The Kroger Co. is selling its convenience store business unit to EG Group for $2.15 billion. The companies expect to close the transaction during the first quarter of Kroger's fiscal year. The EG Group is a privately held petrol forecourt convenience store retailer based in the United Kingdom.
As part of the agreement, EG Group will establish its North American headquarters in Cincinnati, where Kroger is based, 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 its “Restock Kroger” plan.
“Our convenience store business has been a part of our company for many years,” said Mike Schlotman, Kroger's executive vice president and chief financial officer. “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. 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.”
Schlotman said one of the most mportant considerations in Kroger’s decision-making process in selling to EG Group was continued operations to ensure minimal disruption to the convenience store business employees.
“We are very pleased the EG Group plans to establish [its] North American headquarters in Cincinnati,” Schlotman said. ‘EG Group is also a recognized international petrol forecourt convenience operator, and [it has] a commercial model which clearly looks to enhance the consumer offer by working with leading retail brands customers know and trust. This is good for our associates across the country and for our headquarter city of Cincinnati.”
Kroger's convenience store business operates in 18 states and includes 66 franchise operations. The stores employ 11,000 employees 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.
Mohsin Issa, EG Group Founder and co-CEO expressed, said entry into the U.S. market presents a “fantastic opportunity to deliver a successful retail offer to consumers” across various states.
“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,” Issa said in the press release. “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."
Kroger said it plans to use net proceeds from the sale to repurchase shares and to lower its net total debt to adjusted EBITDA ratio.
Kroger operates 2,793 retail food stores under a variety of local banner names in 35 states and the District of Columbia.