April 11, 2007
BI-LO to Hang Out ‘For Sale’ Sign
Last month, Lone Star Funds announced that BI-LO would no longer own Bruno’s Supermarkets and the latter would move its headquarters back to its original home of Birmingham, Alabama.
Yesterday, Lone Star made another announcement concerning BI-LO and this time it was to make public its decision to sell the 230-store chain.
When Lone Star originally announced it was splitting BI-LO and Bruno’s off from one another, Len Allen, president of the private equity firm, said, “This reorganization will allow both supermarket chains to build on their strong brand reputations. Both have strong store management teams, strategic store locations in one of the country’s fastest growing regions and both enjoy a long tradition of customer and community service. As two independent supermarket chains, resources can be better focused to serve the needs of their respective customers.”
Evidently, Mr. Allen was not referring to Lone Star’s resources when he made that statement. The private equity firm has hired Merrill Lynch & Company and William Blair & Company to advise it on the sale of BI-LO.
Discussion
Questions: How much stronger or weaker is BI-LO today than in 2004 when Lone
Star acquired the chain from Ahold? What will Lone Star Funds’ decision to
sell BI-LO likely mean for that chain? What about Bruno’s?
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I’m crying on the inside. No, I take that back. I’m simply crying about this news. This wonderful supermarket chain, to which I provided marketing and advertising support in the late 80s, and which still owns a chunk of my heart, has become just another episode of “Chains Gone Wild.” BI-LO (“Bah-Los” in the local patois) should never have raised its shirt.
I’m separated by miles and years from my wonderful experience with BI-LO, and realize that it’s simply not the same chain I knew and loved. Completely different people, mission, and presence. And yet, I still root for them. I also continue to root for Winn-Dixie and Bruno’s (two other clients), both of which have fallen on similar hard times in the Southeast.
I hope BI-LO isn’t broken up and sold, and I hope their wonderful culture hasn’t left the building.
And here’s a heads-up about a logo I used to protect vigorously: It’s BI-LO, not Bi-Lo.
I see no reason to treat this chain as anything other than “day-old bread” with a limited life, and I am not aware of any particularly effective thing that’s been done in the past year to produce a good outcome. BI-LO remains an underperformer against channel numbers of sales per square foot, sales per authorized SKU, etc etc. They have built a couple of nice prototype stores, but the chain is not highly differentiated, has no compelling brand, and I would guess the prognosis via-a-vis Wal-Mart is not encouraging.
We have seen that there is room for two chains to be profitable in almost any market, but the third? That’s not a good place to be.
Independently the two chains will be much better off. If we’ve learned anything in the last year, we’ve learned that one size doesn’t fit all (read: Macy’s and the dumbing down of the American Retail Landscape).
Historically both chains have very good names. I see Brunos being the weaker of the two at the moment which is opposite what I would have said 15 years ago when it was a much more upscale supermarket. The chain has become home to way too many bargain brands and has poorly kept stores which are aesthetically blah. Brunos’ core territory has since been invaded by Publix and that’ll be the major competitor. Wal-Mart, while a competitor, really doesn’t even fit into the equation. We’re talking Grocery Stores–a place that can offer superior service, clean stores and react to trends much quicker and easier than a superstore can.
BI-LO does its job well, it is a work-horse grocery store for everyday people. If the real estate pirates don’t pillage the locations then they’ll come out of this fine.
Contrary to what was said at the time of purchase, my guess is that this was always a real estate play, like Kmart. The real issue is how much real estate can the market handle? It looks like everyone is getting onto the real estate band wagon and when that occurs, the approach no longer works. I see no strategic buyers for BI-LO. They only have a market share above 10% in one market area. Thus, independents will pick up some, chain drug will buy some and the balance will become who knows what?
Who is going to buy these stores. Everyone seems to be dumping their losers. A&P with Farmer Jack in Michigan, Ahold with Tops in New York. And now BI-LO.
230 stores is a lot to digest. And this is in Wal-Mart territory.
Can’t see one buyer for the chain. So, some will go to Big Lots, others to Goody’s, some to independents, some to Publix, maybe some will be bought by Food Lion to expand their Bottom Dollar, but most of BI-LO’s undesirable locations will go empty for a long time. Some will be subdivided, and others will litter the landscape of the Southeast. A real shame.
By now, every supermarket chain should have a 5 to 10 year strategic plan and competitive analysis. Each company needs to answer questions like: (1) which 2 chains will be the 2 likely profit leaders in each market? (2) why should anyone else operate, if they’re not going to be in the top 2? Supermarket brand-name loyalty never meant much, but that didn’t matter when everyone had similar cost and capital structures. If the owners of BI-LO don’t the like the answers to the 2 questions, their decision to sell is reasonable.
BI-LO by itself is really a healthy little company. Bruno’s was dragging the numbers down tremendously. The facilities by and large are in good repair with a good dose of capital ($160mil) being infused to key markets, which will certainly help. BI-LO now owns a #1 or #2 spot in all operating areas for market share, not the 10% mentioned elsewhere. Sure share has slipped but adding 2+ competitors per market will do that too you. Despite, BI-LO has held its own against the giants of Publix and Food Lion. BI-LO also has this Charity Golf Tournament each year that raises over 5 million dollars for its local charities. Many of these will go away entirely if BI-LO is snuffed out. It would not surprise me to see it split up, however. Food Lion is of the mind, “if you can’t beat ’em, buy ’em” and Kroger has wanted in Chattanooga since the last ice age. If Hoterek cared about anything but the sale, he would try to sell them intact, but he’s all about the $$$ and his charge is to get the company sold for the biggest return.
This sale could go many ways, and all of them have their ups and downs. I live in Chattanooga (BI-LO’s core market…they seem to be loosing more ground in the Carolinas then here), worked for BI-LO for almost 8 years, and have contacts with them via my current job. Even though they are not as strong as they were when it was Red Food Store and have made many mistakes that have hurt them over the last 5 years, they are still a powerful force. They have the BEST locations in the market (kudos to Red Food’s team buy seeing where the growth was going to happen and being prepared).
They were so strong that Wal-Mart apparently is attempting to “out build” them. Wal-Mart has nearly doubled their Chattanooga area locations in the last 6 years…all located near the best BI-LOs.
I have heard many rumors about potential buyers and plans for the company. I know Lone Star wants to sell the company as a whole, but that seems unlikely.
I know that C&S (the warehouse that service Chattanooga) is being closed in about 2 months. Along with that news, there is a rumor that K-VA-T’s Food City is planning to buy either all or some of BI-LO’s Mountain Region. Other rumors include Kroger wanting to re-enter the market (seeing as they got kicked out of the market in short order by Red Food Stores around the mid 1980s), Publix breaking their normal routine of building from scratch, and buying them (if only for the real estate), and Independent Grocers are wanting these great locations (for example, a closed BI-LO in South Pittsburg, TN is reopening as a Foodland, serviced by the Mitchael Group).
Who ever buys BI-LO, they need to remember that Chattanooga is a very simple market. The Formula of Success for BI-LO’s new owner: lower everyday prices, hot prices on basic items (like soft drinks [Coca-Cola especially], meat, ice cream, produce staples and cleaning supplies) and having a good selection of products.
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I’m crying on the inside. No, I take that back. I’m simply crying about this news. This wonderful supermarket chain, to which I provided marketing and advertising support in the late 80s, and which still owns a chunk of my heart, has become just another episode of “Chains Gone Wild.” BI-LO (“Bah-Los” in the local patois) should never have raised its shirt.
I’m separated by miles and years from my wonderful experience with BI-LO, and realize that it’s simply not the same chain I knew and loved. Completely different people, mission, and presence. And yet, I still root for them. I also continue to root for Winn-Dixie and Bruno’s (two other clients), both of which have fallen on similar hard times in the Southeast.
I hope BI-LO isn’t broken up and sold, and I hope their wonderful culture hasn’t left the building.
And here’s a heads-up about a logo I used to protect vigorously: It’s BI-LO, not Bi-Lo.
I see no reason to treat this chain as anything other than “day-old bread” with a limited life, and I am not aware of any particularly effective thing that’s been done in the past year to produce a good outcome. BI-LO remains an underperformer against channel numbers of sales per square foot, sales per authorized SKU, etc etc. They have built a couple of nice prototype stores, but the chain is not highly differentiated, has no compelling brand, and I would guess the prognosis via-a-vis Wal-Mart is not encouraging.
We have seen that there is room for two chains to be profitable in almost any market, but the third? That’s not a good place to be.
Independently the two chains will be much better off. If we’ve learned anything in the last year, we’ve learned that one size doesn’t fit all (read: Macy’s and the dumbing down of the American Retail Landscape).
Historically both chains have very good names. I see Brunos being the weaker of the two at the moment which is opposite what I would have said 15 years ago when it was a much more upscale supermarket. The chain has become home to way too many bargain brands and has poorly kept stores which are aesthetically blah. Brunos’ core territory has since been invaded by Publix and that’ll be the major competitor. Wal-Mart, while a competitor, really doesn’t even fit into the equation. We’re talking Grocery Stores–a place that can offer superior service, clean stores and react to trends much quicker and easier than a superstore can.
BI-LO does its job well, it is a work-horse grocery store for everyday people. If the real estate pirates don’t pillage the locations then they’ll come out of this fine.
Contrary to what was said at the time of purchase, my guess is that this was always a real estate play, like Kmart. The real issue is how much real estate can the market handle? It looks like everyone is getting onto the real estate band wagon and when that occurs, the approach no longer works. I see no strategic buyers for BI-LO. They only have a market share above 10% in one market area. Thus, independents will pick up some, chain drug will buy some and the balance will become who knows what?
Who is going to buy these stores. Everyone seems to be dumping their losers. A&P with Farmer Jack in Michigan, Ahold with Tops in New York. And now BI-LO.
230 stores is a lot to digest. And this is in Wal-Mart territory.
Can’t see one buyer for the chain. So, some will go to Big Lots, others to Goody’s, some to independents, some to Publix, maybe some will be bought by Food Lion to expand their Bottom Dollar, but most of BI-LO’s undesirable locations will go empty for a long time. Some will be subdivided, and others will litter the landscape of the Southeast. A real shame.
By now, every supermarket chain should have a 5 to 10 year strategic plan and competitive analysis. Each company needs to answer questions like: (1) which 2 chains will be the 2 likely profit leaders in each market? (2) why should anyone else operate, if they’re not going to be in the top 2? Supermarket brand-name loyalty never meant much, but that didn’t matter when everyone had similar cost and capital structures. If the owners of BI-LO don’t the like the answers to the 2 questions, their decision to sell is reasonable.
BI-LO by itself is really a healthy little company. Bruno’s was dragging the numbers down tremendously. The facilities by and large are in good repair with a good dose of capital ($160mil) being infused to key markets, which will certainly help. BI-LO now owns a #1 or #2 spot in all operating areas for market share, not the 10% mentioned elsewhere. Sure share has slipped but adding 2+ competitors per market will do that too you. Despite, BI-LO has held its own against the giants of Publix and Food Lion. BI-LO also has this Charity Golf Tournament each year that raises over 5 million dollars for its local charities. Many of these will go away entirely if BI-LO is snuffed out. It would not surprise me to see it split up, however. Food Lion is of the mind, “if you can’t beat ’em, buy ’em” and Kroger has wanted in Chattanooga since the last ice age. If Hoterek cared about anything but the sale, he would try to sell them intact, but he’s all about the $$$ and his charge is to get the company sold for the biggest return.
This sale could go many ways, and all of them have their ups and downs. I live in Chattanooga (BI-LO’s core market…they seem to be loosing more ground in the Carolinas then here), worked for BI-LO for almost 8 years, and have contacts with them via my current job. Even though they are not as strong as they were when it was Red Food Store and have made many mistakes that have hurt them over the last 5 years, they are still a powerful force. They have the BEST locations in the market (kudos to Red Food’s team buy seeing where the growth was going to happen and being prepared).
They were so strong that Wal-Mart apparently is attempting to “out build” them. Wal-Mart has nearly doubled their Chattanooga area locations in the last 6 years…all located near the best BI-LOs.
I have heard many rumors about potential buyers and plans for the company. I know Lone Star wants to sell the company as a whole, but that seems unlikely.
I know that C&S (the warehouse that service Chattanooga) is being closed in about 2 months. Along with that news, there is a rumor that K-VA-T’s Food City is planning to buy either all or some of BI-LO’s Mountain Region. Other rumors include Kroger wanting to re-enter the market (seeing as they got kicked out of the market in short order by Red Food Stores around the mid 1980s), Publix breaking their normal routine of building from scratch, and buying them (if only for the real estate), and Independent Grocers are wanting these great locations (for example, a closed BI-LO in South Pittsburg, TN is reopening as a Foodland, serviced by the Mitchael Group).
Who ever buys BI-LO, they need to remember that Chattanooga is a very simple market. The Formula of Success for BI-LO’s new owner: lower everyday prices, hot prices on basic items (like soft drinks [Coca-Cola especially], meat, ice cream, produce staples and cleaning supplies) and having a good selection of products.