Bristol Farms Regains Independence
By Tom Ryan
Bristol Farms, the upscale 13-store grocery chain in Southern California,
was sold last week by parent Supervalu Inc. to local management and an investor
group.
“We look forward to returning to local and independent ownership with
the opportunity to reinforce our commitment to our local vendors,” Kevin
Davis, Bristol Farms’ chief executive, told the Los Angeles Times.
Founded in 1982 by two meatpackers, the chain was named after a street
in West Los Angeles with “Farms” added to denote an emphasis on fresh
products. Annual revenues are more than $200 million.
“They thought grocers should sell their products the same customized
way that specialty butcher shops did, instead of pre-set packages wrapped in
foam trays,” Mr. Davis said. “So they threw some sawdust on the floor,
opened up a big meat counter with the beef hanging in the back and started
stocking local produce.”
With most locations in Los Angeles County, the
chain has earned a reputation for its organic products and seasonal edible
gifts, supported by in-house catering serving everything from gourmet pastries
to full holiday meals.
In buying Bristol Farms in 2004, Albertsons hoped the
upscale concept would give it “the ability to operate smaller-format stores
in wealthier neighborhoods and differentiate themselves not based on price
but on quality and service,” said
Lloyd Greif, president of Greif & Co., a Los Angeles investment bank that
arranged the 2004 deal and the latest one. Facing a debt crisis and heightened
competition, Albertsons was sold in 2006 and broken into three pieces with
Supervalu acquiring more than 1,100 stores, including the 270 Albertsons and
Bristol Farms markets in Southern California.
Market observers said Supervalu
faced similar challenges with new competition in the food space from Wal-Mart,
Target and Costco.
Bristol Farms “became a corporate orphan,” said
Mr. Greif. “It
didn’t fit in with the strategy to compete for customers on price.”
Suzanne
Long, of the New York-based consulting firm SSA & Co., also said
synergies weren’t realized. “Everything was managed separately, because
Supervalu didn’t want to interfere with something that was working,” she
said. Bristol Farms itself began facing greater competition from Whole Foods
in the organic space.
Bristol Farms’ same-store sales fell five to seven percent
at the height of the recession but have rebounded along with overall luxury
spending.
“We’ve been positive in sales since spring, and that’s only increasing
in the second half of our fiscal year,” said Mr. Davis. “We’re finding
that people are doing their holiday gift shopping in stores like ours. Food
is a luxury, and it’s not an expensive luxury.”
The move comes as Supervalu
has struggled with declining comps over the last two years and has been selling
off some of its other locations. A Supervalu spokesman said the sale allows
both companies to operate more efficiently and effectively.
Discussion Questions: What are the pros and cons of Bristol Farms returning
to independent ownership? What lessons, if any, does this offer regarding larger
retailers acquiring smaller niche ones?
- Supervalu Announces Sale of Bristol Farms Division – Supervalu
Inc./MarketWatch - Sale of Bristol Farms Announced; Stores to Continue to Operate With Independent
Ownership Under Current Bristol Farms Management – Bristol Farms/ PRNewswire
via COMTEX/Trading Markets - Bristol Farms markets sold – Los Angeles Times
- Supervalu sells boutique grocery chain Bristol Farms – Minneapolis
Star Tribune
I don’t see any cons only pros. First getting disconnected from SuperValu will help. SuperValu has an uncertain future considering they are closing more stores than they are opening, mass layoffs, declining comps and market shares, dividend reductions, and weighted down by a huge debt load. Their first priority is to save their company.
Second, management will be returned to local ownership. Decisions will be made locally instead of out of state.
Typically when a large grocery chain buys a smaller local group of stores, thing go south pretty quick. Anything Safeway, SuperValu, Ahold, or A&P has bought, sales plummeted. You have to expect sales declines of 15-20% to be normal. This is an old lesson but for some reason it’s quickly forgotten in the heat of acquisition frenzy.
Good news for Bristol Farms regaining its independence. Supervalu should “let go” of some other entities too. These are very specialized regional chains that are not driven by SKU rationalization and everyday low prices on the same varieties of SKUs that everyone else carries.
This is a win/win for both Bristol Farms and for their local customers. Management will be part of the community and much better able to understand and react to its preferences and needs. With the upscale customer beginning to loosen up its spending, they are positioned well to have a strong success.
In the past, deals like the Supervalu purchase brought high capitalization and superior logistics and technologies. The big corporations either can’t or aren’t deploying capital and the technology has become ubiquitous and reasonably priced. Expect more growth in regional players.
I agree heartily with both David Livingston and David Biernbaum. And as a further aside, it’s always unwise, whether in marriage or in acquisitions, to intend to change your partner, or to intend to change yourself in your partner’s image.
The pros of Bristol Farms moving back to independent ownership are they can better direct their future and more easily communicate that message to their employees and customers. Uncertainty for either group regarding the future or mission can hurt a business. Supervalu missed an opportunity; not to change Bristol into one of its current formats or the reverse, but instead to grow Bristol Farms as an entirely different store format across major markets in the US. Equity for quick expansion was the primary value Bristol Farms could have received from Supervalu.
Looking ahead, I see Bristol Farms growing at a slower pace, but nevertheless, growing. On the East Coast, The Meat House–a relatively new franchise–just entered Connecticut and the prospect of them growing across the US looks very good. Bristol Farms may want to review The Meat House’s business plan for growth to get some ideas.
Bristol Farms obviously began with some very entrepreneurial ideas. I don’t know the depth of that entrepreneurialism in their individual stores. For example, do their department managers think like business people or corporate employees?
To me, this is the real opportunity for smaller businesses to compete VERY effectively in a world awash with capital and the ability to manage, for example, thousands of stores. It is simply not possible for the large organization to attract enough “entrepreneurial” staff to effectively compete with the smaller organization.
BF was purchased by a company that was swallowed by SuperValu. It was always a take relationship. Great stores with great employees in LA – all good with an emphasis on presentation, not discounting.
Bristol Farms was lost as part of a national model. They did not know how to act as part of a national chain. And the national chain did not know how to manage a successful local brand market.
This has every opportunity to be successful. Local ownership and local management creates a synergy not found in national chains. Everyone involved locally wants to make this a win/win; and will do everything in their power to see that it happens. When part of a national chain the objective of the managers is to build on the profit and stay as invisible as possible.
I give you Stew Leonard’s in Connecticut as an example of a locally-owned success story.
I agree with the consensus. This is a win-win. SUPERVALU is really in a different business than Bristol Farms, and this will allow both to pursue their strategies without distraction.
If sales have been increasing recently, then there must still be a steady customer base. Having the freedom to provide what those consumers want should give the new ownership an opportunity to build the business.
The numbers tell a story–if $200M for 14 stores [including one Lazy Acres] is correct, that’s only $14.2M per store? Does not compare very well with Whole Foods [$27M/store] or Trader Joe’s [$2,100/sf]…. So I guess independence may help to increase sales productivity to more competitive levels.