New U.S. Entrant EG Group Takes Kroger’s C-Stores

BLACKBURN, U.K., andCINCINNATI -- Kroger’s large portfolio of convenience stores has a buyer, and it’s not the industry player many observers anticipated.

The Kroger Co. and EG Group, a privately held gasoline and convenience retailer based in Blackburn, United Kingdom, have signed a deal for the sale of most of Kroger's c-store business unit, including 762 stores, to EG Group for $2.15 billion, as reported in a CSP Daily News Flash.

EG Group, which previously had no U.S. retail presence, will establish its North American headquarters in Cincinnati, where Kroger is based, and it will continue to operate the c-stores under their established names. This will immediately establish EG Group as one of the 20 largest c-store chains in the U.S.

The companies said they expect to close the transaction during the first quarter of Kroger's fiscal year.

Here are the details …

Supermarket retailer Kroger Co. has nearly 3,000 retail food stores under several banners in 35 states and the District of Columbia, about 1,470 supermarket fuel centers and the ClickList online grocery delivery service. It also operates five convenience-store divisions with a recent total, according to its website, of 784 c-stores (more than 725 with fuel) in 18 states:

• 129 Kwik Shop c-stores in Iowa, Kansas and Nebraska (based in Hutchinson, Kan.)
• 170 Loaf ‘N Jug c-stores in Colorado, Montana, North Dakota, Nebraska, New Mexico, South Dakota and Wyoming (based in Pueblo, Colo.)
• 101 Quik Stop c-stores in California and Nevada (based in Fremont, Calif.)
• 117 Tom Thumb c-stores in Alabama, Florida, Mississippi and Tennessee (based in Crestview, Fla.)
• 267 Turkey Hill Minit Markets in Indiana, Ohio and Pennsylvania (based in Lancaster, Pa.)

Kroger's c-store business generated revenue of $1.4 billion in inside sales in 2016. Including fuel, Kroger's c-store business generated $4 billion in total sales in 2016, accounting for 4% of total company sales. In 2016, it sold 1.2 billion gallons of fuel. The business unit has delivered 62 consecutive quarters of same-store sales growth, the company said.

Kroger's c-stores ranked No. 8 in a year-end update of CSP’s 2017 Top 202 list of the largest c-store chains in the United States.

In October 2017, Kroger said that it would explore strategic alternatives for its convenience-store business, including a potential sale, as part of Restock Kroger, a new strategy “to redefine the food and grocery customer experience in America.”

The decision was the result of a review of “assets that are potentially of more value outside of the company than as part of Kroger,” the company said. Kroger hired Goldman Sachs & Co. to identify, review and evaluate the options.

The company never formally announced a decision on whether it would sell the c-stores until it announced the sale to EG Group.

Speculation about potential buyers for Kroger’s convenience stores focused on several major c-store industry companies:

• 7-Eleven Inc., Irving, Texas.
• Alimentation Couche-Tard Inc., the Laval, Quebec-based owner of the Circle K c-store brand.
• Casey’s General Stores Inc., Ankeny, Iowa.
• Murphy USA Inc., El Dorado, Ark.
• Marathon Petroleum Corp., the Findlay, Ohio-based owner of the Speedway c-store chain.
• GPM Investments LLC, Richmond, Va., owner of Fas Mart, Shore Stop and other brands.
• Global Partners LP, Waltham, Mass., owner of the Alltown, Alliance Energy and Xtra Mart c-store brands.

In late January, Casey’s submitted an initial bid for Kroger’s c-stores, according to a CNBC report citing sources familiar with the situation. It reportedly made the bid under pressure from an activist investors group.

JCP Investment Management LLC, BLR Partners LP and Joshua E. Schechter, a group of Casey’s shareholders that together own about $45 million worth of the retailer’s stock, in early January issued an open letter to all Casey's shareholders suggesting that the chain is “significantly undervalued.” It urged the board to “immediately engage a financial adviser to explore all strategic alternatives, including a potential sale, merger or similar transaction in order to maximize shareholder value.”

While it acknowledged JCP's letter, Casey's has not announced whether or how it will react strategically.

"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,” said Mike Schlotman, Kroger's executive vice president and CFO.

"One of the most important considerations in our decision-making process was continued operations to ensure minimal disruption to our associates,” Schlotman said. “We are very pleased the EG Group plans to establish their North American headquarters in Cincinnati. This is good for our associates across the country and for our headquarters city of Cincinnati.

“EG Group is also a recognized international petrol forecourt convenience operator, and they have a commercial model which clearly looks to enhance the consumer offer by working with leading retail brands customers know and trust,” he continued. “Throughout the process, we were impressed with the EG Group's professionalism, investment commitment and more importantly their understanding of the U.S. convenience retail market. We now look forward to working with them closely to ensure a smooth transition for associates."

EG Group is a retail fuel and convenience operator that has established partnerships with global brands such as Esso, BP, Shell, Carrefour, Louis Delhaize, Starbucks, Burger King, KFC, Greggs and Subway. “EG” stands for Euro Garages.

It employs more than 12,500 staff working in more than 2,600 sites in various European markets including the United Kingdom, France, The Netherlands, Belgium, Luxembourg and Italy. In 2017, the business secured approximately 1,000 forecourt assets from Esso in Germany, which will be transferred and integrated into the existing network in fourth-quarter 2018.

With the inclusion of the Kroger assets, EG Group will own and operate approximately 4,400 sites in Europe and the United States.

“The entry into the U.S. market presents a fantastic opportunity to deliver a successful retail offer to consumers across the various states,” said Mohsin Issa, EG Group co-founder and co-CEO. “We have had much success across Europe, and we firmly believe the Kroger assets present a fantastic foundation to overlay our retail experience and know-how in the U.S. We are committed to investing in the Kroger network, partnering with leading retail brands and working with the exceptional management team and associates transferring across to deliver a comprehensive retail offer."

Zuber Issa, EG Group co-founder and co-CEO, said, "Our business model is simple but effective—EG Group is creating a stronger relationship between consumers and leading retail brands they want to access. In the U.S., we aim to create a retail environment which delivers convenience, provides value and serves as a retail destination offering excellent welfare to motorists who live and work near our petrol forecourt convenience retail stores.”