Certified Grocers Midwest Buying Fresh Brands
By George Anderson
The grocery wholesaler and operator of Piggly Wiggly and Dick’s Supermarkets, Fresh Brands, announced yesterday it has agreed to be sold to Certified Grocers Midwest in a deal valued at $100 million. The deal is expected to close in the first quarter of 2006.
Ken Koester, president and chief executive officer of Certified Grocers Midwest, said in a released statement, “The acquisition of Fresh Brands provides many opportunities to strengthen both organizations. Certified is looking forward to working with the associates of Fresh Brands because both organizations are dedicated to providing independent supermarket operators with excellent service at a low cost. We are owned by successful independent supermarket operators and believe that the enhanced buying power and other benefits of the merger will provide great value and opportunities to the Fresh Brands franchisees as well as the independent supermarket operators that we serve.”
Certified Grocers Midwest, a 200 member cooperative with headquarters in Hodgkins, Ill., has not said whether it will continue to run the 20 stores that are corporately-owned by Fresh Brands.
Supermarket industry consultant and RetailWire BrainTrust member David Livingston told the Milwaukee Journal Sentinel, “I think they’ll try to spin them off. I think what they want to do is consolidate the wholesale business with theirs.”
Tom Harenburg, president of the brokerage firm Carl M. Hennig Inc., said that, even with this deal, the stores supplied by Fresh Brands face a tough road ahead with Wal-Mart serving as the biggest obstacle.
Moderator’s Comment: What is your reaction to Certified Grocers deal to buy Fresh Brands? Do you expect to see consolidation
activity pick up in the grocery business in 2006? –
George Anderson – Moderator
The deal means good news for anyone interested in being an independent supermarket operator in Wisconsin and Illinois. David Livingston and Camille Schuster hit it. One more advantage for Certified is the union lock on the big chains in the market. The question for Certified will be where to find the entrepreneurial talent for the stores.
This was not unexpected, as we enter wave three of industry consolidation. First, it was wholesalers. Second, it was chains. As we enter the 3rd wave, the issue is economies of scale… for unless some of the smaller players can increase their size, they are operating at a significant disadvantage.
Smart businesspeople know when to hold ’em and when to fold ’em. It pays to sell out while you still have some decent business and not wait until you’re desperate. The critical issue: will the buyers be the losers? Operational effectiveness is not the only challenge. It’s critical to get a screaming bargain price, lower than low, pennies on the dollar, fire sale, closeout, deal of the year, below wholesale. Because paying too much will sink the buyer, even if they’re brilliant operators. Hopefully they can spin off the stores ASAP profitably, since it’s much harder to make money running stores than it is to be a wholesaler.
Hopefully, this will work out well for Certified. Wal-Mart and Roundy’s have been making sport of Fresh Brands for the past several years. Wal-Mart, with their size and low pricing, has impacted Roundy’s. Since trying to win sales back from Wal-Mart is futile, Roundy’s had no choice but to focus their marketing efforts against the only other significant competitor – Fresh Brands. Roundy’s actions were highly effective and successful.
There really was not much Fresh Brands could do to counter back.
Not everyone can be a winner, so we will probably continue to see more consolidation. Companies like Marsh and Albertsons have been in the news lately after throwing in the towel.
Fresh Brands is about to receive another onslaught of several new Wal-Mart Supercenters and Roundy’s stores in some of their best markets. My prediction is that Certified will combine warehouse facilities with a new distribution center somewhere in northern Illinois and close the one in Sheboygan. As for the corporate stores, many will probably close. Those that are salvageable will be used as bait to attract new independent customers. Prospects could be the few remaining Roundy’s independents. Since Roundy’s retailers can no longer open new stores with Roundy’s, Certified might look like a good option.
The possibility of increased mergers in 2006 is high and not just because some companies want to gain economies of scale. Some companies have not invested in improving their technology and processes to improve supply chain efficiency or in using their sales data to understand consumers better or in gathering additional information about consumer trends or all three. Without better information and increased efficiencies companies can not remain profitable and will either become takeover targets, put themselves up for sale, or close.