June 22, 2007
Kroger to Grow Sales from Farmer Jack Locations
Kroger announced on Wednesday that it had reached a deal to acquire 20 Farmer Jack stores in metro Detroit from A&P.
“Kroger picked up the cherries,” David Livingston, principal at DJL Research and RetailWire BrainTrust panelist, told the Detroit Free Press. “How many stores were left in the city of Detroit anyhow? Farmer Jack abandoned the city of Detroit a while ago, along with everyone else.”
Bruce Macaulay, president of Kroger’s Great Lakes division, said in a released statement, “We are excited to welcome Farmer Jack customers into our family of Kroger stores. We look forward to continuing Farmer Jack’s tradition of great customer service and quality stores as we expand in this market.”
The Farmer Jack stores included in the sale agreement are located in the Detroit suburbs of Algonac, Birmingham, Brownstown Township, Dearborn Heights, Dearborn, Grosse Pointe, Hartland Township, Hazel Park, Imlay City, Northville, Romeo, Roseville, St. Clair Shores, Sterling Heights, Troy, and Westland.
“There’s also no guarantees that Kroger will keep those stores open,” Mr. Livingston said. “They might change banners to Kroger at some stores and close others and hope the business goes to nearby Kroger stores.”
Kroger and A&P are expected to close the sale for the stores in July. Kroger has already begun looking to hire 3,000 workers for the new stores. It said it expects to interview those currently working at the Farmer Jack stores.
Discussion Questions: What do you expect from Kroger once it takes ownership of the 20 Farmer Jack locations? Are you surprised that Kroger chose not to buy any Farmer Jack stores in Detroit proper?
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Thank you Mr. Mathews. Kroger abandoned the city many years ago and Farmer Jack’s remained. As a native Detroiter (and I do mean Detroit proper) I couldn’t have said it better. Even though later in my life I moved to Birmingham–which is geographically a suburb) I refused to shop at Kroger and went out of my way to shop at Farmer Jack for that very reason.
Sure center cities are great opportunities. But I think it is foolish to look to suburban-oriented retail chains to think of center cities in this way. It is counter to all their metrics and heuristics about store selection and operation.
I am hoping that Supervalu will let Sunflower go into more “diverse” urban places than compared to cities such as Indianapolis and Columbus. Smaller format stores are ok, but again, this is counter to how suburban oriented chains look at their business model. I mean, a 130,000 square foot Wegmans will never fit in a center city.
If A&P wasn’t so weak, their opening of a small format store in downtown Baltimore could be seen as a new initiative to take advantage of under-stored areas.
There is room out there for this, but I don’t see it within the chains. One advantage of doing this through a cooperative would be that businesses would be eligible for financing through the National Cooperative Bank.
I think for the most part Kroger will continue to operate the stores and make some improvements. The stores they bought were for the most part, operating at above average for A&P’s low standards but will have a long way to go to operate at Kroger’s standards. Some were actually doing quite well by any grocer’s standards. Since I have not heard of any FTC approval required, this tells me that the sale price must have been very low and the stores were acquired at a deep discount.
I’m not surprised Kroger did not take any stores in Detroit proper. Stores Kroger had in Detroit in the past performed poorly, as did Farmer Jack. This is typical of most chain supermarkets who try to operate in difficult neighborhoods. Those neighborhoods are best left to Aldi, Save-a-Lot independents, and the Chaldeon operators who seem to have much more success. Conventional chain stores have difficulty in finding qualified managers willing to work in difficult areas. The best way to avoid the challenges of operating in inner city is just to avoid the inner city. This is sad because this kind of redlining often leads residents to believe they are living in a food desert.
Many thanks for the deference. I suppose suburbia may be in the eye of the beholder, but it’s over an hour’s highway drive between Detroit City Hall and either the Algonac or Imlay City city halls (assuming no traffic). I’d say that referring to the stores as being in southeastern Michigan is more accurate. The metro area is usually defined as Wayne, Oakland and Macomb counties. The confusion in the papers is understandable. While both of them are physically located in downtown Detroit, reading the coverage it would appear they oddly seem to have some trouble locating the city themselves.
Our thanks to Mr. Mathews for pointing out our mistake on the geographical locations of the stores. Seems as though Kroger and the Detroit Free Press need some help here also.
From Kroger: “The Kroger Co. (NYSE: KR) announced today that it has reached an agreement to acquire 20 Farmer Jack stores in the Detroit metropolitan area from The Great Atlantic & Pacific Tea Company, Inc.”
This from the Detroit Free Press: “The Cincinnati-based grocer Kroger announced today that it reached an agreement to acquire 20 Farmer Jack stores in the Detroit metropolitan area from The Great Atlantic & Pacific Tea Company, Inc.”
The Detroit News and other sources peg the geography of the stores to be southeast Michigan. We would defer to Mr. Mathews as to whether this description is accurate.
One more note. Kroger might actually wind up with more stores. Often undercapitalized buyers of the remaining stores find out a year later they just can’t make it. So Kroger might be happy to take them off their hands at a nice discount. These might be stores Kroger wanted in the first place but could not buy because it would put them over the FTC maximum purchase price and require FTC approval. Sometimes big chains will put the squeeze on these unsuspecting buyers by target marketing near their stores, forcing them to close. It might be a more expensive way to acquire stores but FTC hearings are avoided. If the FTC were get involved they would cause Kroger the same headaches they are giving Whole Foods and then nobody wins.
First a geography lesson: Cities like Algonac and Imlay City aren’t suburbs of Detroit (unless of course you think of Toledo and Cleveland as suburbs of Detroit).
Next a history lesson: Farmer Jack (prior to the acquisition by A&P) never abandoned the city. In fact, quite the opposite. Kroger closed all its Detroit stores after a strike. Pre-strike–lots of city stores. Post strike–no city stores. The company blamed the strike (which apparently didn’t impact stores shopped by suburbanites) and critics correctly screamed about red-lining. Farmer Jack on the other hand built the only two modern supermarkets in recent memory in the city–one near the site of the breakout of the 1967 riots.
Finally, a marketing lesson. David said Kroger cherry picked stores because–after all–who would want to operate stores in the funky city? Well, here’s a BrainTrust question: Where is it better to operate stores–in a city with no real competition and a built in, mobility constricted customer base or in those nice (lily white) suburbs where there are three supermarkets at every intersection. Hmmm…that seems to be a tough one…at least for Kroger.
Kroger, like Giant Eagle, succeeds in the market place by fuel savings. I agree, Kroger, may not reopen all 20 stores, but I am sure the ones they will open will eventually have fuel pumps installed in the on-site out parcels.
If SE Michigan wasn’t such a basket case, even Giant Eagle may have bid on those stores straddling the Ohio-Michigan border.
Let’s not use this forum to criticize A&P during its exit from this very difficult market. They did their best, and their best wasn’t good enough. They closed the stores for 37 hours several years ago and reopened them with much fanfare. They tried the Food Basics format, but S.E. Michigan and Toledo weren’t receptive. What works brilliantly across the river in Windsor Ontario, wasn’t able to take off in S.E. Michigan. Go figure.
Writing off S.E. Michigan for A&P is a bold strategic move. By focusing on the region 250 miles from its headquarters in Montvale, NJ, it can concentrate its store operations and maximize their logistics with C&S warehouses. It now becomes one of the local, regional supermarket chains, much like Acme, Shop Rite, and others in the area it serves. And, in doing so, it gets to expand its fresh market format, which, eventually, will make it the number 1 fresh merchant in the 6 state and District of Columbia region.
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Thank you Mr. Mathews. Kroger abandoned the city many years ago and Farmer Jack’s remained. As a native Detroiter (and I do mean Detroit proper) I couldn’t have said it better. Even though later in my life I moved to Birmingham–which is geographically a suburb) I refused to shop at Kroger and went out of my way to shop at Farmer Jack for that very reason.
Sure center cities are great opportunities. But I think it is foolish to look to suburban-oriented retail chains to think of center cities in this way. It is counter to all their metrics and heuristics about store selection and operation.
I am hoping that Supervalu will let Sunflower go into more “diverse” urban places than compared to cities such as Indianapolis and Columbus. Smaller format stores are ok, but again, this is counter to how suburban oriented chains look at their business model. I mean, a 130,000 square foot Wegmans will never fit in a center city.
If A&P wasn’t so weak, their opening of a small format store in downtown Baltimore could be seen as a new initiative to take advantage of under-stored areas.
There is room out there for this, but I don’t see it within the chains. One advantage of doing this through a cooperative would be that businesses would be eligible for financing through the National Cooperative Bank.
I think for the most part Kroger will continue to operate the stores and make some improvements. The stores they bought were for the most part, operating at above average for A&P’s low standards but will have a long way to go to operate at Kroger’s standards. Some were actually doing quite well by any grocer’s standards. Since I have not heard of any FTC approval required, this tells me that the sale price must have been very low and the stores were acquired at a deep discount.
I’m not surprised Kroger did not take any stores in Detroit proper. Stores Kroger had in Detroit in the past performed poorly, as did Farmer Jack. This is typical of most chain supermarkets who try to operate in difficult neighborhoods. Those neighborhoods are best left to Aldi, Save-a-Lot independents, and the Chaldeon operators who seem to have much more success. Conventional chain stores have difficulty in finding qualified managers willing to work in difficult areas. The best way to avoid the challenges of operating in inner city is just to avoid the inner city. This is sad because this kind of redlining often leads residents to believe they are living in a food desert.
Many thanks for the deference. I suppose suburbia may be in the eye of the beholder, but it’s over an hour’s highway drive between Detroit City Hall and either the Algonac or Imlay City city halls (assuming no traffic). I’d say that referring to the stores as being in southeastern Michigan is more accurate. The metro area is usually defined as Wayne, Oakland and Macomb counties. The confusion in the papers is understandable. While both of them are physically located in downtown Detroit, reading the coverage it would appear they oddly seem to have some trouble locating the city themselves.
Our thanks to Mr. Mathews for pointing out our mistake on the geographical locations of the stores. Seems as though Kroger and the Detroit Free Press need some help here also.
From Kroger: “The Kroger Co. (NYSE: KR) announced today that it has reached an agreement to acquire 20 Farmer Jack stores in the Detroit metropolitan area from The Great Atlantic & Pacific Tea Company, Inc.”
This from the Detroit Free Press: “The Cincinnati-based grocer Kroger announced today that it reached an agreement to acquire 20 Farmer Jack stores in the Detroit metropolitan area from The Great Atlantic & Pacific Tea Company, Inc.”
The Detroit News and other sources peg the geography of the stores to be southeast Michigan. We would defer to Mr. Mathews as to whether this description is accurate.
One more note. Kroger might actually wind up with more stores. Often undercapitalized buyers of the remaining stores find out a year later they just can’t make it. So Kroger might be happy to take them off their hands at a nice discount. These might be stores Kroger wanted in the first place but could not buy because it would put them over the FTC maximum purchase price and require FTC approval. Sometimes big chains will put the squeeze on these unsuspecting buyers by target marketing near their stores, forcing them to close. It might be a more expensive way to acquire stores but FTC hearings are avoided. If the FTC were get involved they would cause Kroger the same headaches they are giving Whole Foods and then nobody wins.
First a geography lesson: Cities like Algonac and Imlay City aren’t suburbs of Detroit (unless of course you think of Toledo and Cleveland as suburbs of Detroit).
Next a history lesson: Farmer Jack (prior to the acquisition by A&P) never abandoned the city. In fact, quite the opposite. Kroger closed all its Detroit stores after a strike. Pre-strike–lots of city stores. Post strike–no city stores. The company blamed the strike (which apparently didn’t impact stores shopped by suburbanites) and critics correctly screamed about red-lining. Farmer Jack on the other hand built the only two modern supermarkets in recent memory in the city–one near the site of the breakout of the 1967 riots.
Finally, a marketing lesson. David said Kroger cherry picked stores because–after all–who would want to operate stores in the funky city? Well, here’s a BrainTrust question: Where is it better to operate stores–in a city with no real competition and a built in, mobility constricted customer base or in those nice (lily white) suburbs where there are three supermarkets at every intersection. Hmmm…that seems to be a tough one…at least for Kroger.
Kroger, like Giant Eagle, succeeds in the market place by fuel savings. I agree, Kroger, may not reopen all 20 stores, but I am sure the ones they will open will eventually have fuel pumps installed in the on-site out parcels.
If SE Michigan wasn’t such a basket case, even Giant Eagle may have bid on those stores straddling the Ohio-Michigan border.
Let’s not use this forum to criticize A&P during its exit from this very difficult market. They did their best, and their best wasn’t good enough. They closed the stores for 37 hours several years ago and reopened them with much fanfare. They tried the Food Basics format, but S.E. Michigan and Toledo weren’t receptive. What works brilliantly across the river in Windsor Ontario, wasn’t able to take off in S.E. Michigan. Go figure.
Writing off S.E. Michigan for A&P is a bold strategic move. By focusing on the region 250 miles from its headquarters in Montvale, NJ, it can concentrate its store operations and maximize their logistics with C&S warehouses. It now becomes one of the local, regional supermarket chains, much like Acme, Shop Rite, and others in the area it serves. And, in doing so, it gets to expand its fresh market format, which, eventually, will make it the number 1 fresh merchant in the 6 state and District of Columbia region.