Supervalu Pulls The Plug On Farm Fresh; Kroger/Harris Teeter, Food Lion Buy 21

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Supervalu announced last month that it has entered into three separate definitive agreements to sell 21 of its 38 Farm Fresh Food & Pharmacy stores for approximately $43 million in cash to two different retailers that operate three different banners: Kroger/Harris Teeter and Food Lion.

Of the 21 stores that are included in the agreement, 10 stores are being sold to Harris Teeter, including six in-store pharmacies and three fuel centers; eight stores are being sold to Kroger’s Mid-Atlantic division, including eight in-store pharmacies and four fuel centers; and three stores are being sold to Food Lion, including three in-store pharmacies.

Supervalu is also continuing discussions and exploring potential transactions to sell the remaining Farm Fresh stores to current and prospective wholesale customers and certain Farm Fresh employees.

“Over the past two years, we’ve been working diligently and rapidly to transform our business to become the wholesale supplier of choice for grocery retailers across the United States,” said Mark Gross, Supervalu’s president and CEO. “In 2016, we sold Save-A-Lot and its network of approximately 1,350 retail locations. Last year, we acquired Unified Grocers and Associated Grocers of Florida, which when combined with substantial organic growth, added more than $5 billion in run rate sales to bring our core wholesale business to nearly $13 billion. Exiting the Farm Fresh banner will enable us to allocate greater resources and energy toward the strategic growth of our wholesale business. We also continue to aggressively pursue other important initiatives, including the monetization of real estate through sale leaseback transactions and cost reduction across the company. We are confident our efforts are driving growth and enhancing our competitive position.”

Gross continued, “This decision was not taken lightly given the impact on our employees and the communities we serve, but we strongly believe this decision is in the best long-term financial and strategic interest of our business. Our leadership team and board of directors remain committed to taking proactive steps to transform our business and drive stockholder value.”

“We are thankful for the tremendous service our employees have delivered at Farm Fresh through the years and are grateful for the opportunities we’ve had to share in the lives and special events of our customers and employees across the Hampton Roads, Richmond, Williamsburg, and Elizabeth City communities,” said Anne Dament, executive VP of retail, marketing and private brands. “We are working with the buyers to ensure a smooth transition and we expect them to offer positions to many Farm Fresh employees. In addition, we plan to offer eligible employees severance and other job transition support.”

The transactions, which were unanimously approved by Supervalu’s board of directors, are currently expected to close in May 2018, subject to customary closing conditions. Supervalu is also working with a third party to liquidate the inventory at these Farm Fresh stores.

With regards to Farm Fresh pharmacies not included in these transactions, Supervalu has entered into agreements to transfer pharmacy prescription files to other pharmacies in the area. Prescription files from 10 pharmacies will be transferred to Rite Aid and four to CVS Pharmacy. Customers of these Farm Fresh pharmacies will receive detailed information on the transfer of their pharmacy files by mail within the next seven to 10 days, and information will also be available at each pharmacy.

Several trade analysts noted that the sale of the once dominant Hampton Roads retail chain wasn’t a surprise because of the company’s struggles over the past decade and the fact that a sales prospectus was issued last year. Two of those observers had expected a deal to be consummated sooner with one of those sources adding that because Kroger/Harris Teeter and Food Lion (Ahold Delhaize USA) self-distribute, Supervalu would not be getting a contingent supply agreement.

Founded in 1957, Farm Fresh has served Virginia and North Carolina for 60 years, and currently employs approximately 3,300 associates.

Complete list of stores included in the prospective deal are on the next page.