Destock Kroger?

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Destock Kroger?

By Gina Acosta - 02/05/2018

Kroger has found a buyer for its convenience store operations as the company narrows its focus to revitalizing its grocery business via its Restock Kroger plan.

U.K. convenience store operator EG Group is buying Kroger’s convenience store unit, which includes banners such as Kwik Shop, Loaf `N Jug and Turkey Hill Minit Markets, for $2.15 billion as it expands into the United States.

The deal is expected to close this spring. Kroger says it will use proceeds to repurchase stock and pay down company debt.

"Our convenience store business has been a part of our company for many years. We want to thank our management team and associates for their enduring commitment to our customers, and for the contributions they have made to build our supermarket fuel business," said Mike Schlotman, Kroger's executive vice president and chief financial officer. "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."

As part of the agreement, EG Group will establish their North American headquarters in Cincinnati, Ohio, and continue to operate stores under their established banner names. 

Kroger announced in October 2017 its intention to explore strategic alternatives for its convenience store business, including a potential sale, in conjunction with Restock Kroger.

“Kroger’s sale of its convenience store business was expected as it was part of its strategic Restock Kroger plan announced in October of last year," Moody’s Vice President Mickey Chadha stated. “With about $4 billion in revenue and about 784 stores in 18 states, Kroger’s convenience store business was not a strategic part of its business plan for the future and it makes sense to monetize it at an attractive valuation. As the food retailing business gets more promotional and competitive, Kroger’s primary focus is on its grocery business. We expect Kroger to use part of the $2.15 billion in sale proceeds from EG Group to reduce debt so as to lower its lease and pension adjusted leverage ratio to below 4.0 times from its current level of about 4.2 times."

Kroger's convenience store business operates in 18 states. It includes 66 franchise operations. The stores employ 11,000 associates and operate under the following banner names: Turkey Hill, Loaf 'N Jug, Kwik Shop, Tom Thumb and Quik Stop. Kroger's convenience store business generated revenue of $4 billion, including selling 1.2 billion gallons of fuel, in 2016.

Kroger's supermarket fuel centers and its Turkey Hill Dairy are not included in the sale.

Kroger operates 2,793 retail food stores under a variety of local banner names in 35 states and the District of Columbia.