Delhaize America Reportedly Mulling Sale Of Bottom Dollar

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Bottom Dollar Foods (BDF), the discount unit of Delhaize America, has apparently felt enough competitive heat and is exploring the sale of its 66 stores located in Pennsylvania, Southern New Jersey and Northeast Ohio.

According to several retailers who were sent real estate profile sheets in late July, all bids for the Bottom Dollar Foods stores were due by August 13. We’ve also been told that Wells Fargo is serving as Delhaize America’s investment advisor for this process.

In response to our story, a Delhaize American spokesperson said, “Consistent with established policy, our company does not comment on rumors or speculation regarding plans to acquire or divest businesses.”

Several analysts said they believe that Delhaize would attempt to sell all 66 stores as a bloc. Supervalu, which could utilize the locations for potential Save-A-Lots or to dole out to independent customers, and Aldi are believed to be very interested in making a deal. Also, regional operators who are already utilizing multiple formats like Wakefern Food Corp. (PriceRite, Fresh Grocer), Giant Eagle (Market District, Good Cents Grocery+More) and Ahold USA (which just created a new formats department) might be able to make good use of the smallish size of Bottom Dollar locations that exist in both urban and suburban areas.

According to the “deal sheet” for the 46 stores located in the DelawareValley and the LehighValley, all but 10 Bottom Dollar units are leased. The 10 units that BDF owns are located in: Bellmawr, NJ; Beverly, NJ; Trenton, NJ; Woodbury, NJ; Levittown, PA; Nazareth, PA; Reading, PA (Lancaster Avenue); Chester, PA; and two in Philadelphia (Chew Avenue and Castor Avenue).

Most of the leasehold rents are in the $10-12 range, but run as high as $26.23 per square foot (Grays Ferry Road in Philadelphia) and as low as $1.76 (East Windsor, NJ). Additionally, many of the leases expire in about 20 years (most with five year renewable options). Size-wise the stores range from 16,848 square feet (Ambler, PA) to 30,352 square feet (Catasaqua Road in Allentown, PA), with most of the stores averaging approximately 20,000 square feet in size.

There’s also a wide-swing in average weekly volumes – at the top end was the chain’s North Broad Street store in Philadelphia which averages $296,800 to the low end – the BDF store in East Windsor, NJ averages only $103,000 weekly. The average weekly volume, when analyzing sales at all 50 units, is $156,802.

Delhaize America’s decision to enter the DelawareValley and LehighValley markets in late 2010 met with industry skepticism from the outset. Many trade observers believed those markets were already overstored with “extreme value” competitors such as Aldi, PriceRite and Save-A-Lot already capably serving the discount consumer with limited variety in a smaller footprint.   When the first store opened in October 2010 in King of Prussia, PA analysts also criticized Bottom Dollar’s merchandising and go-to-market approach.

“It’s always challenging to be the last guy to get in the game,” said one Philadelphia area retailer who competes with BDF in several locations. “But unlike the other limited assortment discounters already in the market, Bottom Dollar really didn’t present itself as a deep discounter. I believe its mix of private label products with significant branded offerings sent a confusing message to shoppers. Were they trying to become a price-driven operator with decent but not great retails, or a small supermarket with good prices? Their message never seemed to connect.”

Another independent retailer whose stores also competed with Bottom Dollar questioned the company’s real estate decisions and the timing of its entry into eastern Pennsylvania.

“You get what you pay for,” said the veteran merchant. “Many of those locations once housed other supermarket retailers who failed at those sites. After seeing what their operating model was it was pretty clear that their questionable site selection would also not be beneficial. Additionally, opening stores in 2010 and 2011 when the economy was still shaky was a questionable decision in my opinion.”

Actually, the Bottom Dollar name was created in 2004 when Brussels-based parent company The Delhaize Group announced it would differentiate the banners within its Food Lion stores. In addition to its core Food Lion banner, Delhaize ultimately opening or converting more than 60 stores to an upscale format called Bloom (which operated in North Carolina, South Carolina, Virginia and Maryland) and also created the deeper discount format – Bottom Dollar Foods. The first BDF store opened in 2005 in High Point, NC and, prior to opening its first Pennsylvania store in 2010, Delhaize America operated nearly 30 BDF stores in North Carolina, Virginia and Maryland. In a major U.S. reorganization in 2012, Delhaize announced it would close 127 Food Lions, retire the Bloom concept, close six BDF units and convert the remaining 22 Bottom Dollar locations to Food Lions except those open in Pennsylvania and New Jersey.

In January 2013, Bottom Dollar Foods expanded its operations to Western Pennsylvania and Northeast Ohio. Currently it operates 20 stores in the Pittsburgh-Youngstown corridor which we’re told are also on the potential selling block.

Another reason that a possible sales should not come as a total surprise could be inferred from the comments made by new Delhaize Group CEO Frans Muller at a post-earnings conference call with financial analysts earlier this year.

While praising the improvements at both Food Lion and Hannaford, little was said about the status of BDF. No cap-ex plan was discussed during the conference call and no new store openings were mentioned.

Muller’s only comments about the struggling discount division was “…the team is completely engaged to make sure that they make the next steps in making this business model more profitable. That’s the task at Bottom Dollar Food.”