private equity firm Cerberus Capital Management, already heavily involved with Albertsons and other former Supervalu chains. Cerberus is said to have expressed interest in Harris Teeter, in geographically similar territory as many of the stores Delhaize is selling. With so many retailers, from Amazon to Target, moving into grocery selling in recent years, it is not surprising that there is this much contraction among traditional supermarket chains.

David Schulz, Contributing Editor, HomeWorld Business

Mark makes a lot of good points. For the merged stores to be successful, it has to be a financial story not a sales floor execution story. I doubt we will ever see any Flagship stores. Winn-Dixie had to bust a gut just to get a couple of new stores opened, then realized that perhaps they really aren't very good at selling groceries.

Any successes they will have it will be from Publix being charitable and allowing them to exist. Winn-Dixie only exists because Publix wants them to for whatever reason. Being a sub-mediocre chain is not a death sentence. These are companies that manage from the expense side Kmart-esque style. Flagship style? That ship has sailed.

David Livingston, Principal, DJL Research

The turnaround of BI-LO is a well known success story in the industry. The comp sales and market share growth outpaced many in the industry in 2010 and 2011, and 2012-proving that life in the "middle" can exist with profitable, sustainable sales growth...so much so it put Lone Star in a position to buy a much larger company AND make another acquisition one year later.

Making a comment "BI-LO is operating post bankruptcy" is the MOST empty message I have ever read.

As both an industry professional and a consumer that lives in their market, I do not believe that WD is in business because Publix wants them to be. I am not sure when the last time you have been to South FL, but customers here are WAITING for a better option on shopping... particularly when it comes to prepared foods. I am not going to debate with you whether or not WD will be that option, but I will remind you the current management team isn't the cause for the state of affairs at Winn-Dixie or the existing consumer perception...that would be the previous "horseman" who actually believed you could fill the store with upscale looking things, increase prices and people will come... THEY tried to out-Publix Publix.

The current management team is not denying there is a long way to go and a lot to fix, however, they are focused on creating an experience that appeals to their customer demographic. Have you been to a remodeled Winn-Dixie? When was the last time you have seen a BI-LO? And...Publix must be feeling some of it because they are responding.

To Mr Schulz's point...you do have to move on things when it makes sense strategically... with Teeter on the block and other PI groups sniffing around, sometimes the best way to deal with competition is to buy it. And yes, when all is said and done, BI-LO Holdings is owned by a company that will seek an exit strategy that provides for a healthy return, and to me, they seem to be going about it with a fair amount of intelligence.

'groceryconsult1'

Where are these different areas Brian Wright talks about? Every location that I know of that has a Harvey's also has a Winn-Dixie. Reids will soon be wiped out by competition from Dollar General when they add groceries. Sweetbay is located in Winn-Dixie's back yard and primarily competed with Winn-Dixie. Publix makes both of them irrelevant in Florida. None of these acquisitions are thoroughbreds, they aren't even tired mules.

My guess, this is a means of hiding poor performance at BI-LO/Winn-Dixie. Everything can be blamed on acquisition cost for the immediate future. In this case, Randall bought these ugly sisters in an effort to make enough noise to throw the investment community off for a while. This is a typical magician's trick—wave the right hand around, but never let them see what the left hand is doing! But the left hand isn't making profits or growing share!

Ed Dennis, Sales, Dennis Enterprises

I agree that BI-LO has improved, but their life in the middle is still the lower middle. Their sales per square foot, when you look at individual store sales relative to their competitors, is still running about 15% below market average. Both BI-LO and Winn-Dixie have added a coat of paint here than there, but many still give off that "food museum" feeling of a low sales per square foot store. If I was guessing, Lone Star will have to borrow money to complete this deal and that BI-LO has not generated enough profits for them to pay cash.

David Livingston, Principal, DJL Research

Growth through acquisition is a great way to manage a business while tapping into the strengths of each company, both large and small. Bi-Lo should continue to expand while focusing on more regional chains.

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Kai Clarke, CEO, American Retail Consultants

Who would have thunk it. BI-LO with over 850 stores, operating in niche markets, still competing with Walmart and Publix, and living to see another day. Will this be a home run, or a dud, like A&P's ill fated acquisition of Pathmark, in the Northeast, over 5 years ago?

'weo'

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